Many businesses prefer to trade in their home country because of the difficulties involved in exporting, such as methods of payment.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2020). The mark or mark type is shown in brackets.

1. [1] Both have buyers and sellers who exchange / trade / buying and selling of goods and services to satisfy needs and wants of consumers for payment / money to make a profit
2. [1] Both require aids to trade e.g. warehousing / advertising / communications / banking / insurance / transport
3. [1] Distance (transport / communications / insurance over longer distances / adds to costs / greater risk of damage to goods)
4. [1] Different legal systems (restrictions on advertising / laws governing food safety / consumer protection)
5. [1] Differences in weights / measures / technical specifications (many countries use different measurements)
6. [1] Language barriers (many countries use different languages / makes communication difficult / use of translators)
7. [1] Differences in customs / culture (exporters need a good understanding of local customs and tastes / holidays)
8. [1] Transport (distance / method / suitability / access / expense)
9. [1] Paperwork/documentation (e.g. export licence) to cross borders
10. [1] Trade restrictions (tariffs / quotas / embargoes / limit amount of goods that can be imported / extra costs)
11. [1] Risk of non-payment (unknown customers)
12. [1] Competition (from cheaper goods in the home market)
13. [1] Different time zones (making communication difficult)
14. [1] Currency (exchange rates).
15. [Factor 1] Use a secure method of payment e.g. letter of credit. A letter of credit is essentially one bank's promise to another bank that it guarantees the transaction / payment
16. [Factor 2] Use a quick method of payment, e.g. electronic transfer so a business knows whether or not the payment has been made very quickly, especially if they use online banking
17. [Factor 3] Check that customers are creditworthy and can afford to pay by undertaking credit checks so that money is not lost
18. [Factor 4] Check that customers are legal
19. [Factor 5] There is a legal contract in place so to avoid bad debts
20. [Factor 6] There is collateral security e.g. property deeds in case of default
21. [Factor 7] Ask for a deposit to get commitment from the customer and at least a part-payment has been received so the customer is likely to be genuine
22. [Factor 8] Cash in advance / not allow credit so that the exporter can eliminate credit risk or the risk of non-payment since payment is received prior to the transfer of ownership of the goods. Wire transfers and credit cards are the most commonly used cash-in-advance options available to exporters.
23. [Evaluation point 1] Credit cards are the best method of payment for low transaction amounts, where speed and security are valued as key factors. The money is paid in advance so there is no risk of non-payment.
24. [Evaluation point 2] For transactions that require the strictest control measures against risk, a letter of credit is the best choice in transactions with a high amount, which can withstand the extra cost as it guarantees payment.
25. [Up to 2 marks] for describing factors exporters should consider
26. [Up to a further 2 marks] for analysing factors exporters should consider
27. [Up to a final 2 marks] for evaluating factors exporters should consider.