INTERNATIONAL TRADE
BASIS OF INTERNATIONAL TRADE
Since the gifts of nature arc not evenly distributed e petroleum but are commonly needed, people have to lo beyond their national boundaries for the supply of the wants satisfying products. Thus trading across the frontier of countries is known as international trade. International trade also takes place because some countries enj comparative cost advantage over others. It is therefore bet for the country that enjoys the comparative advantage produce for others who though may be able to produce but a higher cost.
Activities in International Trade:
In trade across the national frontier, two sets activities take place. These are importing and exporting activities. Imports are goods and services supplied from other nations into the country while exports are goods ai services given out by the nationals of a country to other countries. The greatest percentage of imports into Nigeria machinery and transport equipments. Other manufactured goods closely follow this. Top on the list of our exports is oil which accounts for almost 90% of our total export.
Control of Foreign Trade:
International trade is not without control. Trade between countries is controlled for a number of reasons. To enhance a favourable balance of payment. To prevent the death of infant industries To prevent dumping of obsolete goods To obtain revenue-collection of taxes To maintain employment opportunities To discourage dependency on other countries. |g) To enhance international recognition.
Import Duties and Tariffs
Import duties are taxes imposed on goods coming into a country. It may be ad valorem duties i.e. a percentage of the value of the imported goods or specific duties based on the quantity of the goods imported. The import duty range from a low percentage to as high as 100% for some goods. They are usually imposed to control the quantity and value of goods being imported. At present. Nigeria is in the bid to improve her agricultural base, thus importation of agricultural equipments carry low duties while luxury goods like cars, electrical appliances carry relatively high tariffs.
Problems of Foreign Purchases:
An importer usually faces some problems viz:
a) Payment of high import duties: This is additional burden as it increases the cost price of the imports.
b) Importation of low quality products: The low level of the Nigerian standard organization, the body that has the duty of ensuring that goods meet international standards. Some foreign exporters may send to the importer goods of low quality.
c) Late delivery of goods: There are series of correspondence between the sellers and the buyers. The shipping schedule is not equally dependable. The effects are that delivery dates may not be adhered to.
d) Forex difficulties: these include the problem of securing foreign exchange or securing a license of such a good is put under license. The exporter will receive payment for his goods in his own country currency.
Purchasing for Export:
Purchases may be made for consumption (local use in industries) for export. When purchases are being made for the later, the purchaser should bear the following points in mind.
a) That the items meet international standard. Exports to country A may again be re .-exported from country A to another country.
b) Foreign purchases are usually made from catalogues, brochures or descriptions. Such items of purchase must not differ from the sample, catalogue or the description. .
c) The exporter must use the appropriate material for the packaging and relevant information as to the quantity, weight and care should be put on the packaging.
d) It must show thefwwte of the cosine as well as the part of dis-engagement. This will enhance prompt delivery.
Purchase Procedure:
Purchasing, like all the other functional business activities follow a procedure.. The procedure is:
a) The notification phase: There is the need that a purchase has to be made. It may result from either the stock has to be replenished or that the stock has to be built.
b) The ordering phase: On the receipt of the requisition or bill of materials, the procurement officer, checking from the purchase records the sources of supply, places the order.
If the previous source is not satisfactory additional steps are taken:
i) Enquiries are sent to possible suppliers
ii) Quotations are received from the suppliers in response to the enquiry.
iii) If the quantity is substantial and the quality and delivery are important, negotiation follows:
iv) A purchase order is made to the vendor whose quotations appear most satisfactory.
c) The post-ordering phase: This may involve further correspondence between the panics to ensure prompt adherence to the terms of trade.
i) An advice note is sent to the stores
ii) The store checks the quantity and quality of goods
iii) The invoice for the value of the goods is received by the purchaser.
d) Paying for the goods: On the receipt of the invoice, (he supplier arranges for the payment as previously agreed to.
Purchase Documents
When you get into a shop to buy something, the transaction simple documents apart from the receipt may not be involved when the buyer arid the seller are miles apart, and transactions are made by mail, some documents are normally used.
Trade Journals, Catalogues and Price Lists.
Buyers need information on what they want to buy, especially on the quality, quantity and price sellers also need to inform the prospective buyers about what they have for sale.
The above documents are:
Letter of Enquiry:
When the buyer has no catalogue or price list and be wants to find out the type of items a seller has, he may originate a letter of enquiry in which the items wanted are listed. The information requested may not only include the price but also the terms of trade.
Delivery Note:
When the items are delivered by the seller or his agent by use of his own vehicles. Consignment is usually accomplished by the list of goods sent. The list is known as the delivery note. The order is checked against the list. It does not contain the price.
Advice Note:
When the goods are sent by a carrier, as advice note is usually sent ahead to inform the buyer about when and how to expect his ordered goods received is less than what is ordered, the buyer informs the supplier through the use of credit notes that a mistake has been made and that the error be corrected on the invoice. Also, if goods are returned to the supplier the same format is followed, credit note is usually printed red.
Debit Note:
This is the reverse of the credit note: It is used when there is an undercharge. In this case, it originates from the supplier. It may also originate from the buyer when some of the goods sent are returned to the supplier.
Pro-forma Invoice:
This is a form of conventional invoice. It is used when the buyer is new or is feared dubious and therefore wants payments to be made before the goods are delivered. It is sent to the buyer to tell him how much he has to pay.
It must however be noted that all these documents need not be used in one transaction. The essence of the documents are simply to ensure that clean business is done, that what is ordered for is in agreement with what is sei and that the invoice is the value of the transaction. At t; end of the-transaction, a slatement of account may be sent the end of the month. Also, when part payments are mad the balance is brought forward.
Practical Questions
1) Explain 5 common documents that are used in purchasing
2) Distinguish between:
a) Credit note and debit note
b) Delivery note and advice note
c) Invoice and pro-form invoice,
Purchase Manual
What is a purchase Manual
According to Lysons (1990). purchase manual is medium of communicating information regarding purchase in policies, procedures, instructions and regulations”. Firm differs from one to another, and so are their needs. What the buy, when they buy, how they buy and from whom they buy also differ. Because of these differences, it is not possible to, fashion out a type of manual that has to be followed by all and sundry. What is contained in each firm’s purchasing manual is dictated by the firm’s environmental factors.
Purchasing Policies
A policy is a body of principles, expressed or implied, laid down to direct a firm towards the achievement of a stated goal. Purchasing policies fall into two main categories i.e. major and consequential policies.
“Major policies” are those polices that affect the firms generally and are determined by the board of directors e.g. whether to centralize or decentralize purchasing. “Consequential policies” affect a minor part of the firm. It usually originates from the executive that is responsible for the purchasing. Each time an executive makes a decision, creating a precedent, he is involved in policy formula.
Purchasing policies may include:
a) Policies relating to sources of supply and the relationship existing between them, which policies must be ethical and ensure fair trading and professionalism.
b) Source policies, which provide guidelines in calculating the suppliers e.g. local rather than distant suppliers, reciprocal-trading policies etc.
c) Internal administrative policies, which find expression in rules and procedures of operating the purchasing department e.g. signing of the requisition order etc.
Purchasing Procedure:
Procedures are the formal arrangements by which the purposes stated in policies are implemented. The purchasing procedures give answers to questions arising on purchases from the point of requisition to final usage. These can be broken into phases.
The notification phase i.e. who determines the need i buy or replenish – the storekeeper or the drawing office the case of bills of materials.
The ordering phase; Who makes the order? What procedure is followed in ordering? How is the vendor chosen? How is the quantity received checked against the order?
The post-ordering phase: This involves progressing the order or expediting the order-section, invoicing and making payments.
Purchasing Instructions:
The instructions provide detailed knowledge or guidance to those responsible for purchasing e.g. How 10 prepare the documents, the number of copies for the documents and their distributions. Examples are:
a) Who should approve u purchase requisition? There must be an officially approved personnel for approval for control purposes,
How many copies of each document should be produced and to whom should the documents be sent?
c) How soon should the documents be received an, actions should be taken on receipt or non-receipt of the documents,
Purchase Regulations:. These provide detailed rules regarding the conduct of. purchasing personnel. The regulation spells out what must/must not be done by the officer, such regulations include:
a) The actions that are ethical and those that is not. ethical to purchasing e.g. Honesty of the procurement officer.
b) The actions of the officer regarding gifts from vendors/suppliers. Gifts that have tails should be avoided
c) Milking purchase from recognized and approved suppliers.
Advantage of Purchasing Manuals:
Purchasing manuals are usually in writing. This helps precision and clarity.
The preparation of manuals is a well-planned procedures involving a critical examination of facts involving a critical examination of facts being written down.
The manual is a handy guide anti source of education for purchasing staff.
The manual provides a point of reference against which principles and practices of purchasing can be evaluated.
it enhances the importance of the purchasing department as it spells out its roles and importance.
Disadvantages of Purchasing Manuals
There preparation of a purchasing manual may be costly to produce.
Manuals become the bible that the procurement officer which has to follow dogmatically. This kills initiative
Purchasing operates in a dynamic environment, thus, it must be dynamic. Manuals must be continually updated show charges.
USERS OF PURCHASING MANUAL
It is a wrong assumption to feel that the content of purchasing manual is for the digestion of the procurements only. It is not for him only but for all parties to decision involving procurement. Thus copies of the purchase manual should be given to the following:
The staff of personnel of the procurement division
The members of the Board of Directors – The formulators of purchasing policies
The Chief Executive of the firm
The Head of Departments with which the purchasing Department has contact
The vendors or the agents from whom the purchases are made.
Preparation of a Purchasing Manual
The preparation of the purchasing manual is the responsibility of top officers in the purchasing department. A good purchase manual should:
Be written in simple and clear language. The language should not be ambiguous.
For clarity: It should contain illustration e.g. relevant flow charts
It should be well produced, easily handled and clearly printed.
If possible, it should be prepared on loose-leaf sheets to allow insertions and amendments.
The contents should be sectionalized e.g. sourcing for supplies, negotiation, pricing, terms of trade etc.
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