Ferro Industries Essay

381 Words2 Pages
Ferro Industries - Exporting challenge in a small firm In light of Ferro’s experience, which of the following payment strategies would you choose as an exporter in order to ensure payment and reduce financial risk? Why? a) Full advance payment. b) Letter of credit. c) Credit (delayed payment) Answer: In order to reduce financial risk and ensure payment from Yusuf the right choice for the Ferro Industries would be letter of credit. In other words letter of credit is a flexible banking instrument, issued on behalf of bank's customer in order to secure a payment to seller. By using a letter of credit Ferro Industries was going to recieve payment from Yusuf within a few days. Moreover, letter of credit is a secure instrument so it can be used as collateral in this case very helpful for Ferro Industries in order to obtain a loan to finance manufacturing or other costs associated with international expansion. The other option which is full advance payment will be too risky for the buyer (Yusuf), because of transactions risks in contracts such as: shipping risks or seller non compliance risk. Therefore, it was a right desicion made by Ferro Industries do not ask for a full advance payment upfront.The third option which is delayed payment is not the right choice for the Ferro Industries. However, despite all the risks with this type of payment when it comes to conduct an international business in the world wide competition it is could be acceptable. 3. Evaluate the role of trust vs. contracts in international customer relationships. Would you have released the product to Yusuf? Despite all marketing issues, successful exporting requires a plan. In order to success in international market Ferro Industries made a right step in making a long-term commitment to it's foreign customer (Yusuf), identifying foreign customer's cultural and religious factors,

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