Suvarna Sable
Evaluation
Two class test Presentation Assignment BOOKS: Kale and Ahmed Vipuls BMS series
Trade
TRADE
EXPORT
IMPORT
ENTREPORT (re-export)
Export:
"Export" means to send or take controlled tangible items, software or information out of the
country in any manner - shipping, mailed, hand-delivered, shipped by air, shipped by boat, uploaded to an internet site, or downloaded from an internet site, fax or can be shared during a telephone conversation. The seller = "exporter" based in the country of export The buyer = "importer overseas based when you trade something out of the country
Import:
To have a product shipped into a country or region. opposite of export.
you are faced with barriers - differing languages, politics, laws, governments and cultures.
HISTORY From around 1600AD the British East India Company (EIC) started trading with India in goods such as spices, silk and tea. By 1700 the EIC had set-up three trading posts, in Bombay, Madras and Calcutta Till now purpose was Trade Robert Clive Conquers India In 1751 The British Raj, 1858-1947
TODAY
India-born Sanjiv Mehta Bought East India Company - 2005 relaunched East India Company - 2010
Need of Export-Import
No country in world is self sufficient in all respects. It has to import some goods/services from abroad. Due to geographical factors, inadequate resources & technological development, huge population, economic backwardness. Various organization working towards it. Export- Gems & jewellary , cotton, carpet(excl. silk) handmade , rice , cashew, tea , tobacco , dairy products , sugar etc Import-petroleum, crude & products , gold , organic chemicals , coal, coke, fertilizers manufactured , cement etc
Export marketing
Marketing of domestic goods and services beyond national borders. Management of various activities and operations since the receipt of an export order till its execution and receipt of payment for the goods exported.
2. Solving balance of payment problem: - deficit balance of trade &payment can be removed through large scale exports. 3. Promoting economic development: -Optimum utilization of resources may not be possible within domestic market. - Business grows rapidly if it has access to international markets.
4. Raising Production and employment: - Facilitates large scale production of goods & services. - Additional demand in overseas market generates new employment opportunities. 5.Participation in global co-operation: - Cordial relationship develop among nations. - helps countries to bring world peace & economic development at global level.
AT BUSINESS/ENTERPRISE LEVEL
1. Higher profits: -Exporter offer quality product they can charge higher prices , thus higher profits. Ex: TOYOTA, MERCEDEZ etc. 2.Goodwill & reputation: - Due to their business contacts - Participation in international trade fairs and exhibitions. Ex: BKC 3. Improvement in organizational efficiency: - Exporters have to adopt advanced production & Mktg techniques for survival in global competition. Ex: Tata Group-exports nano In EU markets. 4. Spreading of marketing risks: - Risk spread in two parts. -if one area suffers losses in export market then stable profit is there in domestic market. - Ex: TCS
1. 2. 3. 4. 5. 6. 7.
Manufacturer Exporters Merchant Exporters Star Trading Houses of five categories Canalising Agencies State Export Corporations Export Consortia Government(public sector) Trading/Marketing Corporations.
Manufacturer Exporters
Used by superior quality products manufacturer called :Export quality products Undertaken by large & established organization as financial support is needed. Export along with production & mktg activities. Undertake exports directly along with manufacturing and marketing within the country. Not dependent on intermediaries for exporting their products With increase in export business companies - Export manager is appointed exclusively for export operations. - Create separate export division to look into export marketing. - Ex :Tata Exports separate organizational structure looks after exports of Tata Group. - Establish subsidiary companies for export marketing. - Ex: HMT(International) Ltd. Export marktg subsidiary company of HMT Ltd. assigned the task of exploring ,developing & expanding export markets for the products of HMT.
Merchant Exporters
Person or organization whose business is to buy goods made in his home country, ship them abroad to another country & sell them there. Specialized & concentrates in Exporting Indian goods only. They purchase goods from domestic manufacturer & then export Operate on commission basis. Export wide variety of goods-manufacturing items,friuts,vegetables flowers etc. Ex: Ezzy Exports-leading merchant exporter of Machineries, Agro based,Garments,household.
Manufacturer-Exporter
Meaning: basically manufacturer but also exports his products Profit: Earns from products manufactured by him only. Capital Requirement: Requires huge capital as-production & mktg are also performed by him Ex: Tata Group, Kirloskar group
Merchant -Exporter
Meaning: middleman in export mktg & looks after exporting goods. Commission: earns from products manufactured by domestic manufacturer. Requires little capital as not concerned with manufacturing only exporting of goods.
Government(public sector) Trading/Marketing Corporations Set up by Government of India Handle export import transactions. Function by maintaining Branches/Offices abroad Operate as per guidelines issued by Govt.of India. EX: 1.The State Trading Corporation of India(STC)- Petroleum Products, Cement, Rice, Wheat Flour and Liquefied Petroleum Gas (LPG) 2. The minerals & Metals Trading Corporation(MMTC). 3. Government corporations:- Jute corporation of India, - Cotton corporation of India
One star Export House Two star Export House Three star Export House Four star Export House Five star Export House
Export of goods of small scale sector Help SMEs to introduces product oversees market Assistance in quality improvement as they are aware of foreign markets Supply of imported inputs to clients Undertake marketing risks on behalf of small scale producers.
Goods are imported in India or exported from India through sea, air or land. Goods can come through post parcel or as baggage with passengers. Export-import requires special document depending upon the type of product and destination to be exported-imported. Called as shipping documents.
Classification of Documents
Documents
Commercial Documents
Regulatory Documents
Commercial documents
Help in Import-Export Out of 16 commercial documents,14 documents have been standardized (Excel sheet)
Objectives: 1.To facilitate transfer of title of goods & property from the exporter to
importer. 2. To ensure safe transfer of goods from the country of the exporter to country of the importer. 3. To help the exporters to realize payments without problem and delay. Documents Include: 1. Certificate of origin 2. Bill of Lading 3. Certification of inspection,etc.
Regulatory Documents
Prescribed by various government departments and bodies covering foreign exchange regulations, export inspection, custom formalities etc. Out of regulatory documents 4 have been standardized. Documents Include: 1. Form GR(Goods Receipt) 2. Shipping Bill, etc.
Export Documents
1.Invoice- Commercial Invoice - Consular Invoice 2.Certificate of origin 3.Shipping Bill 4.Mate Receipt Transport documents 5.Bill of Lading 6.GR form 7.Marine insurance Policies
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Invoice
An invoice or bill is a commercial document issued by a seller to the buyer. Indicates the products, quantities, and agreed prices for products or services the seller has provided the buyer. An invoice indicates the buyer must pay the seller, according to the payment terms. Sample
Commercial Invoice
Statement of account sent by the seller to the buyer Prepared by on sellers letter- head(next slide). Exporters bill for the goods shipped. Objective: Inform buyer about the conditions of sale and final amount payable Features: Detail information of export trade transactions. No standard form of document so exporter is free to design his own format. Importance/Uses: Exporter: -for collection of payment from the importer. -To settle dispute about payment -Useful for accounting purpose Importer: -Payment of customs duty -Indicates Exact amount payable to the exporter -Useful for accounting purpose.
Consular Invoice
Certificate issued by Trade Consulate of the importers country stating that goods of particular value are being imported from particular country by particular importer. Features: - Submitted by exporter(3 copies) - Gets it certified by the consulate of the importing country stationed in the exporting company. - A small fee is charged by consulate office for this facility. - 1 copy- Consulate office 1 copy- Customs 1 copy- Exporter Importance/Uses: Exporter -Facilitates easy clearance of goods from the customs -Signed by consulate of the importing country, it is assured to exporter that goods will enter into buyers country without any difficulty.
Importer: Gets quick delivery of goods & that too with out opening containers for verification purpose. Loss of time and repacking of goods is avoided. Importer is assured that banned goods are not sent.
Mates Receipt
Evidence that goods are loaded in the vessel. Acknowledgement of the goods received on board of the ship. Contents: Name of the ship and shipping company Date of shipment Description of packages (Quality,quantity,etc) Number of packages and marks on them Condition of cargo when it was received on board. Port of loading and delivery Freight(goods) paid or payable Signature of issuing authority.
Mates Receipt
Clean Receipt: - Goods have been properly packed - There is no defect of any kind in the packing. Qualified Receipt: - Packing is defective - Shipping company will not be responsible for damage of any kind. Exporter should get a clean receipt to avoid any complications.
(Xerox)
B/L is a document of title to the goods. Issued by shipping company & serves as a receipt from the shipping company which undertakes to deliver the goods at agreed destination on payment of freight. Functions of B/L :
1.
2.
3.
Receipt for goods: serves as receipt by shipping company stating that the goods have been received for transportation. Proof of contract of carriage: Exporters are required to book shipping space much in advance. B/L serves as a proof of the terms & conditions under which goods are carried by shipping company. Document of title to goods: The possession of B/L gives right to the goods covered by it.
Contents:
1. Name & address of the shipper/consignee 2. Name of the shipping company 3. Name of the ship, voyage number and date of loading goods on the ship 4. Quantity.quality,marks and description of goods 5. Number of originals issued 6. Port of shipment & destination & date of loading. 7. Number of packages 8. Signature of issuing authority
Types of B/L
Bill of Lading
Clean B/L
Claused B/L
Direct B/L
Through B/L
Clean B/L
A bill of lading issued by a carrier declaring that the goods have been received in an appropriate condition, without the presence of defects. The product carrier will issue a clean bill after thoroughly inspecting the packages for any damage, missing quantities or deviations in quality.
Claused B/L
A bill of lading that shows a shortfall or damage in the delivered goods. Some adverse remarks-goods not properly packed, signs of damage.EX: Goods Damage Typically, if the shipped products deviate from the delivery specifications or expected quality, the receiver may declare a claused bill of lading.
Freight paid B/L - Freight is paid by exporter Freight collect B/L -Freight is not paid by the exporter Direct B/L -same ship carries goods from the port of shipment to the port destination Through B/L - Covers goods being trans-shipped on route -at least two different modes of transport being used. - B/L issued for containerized door-to-door shipments that have to use different ships and/or different means oftransportation (aircraft, railcars, ships, trucks, etc.) from origin to destination.
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Container On Sea
Unloading at Port
Stacking at port
Custom Clearance
Issue of Material
Storing of Material
Receipt of Material
Container Docking
Assembly Progress
Contents of GR
Name of Exporter Name of negotiating bank Currency in which payment will be received Name of buyers country Port of origin Port of destination Commission or discount payable on export Quantity, Quality and value of exports.
Import Documents
Transport Documents Bill of Entry Certificate of inspection Certificate of Measurements Freight Declaration
Import Document
Bill of Entry:
-When goods enter the dock of the importing country. Types: -BoE-in case of goods for home consumption -BoE for free goods,-imported without paying custom duty. -BoE when goods are kept in bonded warehouse
Contents:
-Name and address of the importer, Exporter. -Description of goods -Value of goods -Import License number of importer -Name of the port/dock where goods are to be cleared -Rate and amount of import duty payable.
Certificate of Inspection
Issued by Inspection Authorities in the country of the exporter. Document sent to importer by the exporter through his bank. Certificate states that - goods have been inspected under the recognized quality control standards - Satisfies the specifications provided under quality control and inspection.
This one Certificate of inspection by China National Center for Quality Supervision and Test of Woodworking Machinery.
provided to a premise that successfully met the conditions for safe food handling on the date of its last inspection.
Certificate of Measurement
Two ways freight(goods) can be charged: -Basis of weight -Measurement When freight is charged on the basis of weight, the weight declared by the exporter is accepted. The exporter can obtain certificate of measurement either from the Indian Chamber of Commerce or any other approved organization. Submit it to shipping company for calculation of applicable freight. Certificate contains details like name of the vessel, port of destination, description of goods,length,breadth,quantity,depth etc of packages.
www.iso.org www.iso.org
ISO has developed over 18 000 International Standards on a variety of subjects and some 1100 new ISO standards are published every year. ISO (International Organization for Standardization) is the world's largest developer and publisher of International Standards. ISO is a network of the national standards institutes of 163 countries, one member per country Indian Representative- Bureau of Indian Standards(BIS) "International Organization for Standardization" would have different acronyms in different languages ("IOS" in English, "OIN" in French for Organization internationale de normalization), its founders decided to give it also a short, all-purpose name.
ISO 9000 family- Quality Management Standard ISO 14000 family- Environment Management standard
ISO-9000
Series of 5 international standards on Quality Management
Standards
ISO 9001
ISO 9002 ISO 9003
ISO 9004
VIDEO-1
Widespread Adoption: helps to win over markets purely based on quality goods and services. Valuable to Indian Exporters: - European Union insists on ISO 9000 registration . - Since ISO 9000 is internationally recognized quality standard ,Indian firms gets entry into EU countries to promote trade. Reliability and durability: Organization successfully manufacture goods as per established specifications. Performance of the product is highly reliable Chances of product failure is low. Business Links established: - Indian exporters prefers to buy raw materials and Components from those firms that they have ISO registration Consistency in quality: -ISO 9000 ensures consistency in quality of goods and services. - Facilitates early detection of mistakes and timely corrective action. Manpower development: - ISO 9000 encourages management to provide training to all employees - Improves Ability, Skills and commitment of employees towards organization.
Issue of Certificate
Preliminary investigations Export firm desiring to get ISO 9000 certification should conduct self evaluation determine quality control infrastructure. Work is assigned to team of specialists working with firm. Submission of application - Name, location & structure of the company - Location of plant -Size of the business - range of products - type of manufacturing process -name of products, etc Audit of Quality manual (PDF File) -Existing quality manual is audited - compares with 20 elements of ISO 9000 standard - Report is prepared on findings - if deficiencies occurs corrected -manual is resubmitted for approval by auditing body
Selection of Registrar: -Registrar is an independent body with knowledge ,skills and experience to evaluate companys quality system. -Consideration in selection of registrar: -Cost of registrars service -Reputation of the registrar - Time required to start and complete registration -Location of registrar - familiarity of the registrar with company needs -auditing by registrar or by the sub-contractors, etc. Negotiate terms with registrar - Before signing the contract, company should establish scope of services and costs involved. -time needed to conduct audits -secrecy of confidential information -details of contract -cost and fee structure,etc
Pre-assessment by Auditing body: Auditors may look for 3 things: -sufficient documents as per standards -implementation of documented procedure -whether implementation is effective. Assessment by Audit Team: - An audit team from BIS will visit the firm to assess firms compliance to the procedures a) Opening meeting: -presided by the leader of audit team -Meeting is attended by CEO,HOD and Management Representative. -Leader will explain scope and area of Audit b) Conducting assessment: -Each auditor should be accompanied by the guide who is familiar with the activities of the departments -The auditors will record the observations which must be signed by the guide indicating acceptance
C) closing meeting and presenting report: i. All members should be present when the audit team present their finding to the firm ii. On daily basis, audit team will present to the firm non-conformities observed for necessary corrective measures. iii.corrective measures are carried out within fixed period of time. Issue of certificate: -Auditors should ensure whether the company has compiled with the ISO 9000 standard. -Auditors if satisfied will submit favorable report to the registration board. - If registration board approves the registration, the registrar issues a certificate which enables the company to use ISO 9000 mark.
Suspension/Cancellation of Registration
A registrar can suspend or cancel the registration because of: a) Non payment of fees b) Non communication of changes in the quality system to the registrar c) Fraud, negligence or improper uses of symbols d) Non-implementation of corrective actions.
VIDEO-2
Environmental Management Systems (BIS 14000) Established in 1967 AIM: -Provide all industries with a structure for an environmental management system to obtain
environmental objectives of the firm.
Environmental Management System (EMS): The part of the overall management system that includes organizational structure, planning activities, responsibilities, practices, procedures, processes and resources for developing, implementing, achieving, reviewing and maintaining the environmental policy
5 principles
Formulate an environmental policy and commit itself to environmental management system. To prepare and keep ready a plan to achieve its environmental goal. To develop the capabilities, and support mechanism to achieve its environmental policy and objectives. To evaluate a companys environmental performance. To review environmental management system in order to improve overall environmental performance
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14000 certification
Two Areas -Organizational Evaluation -Product Evaluation a) Organizational Evaluation: 1. EMS standard: -Company follows a system to meet environmental goals through a formal environmental policy. -Employees are communicated about environmental specifications -Necessary documents are prepared and workers are given relevant training. 2. Environmental Auditing Standards: -Prescribes the qualification of auditor -procedure of audit - observing all the principals of auditing 3. Environmental Performance Evaluation Standards: -Company needs to evaluate its EMS to ensure system is in place. -Evaluation can be in areas such as- reduced consumption of water and energy, decline in air emission, cutting down generation of hazardous waste etc. - After evaluation if results are positive it indicates environmental responsibilities are well performed.
Product Evaluation: 1. Environmental Labelling Standards: -Standard is directed towards preventing exaggerated & false advertising -A company using environmental product advertising or making claims for eco-friendly products must do so under BIS-14000.(next slide) 2. Life cycle Assessment: -Company need to prepare report - impact of product on environment from design to disposal stage. - Company will be able to get less hazardous materials or reengineering process to reduce consumption of energy and water 3. Environmental Aspects in product standards: - Analyst must know and check composition of product-harmful ingredient is present in product.
Marine Insurance
Types of Marine Insurance policies: - Voyage policy -Time policy -Mixed policy -Valued policy -Valued policy -unvalued policy -Floating Policy -Blanket Policy -Specific Cover policy -Open cover policy -Fleet Insurance policy -Port Policy -Composite Policy -Currency Policy -Block Policy
1.Voyage(journey/trip) Policy
One specific Voyage(trip) The cargo is insured for one trip only Compensation is also paid for one trip if goods are damaged in that voyage. Policy expires after completion of the journey of goods to the destination. Time required for voyage is not considered.
2.Time Policy
Gives Protection/insurance for particular period of time Goods are insured for certain period of time e.g.-one year Compensation is paid only when the loss is in that particular specified period.
3. Mixed Policy
Voyage + Time = Mixed Policy Ex: Ship may be insured for voyage between Mumbai and London for period of 6 months.
4.Valued Policy The amount of insurance is fixed at the time of issuing the policy. Compensation of that amount is paid if the loss occurs. Simplicity in the payment of compensation as the value of the subject matter of insurance is agreed between underwriter and insurer at time of taking insurance policy . 5.Unvalued Policy(open policy): The amount and value for insurance is ascertained if and when the loss actually occurs. The loss is assessed afterwards and the compensation is paid accordingly. value of the subject matter of insurance is not specified at the time of taking insurance policy.
6.Blanket Policy
This policy is taken for certain amount . Full premium amount is paid right in the beginning. Adjustments are made as and when need arises.
Registration Stage
Pre-shipment Stage
Shipment Stage
Post-shipment Stage
Registration Stage
Registration with Reserve Bank Of India
No longer required. Prior to 1.1.1997 it was compulsory for every exporter to obtain an exporters' code number from the Reserve Bank of India before engaging in export.
Ex: 0100000088 Ford Foundation Register With Export Promotion Council - In order to enable you to obtain benefits/concession under the export-import policy, you are required to register yourself with an appropriate export promotion agency by obtaining registration-cum- membership certificate.
Pre-shipment Stage
1.Receipt of confirmed Order:
Buyer Sends order to exporter
3.Obtaining Export License, if necessary: - Export license is a government document that authorizes the export of specific goods in specific quantities to a particular destination. -EX: nuclear materials, controlled substances(medicines) and precursor chemicals - only in case of few controlled items.
4. Obtaining Pre shipment Finance: -As soon as exporter receives a confirmed order and LOC , he should approach bank for pre shipment finance to meet his working capital requirements - man , machine, material, Environment, maintenance etc.
5.Production/Procurement of Goods - Once securing the preshipment advance from the bank, the exporter has to arrange for production/procurement of goods for shipment - Merchant Exporter- procure and export -manufacturer Exporter Manufacture and export
6. Packing - Packing-proper protection of goods -Packing material depends on Mode of transport distance covered Perishable and Non perishable items type of handling of goods-Manual or Automated
7.Preshipment inspections -Pre-shipment inspections (PSI) are required when mandated by the government of the importing country. -Export cargo is subject to quality control and pre shipment inspection export should get inspection certificate. -5 inspection agency established by government : Mumbai, Kolkata, cochin, Chennai and Delhi Methods/Types of pre-shipment Inspection/systems of Quality Control:
1. Self Certification Scheme:
-Reputed Units having proper reputation and adequate testing facility for product quality, design, development are eligible to get self certification scheme. -Unit has to apply to the Director, Export Inspection Council of India, New Delhi and pay fees.
2. In-process Quality Control: products such as chemicals and Engineering goods is done at various stages of manufacturing-raw material and component control, process control, product control and packing control etc..
3.
4. Fumigation of consignment: -compulsory fumigation is done for crushed bones, hooves and horns etc -These commodities are exposed to infection -ensure commodities reach destination free from infection.
8. Central Excise Clearance -Excise duty is a tax levied on the event of manufacture but is collected when the goods are removed from the factory. -Excise Duty: Tax on a good produced for sale, or sold, within the country
clearance is obtained in two ways:
1.Export Under Bond: -Exporter need not pay any amount of duty - export goods under a bond supported by a bank guarantee-sum equivalent to excise duty -Running bond account-the bond is arranged for a suitably large amount with the approval of Excise Authorities so that several consignment may be exported under same bond without frequent renewals. 2. Export under Rebate(Refund): - The manufacturer /exporter initially pays the duty and then claims the refund after shipment of the goods.
9. ECGC Cover: - The exporter must take appropriate policy to protect himself from credit risk. 10. Marine Insurance Policy: - To protect cargo from risk of marine causalities exporter must obtain marine insurance policy.
C& F Agents
Clearing and forwarding Agents Making shipment through the customs is an elaborate and difficult job. C& F Agent is familiar with shipment formalities and is knowledgeable about customs procedure. Works on commission basis Procedure for appointing C & F Agent: 1.Reference of Agent: -Advisable that an exporter should appoint C&F Agent through some business recommendation. -C&F Agent must have branches in the port cities like Mumbai, Kolkata, Chennai and Cochin. 2. Collection of Information: - references from Export Council. -Information about-services provided by this agent, their experience and reputation in business 3. Discussion with the Agent: - discussion with agent with regards to the services that he could provide and fees payable for service.
Follow Up -Exporter must remain in touch with C&F agent -Ensure that shipping of goods takes place as per plan
Shipment Stage
Shipping and customs Formalities: Goods can be shipped by
As most of the export orders are of large volume, shipment by sea is the most preferred mode of transport. Exporter should prepare proper documents and handover it to the C& F Agent in time to avoid any delivery schedule. The shipment stage consists of:
-He has to provide necessary information as regards-Date - Net weight of each package -Particulars of the Importers and exporter himself - Arrival & departure date of vessel etc. -When shipping company excepts the Exporters request the agent or company issues Shipping Order
-If railway wagon are to be booked , the shipping order and fees should be placed with railways Authorities. - After loading the goods into the wagon , the railway office issues Railway Receipt.
Customs Clearance
Excise Duty: Tax on a good produced for sale, or sold, within the country Customs: Taxes on import
Carting Order
Examination of Goods
Loading of Goods
Obtaining B/L
Carting Order:
The C& F agent obtains Carting order from the Port trust Authorities to cart or carry the goods inside the Dock. The customs appraiser issues carting order after verifying the endorsement on the duplicate copy of the shipping bill.
Storing the Goods in the Shed: After obtaining the carting order, the cargo can be moved into appropriate shed inside the dock.
Examination of Goods:
The C&F Agent now approaches the customs Examiner who may physically inspect the goods The customs Examiner, if satisfied, issues Let Export Order It is clearance from the customs that goods are permitted to export.
Let ship Order: The Duplicate copy of shipping Bill which is endorsed by the customs Examiner is handed over to the Customs Preventive officer who endorses it with Let ship Order It is permission for actual loading of cargo into the ship. It is issued by preventive officer of the customs.
Loading of Goods:
The goods are then loaded on board the ship for which Mates receipt is issued by the Mate of the ship.
Payment of port Dues: The C& F Agent pays port dues and collects Mates Receipt from the superintendent of port Trust. Obtaining B/L: The C&F Agent approaches the shipping company ,surrenders Mates Receipt and obtains B/L
Electronic data interchange (EDI) is the structured transmission of data between organizations by electronic means. It is used to transfer electronic documents or business data from one computer system to another computer system, i.e. from one trading partner to another trading partner without human intervention.
With effect from 15th sept 2004, Govt.of India has introduced computerized processing of shipping bills under Indian Customs EDI system. With the introduction of EDI system India now has the advantage of using paperless trade. Now, documents can be exchanged electronically with the customs and other government departments. With this computerized documents processing, the exporters and importers are the main beneficiaries About 20 Ports in India have adopted computerized processing of shipping bills.
Obtaining common Business Identification Number(BIN) - Under computerized customs clearance exporter has to obtain PAN based BIN from Directorate General of Foreign Trade. - Pan is 10 digit alphanumeric code - Alphanumeric-identify importers/exporters Electronic filing of shipping bill -Fill shipping Bill consist of: - Import Export code number -Bank account number to receive amount -License number Exporter has to submit relevant documents Computerized shipping Bill is generated from computer Loading of goods and issue of Mate Receipt Receive B/L
Ease of Operation: - The exporters & Importers can know status of various documents in different departments of customs online. -makes business operations simple and accurate Less running around: - When exporters were doing manual clearance with customs they need to approach customs for each & every work that involved running around various departments. - Now, exporters can send these documents online and meet customs officials only at the time of physical examination of goods. Economical: -saving of time and cost at every stage -total transparency is maintained with improved communication leading to fairness and certainty of shipment. Improved service: Less dependency on Agents Provides security at all levels of system
Prompt Service: -As delays in customs is either removed or minimized carriers of goods benefit from quick service, lower cost and full use of available equipments Benefits Officials: - The customs officials are also benefitted because they can access documents on their screens an din order. -work is done with ease, simplicity and convenience
Negotiation of Documents and Realization of Export Proceeds Submission of Documents by the agent to the Exporter: - The C&F agent submits the necessary documents to the exporter to enable him to present the same to his bank for the purpose of negotiation. Shipment Advice to Importer: -After the shipment of goods, the exporter has to send suitable intimation to the importer for his information. - date of shipment, - name of the vessel -date on which the goods will reach this destination should be informed to importer. Presentation of Documents to the bank for Negotiations: -complete set of document is submitted by the exporter to his bank for purpose of negotiating the same and obtaining export proceeds in time. -Bank then sends the same documents to the importer. -Documents to be submitted to bank includes: -Bill of Exchange - Marine Insurance Policy -Commercial invoice - Certificate of Origin -B/L - Inspection certificate
Dispatch of Documents: -After verifying the documents the bank will dispatch the shipping documents as specified in L/C to importer Realization of Export Proceeds: - The importer receives the documentary bill of exchange sent by the exporters bank. -in case of usance bill, payment is made on maturity of the bill. - if the exporter bill are not covered by LOC the bank gives loan against bills till the payment for export is received by the exporter. -The negotiating bank has to take follow up action to remind the importers bank to clear the payment at earliest. -when payment is received by the negotiating bank, post shipment procedure is completed.
Import Procedures
Before taking any decision of importing it is necessary to decide under what category of importers a businessman should like to act. You may be proprietor /partner of a firm , director of private or public limited company You may desire to import a particular commodity either for self use or to sell in the domestic market or to used in the product that you are manufacturing. Under Export Import policy, importers are classified under following categories: Importer: A person/firm who imports or intends to import and hold an importer Exporter code number. Actual User: Importer who may be either Industrial or Non industrial a) Actual User(Industrial): -person who utilizes the imported goods for manufacturing in his own industrial unit or manufacturing for his own use in another unit. b) Actual user (Non Industrial): -Person who utilizes the imported goods for his own use in:
i) any commercial establishment carrying on any business, trade or profession Ex: Importing of Watches, Mobiles etc Ii)Any laboratory, scientific or R& D institution, university or other educational institution or hospitals Iii) Any service Industry
Bache-de-mer of sizes below 3 inches Cattle Camel Chemical fertilizers, all types, including super-phosphate Micronutrient fertilizers and mixtures thereof containing NPK, excluding those specified Dress materials/readymade garments fabrics/textile items with imprints of excerpts or verses of the Holy Quran Deoiled groundnut cakes containing more than 1% oil (and groundnut expeller cakes) Fresh and frozen silver pomfrets of weight less than 300 gms. Fur of domestic animals, excluding lamb fur skin Fodder, including wheat and rice straw Hides and skins, namely :-
Vintage motor cars, parts and components thereof manufactured prior to 1-1-1950
Vintage motor cycles, parts and components thereof manufactured prior to 1-1-1940
To Approve Sample
Major area of dispute: Quality of goods Dispute about quality of the goods will have to settled between the buyer and the seller. Hence, it is advisable to call for sample and approve the sample. This will make way for hassle free imports Importers must carefully go through the terms and conditions of the business to know the extent of liability(responsibility) if problems take place.
Documents to submitted by the importer while applying for import License: - Income Tax certificate - Import License fee receipt - A certificate from CA After going through these documents, the licensing Authority will issue import license. Import License bears Registration number.
Preliminary Negotiations:
-Having procured import License, the importer must enter into preliminary discussion with overseas suppliers as regards terms and conditions of business such as price, credit period, payment terms, delivery schedule etc.
Procurement of Quota:
-A certificate indicating the import quota is issued to an established importer. -it is called Quota certificate -This certificate enables the importer to import goods up to the value mentioned in the said certificate.
Placing Indent:
-Form of order sent abroad for goods to be imported. -The importer can place his indent directly or through the middleman called Indent House.
Dispatch of L/C:
-A foreign seller would like to be sure about the creditworthiness of the importer . -importers bank issues a L/C in favor of the foreign dealer.
Appointment of C& F Agent: -To clear goods from customs C&F agent should be appointed.
- The C&F agent will prepare a Bill of Entry giving details of goods to be cleared from the customs.
Receipt of Documents:
- The exporter draws a bill of exchange on the importer for the full invoice value of goods -Bill of exchange includes certain documents like commercial invoice, certificate of origin, B/L, weight / measurement certificate etc
Clearing of goods:
-The C&F agent has to clear port dues and obtain a certificate to this effect - The agent then pays the customs duty and clears the goods.
Follow-Up:
-Having collected the goods from the customs the importer will examine the shipment -if any discrepancy or damage to the goods is noticed the importer must intimate to the exporter. -Even if in any case discrepancy is not there the importer must intimate to the exporter.
To Sign import contract: -Import trade is known to face many unexpected and unanticipated problems -Hence, it is in the mutual interest of both importer and supplier to prepare a contract and signed by both the parties -The contract will outline what each party is allowed /not allowed to do. -Liability (Responsibility) of each party will be known -Terms and condition of the business should be specific and to the point -Contract must clarify about -quality and quantity of goods, - price, payment terms, - packaging, delivery schedule, -ports of departure and destination -Insurance -Import License etc.
-Inco terms or International Commercial terms are a series of international sales terms, published by International Chamber of Commerce (ICC) and widely used in international commercial transactions -Number of trade terms used in International trade to indicate the sale price and corresponding rights and obligations of the seller and buyer -Main objective of Inco term is to give common interpretation for the different trade terms used in international trade. -These terms are defined by International Chamber of Commerce, Paris -These are accepted by governments, legal authorities and practitioners worldwide for the interpretation of most commonly used terms in international trade. -They are used to divide transaction costs and responsibilities between buyer and seller -With these terms the importer and supplier come to know the exact expenses to be borne by each of them.
To finalize payment terms: Importers have choice payment terms which are: -Letter of credit or advance payment -The creditworthiness of the importer is an important factor that supplier takes into account before agreeing on the terms of payment. -Safety of payment is never compromised by any supplier To collect IE number: - Importers and exporters in India have to obtain Importer-Exporter Code (IEC) number from DGFT without which they cannot import or export. - To collect IEC number Number , importer has to submit documents like: photographs, PAN card, DD for fees, any other documents To obtain import License: -importer desires to import items included under restricted list, he has to apply to the regional licensing , authority for the issue of import license To get foreign exchange sanctioned: -payment for imports are made in foreign exchange which is sanctioned by the RBI
To undertake financial planning: -importers must undertake financial planning that adequate funds are maintained to get the consignment release on arrival. -when importers goods remain uncleared importers have to pay huge demurrages (goods lay in warehouse beyond limited time)which is financial loss to them To obtain L/C from the bank: - Some suppliers insist that payment has to be done through L/C only -Under this circumstances importers have to negotiate much in advance with the bank to open relevant L/C in favour of the supplier -L/C gives security of payment to the supplier who comes under the obligation(duty) to execute the shipment as per terms of the business.
Submission of Import General Manifest: -Under section 30 of the customs Act,1962 the person carrying imported goods has to submit within 24hours to the proper Authority of the customs a document called Import General Manifest at the port of destination. -It is list of items that the carrier is carrying for unloading at the port of destination -On receipt of this document, customs transfers imported cargo to the bonded warehouse maintained at the port Preparation of Bill of Entry: -When goods are imported, importer has to pay necessary import duty. -For this, the information about the goods imported are given to the customs authorities in a prescribed form called Bill of Entry -Bill of entry can be filed 30 days in advance to facilitate processing of this documents. -This documents states that the goods of the stated value and description in the specified quantity is going to enter into India -Following types of Bill of entry
1.Bill of Entry for Home Consumption: -This form is white in color. -goods are meant for home consumption against payment of duty 2.Bill of Entry for Bonded Goods: - form is yellow in color - this form is used when no duty is paid on imported goods which are transferred to bonded warehouse. 3. Bill of Entry for Ex-Bond Clearance: - When the importer desires to clear imported goods either in full or in part after paying applicable import duty meant for home consumption this form is used -Goods are hereafter transferred to bonded warehouse.
Services of customs House Agent: -Customs clearance of imported goods is a complicated process. -It is advisable that importer utilizes the services of accredited clearing agent who becomes responsible to prepare and submit Bill of Entry in time Noting of Bill of Entry: Bill of Entry complete in all respect and duly signed by the importer and his CHA is submitted to the import Noting Department for noting . Bill of Entry presented for Appraisal(assessment): -Bill of Entry presented to Appraising counters with the following documents: Commercial invoice
LoC B/L Import License Packing List Insurance Policy Importer Exporter code Number Weight specifications Custom declaration
Payment of Duty: -Importer proceeds to pay import duty with assessed Bill of Entry. -Original copy of Bill of Entry is removed by the customs and remaining documents are returned to the importer Physical Examination of Goods: -Loaded with these documents the importer approaches the Dock Appraiser for physical examination of goods. -After the physical examination of goods is over the dock Appraiser issues Out of charge order(second check procedure) Issue of Release order: In case any dues like demurrage remains unpaid, importer has to clear the payment When no dues remain outstanding the port manager issues release order against which he is allowed to take the goods out of customs area Penal Action: Importer must take all the precautions not to give wrong/misleading information. If customs establish that certain tangible facts were hidden or wrong/misleading information was provided it is authorized to either confiscate(take away) the goods or charge fine.
Warehousing means storage of goods in systematic easy wway to maintain the quality of goods. Specifically constructed building for the storage of goods in a safe and secured manner. An importer may not always clear the imported goods for home consumption He may release the goods in installments or may postpone the decision to collect the consignment Under this condition he may avail the facility of bonded warehouse. Bonded warehouse are constructed and maintained by the Dock and customs Authorities. They work under the government license Sometimes importer may not like to take immediate delivery of goods or he may not be in position to pay the full duty on the goods. Under this condition he may avail the facility of bonded warehouse for temporary period of time The goods will be released from the bond only when the customs authorities give necessary permission
Importers have to file set of yellow colored bill of entry Payment of duty is postponed After the assessment of goods for the levy of the import duty is completed the scrutinizing appraiser debits import license Warehousing bill of entry passes through normal checking by the Assistant collector of customs. In order to get goods cleared from the warehouse the importer is required to submit Ex-bond bill of entry This document is printed in green paper and submitted- Import Bond Department
Intimation from supplier: -When are goods are dispatched by the supplier, he will send shipment advice to the importer informing him about the shipment of goods. -Some of the details will be : name of the vessel, date of sailing, port of destination, quality and quantity of goods, Invoice number, description of goods, B/L etc Retirement of import documents: Overseas supplier makes shipment of goods and makes ready documents as required under LoC and hands them over to his bank with a request to negotiate for payment. The supplier hands over the following documents: a) Bill of Exchange b) Commercial Invoice with packing list, if needed c) B/L d) Certificate of Origin e) Inspection Certificate f) Marine insurance Policy g) Any other document
The importer is required to submit the following documents to the bank in order to retire the documents
A) Remittance in foreign exchange executed under form A1 B) Exchange control copy of import license , if required Preparation of
Bill of Exchange:
When bank has received the full set of documents, it prepares bill of exchange as per the instructions from the supplier. Bill of Exchange can be of two types a) Sight Draft: The importer will be given document only against payment b) Usance Draft: The importer gets the documents against acceptance or credit. He will make the payment at the expiry of the credit period
Scrutiny of Documents:
The importers bank will carefully examine the documents forwarded by the suppliers bank. importer's bank will check if all the documents are in order and there is no discrepancy.
1.Decide the Nature of Business: - Decide Nature of Business -Sole Proprietary Business - Partnership - Joint stock Company
This will help him to decide seed capital requirements and amount of bank finance needed. Look for suitable office space, print goods letter Heads and Business cards.
Partnership
Hero Honda is a joint venture between the Hero Group of India and Honda of Japan Hero is the brand name used by the Munjal brothers Hero Cycles Ltd A joint venture between the Hero Group and Honda Motor Company was established in 1984 as the Hero Honda Motors Limited Munjal family and Honda group both own 26% stake in the Company Hero Group of India would buy out the 26% stake of the Honda in JV Hero Honda Since last 25 years the Hero Group relied on their Japanese partner Honda for R & D for new bike models. Under the joint venture Hero Group could not sell into international markets and the termination would mean that Hero Group can exploit global opportunities now.
Look for suitable office space, print goods letter Heads and Business cards.
Selection of Name of the Firm: -A exporter is free to select the Name of his firm - The name of business should suggest that the firm is engaged in export/import business e.g. international, global or overseas are common words with the name of the exporting firm.
Approval of Firms Name: -Regional Licensing Authority of DGFT approves name of Export firms Opening of Bank Account: An exporter has to select a bank which undertakes to fill all banking formalities connected with negotiation of documents and realization of proceeds. The bank must be authorized to deal in foreign exchange.
Registration with Excise Authorities -Excise Duty: Tax on a good produced for sale, or sold, within the country - Customs: Taxes on import Registration with Export Promotion Council(EPC) Every Exporter is required to register his firm with the concerned council meant for his commodity. Ex: An exporter of textiles must register with the Textiles Export Promotion Council. The concerned EPC issues the following 3 forms: - Application for Registration -Application for Membership -Application for Registration-cum-Membership certificate (RCMC)
Fully filled forms along with the Registration fees and necessary documents such as bank certificate shows applicants financial soundness should be submitted to EPC. The council verifies form, documents ,fees and issues Registration-cumMembership certificate to the Exporter Obtaining GIR/PAN no. Income from export is exempted from income Tax, for which the exporter is required to register his firm with Income Tax Authorities. Exporter must have General Index Registration(GIR) number GIR-temporary number allotted by the income Tax authorities to a new entrant in field of export trade
Export Licensing
Export Licensing: -Export of goods restricted under Indian Trade Council -Export Import items will be allowed to trade only in accordance with the license/certificate/permission or a public notice issued by the concerned licensing authority. -The main Licensing authority is Director General of Foreign Trade, Delhi -Most of the goods are freely exportable and they do not require license unless they fall in the negative list of export Import. Negative List consist of following three categories: 1. Prohibited Items: -Items included under this list can neither be exported nor imported and include exotic birds, wild life, wood and wool products in the form of timber ,pulp and charcoal. 2. Restricted Items: -Items included under this list can be exported or imported only through licenses and include chemicals,fertilizers,cattles, etc 3. Canalized Items: -Items included under list can be exported or imported through the canalysed agencies like STC(state trading corporation of India) MMTC (Minerals and Metals Trading Corporation of India )
Offering the same product in foreign market as is marketed in the domestic marketing Ex: Eureka forbes
Offering the same product but after modifying the contents as well as packaging Ex: Mcdonald
Offering completely new product as per the needs and requirements of customers in specific foreign market
Methods of Exporting
Exporting firm has to decide the method of entry in the proposed market. There are several market entry alternatives available to enter in target market. Direct Exporting Indirect Exporting
Direct Exporting
Exporting the products by the manufacturer himself i.e. without using the services of middleman like merchant exporters, export houses etc. A manufacturer exporter can undertake direct exporting of his products in the target market through his export department/division. Ex: Kirloskers Exporter of various engineering products
S.L. Kirloskar's manufactures products with minimum imported contents and selling them through a well trained and equipped sales and service network.
Sales Representatives A sales representative is often called a manufacturer's representative or a sales agent. The term "sales representative" is preferred because the term "agent" has legal connotations in some countries. A sales representative: Uses the company's product literature and samples to present the product to potential buyers. Works on a commission basis; essentially acting as a broker. Assumes no risk or responsibility for servicing the product after the sale. A contract with a sales representative should state: The period of the agreement. The territory where the sales representative may operate. Whether a sales representative may operate on an exclusive or a nonexclusive basis. That sales representative may sell complementary products that do not conflict. The method compensation. Reasons for terminating the agreement. Limits on the legal authority of the sales representative to obligate the firm.
Distributors
A foreign distributor is a merchant who purchases goods at a substantial discount and resells it for a profit. Foreign distributors generally provides support and service for the product. Distributors usually carry an inventory of products and a sufficient supply of spare parts. Distributors maintain adequate facilities and personnel for normal servicing operations. Distributors may resell the product to local dealers and retailers. Ex: NOKIA
Foreign Retailer
A company may sell directly to a foreign retailer. These transactions often involve consumer products. Effective in countries that have large retail chains. EX: RELIANCE FRESH Sales to foreign retailers can be achieved through: Traveling sales representatives contact foreign retailers. Direct mailing of catalogs, brochures, or other literature. Which has the advantages of: Eliminating commissions Reducing travel expenses Reaching a broader audience But should be supported with other marketing activities.
End User
A company may sell directly to a foreign end user. Selling overseas may incur some added costs.
Unless other arrangements are made, the seller is responsible for:
Shipping Payment collection Product support and service EX: DELL
Dell Focuses on Selling Products Direct to consumers Direct selling, from manufacturer to consumer, was a key component of its strategy.
With direct exporting the exporter handles every aspect of the exporting process. - Market research -Foreign distribution -Collections
Optimum use of production capacity: -A manufacturer selling in domestic as well as overseas markets can utilize his production capacity fully as wide market area is available. -Excess production can be exported through special measures -Thus full use of production capacity is possible. Spreading of marketing risks: -A manufacturer exporter may supply his products in many overseas markets. -This is in marketing area, the risk in marketing is divided in the wider area. -As a result, actual marketing risk is minimized-distribution of risk is in all markets EX: NANO
Meeting export Obligation: -A manufacturer importing raw materials/machinery on a large scale has to accept certain export obligation(duty) as per government rules. -A manufacturer exporter can fulfill such obligation through direct exporting Market goodwill: -Due to direct contact with the consumers, the firm can establish close relationship with the consumers and create goodwill/reputation in the market. Effective Control: -The exporter can exercise effective control over export operations including the selling price, after sale service and credit policy-no intermediater Reliable market information: -The manufacturer exporter gets first hand and reliable information of the requirements and expectations of buyers and adjust his product and sales promotion strategy accordingly.
Summary
Direct methods of exporting give your firm: More control over the export process Potentially higher profits A closer relationship to the overseas market
Indirect Exporting
Exporting through an Export Management Company (EMC) - A foreign or domestic company that acts as a sales agent for domestic exporters in international markets. Exporting through an Export Trading Company (ETC) - A company that supervises the exportation process for clients. - They operate like an export division for a company that does not have an export division. Franchising Licensing Contract manufacturing
Alternative to direct exporting which may not be possible in the case of all exporters Exporting firm will prefer to export to the target market through marketing middleman such as merchant exporter, export houses, trading houses or through cooperative / government agencies. All procedural aspects are handled by the export houses on behalf of the exporting firm Famous or popular with new generation of exporters. Small manufacturing companies deals garments, handicrafts, textiles etc Prefer such indirect exporting due to limited financial condition, managerial problems Manufacturers time and energy is saved as he is free from procedural aspects of exports, as he concentrates on manufacturing only.
Advantages
Less/Limited Investments: Indirect exporting facilities exporting with less capital investment as marketing process comes to an end when goods are supplied to middleman within home country only Relief from actual exporting: -Indirect exporting gives relief to the manufacturing firm from the botheration about actual export marketing. -the firm concentrates on manufacturing only. Benefit of services of middleman: -the middleman take keen interest in marketing and also in sales promotion -this gives benefit to the middleman as well as manufacturing firm Limited Business Risks: -shared partly by both middleman and manufacturer -The expenditure on marketing is less as-no need to set up any branch in foreign location
Specialization: -A manufacturer specializes on production activities due to indirect exporting. - he concentrates his attention on production activities only Less overheads: -share overheads relating to production activities only -not concerned with marketing -less burden of overheads Suitable to small firms: -Small firms prefer indirect exporting due to their financial and other difficulties. -It serves as an easy and economical method of exporting
Non Availability of reliable market information: -In indirect exporting, information relating to export market will be available from the intermediaries. -such information may not be reliable and complete as it is second hand information. -this may effect his product planning and development
Direct Exporting Meaning: Exporting firm exports goods through its agents ,opening branches/sales offices in the target market
Indirect Exporting Exports its products through merchant exporter, export houses or through cooperative or government agencies
Export prices:
A manufacturer gets higher A manufacturer gets lower price for his export item as no price for his export product as commission is paid to intermediaries is involved intermediaries Risk involved in marketing is more as manufacturing and marketing risk are shared by exporting firm A manufacturer exporter gets first hand information for his business The exporting firm exercises complete control on export pricing, packaging and so on The risk involved is limited as marketing risk are shared by the marketing middleman Manufacturer gets information from intermediaries- inadequate, unreliable and supplied late Limited control on export pricing, packaging etc, As marketing is given to the marketing middleman
Risk Involved
Market Information
Control on Market
Direct Exporting Investment required Huge investments manufacturing+ exporting Claim various incentives from government Used by large exporting firms
Indirect Exporting Less/Limited Investmentas only manufacturing activity is involved May not be able to claim incentives from government New and small exporters prefer indirect exporting as it suits them
Benefit of incentives
Suitability
Licensing
Licensing can be used as a method for initial Entry in the foreign market. Manufacturer (Licensor) enters into an agreement with the firm in the importing country(Licensee) It gives him the right to use the manufacturing process, a patent design or trademark or any item of value for a consideration. It may be certain fee, royalty or other payment by Licensee to the licensor. Manufacturer with developed technology will enter in foreign market through licensing agreements. The producers in foreign markets get the right to use the reputed firms license in exchange for royalty This gives opportunity to the manufacturer to enter in foreign market. Licensing is a quick method for entry in the overseas market.
The licensor gets entry into the foreign market without any expenses The licensee gains production expertise or a known brand name for use. Franchising is the most popular form of Licensing Export companies from developed countries make such licensing arrangement for entry in foreign markets and earn good profit through fees and royalty
Joint Venture
One more option available for entry in foreign markets through manufacturing/marketing activities or both. JV involves financial partnership between a foreign company and a local company. Partnership of two or more companies Easy for foreign company to enter in the new market. The foreign company brings finance and technical know how Domestic company provides marketing facilities.
At present Liberal facilities are provided for JV abroad. Indian JV abroad are located in the neighboring countries of south and East Asia followed by UK, USA,West Asia and Africa.Tatas Indian companies take keen interest in starting JV abroad. Considered and approved by RBI Indian companies provide machinery, technology and skilled manpower to complete the project and handover the same to concerned foreign partner for operation. Software companies. Infosys,Wipro,TCS
Disadvantage:
Bear full cost and risk
Pricing Quotations
Price means expression of value or utility of a commodity in terms of money Technique of determing such acceptable price at which the seller is willing to sell and the buyer is willing to buy the product Price fixed should be most reasonable. Some people consider price as value for money while others associate it with quality. An exporter must make all such perceptions into consideration while deciding the price.
PRICE
Price refers to the amount of money that consumers have to give up to acquire a good or service. Example: If an MP3 player is priced at Rs 2000, it means I must give up that amount of money to acquire that product.
COST
Cost refers to the amount paid to produce a good or service. The cost represents the sum of the value of the inputs in production - land, labour, capital and enterprise. Manufacturing of Chocolate: The raw materials === cocoa, sugar, milk, honey, hazelnuts, flavoring and colour that are used to make the chocolate bar. The capital === buildings and factories that make up the Cadbury's business, the machinery, equipment used in the manufacturing, vehicles and so on involved in the distribution of the finished product and the offices and administration buildings that support the business. Labour includes not only those who are involved directly in the making of the bars but all the sales staff, administration staff, management, marketing teams and so on that are employed by Cadbury. The profit is the reward for enterprise. It is the amount left over when all the costs have been paid. These represent the costs of production.
Objectives of pricing
To enables Indian exporters to offer competitive price to overseas buyers. To earn a specific percentage of profit on the sales turnover. To create sound image of Indian goods abroad. To survive in the face of stiff competition in overseas markets. To use export incentives in such a way that exporters can make attractive offers to foreign buyers. To enable exporters to survive economic recession. Prices are charged to cover variable costs and some fixed costs to improve chances of business survival. To guide exporters to price the goods and services at a certain level not only to defend but also to increase the market share. To offer to foreign buyers attractive price discounts in order to increase overall sales.
Competition
The competition is severe due to differences in costs, levels of technology and quality of products. Ex: Developed & Developing nations Exporters from advanced countries are at an advantage due to available credit facilities, use of advanced technology, better packaging, etc. Less developed countries have to face keen competition with advanced countries.
Demand
The prices in every market are directly related to the demand for products. The demand may be elastic or inelastic. Pricing depends on the degree of elasticity of demand highly elastic demand for a product tends to keep its price low, because a slight change in the price may cause considerable change in demand for a product. ex: Luxury products Products having relatively inelastic demand can be quoted at comparatively higher prices. Ex: Food items
Availability of substitutes
Export prices are easily influenced if many substitutes are available in the foreign market. Consumers easily and quickly move to the substitutes when price is raised. Thus, when substitutes are available, increase in prices may prove to be fatal to the exporter. Ex: Maruti Suzuki-core competency
Delivery Schedule: -Delivery terms and schedules are also counted in price calculation. -If prompt delivery is desired by the buyer, then the price charged would be relatively higher. Pricing objectives: - Export pricing may have the objective to attain certain level of turnover or profitability or capture a particular segment of the market or face market competition. -Accordingly the prices for exports are fixed. -some exporters may have the objective of skimming or penetrating the market. Composition of consumers: -Exporter has to consider composition of consumers based on income, education, buying habits etc,
Purchase considerations:
-Frequent buyers cannot be charged high. -New customers can be charged high.
Export Pricing/Quotation
Quotation: - is an offer or proposal made by an exporter in reply to the enquiry from
an importer. - The quotation should clearly state the price and other terms and conditions. -it may be in the form of Performa invoice that gives a clear idea to the importer about the price to be paid by him in case the deal is struck.
Types of Quotations
FOB Quotation(Free On Board) C&F Quotation(Cost and Freight) CIF Quotation (Cost, Insurance & Freight)
FOB Quotation, the seller quotes a price which includes all expenses incurred till the goods are actually loaded on board. Packing charges ,local transport charges and dock dues are covered In the price quote. Sellers Obligations: - He has to load the goods on board the ship named by the buyer. - He has to obtain B/L from the shipping company and forward it to the buyer to enable him to take delivery of goods. - He must inform the buyer certain details like the name of the ship and the possible date of delivery - He has to arrange for the necessary space in the vessel - He must inform the buyer without delay that the goods have been delivered on board the vessel or aircraft. Buyers Obligation: - He should inform the seller the name of the ship by which the goods are to be send and also the expected date of delivery. - He has to bear the risk when the goods are loaded on the ship - He should make payment to the exporter as per the terms of contract
Credit- what comes Debit-what goes A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. Letters of credit are often used in international transactions to ensure that payment will be received. It is basically a mechanism, which allows importers/buyers to offer secure terms of payment to exporters/sellers in which a bank (or more than one bank) gets involved.
Importers/Buyers Bank
Exporter/Seller
Importer/Buyer
Carrier
Negotiating Bank
Opening Bank
Importers/Buyers Bank
Beneficiary
Applicant
Exporter/Seller
Importer/Buyer
Carrier
A Letter of Credit is an authorization issued by the opening bank to the negotiation bank that if the exporter presents the relevant set of documents, make the payment.
Negotiating Bank
Opening Bank
Importers/Buyers Bank
Beneficiary
Applicant
Exporter/Seller
Importer/Buyer
Contract of Sale(1)
SBI Mumbai
Contract of Sale: -The transaction in L/C originates when the exporter and the importer enter into a contract of sale. -The contract covers description, value and quality of goods, method of payment, date of shipment etc. Request from the importer: The importer will request his bank to open a L/C in favour of the exporter. He can get his L/C opened either by depositing cash in advance or by showing sufficient balance in his current account. Issue of L/C: -The issuing bank opens the L/C and forwards it either directly to the negotiating bank or to the Advising Bank.
Possession of L/C: - In case the exporter wants confirmation of L/C, advising bank is authorized by the issuing bank to add confirmation. - Now a days exporters prefer confirmed L/C. - Hereafter, the exporter can take possessions of L/C. Submission of Documents: -After shipment of goods through the customs, the exporter presents relevant set of documents to the negotiating bank. Scrutiny of documents: -The negotiating bank will minutely scrutinize the documents to ensure that they are as per the requirements of the importer. -If documents are found to be in order, the negotiating bank will make the payment to the exporter.
Realization of payment: -The amount paid by the negotiating bank to the exporter is reimbursed by the issuing bank. Documents to importer: -The documents sent by the negotiating bank to the issuing bank is now handed over to the importer.
Types of Letter of credit Revocable L/C: - L/C can be revoked, modified or cancelled by the opening bank without seeking prior permission of the exporter. It can be revoked -Before procuring the goods -After procuring the goods -Before dispatching the goods -After dispatching the goods -When the goods are in the transit, -When the goods have reached the destination. -When L/C is revoked, notice must be given by the issuing bank to the beneficiary so that he does not dispatch the goods. -Risky as it can be cancelled any time. -In case the negotiating bank has already made the payment and thereafter receives the notice of modification or cancellation, such notice remains inapplicable.
Irrevocable L/C: -This L/C is exactly the opposite of revocable L/C. -Irrevocable L/C cannot be revoked, modified or cancelled by the importer unless permission is obtained from the exporter. -Safer type of L/C -Firm commitment on the part of the opening bank, which once issued cannot be withdrawn. Confirmed L/C: -A certain issuing bank may not be known in the country of the exporter. Under the circumstances, the exporter may ask the issuing bank to get the L/C confirmed by the local bank. -The confirming bank agrees to honor all the documents presented by the exporter provided it fits into the terms and conditions of L/C. -Safest type of Unconfirmed L/C: - L/C to which confirmation is not added by the advising bank. -Risk of Non payment is high.
Payment Terms
In export trade, business dealings are carried on between parties who may be separated by thousands of miles. There must exist clear understanding of how and when the buyer will pay the exporter for the goods ordered. It is left to the exporter to indicate the way in which he want the importer to pay him. Either for prompt payment or he may allow credit.
Exporters have to realize payments as per the terms and conditions prescribed by RBI
Under instructions from RBI, Indian exporters are advised to realize payments within 180 days from the date of making exporters. The exporters can realize payment later than six months, in case of deferred payment terms.
Group
Member countries in the Asian Clearing Union (Bangladesh, sri lanka, Pakistan, Myanmar)
Prescribed Methods
Payment in Rupees from the account of a bank situated in any country in this group OR Payment in any permitted currency
All other countries other than the above 5 Payment in permitted currency.(RBI has countries recognized about 20 permitted currencies
Advance Payment
Buyer needs to pay in advance Safety of getting payment Works when buyer is completely dominated by the exporter and the buyer is interested in getting the goods. Used under following conditions: -When there is political stability in buyers country -When the buyers country faces economic crises -When the buyer has poor creditworthiness -When the exporter is not prepared to bear credit risk -When the goods are manufactured as per the specifications of foreign buyers Not practical: - may be non execution of the order after receiving the payment, and -sometimes buyer may not accept the goods
Open Account
When the goods are shipped on open account, the exporter forwards all the shipping documents to the buyer and frees himself of the contract and payment. There is no need to draw a bill of exchange If buyer is not given credit facility , he must make payment immediately. There is proper understanding between the exporter and the buyer on terms of credit and the rate of interest in the outstanding amount. Following circumstances are favorable for open account method: -the exporter is confident that the buyer will honor his obligation -there is a long and established relationship between the exporter and the buyer -the exporter is absolutely sure about the sound financial position of the buyer. -the exporter is financially sound to finance the operation. -there should not be any exchange restriction in the importers country otherwise payment will be hampered -importers country should be financially sound and politically stable
Documentary Bills
When relevant documents of the title of the goods are also sent along with the foreign bill of exchange it is called Documentary Bill. Two types: -Documents Against Payment(D/P) -Documents Against Acceptance(D/A) Documents Against payment(D/P) -exporter sends the negotiable documents to buyer through bank -payment is made against documents verification -Risk-Buyer may refuse to accept the documents and to make payment -to cover this risk-ECGC policy is advised. This method is used under following conditions: -the exporter instructs the bank to retain the documents until payment is made -the importer can collect documents only when he makes payments In case, the importer does not collect the documents by making payment, the exporter has to dispose of the goods in the overseas market.
Documents Against Acceptance(D/A) -the importer cannot collect documents unless he gives in writing his acceptance to make payment as per the terms of export contract -the documents are released against acceptance of the Time Draft .i.e credit is allowed for a certain period say for 60,90 or 180 days. -the buyer gets possession of the documents only after accepting the bill. D/A is used under following conditions: i) The importer desires to use the goods before making payments ii) The exporter has dispatched the goods before receiving the payment. He cannot get the bills discounted. iii) For the number of days of credit granted, the importer has to pay interest to the principal sum.
Liberalization of Imports
1980s, suggests that the root cause of the crisis was the large and growing fiscal imbalance. Large fiscal deficits emerged as a result of mounting government expenditures, particularly during the second half of the 80s. These fiscal deficits led to high levels of borrowing by the government from the Reserve Bank of India (RBI),IMF, World Bank.
Over the 1980s, government expenditure in India grew at a phenomenal rate, faster than what government earns as a revenues.
Although, a large part of the problem concerning external imbalances in India could be attributed to extraneous developments, such as two oil-shocks during the last decade.
The Indian economy was indeed in deep trouble. Lack of foreign reserves . Gold reserve was empty. Before 1991, India was a closed economy. The government was close to default and its foreign exchange
reserves had reduced to the point that India could barely finance three weeks worth of imports. The Government of India headed by Chandra Shekhar decided to usher in several reforms that are collectively termed as liberalization in the Indian media with Man Mohan Singh whom he appointed as a special economical advisor.
License Raj was the regulations that were required to set up business in India between 1947-1990.
where all aspects of the economy are controlled by the state and licenses were given to a select few.
The License Raj is considered to have been dismantled in 1990. Ended many public monopolies, allowing automatic approval of foreign direct investment in many sectors India still ranks in the bottom quartile of developing nations in terms of the ease of doing business compared to China
Dr. Man Mohan Singh, a professional economist and an economic administrator, was appointed Finance Minister. ManMohan Singh is undoubtedly the architect of the most far reaching reforms in India since independence in 1947. Government economists such as Dr. Arvind Virmani took upon themselves the task of clarifying the goals, objectives and methods of the reform package along with:C. Rangarajan, Montek Singh Ahluwalia, Shankar Acharya and Y. Venugopal Reddy.
The reforms brought changes in three broad areas, collectively known as liberalization, privatization and globalization. Liberalization did away with regulatory hurdles and minimized licensing requirements. Privatization reduced the role of the state and public sector in business. Globalization made it easier for the MNCs to operate in India. This policy was later continued by Prime minister P. V. Narasimha Rao, and he was fully supported by his finance minister Manmohan Singh and other officials such as C. Rangarajan, Montek Singh Ahluwalia, Shankar Acharya and Y. Venugopal Reddy.
8.2 6.1
2003-04
118.
75.4
54.1
17.0 2.2
1990-91
1995-96
2001-02
002-03
2003-04
Foreign Investments after liberalization Foreign Investments after liberalization Total Foreign Investment (US$ million) 15,872
103
1990-91 1994-95
1997-98
2000-01
2001-02
2002-03 2003-04
Import duty Reductions after liberalization Reduction in Peak Customs Duties on Manufactured items
150 110
50 42 38.5 30 25 20
1991
Mar-92 Mar-95
Mar-97
Vehicle Exports
4 Wheelers (in Nos) 2 and 3 Wheelers (in Nos)
1992-93
1994-95 1996-97
998-99
2000-01
29.7
33.67
36.19
1991-92
1994-95
998-99
2000-01
2002-03
2003-0
IT & IT ENABLED SERVICES OIL & GAS POWER PORTS & ROADS AIRPORTS
Categories of Imports
Importer means a person who imports or intends to import and holds an ImporterExporter Code Number. Importers are classified into two categories viz. i) Actual user(Industrial) ii) Actual User (Non Industrial) Actual user(Industrial): - it refers to a person who uses the imported goods for manufacturing in his own industrial unit or manufacturing for his own use in another unit including a jobbing unit. Actual User (Non-Industrial) It refers to a person who uses the imported goods for his own use in: a) Any commercial establishment carrying on any business, trade or profession, or b) Any laboratory, scientific or R &D institution, university or any other educational institution or hospital c) Any service industry
Non-Actual Users: -it refers to such users who import but not meant for commercial use and includes: a) Personal imports b) Imports of gifts c) Importers for stock and sale
Prohibited List
Unprocessed Ivory Animal rennet Tallow fat Wild animal including their parts and products
Unprocessed Ivory
Animal Rennet
An enzyme which splits milk into curds Although rennet can be made from vegetable or microbial sources, most forms are derived from the stomach linings of animals. often used in the production of cheese
Tallow is a rendered form of beef or mutton fat, processed from suet (raw beef or mutton fat
Restricted List
Cannot be imported freely Can be imported with special permission / license from DGFT. Importers need licenses to import restricted items and only by actual users The grounds on which importers are restricted include health, security and environmental protection or the goods are reserved for production by small and tiny entrepreneurs. Small and tiny sector in India adopt home based and village based production requiring low skills but making available employment to large number of people.
Consumer Goods: Industrial, agricultural, mineral or animal origin are included which consist of:
i) ii) iii) iv) v) vi) vii) viii) ix) Cameras Exports goods/ equipment Consumer telecommunication equipment Electronics goods Watches, Watch cases and dials Gifts of consumer goods Concentrates of alcoholic beverages Wines Cloves, Woolen silk, man made and blended fabrics
B) Safety and Security Beverages: i) fire arms ii) ammunition iii) explosives iv) empty/ discharged cartridges of all bores/ sizes Paper for security printing, currency paper, stamp paper and other special types of paper C) Electronic Item: i)Audio magnetic tapes in all forms excluding 35mm and 16mm sprocketed tapes ii) Video magnetic tapes in hubs and reels, rolls, pancakes, jumbo rolls-in all forms iii) TV, picture tubes iv) Printed circuit boards v)PC
Consumer Goods:
Miscellaneous items
Canalised List
Mineral oil
Payments for exports are open to risks even at the best of times. The risks have assumed large proportions today due to the farreaching political and economic changes that are sweeping the world. An outbreak of war or civil war may block or delay payment for goods exported. Economic difficulties or balance of payment problems may lead a country to impose restrictions on either import of certain goods or on transfer of payments for goods imported.
INTRODUCTION
Export Credit Guarantee Corporation of India Limited, was established in the year 1957 by the Government of India To strengthen the export promotion drive by covering the risk of exporting on credit. ECGC is the fifth largest credit insurer of the world. The present paid up capital of ECGC is Rs. 800 crores
VISION To excel in providing credit insurance and trade related services. MISSION To support the Indian Export Industry by providing cost-effective insurance and trade-related services to meet the growing needs of the Indian export market through the optimal utilization of available resources.
ECGCs role in helping exporters Offers insurance protection to exporters against payment risks Provides guidance in export-related activities Makes available information on different countries with its own credit ratings Makes it easy to obtain export finance from banks/financial institutions Assists exporters in recovering bad debts Provides information on credit-worthiness of overseas buyers
Objectives of ECGC
ECGC is designed to protect exporters
Buyers failure to accept the goods when the exporters is not at fault. Buyers extended default to pay for the .goods accepted by him
POLITICAL RISKS: Imposition of restriction by the Government of the buyer's country or any Government action, which may block or delay the transfer of payment made by the buyer. War, civil war, revolution or civil disturbances in the buyer's country. New import restrictions or cancellation of a valid import license in the buyer's country. Interruption or diversion of trip outside India resulting in payment of additional freight or insurance charges which can not be recovered from the buyer. Ex: diversion due to accidents, traffic, security reasons etc Any other cause of loss occurring outside India not normally insured by general insurers, and beyond the control of both the exporter and the buyer.