Padhy Leather: Minimizing Commercial Risk through a Letter of Credit
(11 pages of text)
Case (Gen Exp)
In March 2018, the new business development manager of the international trade department of M/S Padhy Leather Ltd. was trying to find a way to balance her key responsibilities. The manufacturing start-up, located in New Town, India, was in the business of exporting leather garments and was promoted by two young, first generation entrepreneurs. The company had started its export business with a few clients in the United States. The manager’s key responsibilities were exploring new markets and clients. Her immediate target was the United States, after which she would expand the business into Canada. She was concerned with how to minimize the commercial risks (non-payment risks such as transport and country risk) from new and untested clients while developing business and improving profitability.
This case can be used in international business, international banking and trade finance, commercial bank management, or bank management courses at the undergraduate or graduate level. The case gives students the opportunity to do the following:
- Identify various risks in international trade, such as carriage (transport) risk, commercial (non-payment) risk, currency risk, and country (political and economic) risk, and how to manage them.
- Describe various payment methods in international trade and their comparative advantages and disadvantages for exporters and importers.
- Identify the best payment mode for minimizing the commercial (non-payment) risk for exporters.
- Understand the concept of the documentary letter of credit and its applications in international business.
- Describe various types of documentary letters of credit and their usefulness.
Bangladesh; India; Pakistan; China, 2018
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