Question No. 3 - IBO - 05 - International Marketing Logistics - Master of Commerce (M.Com)

Solutions to Assignments 

IBO - 05 - International Marketing Logistics

Master of Commerce (M.Com) - 1st Year

Question No. 3 - Briefly comment on the following: 
a) “Objectives and policies for functioning of the supply chain are usually in conflict both within and across operational units.” 

Supply Chain Management refers to handling of the entire production flow of goods and services to maximize quality, customer experience and profitability. It involves right from the raw components to delivering the final product to customers.  In this article we shall take a look at the objectives and functions of Supply Chain Management.

Objectives of Supply Chain Management

We have discussed some of the important objectives of SCM below.

1. To maximize overall value generated

The higher the SCM profitability, the higher is the success for supply chain. The Supply chain profitability is the difference between the amount paid by the customer to purchase a product and the cost incurred by an organization to produce and supply the product to the customer.

2. Cost quality improvement

This is another essential objective of SCM. It looks to achieve cost quality balance and optimization.

3. To look for sources of Cost and Revenue

Customer is the only source of revenue. Therefore there should be appropriate management of the flow of information, product or funds. It is a key to the success of supply chain.

4. Shortening the time to order

SCM aims to reduce the time required for ordering and fulfilling the same.

5. Delivery optimization

The SCM aims to meet the demands of the customer for guaranteed delivery of high quality and low cost with less lead time.

6. Demand fulfilment

Managing the demand and supply is a key yet challenging task for a company or management personnel. Its objective is to fulfil customer demand through efficient resources.

7. Flexibility

SCM aims for flexibility. A Well managed supply chain provides flexible planning and better control mechanism.

8. Better Distribution

SCM aims to ensure improved distribution. It can maximize the distribution side efficiency. Marketer or distributor can achieve optimized level distribution by using all resources that are available properly.

9. Cost Reduction

It’s another objective of SCM to reduce the system wide cost of a company to meet service level requirement.

Functions of Supply Chain Management

The functions of SCM include the following:

1. Purchasing

The first function of SCM is purchasing. During manufacturing process, raw materials are needed. It is essential that these materials are procured and delivered on time. Then only the production can begin. In order to make this happen, coordination with suppliers and delivery companies is needed to avoid delays.

2. Operations

Forecasting and demand planning is needed before materials are procured as the demand market shall dictate how many units are to be produced and how much material is needed for production.  This function in SCM is vital as organizations accurately forecast demand to avoid having too little or too much inventory that would lead to revenue losses. Therefore, forecasting and demand planning should be tied in with inventory management, production and shipping.

3. Logistics

Logistics is a part of SCM that co-ordinates all planning aspects, purchasing, production, and transportation aspects to ensure that products reach the end consumer without hindrances. It is essential to have co-ordination with multiple departments so that products are quickly shipped to customers. 

4. Resource Management

Resource management[1] ensures that right resources are allocated to the right activities and that too in an optimized way. It ensures that optimized production schedule is created to maximize operations efficiency.

5. Information workflow

Sharing information and distribution is that what keeps all other functions of supply chain management on track. If this information workflow and communication is poor, it can hurt the entire chain.

b) “The world economic situation and the world trade are very closely related.” 

The world economic situation and the world trade are very closely related and

consequently whatever developments, whether positive or negative, take place in the former have

a direct impact on the latter. Hence, with the changing economic trends, it is very likely that the

movement of trade will also be affected. This results in the creation of cyclical fluctuation in the

demand and supply for goods in the world trade. Since the ships carry a sizeable quantity of goods

traffic in world trade, the fluctuations will have an impact on the movement of seaborne trade.

The global economic recovery that began in 1993 continued till 1996, when the world output grew

by 2.8% over 1995, However, growth belied the hopes that the world economy would enter a new

era of sustained growth not in excess of 3% which was expected to be achieved by 1997, Growth

in the developed market economies sf the world, as a whole, was slower than what had been

expected.

The growth of world merchandise trade slowed down sharply in 1996, it was 4.6% as against 10%

in the preceding two years, falling more than what had been expected at the beginning of the year.

The divergence between trade and output growth, which had been increasing since 1990, was

greatly reduced in 1996.

An important factor leasing to a slowdown in the world trade was a sharp deceleration of import

growth in developed countries, which account for about two-thirds of the world import demand from

11% in 1994 to only 5.2% in 1996.

The industrial production of the OECD countries is also a fundamental indicator for the global

maritime transport sector. The diverging growth rates in OECD countries industrial production and

world seaborne trade in the period 1991 -93 was mainly attributed to the decrease in production of

crude steel, iron ore, cooking coal, petroleum products, nonferrous metals and fertilizer, and to the

decline in the prices of these commodities. However, increasing trade in other manufacturers

maintained the growth of world seaborne trade.

c) “Shippers-Ship owners consultation arrangements in India leave much scope for Improvement.” 

In India, All India Shipper's Council, regional level shipper's associations, and concerned Government department like the Ministry of Commerce regularly consult shippers. The US Government does the same through provisions of FMC( Federal Maritime Commission), established under the Shipping Act, 1916.

Currently, there are five association at the regional level for resolving shipper's problems:

a.) Eastern India Shipper Association (EISA), headquartered in Kolkata.

b.) Western India Shipper Association(WISA), headquartered in Mumbai.

c.) Southern India Shipper Association(SISA), headquartered in Chennai.

d.) South Western India Shipper Association(SWISA), headquartered in Cochin.

e.) North India Shipper Association(NISA), headquartered in New Delhi.

Shippers-shipowners consultation in India leaves much scope for improvement. The statement is true considering the following aspects:

1.) The consulting arrangements have been found to have inadequate secretarial staff and meeting space. These associations largely depending chambers for meeting space and staff.

2.) There is a lack of adequate resources to organize seminars, conferences, workshops for creating awareness.

3.) Not all shippers represent themselves in the association, hence negotiations and decisions represent only a part of the consultation.

4.) The association has no representative on the Board of trustees of ports.

5.) They lack the expertise to present the cases scientifically and objectively.

6.) At times, Shippers and Chamber of Commerce approach authorities directly. This hampers the growth and repute of associations.

d) The rate of return from warehousing business is low and the gestation period is rather long. 

The Rate of Return (ROR) from warehousing business is low and the gestation period is rather long. Warehousing has several strategic decisions like the number of warehouses, warehouse capacity, their location, and type of ownership. These involve heavy investments.

A warehouse is involved in various functions like assortment, storage of goods, etc. These start generating revenue over and above the investment made, as the warehouse change for consignment held, as per the time period.

The cost of ownership of a warehouse involves initial cost and financing the same. Similarly, owing more warehouses would mean better customer service but involves ownership and maintenance costs. By making the product available at the place where it is needed and when it is needed, the distribution system adds both time and place utilities to the product. For achieving this, the company must critically decide on the number of warehouses and the type of transport system to be used for product delivery.

Question No. 2 - IBO - 05 - International Marketing Logistics - Master of Commerce (M.Com)

Solutions to Assignments 

IBO - 05 - International Marketing Logistics

Master of Commerce (M.Com) - 1st Year

Question No. 2

(a) Discuss briefly the various constraints faced by Indian shipping industry. 

Transportation of shipment through means of shipping companies has numerous advantages like cost-effectiveness and being environmentally friendly. Shipping companies in India have not been able to realize their fullest capacity due to a few constraints. Let’s us check out a few challenges faced by shipping companies in India which deter growth in the logistics sector:

1. Institutional Challenges

The rigidity of the Indian bureaucracy and its reluctance to give up control adds to the delay. Multiple involvements of the central, state and local governments with overlapping powers add to the chaos. Lack of a single window clearance system has made it challenging for shipping companies in India.

2. Infrastructural Challenges

Capacities of all major and minor ports in India need to be increased urgently. Due to transhipment points in other countries, the cycle time of Indian cargoes has rendered the uncompetitive on a global scale. Besides this development of road network, electricity and overall infrastructural development is also the need of the hour.

3. Financial Challenges

Shipping companies in India do not have access to any lucrative government schemes that have been available to other channels. The burden of taxes like Customs Duty on Bunkers, Landing Fees, Income Tax etc. without negligible exemptions have made it difficult for shipping companies to thrive.

4. Slow Process

The shipment procedures undertaken by shipping companies is quite cumbersome in comparison to other modes of transportation. This, in turn, wastes valuable shipping time and labour time which goes into the logistic process.

5. Vessel Size

The sizes of vessels are getting bigger owing to the rise in demand for shipping services. While it might sound like an improved trend, many ports in India are still struggling to keep up, and many of these large vessels cannot be called on into most of the ports.

(b) What is Maritime Fraud? State the various factors that lead to commitment of maritime frauds.

Maritime fraud occurs when one of the parties involved in an international trade transaction like the buyer, seller, shipowner, charterer, ship’s master or crew, insurer, banker, broker or agent illegally secures money or goods from another party to whom, on the face of it, he has undertaken specific trade, transport and financial obligations. To check the c/p frauds all care should be taken by the master while issuing any b/l under that c/p to provide the true description of goods on the b/l. If any letter of authority is given to the agent for signing the B/L then such letter of authority should clearly mention the description of the goods so that he may not make any false declaration on behalf of the master

'Maritime fraud is a generic term commonly used to describe the obtaining of money, or services, or property in the goods, or a pecuniary advantage by one or more parties to a transaction from the other party or parties, by unjust or illegal means

Question No. 1 - IBO - 05 - International Marketing Logistics - Master of Commerce (M.Com)

Solutions to Assignments 

IBO - 05 - International Marketing Logistics

Master of Commerce (M.Com) - 1st Year

Question No. 1
(a) What are the various factors taken into consideration while selecting the mode of transportation for export cargo. Explain. 

1. Cost of Service:

The cost of transportation adds to the cost of the goods so it should always be kept in mind. Rail transport is comparatively a cheaper mode of transport for carrying heavy and bulky traffic over long distances. Motor transport is best suited and economical to carry small traffic over short distances. Motor transport saves packing and handling costs.

Water transport is the cheapest mode of transport. It is suitable to carry only heavy and bulky goods over long distances where time is not an important factor. Air transport is the most costly means of transport but is particularly suited for carrying perishable, light and valuable goods which require quick delivery.

2. Speed of Transport:

Air transport is the quickest mode of transport but it is costliest of all. Motor transport is quicker than railways over short distances. However, the speed of railways over long distances is more than that of other modes of transport except air transport and is most suitable for long distances. Water transport is very slow and thus unsuitable where time is an important factor.

3. Flexibility:

Railways, water and air transport are inflexible modes of transport. They operate services on fixed routes and at preplanned time schedules. The goods have to be carried to the stations, ports and airports and then taken from there. Motor transport provides the most flexible service because it is not tied to fixed routes or time schedules. It can operate at any time and can reach the business premises for loading and unloading.

4. Regularity of Service:

Railway service is more certain, uniform and regular as compared to any other mode of transport. It is not much affected by weather conditions. On the other hand, motor transport, ocean transport and air transport are affected by bad weather such as heavy rains, snow, fog, storms etc.

5. Safety:

Safety and security of goods in transit also influence the choice of a suitable means of transport. Motor transport may be preferred to railway transport because losses are generally less in motor transport. Water transport exposes the goods to the perils of sea and, hence from safety point of view, sea transport is thought of as a last resort.

6. Nature of Commodity:

Rail transport is most suitable for carrying cheap, bulk and heavy goods. Perishable goods which require quick delivery may be carried through motor transport or air transport keeping in mind the cost and distance.

7. Other Considerations:

A number of special services such as warehousing, packing, loading and unloading are also taken into consideration while deciding about a mode of transport. From the above discussion it is clear that each mode of transport is suited for a particular type of traffic.

The rail transport is particularly suited for carrying heavy and bulky goods over long distances. Motor transport is suitable for carrying small consignments over short distances. Air transport is suited to light and precious articles which are to be delivered quickly. Ocean transport is appropriate for carrying heavy bulky goods over long distances at the cheapest possible cost.

(b) Describe the responsibilities of ship owners and the charterers under different forms of chartering arrangements. 

IBO - 05 - International Marketing Logistics - Master of Commerce (M.Com)

Solutions to Assignments 

IBO - 05 - International Marketing Logistics

Master of Commerce (M.Com) - 1st Year

Question No. 1

(a) What are the various factors taken into consideration while selecting the mode of transportation for export cargo. Explain. 

(b) Describe the responsibilities of ship owners and the charterers under different forms of chartering arrangements.                                         CLICK HERE

Question No. 2

(a) Discuss briefly the various constraints faced by Indian shipping industry. 

(b) What is Maritime Fraud? State the various factors that lead to commitment of maritime frauds.

                                                                CLICK HERE

Question No. 3 - Briefly comment on the following: 

a) “Objectives and policies for functioning of the supply chain are usually in conflict both within and across operational units.” 

b) “The world economic situation and the world trade are very closely related.” 

c) “Shippers-Ship owners consultation arrangements in India leave much scope for Improvement.” 

d) The rate of return from warehousing business is low and the gestation period is rather long. 

                                                                CLICK HERE

Question No. 4 - Distinguish between the following: 

a) Domestic logistics and International logistics 

b) Inland container depots and Container fright stations 

c) Weight ton and Measurement ton. 

d) Reorder Level (ROL) and Reorder Quantity (ROQ)

                                                                CLICK HERE

Question No. 5 Write short notes on following: 

a) Public Warehouse. 

b) Commercial Shipping 

c) Multi-Modal Transport Document 

d) Privatisation of Ports                        CLICK HERE

Question No. 5 - IBO-06 - INTERNATIONAL BUSINESS FINANCE - Master of Commerce (M.Com)

Solutions to Assignments 

IBO-06 - INTERNATIONAL BUSINESS FINANCE

Master of Commerce (M.Com) - 1st Year

Question No. 5
a) Discuss the merits of foreign direct investment, portfolio investment and short term investment.

Foreign Direct Investment 

Foreign Direct Investment (FDI) is the investment of funds by an organisation from one country into another, with the intent of establishing ’lasting interest’. According to OECD (Organisation for Economic Co-operation and Development), lasting interest is determined when the organisation acquires a minimum of 10% of voting power in another organisation. For instance: the act of an Indian company such as Ola opening another headquarters in Sydney, Australia will be considered as bringing FDI into Australia. 

Reinvestment of profits from overseas operations, as well as intra - organisational loans and borrowings to overseas subsidiaries are also categorised as FDI.

The meaning of FDI is not restricted only to international movement of capital. Its definition also encompasses the international movement of elements that are complementary to capital - such as skills, processes, management, technology etc.

There is a difference between FDI and FPI (Foreign Portfolio Investments), wherein the investor purchases equity of foreign companies. FPI means only equity infusion, and does not imply the establishment of a lasting interest.

FDI can be Greenfield, wherein an organisation creates a subsidiary concern in another country and builds its business operations there from the ground up. Greenfield investments provide the highest degree of control to the organisation. It can construct the production plant as per its specifications, employ and train human resources as per company standards, as well as design and monitor its operational processes.  

Alternatively, FDI can be brownfield - wherein an organisation expands by way of cross-border mergers, acquisitions and joint ventures - by either leasing or purchasing existing facilities for its production. The clear advantage of brownfield investments is the savings in cost and time for starting up, as well as engaging in construction activities. Addition of equipment to an existing facility also qualifies as brownfield investment.

It is difficult to overstate the global and macroeconomic significance of FDI. As per UNCTAD (United Nations Conference on Trade and Development), global FDI amounted to around $ 1.8 tn in 2015. 

There are many ways in which FDI benefits the recipient nation:

1. Increased Employment and Economic Growth

Creation of jobs is the most obvious advantage of FDI. It is also one of the most important reasons why a nation, especially a developing one, looks to attract FDI. Increased FDI boosts the manufacturing as well as the services sector. This in turn creates jobs, and helps reduce unemployment among the educated youth - as well as skilled and unskilled labour - in the country. Increased employment translates to increased incomes, and equips the population with enhanced buying power. This boosts the economy of the country.

2. Human Resource Development

This is one of the less obvious advantages of FDI. Hence, it is often understated. Human Capital refers to the knowledge and competence of the workforce. Skills gained and enhanced through training and experience boost the education and human capital quotient of the country. Once developed, human capital is mobile. It can train human resources in other companies, thereby creating a ripple effect.  

3. Development of Backward Areas

This is one of the most crucial benefits of FDI for a developing country. FDI enables the transformation of backward areas in a country into industrial centres. This in turn provides a boost to the social economy of the area. The Hyundai unit at Sriperumbudur, Tamil Nadu in India exemplifies this process. 

4. Provision of Finance & Technology

Recipient businesses get access to latest financing tools, technologies and operational practices from across the world. Over time, the introduction of newer, enhanced technologies and processes results in their diffusion into the local economy, resulting in enhanced efficiency and effectiveness of the industry.

5. Increase in Exports

Not all goods produced through FDI are meant for domestic consumption. Many of these products have global markets. The creation of 100% Export Oriented Units and Economic Zones have further assisted FDI investors in boosting their exports from other countries.

6. Exchange Rate Stability

The constant flow of FDI into a country translates into a continuous flow of foreign exchange. This helps the country’s Central Bank maintain a comfortable reserve of foreign exchange. This in turn ensures stable exchange rates.

7. Stimulation of Economic Development

This is another very important advantage of FDI. FDI is a source of external capital and higher revenues for a country. When factories are constructed, at least some local labour, materials and equipment are utilised. Once the construction is complete, the factory will employ some local employees and further use local materials and services. The people who are employed by such factories thus have more money to spend. This creates more jobs. 

These factories will also create additional tax revenue for the Government, that can be infused into creating and improving physical and financial infrastructure. 

8. Improved Capital Flow

Inflow of capital is particularly beneficial for countries with limited domestic resources, as well as for nations with restricted opportunities to raise funds in global capital markets.

9. Creation of a Competitive Market

By facilitating the entry of foreign organisations into the domestic marketplace, FDI helps create a competitive environment, as well as break domestic monopolies. A healthy competitive environment pushes firms to continuously enhance their processes and product offerings, thereby fostering innovation. Consumers also gain access to a wider range of competitively priced products.

For a multinational corporation, FDI in India is a means to access new consumption and production markets, and thereby expand its influence and business operations. It can gain access not only to limited resources such as fossil fuels and precious metals, but also skilled and unskilled labour, management expertise and technologies. FDI also enables an organisation to lower its cost of production- by accessing cheaper resources, or going directly to the source of raw materials rather than buying them from third parties. Often, there are various tax advantages that accrue to a company undertaking FDI. This can occur when the home country allows tax deduction on foreign income, or when the recipient country allows tax deductions and benefits for organisations incurring FDI in that country. Additionally, this can happen when the recipient country has a more beneficial tax code than the home country.

Portfolio Investment

Unlike the investment approach of classic security analysis that focuses on individual security selection, portfolio investment is a modern investment method that involves asset allocation and diversification to construct a collection of investments. The biggest challenge in investing is the uncertainty of an investment's future performance and thus the risk of potential investment losses. Not counting on investment results of single investments, portfolio investment can hedge investment risks by canceling out different investment returns among component investments.

1. Risk Diversification and Reduction

Portfolio investment is about reducing risk rather than increasing return. It may well be that in certain years, individual investment returns based on security analysis exceed returns from portfolio investment. However, over the long run, portfolio investment is able to deliver a steady rate of return that is on average better than individual investment returns, because of the risk diversification among various investments inside a portfolio. Portfolio investment seeks out different asset classes that are less correlated or negatively correlated, such as combining stocks and bonds to even out volatility.

2. Minimal Security Analysis

Traditional security selection requires considerable efforts in terms of time and resources to perform the so-called three-step analysis of economy, industry and company. Although portfolio investment involves assembling a collection of individual securities, the focus is less about the merits of each security standing alone but more about how they may fit with the expected overall performance of the portfolio. Some portfolio investment, once constructed, can be left unadjusted regardless of the changing economic environment. When investment results are not solely dependent on an expected above-average performance of an individual security, a simple security analysis technique like security screening can keep the work of security analysis at a minimum.

3. Systematic Investment Approach

As portfolio investment moves away from mere individual security selections, it employs a systematic investment approach that is supposed to benefit the owner of the investment portfolio in the long run. To achieve such a positive, long-term goal, a portfolio investment starts with setting portfolio objectives followed by formulating an investment strategy. The level of expected rate of return and risk tolerance are assessed so that different weights can be assigned to different asset classes and categories. The future performance of portfolio investment hinges on the overall investment policy that strives to ensure that losses from one security are compensated by gains from the other.

4. Passive Investment Style

Active investment management of constant buying and selling increases transaction costs and has tax implications that can be especially worrisome when a short-term holding period results in capital gains taxed as ordinary income. While individual security selections rely on active stock picking to influence performance, portfolio investment is designed to be passively managed, minimizing portfolio turnovers to necessary portfolio rebalancing. The set percentage of weights assigned to different assets and securities does not have to respond to every move of the market and even the economy, as long as the total risk profile of the portfolio remains unchanged.

Short Term Investment 

Short-term investments are assets that can be converted into cash or can be sold within a short period of time, typically within 1-3 years. Common instruments for short-term investing include short-term bonds, Treasury bills, and other money market funds. Short-term trading or day trading entails a significant degree of speculation and, consequently, substantial risk.

Advantages of Short-Term Investing

• Short-term investing offers flexibility to the investor as they do not need to wait for the security to mature in order to get cash. On the other hand, long-term investments can be liquidated by selling in the secondary market, but the investor earns lower profits.
• Investors can make substantial profits in a very short amount of time.
• It is less risky as money invested per transaction is substantially lower.

b) Write short notes on for forfaiting.

Forfaiting is a means of financing that enables exporters to receive immediate cash by selling their medium and long-term receivables—the amount an importer owes the exporter—at a discount through an intermediary. The exporter eliminates risk by making the sale without recourse. It has no liability regarding the importer's possible default on the receivables.

The forfaiter is the individual or entity that purchases the receivables. The importer then pays the amount of the receivables to the forfaiter. A forfaiter is typically a bank or a financial firm that specializes in export financing.

How Forfaiting Works

A forfaiter's purchase of the receivables expedites payment and cash flow for the exporter. The importer's bank typically guarantees the amount.

The purchase also eliminates the credit risk involved in a credit sale to an importer. Forfaiting facilitates the transaction for an importer that cannot afford to pay in full for goods upon delivery. 

The importer's receivables convert into a debt instrument that it can freely trade on a secondary market. The receivables are typically in the form of unconditional bills of exchange or promissory notes that are legally enforceable, thus providing security for the forfaiter or a subsequent purchaser of the debt.

These debt instruments have a range of maturities from as short as one month to as long as 10 years. Most maturities fall between one and three years from the time of sale.

Advantages and Disadvantages of Forfaiting

Advantages

Forfaiting eliminates the risk that the exporter will receive payment. The practice also protects against credit risk, transfer risk, and the risks posed by foreign exchange rate or interest rate changes. Forfaiting simplifies the transaction by transforming a credit-based sale into a cash transaction. This credit-to-cash process gives immediate cash flow for the seller and eliminates collection costs. Additionally, the exporter can remove the accounts receivable, a liability, from its balance sheet.

Forfaiting is flexible. A forfaiter can tailor its offering to suit an exporter's needs and adapt it to a variety of international transactions. Exporters can use forfaiting in place of credit or insurance coverage for a sale. Forfaiting is helpful in situations where a country or a specific bank within the country does not have access to an export credit agency (ECA). The practice allows an exporter to transact business with buyers in countries with high levels of political risk.

Disadvantages

Forfaiting mitigates risks for exporters, but it is generally more expensive than commercial lender financing leading to higher export costs. These higher costs are generally pushed onto the importer as part of the standard pricing. Additionally, only transactions over $100,000 with longer terms are eligible for forfaiting, but forfaiting is not available for deferred payments.

Some discrimination exists where developing countries are concerned compared to developed countries. For example, only selected currencies are taken for forfaiting because they have international liquidity. Lastly, there is no international credit agency that can provide guarantees for forfaiting companies. This lack of guarantee affects long-term forfaiting.