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INTERNATIONAL BUSINESS TRANSACTIONS: GS 6509

INTERNATIONAL BUSINESS TRANSACTIONS: GS 6509

Part I

Question 1

Risks faced by Seller in Cross Border Sales of Goods Transaction

Everyday there are financial and good deals that closing all around the world. However, among these deals cross border deals is the area that needs to be properly studied because there are numerous clauses in those deals that need to be catered on urgent basis. Therefore, to give the readers a proper understanding, certain risks are highlighted from the sellers end in cross border sales of goods.

The first and the main risk of going cross border, the seller loses the home court advantage due to which the information asymmetries get extremely acute. It gets really hard to assess the strength of the respective industry and the seller also face the issues in local supply chain that may lack the pattern of recognition that developed in the local areas.

Similarly, in regard to this, accounting and legal practices differences are the major risk that need to be work by seller because generally it has been witnessed that in cross border transactions; there are often differences in generally accepted accounting practices (GAAP) among the two different countries. Therefore, the seller needs to be aware of the differences and also need to be capable of translating the financial terminologies because these are critical to the success of the deal.

Another risk that associated with seller is to follow the foreign direct investment laws in the cross border sales because every country set its own standards to make the transactions legal, therefore, in going for the cross border sales, seller must understand the foreign investment laws.

At last, the fourth risk associated with the transaction is the exchange rate that main effect the earnings and earn outs. Therefore, the seller must focus on the exchange rate that is paramount before evaluating and negotiating the deal abroad.

Risk faced by Buyer in Cross Border Sales of Goods Transaction

There is numerous risks that associated to Indonesian buyer while going into cross border sales transaction, among these risk, few of the risks are highlighted below for the better understanding of the readers.

The first and foremost risk that a buyer could face in going with cross border sale of goods transaction is that the goods might be damaged or not in proper conditions as demonstrated in the contract. Therefore, the major risk associated with Indonesian client.

The volatility of exchange rates greatly complicates the issue as to preserve benefits. The exchange rates may fluctuate between 20% and 40% annually. Changes of this magnitude can completely erase the advantage of low cost of a country or transform a high-cost location at a competitive cost. A stronger U.S. dollar makes it more attractive for U.S. companies to manufacture in other countries. A low dollar can eliminate much of the cost advantage that foreign manufacturers about Americans and can even be an indicator for foreign companies to establish production facilities in the United States.

Trade policies of the host government

National governments have ...