Page 234 - DCOM508_CORPORATE_TAX_PLANNING

Unit 10: Tax Consideration in Specific Managerial Decisions

4. The risks associated with financing the transaction: The riskier the transaction, the harder Notes

and more costly it will be to finance. The political and economic stability of the buyer’s
country can also be an issue. To provide financing for either accounts receivable or the

production or purchase of the product for sale, the lender may require the most secure
methods of payment, a letter of credit (possibly confi rmed), or export credit insurance or
guarantee.
5. The need for pre-shipment finance and for post-shipment working capital: Production for

an unusually large order, or for a surge of orders, may present unexpected and severe
strains on the exporter’s working capital. Even during normal periods, inadequate working
capital may curb an exporter’s growth.
Therefore, exporters should be aware of the many financing options open to them so that they

choose the most acceptable one to both the buyer and the seller.

Advantages of Exporting

Consider some of the specific advantages of exporting. Exporting can help the business in:
1. Enhance domestic competitiveness
2. Increase sales and profi ts

3. Gain global market share
4. Reduce dependence on existing markets
5. Exploit corporate technology and know-how
6. Extend the sales potential of existing products
7. Stabilise seasonal market fl uctuations

8. Enhance potential for corporate expansion
9. Sell excess production capacity
10. Gain information about foreign competition

Disadvantages of Exporting

In comparison, there are certain disadvantages to exporting. The business may be required to:
1. Subordinate short-term profits to long-term gains

2. Hire staff to launch the export expansion
3. Modify your product or packaging
4. Develop new promotional material
5. Incur added administrative costs
6. Dedicate personnel for travelling

7. Wait longer for payments
8. Apply for additional fi nancing
9. Obtain special export licenses

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