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I need to do case analysis for Belco Global Foods. Please answer attached files and give me answers :) American Samoa Wire transfer in advance 1 0 1 3.7 4.0 7,036 American Samoa Open account 0 3 1 3.7 4.0 7,036 American Samoa Open account 0 2 1 3.7 4.0 7,036 American Samoa Open account 0 3 1 3.7 4.0 7,036 Angola Wire transfer in advance 1 1 0 3.0 2.5 6,622 Armenia Wire transfer in advance 1 2 0 3.0 2.5 5,853 Aruba Open account 0 3 0 3.5 3.5 1,874 Aruba Open account 0 3 0 3.5 3.5 1,874 Australia Wire transfer in advance 1 2 1 4.0 4.0 9,918 Bermuda Open account 0 2 1 3.0 3.5 826 Chile Wire transfer in advance 1 1 0 4.0 3.5 5,020 China Wire transfer in advance 1 0 0 2.5 2.0 6,934 China Wire transfer in advance 1 1 0 2.5 2.0 6,934 China Wire transfer in advance 1 2 0 2.5 2.0 6,934 China Wire transfer in advance 1 1 0 2.5 2.0 6,934 China Wire transfer in advance 1 2 0 2.5 2.0 6,934 China Wire transfer in advance 1 3 0 2.5 2.0 6,934 China Wire transfer in advance 1 1 0 2.5 2.0 6,934 Colombia Wire transfer in advance 1 1 0 3.5 2.5 2,379 Colombia Letter of Credit 0 1 0 3.5 2.5 2,379 Colombia Open account 0 1 0 3.5 2.5 2,379 Dominican Republic Open account 0 2 0 3.5 2.5 1,476 Ghana Wire transfer in advance 1 1 1 2.8 2.5 5,276 Guam Open account 0 1 1 3.0 3.5 7,935 Guam Open account 0 2 1 3.0 3.5 7,935 Guam Open account 0 3 1 3.0 3.5 7,935 Haiti Wire transfer in advance 1 1 0 2.5 1.0 1,436 Jamaica Open account 0 0 1 3.5 3.0 1,446 Jamaica Open account 0 1 1 3.5 3.0 1,446 Jamaica Open account 0 2 1 3.5 3.0 1,446 Japan Letter of Credit 0 3 0 4.0 3.5 6,783 Korea, South Letter of Credit 0 2 0 3.5 3.0 6,945 Malaysia Wire transfer in advance 1 2 1 3.5 3.0 9,536 Malaysia Open account 0 0 1 3.5 3.0 9,536 Malaysia Open account 0 1 1 3.5 3.0 9,536 Mexico Wire transfer in advance 1 1 0 3.0 3.0 1,886 Mexico Open account 0 2 0 3.0 3.0 1,886 Mexico Open account 0 3 0 3.0 3.0 1,886 Mexico Open account 0 2 0 3.0 3.0 1,886 Mexico Open account 0 3 0 3.0 3.0 1,886 Netherlands Antilles Open account 0 1 0 3.5 3.5 1,919 Puerto Rico Wire transfer in advance 1 1 1 3.7 4.0 1,558 Puerto Rico Open account 0 1 1 3.7 4.0 1,558 Puerto Rico Open account 0 2 1 3.7 4.0 1,558 Puerto Rico Open account 0 3 1 3.7 4.0 1,558 Puerto Rico Open account 0 1 1 3.7 4.0 1,558 Puerto Rico Open account 0 2 1 3.7 4.0 1,558 Puerto Rico Open account 0 3 1 3.7 4.0 1,558 Puerto Rico Open account 0 2 1 3.7 4.0 1,558 Puerto Rico Open account 0 3 1 3.7 4.0 1,558 Puerto Rico Open account 0 2 1 3.7 4.0 1,558 Russia Wire transfer in advance 1 1 0 2.5 3.5 4,866 Russia Wire transfer in advance 1 0 0 2.5 3.5 4,866 Russia Wire transfer in advance 1 2 0 2.5 3.5 4,866 Russia Wire transfer in advance 1 3 0 2.5 3.5 4,866 Russia Wire transfer in advance 1 1 0 2.5 3.5 4,866 Russia Wire transfer in advance 1 0 0 2.5 3.5 4,866 Russia Open account 0 3 0 2.5 3.5 4,866 Russia Open account 0 3 0 2.5 3.5 4,866 Spain Wire transfer in advance 1 1 0 3.6 3.5 3,788 Spain Open account 0 2 0 3.6 3.5 3,788 Spain Open account 0 3 0 3.6 3.5 3,788 Sri Lanka Open account 0 2 1 3.5 2.2 8,951 Taiwan Wire transfer in advance 1 1 0 3.5 4.0 7,864 Taiwan Letter of Credit 0 1 0 3.5 4.0 7,864 Trinidad and Tobago Open account 0 3 1 3.5 4.0 2,176 Ukraine Wire transfer in advance 1 2 0 3.0 1.5 4,872 Ukraine Wire transfer in advance 1 3 0 3.0 1.5 4,872 United Arab Emirates Letter of Credit 0 0 1 3.0 4.0 7,057 United Kingdom Open account 0 3 1 3.0 3.5 3,669 _______ Professo not refle serve as Copyrig write Ha photoco C . 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Nea breadth of cou e from hund d a critical ro marketers we eded to be w with Kooritsa 005. Kooritsa stomer to earn was overdue, e due in 15 da ory that had rticularly chal ans, LA, whe d to meet And t connection, ultry trading c 9-211- : NOVEMBER 1 8 ________________ ave been disguised Cases are not inte terials, call 1-800-5 ation may not be d co”), was deb her members ections of acc ading marke d then export ident of Belco wards the mile ct breakdown nd it was the arly all sales untries it serv dreds of diff ole in ensurin ere typically written off, B Kiev, a whole a Kiev was n n the right to Kooritsa Kiev ays. Kooritsa fallen behind llenging situa en Alex Fishe drew Walker and they ba company. De -033 , 2 0 1 0 ______ d and do ended to 45-7685, igitized, bating of the counts eter of ted to o after estone n, and credit s and ved, at ferent ng the 2-4%. Belco’s esaler not an trade v also a Kiev d on a ations. er and r, who anded espite Purchased by: MINYONG KIM [email protected] on October 06, 2013 211-033 Belco Global Foods 2 finding early success, they were forced to shut their doors due to heavy losses from speculative trading at the parent company. The team was not fazed, though. Propelled by dreams to own their own company, Fisher and Walker started Belco in the office suite next door with $1,000 in cash, a line of credit, and a few phone lines and office supplies left over from their previous employer. They brought in Jeff Taylor as an additional partner and were able to secure some early financing from the Washington, DC-based firm Dealy and Sons. The company quickly grew, and by the early 1980s the partners were able to buy out Dealy and Sons’ stake. One factor that propelled Belco’s rapid early growth was its commitment to understanding its markets and its customers. Belco opened foreign offices and hired employees who could speak with customers in their own language. The company’s push to develop a foreign presence not only gave it a leg up in tracking market trends, but it was also part of its vision to build strong and mutually advantageous relationships with its suppliers and customers. Customers kept Belco informed of local demands, and Belco offered suggestions to customers seeking to expand the scale and scope of their operations. Its devotion to its customers reaped dividends; many customers had been with Belco through several generations of leadership. By 2009, Belco had 18 offices on 4 continents and an employee base that spoke 22 languages and spanned 40 nationalities. While Belco began as an exporter of U.S. proteins, the strengthening of the U.S. dollar in the early 1980s forced it to reevaluate its strategy, and it attempted to expand its business to become an importer of food products into the U.S. Importing opportunities became less attractive when the dollar depreciated in the late 1980s, but Belco gained invaluable knowledge about foreign suppliers, allowing it to source some products more effectively from other countries. Along with its supplier base, Belco made great efforts to diversify across the products it offered and the countries it served. Belco had focused on marketing poultry products at its inception, but it expanded into pork and beef when Puerto Rican customers expressed interest in them. When it learned of demand for chicken feet in the Far East, it financed equipment for its U.S. suppliers to process them. When China and Russia opened up to trade, Belco built a strong presence in each country, securing large new markets for its products. Belco’s internal culture was one in which its employees were challenged and empowered to make their own decisions. Employees were given a high degree of independence and encouraged to suggest new products or markets, and the company devoted substantial resources to training and developing its employees. It also fostered a spirit of camaraderie and created opportunities for advancement. Many employees who left Belco could not stay away for long and soon returned, a group the company affectionately called the “Boomerang Club.” Another component of Belco’s growth strategy was the development of its own branded products. Belco’s efforts to build its own brands helped it break free of commodity pricing practices and establish itself in smaller markets with brand-loyal customers. 10 to 15 percent of Belco’s products went to consumers as a branded product. Credit and Risk Management Practices As a marketer of frozen and refrigerated foods, Belco’s business inherently came with substantial risk. The global credit and risk management team at Belco monitored these risks, playing a key role in ensuring the company’s profitability. The team was guided by the following mission statement: Purchased by: MINYONG KIM [email protected] on October 06, 2013 Belco Global Foods 211-033 3 Belco’s global credit and risk management team of professionals are charged with the responsibility for financial and product risk assessments and collection activities of our entire customer portfolio. We perform these functions in tandem with the strategic initiatives that support Belco’s worldwide business expansion. The department is aligned with sales and marketing to know each of our customers, their marketplaces, and the countries involved in our global business platform. We will seek and obtain competitive advantage through finance, credit programs and industry terms that contribute to Belco’s ability to leverage its global expansion. We do so while selling to all customers that represent a prudent credit risk. We protect Belco’s largest financial asset, our accounts receivable, via check and balance systems as well as title retention of cargo where appropriate due to credit terms and country of destination. To this end, the credit team learned everything it could about a new customer, and it continued to monitor the customer through each subsequent transaction. The team created a credit file on every new customer, regardless of credit terms. It collected information from a variety of sources. From the customer itself, it would obtain financial statements when possible, but only about 20 percent provided audited financials, and there were often inconsistencies in the information others provided. Some customers had company brochures that Belco used as a resource. When sales personnel visited larger potential customers, members of the credit team joined them to “view the market with their credit eyes.”1 Belco learned what it could from a new potential customer’s suppliers and from existing Belco customers. It also sought bank references and obtained information from third-party reporting companies like Dunn & Bradstreet and Sea Fax. The usefulness of such reports could be limited, though, as they primarily included information about past events. Once a credit file was opened it was never destroyed, and the credit team regularly reviewed and updated it. Additionally, for each customer the credit team tracked credit terms, credit limits, payment history, renegotiations, claims, deductions, and other information. Along with customer-level data, the credit team tracked relevant country- and market-level factors. It monitored macro-level risks such as capital control policies that could cause payment delays, regardless of the credit rating of the customer. It tracked pressures on exchange rates, as a sharp depreciation of a local currency could impair a customer’s ability to pay Belco. It used U.S embassy officials and other resources to check the veracity of market rumors. The competitive dynamics of a country was another factor that Belco tracked, as these dynamics could affect the choice of credit terms. If other suppliers offered favorable credit terms to customers, Belco would need to as well to stay competitive. For example, smaller, more stable countries that were located close to the U.S. tended to be markets where customers traded on open account terms so Belco had limited flexibility when setting terms there. Having many other customers in a country could create benefits for Belco as well. For example, if enough other potential customers existed in a market, Belco was more willing to sell on sight draft terms, as these terms could be viewed as replacing customer risk with market risk. This information it collected was integral to Belco’s decisions over which kinds of credit terms to offer a customer. When making these decisions, Belco considered the above factors along with its experience with a customer, the idiosyncrasies of a transaction, and many other pieces of information. Exhibit 3 provides a sketch of some information on two new customers that the credit team was 1 Interview with Pam Arnold, September 13, 2010. Purchased by: MINYONG KIM [email protected] on October 06, 2013 211-033 Belco Global Foods 4 currently reviewing. Exhibit 4 illustrates a sample of terms offered to recent customers, and Exhibit 5 summarizes Belco’s use of different credit terms in recent years. The credit team required the support of other departments at Belco to execute its credit policies. It constantly interacted with the sales team to ensure that the terms of the credit policy were followed and to alert the sales team of any potential problems with a customer. It also used the sales team to learn more about customers. The credit team also required the support of the operations department to track arrival and departure dates of its products and to ensure that the credit terms on a transaction were consistent with its Incoterms.2 Along with its role in choosing credit terms, the credit team was also charged with collecting Belco’s receivables. The team followed a detailed set of guidelines to enhance the efficiency and efficacy of its activities. Credit terms offered to a customer could not exceed 30 days after the arrival of cargo in the destination port unless approved by Arnold, the Head of Global Credit. Collection efforts intensified as soon as an invoice was due and no grace period was offered. The credit team was responsible for ensuring that customers were contacted on the due date of an invoice if payment had not been received and on a regular basis thereafter. The credit team made the utmost effort to “build rapport from day one,” but at the same time to be “aggressive and assertive…so that if a customer was deciding whether to pay Peter or Paul, it would pay Belco first.”3 The credit team reviewed weekly exposure reports on Belco’s accounts receivable that were broken down by customer and by due date, which allowed it to be fully knowledgeable at all times of the status of a customer’s accounts. If an invoice was a certain number of days past due, the credit team put the customer’s account on credit hold. Belco also implemented a cargo tracking system that required the approval of the credit team before any goods were shipped or released. The credit team could refuse approval if there was a credit concern over a customer or if a previous payment was past due. Collecting on its receivables as quickly as possible was of the utmost importance to Belco. At any given time, it had roughly $100 million outstanding in accounts receivable. The average maturity was 30 days, and the interest rate associated with financing accounts receivable was roughly 10 percent. Although Belco hoped not to file claims on overdue accounts, it insured its receivables. This not only reduced Belco’s borrowing costs, but it also protected it from catastrophic risk. Insurance typically covered 85-90 percent of contract value, and first losses were assumed by Belco. The company paid a premium for the policy, and policies came with country, buyer, and term limits. Credit Experiences Historically, Belco had limited credit losses: as of 2008, about 99.8 percent of its portfolio was current and write offs of bad debt were less than .00001 percent of sales. Belco’s relationships with customers and close monitoring of markets played a crucial role in helping it avoid large losses. For example, in 1994 Belco had about $10 million in receivables from customers based in Mexico and began learning that these customers were having trouble collecting their own receivables. Coupled with this, macro-level concerns over excessive public and private debt and rumors surrounding the recent assassination of a presidential candidate and expected Congressional majority leader were creating an environment of instability. All these factors pushed Belco to reduce its exposure to the country as quickly as possible. In December of 1994 the Mexican peso was devalued, significantly 2 Incoterms, which stood for International Commercial Terms, were a universally recognized set of definitions of terms used in international trade developed by the International Chamber of Commerce. 3 Interview with Pam Arnold, September 13, 2010. Purchased by: MINYONG KIM [email protected] on October 06, 2013 Belco Global Foods 211-033 5 raising the costs of imports into the country and threatening the competitiveness of Belco’s customers, but by then Belco had cut its exposure to Mexico from $10 million $1 million. Belco was on the ground quickly to collect the debts that did remain, at times taking watches, vehicles, and any other hard assets it could find as payment. As a result, its losses were kept to a minimum. Collecting Receivables from Kooritsa Kiev Despite Belco’s historic success in collecting on its accounts receivable, Arnold knew that each case was unique, and the Kooritsa Kiev account could prove to be problematic. Kooritsa Kiev was a wholesaler that supplied local restaurants and food markets with poultry, pork and other products. Belco had been trading with Kooritsa Kiev for four years, and in early 2008 Belco had begun to grant it open account terms, as Kooritsa Kiev had consistently placed large orders and made prompt payments. Belco employees in its Moscow office had developed a personal relationship with the company’s officers. The sales team had obtained some financials during the site visit, which are shown in Exhibit 6. The sales team also learned that about half of Kooritsa Kiev’s cost of goods sold were associated with food products imported from the U.S. are were dollar denominated while other costs were incurred in rubles. The credit team had spoken with the company’s bank as well as other suppliers who had extended credit to it in the past. Each of them indicated no episodes of payment problems and had given a positive impression of Kooritsa Kiev. Kooritsa Kiev’s debt was denominated in rubles. The particular receivable that was overdue was related to an order Kooritsa Kiev had placed with Belco for $84,000 of bone-in hams and chicken leg quarters. Belco had set terms that gave Kooritsa Kiev until 30 days after the arrival of the goods to pay; Belco’s tracking system, however, indicated that 40 days had passed since the goods had arrived, and Belco had not yet received payment. A member of the credit team had called Sergei Barsov, the purchasing agent at Kooritsa Kiev, several times since the invoice date, and Barsov had confirmed the goods had arrived on time and that the company was very pleased with the product. Barsov had also indicated that the hams were very popular and that there was likely to be high demand for them in the future. During the most recent call, Barsov had insisted he would call Kooritsa Kiev’s bank that day to wire the funds to Belco, but as of yet no funds had arrived. In addition to the $84,000 that was overdue, Kooritsa Kiev also had an outstanding balance for an additional $78,000 that would come due in 15 days. Russia had been a strong market for Belco in recent years, but the economic situation had been fairly volatile. Since mid-2008, the Russian ruble had depreciated significantly against the US dollar, and growth had slowed substantially as indicated in Exhibit 7. The average U.S. dollar/ruble exchange rate was 0.040 in 2008, and it fell to 0.031 for the first part of 2009. Although demand for poultry and other food products fell in late 2008, it had rebounded, and U.S. exports of these goods into Russia had returned to values experienced in 2007 and early 2008. Exhibit 8 presents the monthly value of poultry, pork and other meat U.S. exports to Russia. Kooritsa Kiev’s orders from Belco were lower in early 2008 than they were in early 2009, but they were now tracking 2008 levels. Arnold and her credit team debated how to approach their collections efforts on the overdue account. One approach would be to engage the customer further. The credit team could continue to call Barsov and perhaps ask to speak to someone else in the company, or it could involve the sales team to see if a sales representative might have better luck. It could also have someone from Belco’s Moscow office visit the customer in person. With any of these options, the credit team would have to decide what kind of tone to take with the customer and how forceful to be. As an alternative, Belco could make use of a more formal commercial dispute resolution mechanism. Belco could hire legal counsel and take Kooritsa Kiev to court, or at least threaten to do Purchased by: MINYONG KIM [email protected] on October 06, 2013 211-033 Belco Global Foods 6 so. It could also try to arbitrate the claim: Russia had an arbitrations procedure similar to those in other countries and a court dedicated to resolving disputes through arbitration. While these were lengthy and costly processes, it was important for Belco to avoid getting a reputation for being lenient in collecting credits, or else other customers might feel less pressure to make on-time payments. A third option Belco could pursue would be to file a claim with its insurance company. While there was substantial paperwork involved with this process, it would minimize the time and resources spent pursuing collection on the account, and Belco’s insurer would certainly have the ability to pay. Whichever approach she decided to take, Arnold needed to act quickly: not only did she want to maintain Belco’s historical record of low bad debt, but she had the rest of Belco’s entire portfolio of receivables to tend to. Purchased by: MINYONG KIM [email protected] on October 06, 2013 Belco Global Foods 211-033 7 Exhibit 1 Belco’s Core Product Breakdown Source: Company documents. Exhibit 2 Belco’s Destination Country Breakdown Source: Company documents. Poultry, 57% Meat, 5% Pork, 18% Other products, 20% Asia and Pacific Islands, excl. China, 12% China, 24% Puerto Rico, 9% Russia, 14% Europe, excl. Russia, 9% Latin America and Caribbean, 20% Middle East and Africa, 11% North America, 1% Purchased by: MINYONG KIM [email protected] on October 06, 2013 211-033 Belco Global Foods 8 Exhibit 3 Two New Belco Customers Under Review for Credit Terms Customer 1 Name: Szechuan Supersellers Country: China Industry: Wholesaler of pork Years in business: Two Number of Employees: 20 Annual Sales: Less than $1 million Method of Contact: Customer contacted Belco directly Transportation Capital: Owns three trucks to move product from port to facility and from facility to customer Facilities: Leases one distribution center with one cold storage facility, does not own retail stores Information available: No audited financial statements, no trip reports available, no Belco site visits Customer 2 Name: Carne Borinquen Country: Puerto Rico Industry: Distributor of frozen fish, meat and poultry to several large international hotel chains Years in business: 30 (run by second generation owner) Number of Employees: Over 100 Annual Sales: Over $10 million Method of Contact: Food manager at hotel recommended Belco as a source of product Transportation Capital: Fleet of refrigerated trucks Facilities: Owns 3 distribution locations Information available: Company website, well-staffed sales team Source: Casewriters. Purchased by: MINYONG KIM [email protected] on October 06, 2013 211-033 -9- Exhibit 4 A Sample of Credit Terms Offered to Recent Customers Country Financing Terms Number of Past Transactions Legal Origin Contract Viability Payment Delays Distance American Samoa Wire transfer in advance 0 1 3.7 4.0 7036 American Samoa Open account 3 1 3.7 4.0 7036 American Samoa Open account 2 1 3.7 4.0 7036 American Samoa Open account 3 1 3.7 4.0 7036 Angola Wire transfer in advance 1 0 3.0 2.5 6622 Armenia Wire transfer in advance 2 0 3.0 2.5 5853 Aruba Open account 3 0 3.5 3.5 1874 Aruba Open account 3 0 3.5 3.5 1874 Australia Wire transfer in advance 2 1 4.0 4.0 9918 Bermuda Open account 2 1 3.0 3.5 826 Chile Wire transfer in advance 1 0 4.0 3.5 5020 China Wire transfer in advance 0 0 2.5 2.0 6934 China Wire transfer in advance 1 0 2.5 2.0 6934 China Wire transfer in advance 2 0 2.5 2.0 6934 China Wire transfer in advance 1 0 2.5 2.0 6934 China Wire transfer in advance 2 0 2.5 2.0 6934 China Wire transfer in advance 3 0 2.5 2.0 6934 China Wire transfer in advance 1 0 2.5 2.0 6934 Colombia Wire transfer in advance 1 0 3.5 2.5 2379 Colombia Letter of Credit 1 0 3.5 2.5 2379 Colombia Open account 1 0 3.5 2.5 2379 Dominican Republic Open account 2 0 3.5 2.5 1476 Ghana Wire transfer in advance 1 1 2.8 2.5 5276 Guam Open account 1 1 3.0 3.5 7935 Guam Open account 2 1 3.0 3.5 7935 Guam Open account 3 1 3.0 3.5 7935 Haiti Wire transfer in advance 1 0 2.5 1.0 1436 Jamaica Open account 0 1 3.5 3.0 1446 Jamaica Open account 1 1 3.5 3.0 1446 Jamaica Open account 2 1 3.5 3.0 1446 Japan Letter of Credit 3 0 4.0 3.5 6783 Korea, South Letter of Credit 2 0 3.5 3.0 6945 Malaysia Wire transfer in advance 2 1 3.5 3.0 9536 Malaysia Open account 0 1 3.5 3.0 9536 Malaysia Open account 1 1 3.5 3.0 9536 Purchased by: MINYONG KIM [email protected] on October 06, 2013 211-033 -10- Mexico Wire transfer in advance 1 0 3.0 3.0 1886 Mexico Open account 2 0 3.0 3.0 1886 Mexico Open account 3 0 3.0 3.0 1886 Mexico Open account 2 0 3.0 3.0 1886 Mexico Open account 3 0 3.0 3.0 1886 Netherlands Antilles Open account 1 0 3.5 3.5 1919 Puerto Rico Wire transfer in advance 1 1 3.7 4.0 1558 Puerto Rico Open account 1 1 3.7 4.0 1558 Puerto Rico Open account 2 1 3.7 4.0 1558 Puerto Rico Open account 3 1 3.7 4.0 1558 Puerto Rico Open account 1 1 3.7 4.0 1558 Puerto Rico Open account 2 1 3.7 4.0 1558 Puerto Rico Open account 3 1 3.7 4.0 1558 Puerto Rico Open account 2 1 3.7 4.0 1558 Puerto Rico Open account 3 1 3.7 4.0 1558 Puerto Rico Open account 2 1 3.7 4.0 1558 Russia Wire transfer in advance 1 0 2.5 3.5 4866 Russia Wire transfer in advance 0 0 2.5 3.5 4866 Russia Wire transfer in advance 2 0 2.5 3.5 4866 Russia Wire transfer in advance 3 0 2.5 3.5 4866 Russia Wire transfer in advance 1 0 2.5 3.5 4866 Russia Wire transfer in advance 0 0 2.5 3.5 4866 Russia Open account 3 0 2.5 3.5 4866 Russia Open account 3 0 2.5 3.5 4866 Spain Wire transfer in advance 1 0 3.6 3.5 3788 Spain Open account 2 0 3.6 3.5 3788 Spain Open account 3 0 3.6 3.5 3788 Sri Lanka Open account 2 1 3.5 2.2 8951 Taiwan Wire transfer in advance 1 0 3.5 4.0 7864 Taiwan Letter of Credit 1 0 3.5 4.0 7864 Trinidad and Tobago Open account 3 1 3.5 4.0 2176 Ukraine Wire transfer in advance 2 0 3.0 1.5 4872 Ukraine Wire transfer in advance 3 0 3.0 1.5 4872 United Arab Emirates Letter of Credit 0 1 3.0 4.0 7057 United Kingdom Open account 3 1 3.0 3.5 3669 Notes: Number of past transactions is the number of transactions Belco has had with a customer prior to the transaction associated with an observation. Legal origin is assigned a value of 1 for countries with a common law legal origin and a 0 for countries with a civil law legal origin. Contract viability is drawn from the International Country Risk Guide, and it measures the risk of contract modification or cancellation with higher values indicating lower risks. Payment Delay is also drawn from the International Country Risk Guide, and it measures the risk of receiving and exporting payments from a country with higher values indicating lower risks. Distance measures the distance from Washington DC to the capital city of a country. Source: These are not actual transactions, but instead are transactions formulated by the casewriters. Purchased by: MINYONG KIM [email protected] on October 06, 2013 Belco Global Foods 211-033 11 Exhibit 5 Breakdown of Credit Terms by Year Year Cash in Advance Share Letter of Credit Share Sight Draft Share Open Account Share 2001 41.3% 6.3% 8.1% 44.4% 2002 41.0% 6.7% 10.7% 41.7% 2003 42.3% 4.8% 9.9% 42.9% 2004 38.4% 5.6% 9.3% 46.7% 2005 45.1% 6.9% 8.1% 40.0% 2006 45.3% 5.6% 7.6% 41.5% 2007 44.1% 4.5% 9.4% 42.0% 2008 49.7% 4.7% 10.1% 35.6% Source: Company documents. Purchased by: MINYONG KIM [email protected] on October 06, 2013 211-033 Belco Global Foods 12 Exhibit 6 Financial Statements for Kooritsa Kiev (thousands of Rubles) Income Statement 12/31/2007 12/31/2008 Sales 450,000 472,500 Costs of Sales 360,000 392,175 Other Expenses 56,250 59,063 Interest Expense 6,000 6,500 Pretax profit 27,750 14,763 Balance Sheet 12/31/2007 12/31/2008 ASSETS Accounts Receivable 45,000 55,000 Other Current Assets 75,000 87,500 Total Current Assets 120,000 142,500 Net Property Plant and Equipment 62,500 60,000 Other Assets 60,000 54,375 Total Assets 180,000 196,875 : LIABILITIES AND EQUITY Accounts Payable 37,500 43,750 Short Term Debt 50,000 50,000 Other Current Liabilities 1,875 2,125 Total Current Liabilities 89,375 95,875 Other Non Current Liabilities 625 1,000 Total Shareholders' Equity 90,000 100,000 Total Liabilities and Equity 180,000 196,875 Source: Casewriters. Purchased by: MINYONG KIM [email protected] on October 06, 2013 Belco Global Foods 211-033 13 Exhibit 7 Russian Economic Indicators US dollar per Russian ruble exchange rate, 2002-2009 (monthly average) Source: Created by casewriters using data from Pacific Exchange Rate Service, accessed September 2010. Russian GDP growth compared to quarter a year ago, 2002Q1-2009Q4 (percent) Source: Created by casewriters using data from Economist Intelligence Unit, accessed September 2010. -15 -10 -5 0 5 10 15 percent Purchased by: MINYONG KIM [email protected] on October 06, 2013 211-033 Belco Global Foods 14 Exhibit 8 U.S. exports of meat products to Russia: Jan 2002-Sept. 2009 (thousands US$) Source: Created by casewriters using data from USATradeOnline, accessed September 2010. 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 thousands US$ Other Meat products Poultry, Fresh, Chill Or Frozen Pork, Fresh, Chilled Or Frozen Purchased by: MINYONG KIM [email protected] on October 06, 2013 Assisgnment: Belco Global Foods 1. Discuss the relative merits of each of the following trade finance terms: open account; letters of credit; documents against payment; cash in advance. How does each of these methods shift the risks of the transaction? Can you rank them in terms of the exporter’s preference?  2. What kinds of considerations determine the terms on which Belco trades with its customers, and in what way do these considerations matter? Support your answer with a regression analysis using the data provided in the spreadsheet appendix (provided on Blackboard).  3. Which terms should Belco offer to the new customers mentioned in the case?  4. How should Pam Arnold attempt to collect the overdue payment from Kooritsa Kiev?