Arion Exports, a South Korean company that specializes in producing automotive replacement parts, had decided to enter the Canadian market, Raymond Lee, the general manager, turned his attention initially to specific arrangements for finance and shipment.

Arion's intention originally was to have the customers of its Canadian agent, the Peterson Trading Company, finance shipments by letters of credit. On the first order received from Peterson, the letter of credit was delayed. Lee had wanted to make prompt shipment t show the Peterson organization and its customers the fast service and deliveries they could expect from Arion. For this reason he did not wait for the technicalities involved with the letter of credit delay to be resolved but proceeded with the shipment, using a "to order" bill of lading to retain title and control of the merchandise.

As matters turned out, the shipment arrived in Canada before the letter of credit was received in South Korea. When it did arrive, Arion presented it and shipping documents to the South Korean bank involved. The bank promptly made payments in won and airmailed the documents and clearances to its correspondent bank in Canada, where they were relayed to the customer.

Lee had quoted the lowest export prices possible on the order and had advised the Peterson Trading Company of its commission percentages as agent, and the terms of sales: letter of credit from the local customer. Since Lee had discovered that Peterson's customers would buy on a delivered-priced basis, Arion had to give its new agent a fairly accurate basis for estimating CIF charges on each of the lines. On some of the early quotations following the first order, Peterson's CIF estimates were too low, and its customer's and its customer's letter of credit did not cover all cost; Peterson's account was charged for the balance. Conversely, when the estimate from Peterson Company was too liberal for CIF charges, the difference was credited to its account. By trial and error, Peterson improved its CIF quotations and, after several shipments, they corresponded closely to the exact shipping charges.

After a series of orders had been received from the Peterson Company, the financial delays showed clearly that wholesalers in Canada were having considerable trouble getting letters of credit. The reason was that the importer had to make a full deposit of the amount with the local banks before they would open letters of credit. Since a period of about 90 days was required-after the credit was opened, and the order placed- before the foods were received in Canada, a severe strain was being placed on the working capital of the auto-parts importers.

In view of this, Lee believed that, if practical, other financial arrangements should be made to replace the particular letter-of-credit procedure being used. The delays in opening letters of credit might have to be accepted as a necessary evil- a condition of doing business in Canada. On the other hand, it might be possible to effect other terms of payment.

What other financial and payment methods might

1. Arion use in exporting to the Canadian market?
2. Which one of these would you suggest be used by Arion?
3. Should Mr. Lee necessarily drop using the letter-of-credit procedure? Why or why not?