Case analysis for belco global foods. 1157

 

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

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Purchased by: MINYONG KIM [email protected] on October 06, 2013
211-033 Belco Global Foods
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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:
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Belco Global Foods 211-033
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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.
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211-033 Belco Global Foods
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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.
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Belco Global Foods 211-033
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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
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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.
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Belco Global Foods 211-033
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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%
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211-033 Belco Global Foods
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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]

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). [4]

3. Which terms should Belco offer to the new customers mentioned in the case? [2]

4. How should Pam Arnold attempt to collect the overdue payment from Kooritsa Kiev? [2]

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