A

PROJECT REPORT

ON

“BRINGING THE WORLD CLOSER THROUGH INTERNATIONAL

TRADE”

SUBMITTEDBY

ZION KIMMBA-II (MARKETING + OPERATIONS)

UNDER THE GUIDANCE OF

Prof PathankarVISITING FACULTY

(PUMBA)

IN PARTIAL FULFILLMENT OF THEREQUIREMENTS FOR THE AWARD OF DEGREEOF MASTERS IN BUSINESS ADMINISTRATION

DEPARTMENT OF MANAGEMENT SCIENCESUNIVERSITY OF PUNE

(PUMBA)

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(2006-08)

CERTIFICATE

This is to certify that the project entitled “BRINGING THE WORLD

CLOSER THROUGH INTERNATIONAL TRADE” is a bonafide

project work carried out by Mr.Zion Kim, student of Department Of

Management Sciences, Pune University,(PUMBA), under my guidance

and direction, in partial fulfillment of the requirement of the MBA

degree course.

Prof. Pathankar Prof. D.V Sangvikar(PROJECT GUIDE) (H.O.D D.M.S. PUNE)

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A CKNOWLEDGEMENT

I express my sincere thanks to Shin Sung Chemical Co. Ltd.

And Korean Trade (KOTRA), Mumbai for giving me an opportunity to work with them through this summer project.

Gracious help from various sources has contributed tremendously to the completion of this project work. I take this opportunity to express my profound sense of gratitude to Mr. Yeol Woo Choi (Pres ident ) , Mr. Choi Jae Kwang (International Business ) and Mr. Dong Wook Kim (KOTRA, Mumbai) for their invaluable guidance, constant encouragement and practical suggestions based on the experience to focus my efforts to which this work has come to the presentable form.

I am also thankful to Prof. D.V Sangvikar (HOD, PUMBA) and my internal guide Prof. Pathankar who have helped me whenever required, and gave me support in every possible form.

Zion KimMBA- Dual (Marketing & Operations)

Department Of Management Sciences

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University Of Pune

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TABLE OF CONTENTS

Chapter 1 …………….………………………………………………….. 8

About the Company

Chapter 2 …………………………………………………………….…..10

Job Description

Chapter 3…………………………………………………………………11

Business Process

3.1 Price List………………………………………………………….11

3.2 Email communication……………………………………….….11

3.3 Pro Forma Invoice……………………………………………….12

3.3.1 Note (CFR, FOB, CIF)…………………………………….14

3.4 L/C, P/L, C/I………………………………………………….……17

3.4.1 Note (Credit Report)…………………………………..……16

3.4.2 L/C………………………………………………………..…..24

3.4.3 L/C……………………………………………………………25

3.4.4 L/C……………………………………………………………26

3.4.5 L/C………………………………………………...………….27

3.4.6 C/I………………………………………………….…………33

3.4.7 P/L……………………………………………………..……..36

3.5 B/L…………………………………………………………...……..38

3.5.1 Seal No……………………………………………………...40

3.6 Payment…………………………………………………….……..44

3.6.1 Summary of Business Process………………………..44

3.6.2 Summary of Observations Made……….……………..46

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3.6.3 Summary of Conclusions from Observations ……..51

3.6.4 Summary of Recommendations ……………………..53

Chapter 4 .…………………………………………………….…………46

Korean Trade Centers

4.1 KOTRA…………………………………………………….………55

4.2 KITA…………………………………………………..……………58

Chapter 5 ………………………………………………………………..60

Conclusion

Chapter 6 …………………………………………………………..……62

Product Lists: Surfactants

Chapter 7…………………………………………………………..……..64

Chemical Auxiliaries

Glossary…………………………………………………………….……96

Figures and Tables……………………………………………………..97

Bibliography……………………………………………………………..98

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Chapter 1

Introduction

About the company

Shin Sung Chemicals was established in 1989 in South Korea. Since

then, it has grown up to be a well-known company in Korea as a

developing, manufacturing and trading company of precision

synthetic chemicals for textile industries dealing with a wide range of

products in nylon, cotton, leather, acryl, and dye-stuff.

In 1997, Shin Sung Chemicals became a joint stock holding company

and changed its name to Shin Sung Chemical Co. Ltd. It consists of

highly qualified and experienced professionals who are dedicated to

providing high quality for customers. With qualified and experienced

experts, Shin Sung is able to design the most reliable and cost

efficient chemicals to suit customer’s requirements.

To fully satisfy our customers’ needs, Shin Sung continuously strive

to improve its products’ quality and value.

The company’s mission is to supply the highest quality products and

services to its customers. In order to fulfill this mission, all employees

work professionally, happily and efficiently together.

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Company Profile

Company Name SHIN SUNG CHEMICAL CO. LTD.Major Business Surfactants and dye-stuffPresident Yeol Woo ChoiAddress 1355-12 JUNG WANG-DONG, SI HEUNG CITY,

GYEONG GI –DO, KOREATelephone +82-31-498-2251/2/3Annual Turnover $1 millionNumber of

Employees

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Chapter 2

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Job Description

My job at Shin Sung Chemical Co. Ltd. was to oversee the operation

of international business, mainly with the export division. As such, I

was responsible for precise communication with foreign buyers

through emails, meetings, exhibitions and visits.

I was given the task of receiving and sending the enquiries, framing

documents such as pro forma invoices, commercial invoices, and

confirming orders and operations through constant communications.

The company has clients from different parts of the world such as

China, Vietnam, Sri Lanka, Bangladesh.

Because of my experience with foreign business cultures and the

knowledge of English, I could utilize my full potential and was happy

to be resourceful to the company.

During various exhibition visits such as Co-Ex exhibition(South

Korea) and Chem Spec, not only was my knowledge towards

international trade increased but I was able to introduce new buyers

to my company.

The summers at Shin Sung Chemical Co. Ltd. gave me an insight of

different processes involved for international business, how they are

actually implemented and know-hows of a successful trading

company.

Chapter 3

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Business Process

The competition of chemical industry around the world is fierce. It is

very sensitive to prices and quality. As such, I am bound by mutual

agreement of non-disclosure so as to protect the integrity and

confidential nature of details of international business done by Shin

Sung Chemical Co. Ltd.

I cannot disclose the details of international trade carried out during

my internship but I am happy to share a business transaction which

took place in the month of September with a buyer from Bangladesh.

The international trade process of Shin Sung Chemical Co. Ltd.

during my stay was all done in the similar manner.

3.1 – Business Process

Inquiry email was sent by buyer (EPYLLION KNITEX LTD.) from

Bangladesh and received by Shin Sung Chemical Co. Ltd. The

inquiry was about the product SODA-PS. (refer page 37 for product

details)

3.2 – Business Process

The price list of SODA-PS required by the buyer was sent via email.

3.3 – Business Process

PI (Pro forma Invoice) was prepared as shown in the figure 1.

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In foreign trade transactions, a pro forma invoice is a document that

states a commitment from the seller to sell goods to the buyer at

specified prices and terms. It is used to declare the value of the

trade. It is not a true invoice, because it is not used to record

accounts receivable for the seller and accounts payable for the

buyer.

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Fig.1: Pro forma Invoice

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What to check for in PI?

Pro forma Invoice Number

Pro forma Invoice Date

Payment: type of L/C

Price per quantity

Total amount

Type of shipping(CFR/CIF/FOB)

3.3.1 Note :-

During my internship, I have noted that the price of products differed/

were adjusted according to the type of shipping used. In the above

transaction, the price per kg of SODA-PS was increased due to CFR

charges to Chittagong, Bangladesh.

Usually, CIF was given to the buyers located in China(Shanghai) due

to the close proximity(1 to 2 days).

FOB and CFR were given to the buyers whose proximity from our

ports was far (usually above 15 days).

Shin Hwan Bank of South Korea handles most of Shin Sung

Chemical Co. Ltd. ‘s overseas transactions. It was advised to opt for

FOB and CFR while quoting on the prices of chemicals as the risks

were fairly high.

Cost and Freight (CFR) is an Incoterm. It means that the seller pays

for transportation to the Port of Loading (POL), loading and freight.

The buyer pays for the insurance and transportation of the goods

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from the Port of Discharge (POD) to his factory. The passing of risk

occurs when the goods pass the ship's rail at the port of shipment

which means that this term cannot be used for airfreight or land

transport and also is inappropriate for most containerized sea

shipments - the term CPT is the appropriate one for these.

Cost, Insurance and Freight (CIF) is a common term in a sales

contract that may be encountered in international trading when ocean

transport is used.

When a price is quoted CIF, it means that the selling price includes

the cost of the goods, the freight or transport costs and also the cost

of marine insurance. CIF is an international commerce term

(Incoterm).

CIF is identical in most particulars with Cost and Freight (CFR), and

the same comments apply, including its applicability only to

conventional maritime transport. In addition to the CFR

responsibilities, the seller under CIF must obtain in transferable form

a marine insurance policy to cover the risks of transit with insurers of

repute. The policy must cover the CIF price plus 10 per cent and

where possible be in the currency of the contract. Note that only very

basic cover is required equivalent to the Institute "C" clauses, and

buyers should normally insist on an "all-risk" type of policy such as

that under the Institute "A" clauses. The seller's responsibility for the

goods ends when the goods have been delivered on board the

shipping vessel. In the guidelines for CIF published in Incoterms

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2000 the term "carrier" does not appear and it clearly states "the

seller must deliver the goods on board the vessel at the port of

shipment" which makes CIF the incorrect term to use where the seller

wishes their responsibility to end when they deliver the goods into the

hands of a carrier prior to the goods passing the ship's rail at the port

of loading. In the great majority of transactions the more correct term

is CIP. This term is only appropriate for conventional maritime

transport, not ro/ro or international container movements.

CIF ASWP indicates that the supplier is responsible for insuring on

behalf of the buyer until goods arrive and are unloaded at the port of

destination. The opposite to this is FOB (Free On Board), which

means the buyer is responsible for payment to the seller when the

good is loaded onto the ship at the port of origination. ASWP

indicates Any Safe World Port.

Apart from the above poor English it should be carefully noted that

"CIF ASWP" is NOT an INCOTERM of the International Chamber of

Commerce. "ASWP" (any safe world port) may be added as a

separate article in a Purchase Contract but should not be confused

with an INCOTERM.

FOB, is an abbreviation for Free On Board. The term commonly

used when shipping goods, to indicate who pays loading and

transportation costs, and/or the point at which the responsibility and

ownership of the goods transfers from shipper to buyer.

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FOB stands for "Free On Board". Indicating "FOB" means that the

seller pays for transportation of the goods to the port of shipment,

plus loading costs. The buyer pays freight, insurance, unloading

costs and transportation from the arrival port to the final destination.

The passing of risks occurs when the goods pass the ship's rail at the

port of shipment. Internationally the term specifies the port of loading.

3.4 – Business Process

Once the PI was issued and terms and conditions met, I would

receive a call from the buyer asking for certain documents required

by him to open L/C in his country. Such documents are commercial

invoice, packing list, Confidential Credit Report, Details of Shipments

and bill of lading. This is the most important stage during the

transaction. During the provision of the said information, if an error

like spelling mistakes or number mismatch occurs, then, it would not

only create delay in processing not to mention $50.00 fine per error

but also throughout the transaction it would create such a chaos that

in the end, it would be difficult to receive payments from my end.

Once it so happened that the Branch manager of the Korean Bank

did not “personally” sign on the Credit report of my company. The

document was sent to the Bangladesh Bank where it was promptly

rejected. This caused delay in payment because everyone in Korea

assumed that the L/C would be delivered in a week’s time; but it

never did. When an inquiry was launched, we soon realized the fault

was actually with the bank, and not with us. Different banks follow

different rules to open L/C. And we must adhere to it.

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3.4.1 Note :-

During my stay with the company, the buyer from Bangladesh has

asked us to send a certificate of weight and measurement list. I did

not understand the need for such requirement because the packing

list document contained the exact information which was mentioned

there. (Refer to fig.9 and fig.10)

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Fig.2: Credit Report

Letter of Credit (L/C)

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Fig.3: Letter of Credit

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Fig.4: Letter of Credit

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Fig.5: Letter of Credit

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Fig.6: Letter of Credit

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Fig.7: Letter of Credit

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What to check for in a L/C?

Credit Number

The amount

Expiry Date

Issue Date

Type of drafts: AT SIGHT/ USSANCE

Description of goods

Type of documents required

Amendments if any

3.4.2 Note:- (refer to fig.3)

It was very important for me to check the issue and expiry dates

because if the applicant does not pay the bank in time, then, my

company was liable to pay for the interests.

For example, AT SIGHT indicates that the amount MUST be paid by

the applicant within 30 days of issue of L/C. USSANCE indicates that

the period of 120 days are given to the applicant to make the

payment.

If the applicant fails to pay the payment within the stipulated date,

then, my company had to file for the bankruptcy with the Korean bank

as no payment was made against the goods sold. This created a

negative impression with the banks and the company would lose its

credibility with Shin Hwan Bank.

There was a case with my company with one of the companies it was

dealing with. Because of holidays in Bangladesh and the slow, I

mean, really slow document processing power of banks in

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Bangladesh, my company had to actually ask for the Grace period to

extend the expiry date of the L/C. Because of the holidays in

Bangladesh, and weekends being an off-day for Korean banks, the

company in Bangladesh could not make the payment on time.

The following conversation took place then:

Korean company: Did you make the payment?

Foreign company: Yes, we did. I made the payment to the bank 4

days ago.

Korean company: My bank tells me that the money hasn’t arrived

yet.

Foreign company: No, no, that’s not possible.

Korean company: The expiry date is 5 days away!!! L/C is closing on

Us!

Foreign company: I will fax you the copy of the payment receipt.

Korean company: That will not help. I will ask for a grace period to

extend the expiry date by a week.

Foreign company: No issues. That would do. I will inquire with my

bank.

3.4.3 Note:- (Referring to fig.6,7)

Another interesting fact is that the number and spelling errors are not

permitted in L/C. In countries like India and Bangladesh, any errors in

the L/C would mean money. The banks charge $50.00 per errors.

That is why it is necessary to confirm the numbers and names before

preparing the L/C. Countries like China do not charge for minor

mistakes.

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3.4.4 Note:- (Referring to fig.4)

Different banks ask for various kinds of documents

(originals/duplicates) of varying numbers. The important documents

would be commercial invoice, bill of lading, packing lists, shipping

documents, original copies of L/C, etc.

The term “Duplicate” in the L/C would mean -> 2 copies of the

originals.

Sometimes, the banks ask for the signatures in writing to prevent

fraud.

One of the most important tip during this particular transaction was with the

reference to Fig.4 , clause No.13. This statement means that since Bangladesh

is an Islamic nation, no vessel of Israel origin and no shipments of Israel origin

must enter the Bangladesh ports.

3.4.5 Note:-

Letter of credit was the safest way to have transactions with buyers

whom we have little or no information/credibility. The disadvantage is

that it takes an awful long time to get work done. L/C requires tons of

documents both for the applicants as well as for the beneficiary. If not

read carefully, getting payment can be one’s nightmare in the world of

globalization where not only the movements of physical goods have

been shortened but also the process of inquiry to the process of

payment have been shortened due to the technological advances

such as satellites and internet.

The countries where L/C base was used were China, Vietnam and

Bangladesh.

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