FIL CHAPTER 2

2.3
LICENSING

JLD22133

FUNDAMENTALS OF

INTERNATIONAL LOGISTICS

2.1

EXPORTING

• Exporting is the practice of sending or carrying goods or services to a foreign

country for trade or sale.

• They include the value of merchandise, freight, insurance, transport, travel,

royalties, license fees, and other services, such as communication,

construction, financial, information, business, personal, and government

services.

• To export goods from Malaysia, you are required to make a pledge to the Royal

Malaysian Customs Department (JKDM). Export Duty and Cess will be payable

on dutiable goods.

Definition

•In September 2020, Malaysia exported mostly to China (MYR15.6B), Singapore (MYR12.2B),

United States (MYR10.3B), Hong Kong (MYR6.71B), and Japan (MYR4.76B), and imported

mostly from China (MYR15.3B), Singapore (MYR6.51B), United States (MYR5.42B), Japan

(MYR5.4B), and Chinese Taipei (MYR5.14B).

•Malaysia's main exports are: electrical and electronics products (36 percent), chemicals (7.1

percent), petroleum products (7.0 percent), liquefied natural gas (6 percent), and palm oil (5.1

percent). Malaysia's main export partners are: Singapore (14 percent), China (13 percent),

European Union (10 percent), Japan (9.5 percent), the United States (9.4 percent) and Thailand

(6 percent).

Malaysia Export

“Exports in Malaysia increased to a three-month

high of 144310.00 MYR Million in September from

141271.00 MYR Million in August of 2022.”

S

Malaysia Export

• Increased sales and increased profitability

• Reduced reliance on domestic markets due to market diversification

• New opportunities for growth

• Economies of scale (the more you produce, the less each unit costs to

make)

• Use of excess capacity (through increased sales)

• Reduced vulnerability to seasonal fluctuations in the market for your product

Benefits of Exporting

• Financial risk: inadequate financing to get your product ready to sell in

foreign markets; taking on short-term debt to cover new operational and

administrative costs while you wait for revenues.

• Risk of non-payment (e.g., accepting payment by open account, credit card

fraud).

• Foreign exchange rate risk: fluctuations in the value of the MYR relative to

the currency of other countries can affect export profits either positively or

negatively.

Risks of Exporting

2.2

IMPORTING

•An import is a good or service bought in one country that was produced in another.

•They include the value of merchandise, freight, insurance, transport, travel,

royalties, license fees, and other services, such as communication, construction,

financial, information, business, personal, and government services.

•To import goods to Malaysia, you are required to make a declaration to the Royal

Malaysian Customs Department (JKDM). Import Duty, Excise Duty, Sales Tax will

be paid on goods subject to duty/tax if the goods are imported for local

consumption.

Definition

•The top imports of Malaysia are Integrated Circuits ($27.8B), Refined Petroleum ($13.4B),

Crude Petroleum ($4.75B), Special Purpose Ships ($4.39B), and Broadcasting Equipment

($3.43B), importing mostly from China ($51.5B), Singapore ($22.9B), United States

($12.4B), Japan ($12.1B), and South Korea ($11.6B).

•Malaysia's main imports are: electrical and electronic products (29.4 percent), chemicals

(9.5 percent), petroleum products (9.3 percent) and machinery, appliances and parts (8.7

percent).

•Main import partners are: China (19 percent), Singapore (12 percent), European Union (10

percent), the United States (8.1 percent), Japan (7.8 percent) and Thailand (6.1 percent).

Malaysia Import

“Imports in Malaysia decreased to 112599.30

MYR Million in September from 124410.13 MYR

Million in August of 2022.

S

Malaysia Import

• Comparative advantage means lower-priced goods

• Higher-quality products.

• Grants access to regionally exclusive resources.

• Various benefits stemming from trade agreements.

Advantages of Import

• Lead the erosion of the domestic markets and national economies.

• Conflict in the domestic values due to the acceptance of social

values.

• Currency Risk

• Political Risk

Disadvantages Import

Steps of Exporting & Importing

1. Custom Pledge

2. Goods Classification

3. Check if the goods in
question are controlled
goods or export/import

prohibited goods

6. Payment Of Duties /

Cess

5. Goods Inspection

4. Pledge & preparation

of documents for
customs clearance

7. Customs Approval

8. Customs Release

9. Documentation and

Record Keeping

All exports & imports of goods must be pledged by:

1. Appointed

Customs

Agent

(check

can

be

done

at

http://www.mytradelink.gov.my/trade-associations); or

2. Self-Declaration

(AEO

Program

-

AEO

Portal

http://customsgc.gov.my/index_aeo.html); or

3. Direct User (Direct User)

1. Custom Pledge

Exporters and Importers need to obtain confirmation on the goods to be exported & imported whether

they are subject to any duty / cess by obtaining the correct tariff code for the goods in question. The

tariff code can be checked by referring to:

1.

HS Explorer http://mysstext.customs.gov.my/tariff/; or

2.

Get advice from the Technical Services Division, Classification, Tariff and Drafting Branch, JKDM

http://www.mobile.customs.gov.my/edirektori/portal-branch?x=8; or

3.

Check

with

the

Customs

Duty

Order

2017

http://www.federalgazette.agc.gov.my/outputp/pua_20170103_P.U.(A)52017.pdf

(subject

to

amendment); or

4.

Check with the relevant Free Trade Agreement (FTA) https://fta.miti.gov.my/

2. Goods Classification

• Check whether the goods to be exported/imported are controlled goods or subject

to export bans or restrictions by the authorities.

• Check whether the goods in question require an Export/Import Permit / Approval

from the Other Government Agency (OGA) or Permit Issuing Agency (PIA). Permits

/ approvals must be obtained before any export/import is done.

3. Check if the goods in question are controlled goods or

export/import prohibited goods

Each exporter must make a full and true declaration regarding the exported/imported goods, either by himself or

by his agent before the exportation/importation is carried out.

1.

The declaration of export is to use Customs Form No.2 (K2) and import is to use Custom Form No.1

(K1) electronically. Link: http://www.dagangnet.com/trade-facilitation/edeclare/

2.

Submit the export/import permit when making the customs declaration either electronically or hard

copy. Link : http://www.dagangnet.com/trade-facilitation/epermit/

The exporter/importer or his agent shall submit such documents as may be requested by the competent customs

officer for the purpose of assessing any declaration made by the exporter/importer. The list of supporting

documents is as follows:

1. Invoice, 2. Packing list, 3. Manifest, 4. Other related documents (export)

1. Bill of Lading / Airway Bill, 2. Invoice, 3. Packing List, 4. Country of Origin Certificate (if applicable), 5. Other

related documents. (import)

4. Pledge & preparation of documents for customs clearance

•

The authorities (JKDM) have the right to inspect consignments to

ensure that the exports/imports comply with laws and regulations.

•

Any authorized customs officer may conduct a physical inspection of

any goods when necessary.

5. Goods Inspection

1.

Duty / cess payable on exported goods must be paid by the exporter before

exporting the goods.

2.

Duty / tax payable on imported goods must be paid by the importer upon arrival of

the goods.

3.

Payment of duty / cess can be made at the counter or through online payment.

Link : http://www.dagangnet.com/trade-facilitation/epayment/

6. Payment Of Duties / Cess

The goods to be exported/imported can be approved for release out of

Malaysia provided that duty / cess has been paid and a permit (if

applicable) has been obtained.

7. Customs Approval

Customs clearance can be allowed after all actions that have been

dictated by JKDM have been complied with and fulfilled.

8. Customs Release

Export/import records must be kept within Malaysia for a period of seven

(7) years, except as approved by the Director General subject to any

conditions imposed by him.

9. Documentation and Record Keeping

You are the logistics manager for an international trading company that specializes in importing and

exporting various goods to and from countries around the world.

Recently, a geopolitical conflict has erupted in a region where your company conducts significant trade.

This conflict has disrupted trade routes, posed security risks, and created uncertainties in the

international logistics landscape.

Your task is to navigate this challenging situation and ensure the continued success of your company's

import and export operations.

Tutorial

2.3

LICENSING

• A licensing or licence agreement is basically a legally binding contract between

a licensor and a licensee, by which the licensor gives the licensee certain rights

or permission for the use of its IP, which would not otherwise be available to the

licensee.

• Broadly speaking, anything that one owns or has rights to may be licensed.

• In terms of technology licensing, the IP rights protecting the technology, for

example, patents, industrial designs, know-how, trade secrets etc. would

typically be the subject matter of a licence.

Definition

• The owner of the IP has the right to license to an interested party or multiple

parties.

• In some cases, the owner may grant a licence to a main or master licensee,

giving him sub-licensing rights. With such rights, the master licensee in turn,

grants further licences, which are referred to as sub-licenses, to other interested

parties. The parties receiving the sub-licences are known as sub-licensees.

• Any interested party, either an individual or a company, may approach the

owner of an IP to obtain a licence to use the same.

Who May License and use a license

•Exclusive licence - An exclusive licence is one where the licensee is the only one that is

granted rights by the licensor. An exclusive licence not only disallows the licensor to license the

same rights to any other party, but it also excludes the licensor from using its rights.

•Non-exclusive licence - A non-exclusive licence means that the rights granted by the licensor

to the licensee may also be granted to other parties. In other words, a non-exclusive licence

does not exclude the possibility of the licensor granting further licences to other parties, that is to

say that the licensor may license the same rights to more than one party.

•Sole licence - A sole licence is the same as an exclusive licence with the exception that the

licensor retains its rights to use the IP. This means that, for a sole licence, both the sole licensee

and the licensor have the rights to use the IP.

Types of Licenses

Multiple Choice

A software company distributing their license to many user belong to which type of license?

• Exclusive License

• Sole License

• Non-Exclusive License

• Revenue generation

• Risk minimization

• Reduction in costs

• Immediate access to new technologies

• Collaboration opportunities

Advantages of Licensing

• Loss of control of their intellectual property

• Dependent on the skills, abilities, and resources of the licensee to

generate revenues

• Exposed to intellectual property theft by the licensee

Disadvantages of Licensing

Matters for consideration in a License Agreement

Matters for consideration in a License Agreement

2.4

OFFSHORING

• Offshoring is the transferring activities or ownership of a complete business

process to a different country from the country (or countries) where the

company receiving the services is located.

• First of all, firms can relocate “material” and “immaterial” stages of production.

We call these phenomena as “material offshoring” and “service offshoring”,

respectively. The first concept refers to manufacturing tasks, such as assembly

and intermediate goods production, whereas the second captures the offshoring

of business services, such as call-centres, accountancy, financial services and

customer services.

Definition

•Companies often offshore manufacturing or services to countries where the hourly labor rate is

significantly lower. In Mexico, for example, the hourly labor rate is only a fraction of the minimum

wage in the United States.

•In addition to saving money on manufacturing costs, companies offshoring manufacturing also

creates more skilled employment opportunities in administrative and operational roles

•Offshoring allows companies to maintain complete control over the operation and production of

the business. While outsourcing relies on an outside vendor to complete tasks, offshoring relies

only on those within the same company.

•For some, offshoring allows for a more cohesive, directionally focused business than

outsourcing does.

Understanding Offshoring

• Lower Costs in offshore regions.

• Less stringent regulatory control in offshore regions

• Deregulation of trade facilities offshoring

• Lower Communication and IT Costs.

• Improving capabilities in offshore regions

• Clusters of specific activities (e.g. call centres) emerging in certain

regions

Reasons for Offshoring

• Time Zone Differences and Proximity

• Communication and Language Issues

• Quality Control Problems

• Security and Intellectual Property (IP) Issues

• Payrolling and Compliance Issues

• Negative Image Due to a Loss of Domestic Jobs

Risks of Offshoring

2.5

OUTSOURCING

• Outsourcing is defined as the act of obtaining semi-finished products, finished

products or services from an outside company if these activities were

traditionally performed internally.

• In the previous sentence, the word "product" may be replaced by "service".

• The company that out sources is called "buyer" whereas the company that

provides the service is known as the "vendor". Note that outsourcing leads to a

significant rapprochement between the vendor and the buyer.

Definition

• Outsourcing can save costs by accomplishing the same task for less money.

However, just because the task is being accomplished for less money does not

mean that the quality will decline. One of the most attractive aspects of

outsourcing is the reduction in cost while still receiving high quality services.

• Outsourcing can increase efficiency by entrusting business processes to third-

party vendors that specialize in that specific area.

• Outsourcing allows companies to focus on the core areas of their business and

improve their brand by freeing up time, energy and resources.

Understanding Outsourcing

• Cost Savings

• Focus on Core Business Processes

• Reduced Operational, Infrastructural and Recruitment Costs

• Increased Efficiency & Expertise

• Access to the latest technology

Reasons for Outsourcing

• Risk of Exposing Confidential Corporate Information

• Service Delivery

• Hidden costs

• Lack of flexibility

• instability

Risks of Outsourcing

Overseas Site Selection Factors

2.6

FOREIGN DIRECT INVESTMENT

(FDI)

• Foreign direct investment (FDI) is an ownership stake in a foreign company or

project made by an investor, company, or government from another country.

• Sometimes referred to as direct investment, the investor takes a controlling

interest in a foreign company.

• Generally, the term is used to describe a business decision to acquire a

substantial stake in a foreign business or to buy it outright to expand operations

to a new region.

Definition

• Foreign direct investments (FDIs) are substantial, lasting investments made by

a company or government into a foreign concern.

• FDI investors typically take controlling positions in domestic firms or joint

ventures and are actively involved in their management.

• The investment may involve acquiring a source of materials, expanding a

company’s footprint, or developing a multinational presence.

• The top recipients of FDI over the past several years have been the United

States and China.

Understanding FDI

• Foreign direct investment (FDI) inflows into the ASEAN region for the 2021

calendar year reached a record level of USD 174 billion, equaling the pre-

pandemic high recorded in 2019.

• Key drivers for rising FDI inflows into Southeast Asia include diversification of

manufacturing supply chains by multinationals, as well as new investments to

tap rapidly growing consumer markets in ASEAN.

• Strong FDI inflows into electronics manufacturing, and also projects related to

electric vehicles, were important contributors to the high level of FDI inflows

recorded in 2021.

ASEAN FDI

=

ASEAN FDI inflows

=

ASEAN FDI in 2021 by Source

Flows of Inward FDI to ASEAN Countries

(in million US$)

•Horizontal: a business expands its domestic operations to a foreign country. In this

case, the business conducts the same activities but in a foreign country. For

example, McDonald’s opening restaurants in Japan would be considered horizontal

FDI.

•Vertical: a business expands into a foreign country by moving to a different level of

the supply chain. In other words, a firm conducts different activities abroad but

these activities are still related to the main business. Using the same example,

McDonald’s could purchase a large-scale farm in Canada to produce meat for their

restaurants.

Types of FDI

•Conglomerate: a business acquires an unrelated business in a foreign country. This is

uncommon, as it requires overcoming two barriers to entry: entering a foreign country

and entering a new industry or market. An example of this would be if Johor Corp,

which is based in the Malaysia, acquired a clothing line in France.

•Platform: a business expands into a foreign country but the output from the foreign

operations is exported to a third country. This is also referred to as export-platform FDI.

Platform FDI commonly happens in low-cost locations inside free-trade areas. For

example, if Ford purchased manufacturing plants in Ireland with the primary purpose of

exporting cars to other countries in the EU.

Types of FDI

•FDI can take two different forms: Greenfield or mergers and acquisitions (M&As).

•Greenfield

investment

involves

the

creation

of

a

new

company

or

establishment of facilities abroad. A greenfield investment is a form of market

entry commonly used when a company wants to achieve the highest degree

of control over foreign activities

•Mergers and acquisitions amounts to transferring the ownership of existing

assets to an owner abroad. In a merger, two companies are merged to form

one, while in an acquisition one company is taken over by another.

Methods of FDI

• Economic growth

• Human capital development

• Market diversification

• Subsidies

• Access to management expertise, skills, and technology

Advantages of FDI

• Hindrance of domestic investment

• The risk from political changes

• Higher costs

• Modern-day economic colonialism

• Expropriation

Disadvantages of FDI

2.7

COUNTERTRADE AND

DRAWBACKS

•When an international sale takes place, it may be difficult to structure the sale through

conventional means of payment. With countertrade, goods or services are exchanged

rather than currency. This is often known as bartering.

•In countertrade transactions, which involve trading in goods and services as opposed

to money, cash does not change hands. This is oftentimes referred to as bartering,

which is the oldest type of countertrade arrangement.

•Many governments reduce imbalances in trade between countries through the use of a

countertrade system of international trading.

Definition

•Enable trade in countries that are unable to pay for imports. This can be the result of a

shortage of foreign currency or lack of commercial credit, for example.

•Help find new export markets or protect the output of domestic industries.

•Balance overseas trade.

•Gain a competitive edge over competing suppliers.

•Sidestep the lack of credit or other alternative financing measures.

•Develop a workaround on the rules and regulations of a foreign country.

•Foster customer goodwill.

Countertrade is Used Primarily to:

•Barter - It is a direct and on-the-spot exchange of products of equivalent value or importance. It doesn’t

involve payment using money; parties in the barter system benefit from receiving the products they require

by exchanging what they have in surplus. Since money is not a factor, it helps financially weak countries to

get into international trade. For example, countries enter into barter deals to obtain military equipment by

transferring locally produced commodities.

•Counter Purchase - The counter purchase involves an importer obtaining goods and services from an

exporter with an assurance that the exporter will purchase other specific goods or services from the

importer. For instance, a domestic company can sell its product to a foreign company based on an

agreement to buy another product from the foreign company within a set time. This way, the money does

not change hands. For example – Brazil exports vehicles, steel, and farm products to oil-producing

countries from which it buys oil in return within a set time.

Types of Countertrade

•Offset - They are often observed in the deals involving aircraft and military equipment. The agreements

usually portray an exporter manufacturer agreeing to the importer’s terms like marketing their products,

final assembly of exported items in the importer’s country, and buying other goods and services from the

importer’s country. It is generally categorized into direct offset and indirect offset. Direct offset is related to

the product or service involved in the trade, and the agreement involves coproduction or subcontracts.

Indirect offset agreements are not related to the main product, but the exporter may be obliged to buy

goods or services from the importing country.

•Switch Trading - Switch trading involves a minimum of three parties. It enables one party to sell its

obligation or assurance to another party to a third party. For example, country A exports its product to

country B. Country B will ship other products to another country C, known as switch trader. Country C, in

turn, provides or exports the product needed by country A.

Types of Countertrade

•Buyback - Buyback occurs when one party provides the inputs like technology and equipment

to another party and, in return, receives a certain amount of finished goods made using those

facilities as a part of compensation. It is also evident that the products shared by the parties to

the agreement are related as input and output. For example, one country provides the auto

parts, machinery, and workforce to another country and receives a large consignment of auto

vehicles.

•Compensation Trade - The form of arrangement in which the repayment against the input

received is done from the revenues generated by that input. It also ensures that payment flow is

partly in goods and cash. For example, an investor is paid back by a share of the proceeds or

results generated by the goods and services that the investor provided.

Types of Countertrade

• Allows for entry into difficult markets.

• Increases company sales where the business might not otherwise

have revenues.

• Overcomes credit difficulties.

• Allows for disposal of declining or surplus products.

• Gains competitive advantage over the competition.

Advantages of Countertrade

• The time-consuming nature.

• Negotiation complexity.

• Higher transaction costs

• Logistical issues

• Greater uncertainty on the value of the goods being traded and

uncertainty on the quality of the goods.

Disadvantages of Countertrade

Individual Tutorial – 5 April 2023. Submit in Power point format. Present Next Class

1.

How can companies ensure that they maintain quality control when offshoring work?

2.

How can companies address cultural and communication barriers when offshoring work to

different countries?

3.

What factors should companies consider when deciding whether to engage in countertrade?

4.

How can companies effectively manage their FDI relationships?

Tutorial

THANK YOU