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FOLLOWING BASIC INFORMATION YOU SHOULD HAVE TO BE AN EFFECTIVE INTERNATIONAL TRADE MANAGER IN AN EXPORTING FIRM ::
1. Regulations
Exporters can be sole proprietors, partnerships or companies. The regulations, permits or licences which affect exports apply to the goods or services exported not to the individual or organisation exporting them. There are no restrictions on who or what type of business may export from INDIA but the goods or services exported must comply with existing export regulations.
In an export context the over-riding regulation is that all consignments leaving INDIA, must be declared to the Indian Customs Service to check any duty needs to be paid. The declaration to Customs can be made by exporters or by their appointed freight forwarder .
It is advisable to contact the Indian Customs Service or an international freight forwarder to ascertain if any export regulations apply to your specific product or service before proceeding further with your export plans.
Registration
• Registration with Reserve Bank Of India: No longer required.
• Registration with Regional Licensing: Authorities (obtaining IEC Code Number) The Customs Authorities will not allow you to import or export goods into or from India unless you hold a valid IEC number.
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.
Registration With Sales Tax Authorities
Goods which are to be shipped out of the country for export are eligible for exemption from both Sales Tax and Central Sales Tax. For this purpose, you should get yourself registered with the Sales Tax Authority of your state after following the procedure prescribed under the Sales Tax Act applicable to your State.
Excise Procedure
All excisable goods exported out of India are exempt from payment of Central Excise Duties, for which two different procedures have been approved
Rebate of Duty on Goods Export Procedure
Under the first procedure, known as 'Rebate of duty on Goods Export. The manufacturer has first to pay the excise duty on goods meant for export and then claim refund of the same after exportation of such goods to countries except Nepal and Bhutan.
Export under Bond Procedure
Under the second procedure known as "Exports Under Bond" goods can be exported out of India except to Nepal or Bhutan without prior payment of duty subject to the execution of the Bond with security / security for a sum equivalent to the duty chargeable on the goods to be exported.
2. Market Research
Extensive research is necessary in order to assess the potential market for a given product or service in a defined region. It may be conducted by employees of a business or by an external consultant appointed by the business. The ultimate aim of the market research program should be to provide comprehensive, accurate information on which to base a successful export marketing strategy.
Export market research can be divided into two phases, desk research and overseas research.
Phase 1 — Desk Research
This is the process of gathering information from sources within India. There are many such sources able to provide a wealth of information.
These include:
• banks
• bilateral, social and business organisations
• chambers of commerce
• consulates/embassies
• Department of Foreign Affairs and Trade
• export consultants
• international freight forwarders
• international business and telephone directories
• the Internet
• Universities or other tertiary institutions.
Phase 2 — Overseas Research
This is the process of gathering information in the market itself. A first hand evaluation of the sales potential for the product or service in the overseas market is essential. This may involve discussions with potential buyers, agents, distributors, joint venture partners and government authorities, attendance at trade fairs and exhibitions, product testing in the market place, customer surveys, etc.
This phase of the research programme should only be commenced after every aspect of Phase 1 has been exhausted.
Ultimately the information gathered must result in the production of a practical export marketing strategy, which is capable of implementation by the company for which it was designed.
Preliminary Export Research Program
A typical research program should seek to ascertain:
• preferred target market
• economic overview of the target market
• demographic overview of the target market
• cultural and religious environment
• basic import regulations
• tariffs, taxes and quotas
• transport infrastructure
• distribution networks
• potential customers within the target market
• entrenched competition
• pricing policy
• preferred trading terms
• packaging and presentation.
This list is by no means exhaustive but these are the prime factors you should be aware of before venturing into an export market.
3. Terminology
Every field of endeavour has its own vocabulary and export is no exception. It is important to know the terms used in international trade, not only in order to understand exactly the offer which is being made or accepted, but also in order to present a fully professional approach to your potential trading partners.
The most important part of the export vocabulary is the set of terms universally known as Incoterms.
Trading Terms (Incoterms)
The most commonly used rules for the interpretation of trading terms in international trade are those defined by the International Chamber of Commerce (ICC). They are internationally recognised and are known as Incoterms. Incoterms signify to the buyer what is, and more importantly what is not, included in the selling price. They also indicate where the exporter's responsibility ends and the importer’s responsibility begins in respect of the goods exported.
Which term will apply to a particular export transaction is a matter for negotiation between buyer and seller. However, inclusion of the appropriate term in export quotations is crucial in order to determine the responsibilities of both parties in the contract of sale.
4. Export Prices, Offers and Contracts
Export Prices
Calculation of export prices is usually based on the differential costing method. This method treats exports as additional business; incremental to the main core of domestic trading. Exports therefore bear a reduced contribution to the manufacturer's fixed costs.
Export prices may also be affected by duty drawback. Where an export product contains imported material or components on which duty has been paid, the amount of duty paid can be claimed back from Indian Customs Service when the product is ultimately exported. The export price will reflect this reduction in cost.
These are matters of accountancy and should be discussed in detail with your accountant.
Additional costs such as bank charges, cost of Forward Exchange Cover, etc., may also have to be taken into account before arriving at a firm export price.
• A cautionary word: it is unwise to set an artificially low price when trying to enter an export market because it is usually very difficult to raise this to a realistic level at a later date. It is preferable to enter the market at a realistic level with an undertaking to hold prices firm for a fixed period of time, say 90 or 120 days after the date of the quotation.
Ultimately export pricing will be determined having regard to two fundamental points; the price the exporter needs to cover all costs and make a reasonable margin of profit, and what price the market is prepared to pay. There is little point in sacrificing profit if the market is willing to pay a higher price.
Export Offers :
To correctly evaluate an export offer, an importer requires the following basic information :
Description of the Goods
A detailed description of the goods is necessary to avoid misunderstanding between exporter and importer and so that the importer can correctly classify the goods for Customs purposes.
Price
Exporters should always specify the currency in which the price is quoted.
Trading Term
The price should always be accompanied by the appropriate trading term indicating which elements of the transport and insurance costs are included in the quoted price.
Delivery Schedule
Delivery schedules should set out the quantity which can be made available for shipment within a specified period eg "3,000 units within 2/3 weeks of receipt of firm order and 2,000 every week thereafter". It is preferable that delivery schedules be slightly conservative; much better to deliver ahead of time than after the promised date.
Packing Specification
Sets out how the goods will be packed, the number of units per carton or pallet and the weight and dimensions of the packages. This will enable the importer to determine how the goods will be warehoused upon arrival and to ascertain the cost of transporting the consignment if this is not included this in the quoted price.
Payment terms
It is important to state your preferred payment terms for two reasons:
• so that there will be no misunderstanding as to how the importer is to make payment; and
• because some methods of payment will involve the importer in significant additional expense and this must be taken into account when costing imports.
The most commonly used payment terms are:
Prepayment - Absolutely secure from the exporter's point of view. Payment is received prior to dispatch of the goods.
Documentary Letter of Credit - Almost completely secure for the exporter. A Letter of Credit (more correctly called a Documentary Credit) is an arrangement whereby a bank, operating on the instructions of an importer, authorises another bank to pay a fixed sum to an exporter on production of specified documents. The rules governing the use of Letters of Credit are contained in Uniform Customs and Practice for Documentary Credits (ICC No. 400) available from most Banks.
Bills of Exchange/Cash Against Documents - From an exporter’s point of view not as secure as Prepayment or Letter of Credit.
Bills of Exchange are accompanied by shipping documents are usually referred to as documentary collections.
Open Account - No security of payment. Payment is made by the importer after the goods have been despatched by the exporter.
A number of excellent publications are available from the major banks, which give a detailed explanation of the various methods of payment used in international trade.
Validity
Indicates the period during which the export offer will remain unchanged.
Warranty
A certification as to quality.
Other
Provision of samples for testing etc.
Export Contacts come into being by a process of offer and acceptance. When an offer has been accepted by the buyer, the contract exists and is legally binding on both buyer and seller. It is difficult to withdraw or amend an incorrect offer after it has been accepted. Accurate pricing and careful preparation of the export offer is, therefore, essential given that this represents a formal offer of goods for sale.
5. Insurance
In an export context insurance can be said to fall into two types:
Insurance against loss or damage
Consignments with anything over minimal value should be insured against loss or damage during transit. Who has responsibility for effecting insurance is totally dependent upon the terms of the contract of sale negotiated between exporter and importer. In a FOB or CFR contract this responsibility lies with the importer, in a CIF contract with the exporter .
The extent of cover, whether it is from wharf to wharf or warehouse to warehouse, will vary from contract to contract.
It is customary in most types of international trade to insure goods for CIF value plus 10% in order to recover all costs associated with the shipment including the cost of the premium paid to the insurance company.
Insurance against default of buyer
If the payment terms negotiated with an overseas buyer are less than secure, it is possible to insure against the risk of non payment through private insurers.
The risks covered by this type of insurance include:
• default by the buyer
• buyer’s refusal to accept delivery
• buyer insolvency
• inability to deliver due to unforseen circumstances
• war, hostilities or civil disturbances
• government intervention.
Exporters should also be aware that if their product has the propensity to cause damage or personal injury, it is advisable to explore the possibility of taking out product liability insurance to cover this risk. This is particularly advisable when considering export to markets where litigation is common.
6. Freight
Freight is the name usually given to cargo which is to be transported from one designated point to another, but the term is also used to denote the cost of transport. In view of this, exporters should make absolutely clear what is meant by use of the term "Freight".
Freight Rates (air and sea) - While it is almost always true that kilo for kilo sea freight will be less expensive than airfreight, it is also true that the minimum freight payable for dispatch by sea is usually much higher than the minimum payable for dispatch by air. This means that it is often less expensive to dispatch small consignments by air than by sea.
Conference Rates - Ship owners operating vessels on a particular run - say India to West Coast USA - form a cartel to fix freight rates and sailing schedules. This cartel is called a Shipping Conference and is one of the few forms of price fixing cartel, which is deemed to be legal . This is because it ensures stability of freight rates which enables exporters to prepare export quotations in the knowledge that the freight rate will not change without adequate warning. It also rationalises sailing schedules thus ensuring that sailings to a particular destination will be at regular intervals. It follows that all shipping lines that are members of the Conference will offer identical freight rates for the carriage of cargo.
It should be noted that the conference system does not operate in respect of airlines so rates for airfreight can differ. It is advisable to obtain several quotes for airfreight consignments in order to take advantage of the best available rate.
Weight Measurement Ratio - The total amount of freight payable for the transport of cargo is usually calculated by applying the quoted freight rate to the weight or measurement of the cargo, whichever offers the greater return to the shipping company or airline.
Hazardous cargo - Freight rates will always vary depending upon the type of cargo to be carried. If the cargo is deemed to be of a hazardous nature, eg. volatile, noxious, injurious to health, likely to contaminate other cargo, etc., then special rates will apply and the carrier may require special packing to prevent damage. Check with your freight forwarder as to the standards or regulatory requirements which may affect the transport of your cargo.
Because of the above it is recommended that exporters seek the services of a reputable international freight forwarder when considering selling into overseas markets.
International Freight Forwarders
The services usually offered by international freight forwarders are:
Booking space
Forwarders will make the necessary bookings with shipping companies or airlines to ensure that the cargo is transported in the correct manner with the minimum amount of delay.
Freight savings
Most forwarders make regular "block bookings" of space on ships and aircraft. They are thus able to consolidate the cargo from a number of individual exporters and, in some circumstances, pass on the savings achieved to their clients in the form of reduced freight rates.
Costing
They are able to assist exporters in calculating the cost involved in exporting goods to a particular destination. They can also advise on the most economical means of transport, ie. air versus sea or a combination of both. They can also advise if savings can be achieved by deferring dispatch, for example, until the next consolidated consignment leaves.
Cargo monitoring
Forwarders are able to monitor the movement and location of particular cargo from the time it leaves the exporter’s premises to the time it arrives at the importer's premises.
Documentation
It is essential that export documents be absolutely free of error if international transactions are to be trouble free. Forwarders are able to produce documents which comply with exporter's instructions, letters of credit and the regulatory requirements in the importer’s country. Where speed is essential in the transmission of documents, forwarders are able to fax or email copies to importers or their agents thus ensuring faster customs clearance and delivery. This in turn reduces the risk of incurring storage charges at the port of destination.
Storage
Most forwarders have the facility to store outgoing and incoming cargo and this facility usually extends to Bond Storage. They are also able to arrange inspection by the Indian Customs Service or other agencies if this cannot be conveniently accomplished at the exporter’s premises.
Market information
Because of their strong overseas connections, forwarders are often able to provide their clients with information about market conditions, export and import requirements, duty rates, etc. The amount of duty paid in the importer's country will depend upon how the product is classified in terms of the customs tariff. Your freight forwarder can advise on ways to achieve the best tariff classification in order to legitimately minimise customs duty.
When using the services of a Forwarder your instructions should be clear and concise. Most forwarders have their own forms on which to provide instruction.
When seeking information from Forwarders about freight rates, it is essential to provide accurate and adequate details with regard to the nature of the cargo, its destination and packing specification.
It is also important that you obtain from the Forwarder written confirmation of the rates quoted and the range of services offered in order to avoid confusion and misunderstanding in the future.
7. Export Marketing
There are many ways in which a product or service can be marketed to buyers overseas. These fall into two main categories, direct and indirect marketing.
The main distinction between direct and indirect export marketing lies in the contractual relationship between the parties concerned. By direct exports we mean those transactions where the manufacturer or exporter has a direct contractual relationship with the importer overseas. Indirect exports are those arranged by contractual relationship with an intermediary, usually in the country of export. An important test in determining if the transaction is direct or indirect is whether the exporter will be paid from a local (indirect export) or an overseas (direct export) source.
In the main export marketing options are:
Direct export to an importer
Where the exporter identifies a buyer overseas and negotiates a contract for the sale of goods or services.
Direct export using a commission agent
Similar to the above but using a commission agent in the overseas market to solicit orders and provide after sales service. This can either be a one step or multiple step distribution process.
Indirect export through local merchants
Sales are negotiated with a trader in the manufacturer's country, with payment being made in local currency from the trader’s office. For example a great deal of trade between India and Japan is done through the Indian offices of Japanese companies. There are many such trading companies ranging from the very large Japanese trading houses to small single operators. Most traders will specialise in a specific product type and/or geographic area.
Manufacture under licence
The Indian company sells technical know-how to an established manufacturer overseas who is licensed to produce the product or service in that country.
Joint Venture
The Indian company enters into an arrangement with a company overseas to set up a third business entity, the joint venture company, which will be responsible for production and/or distribution of the product or service in the overseas market place.
Wholly owned company in the export market
The Indian company establishes a branch or subsidiary in the overseas territory.
8. Exclusive Agreements
It is customary for agents, distributors to require some form of exclusive right in the product or the territory in which the product is to be sold. The agreements which convey these exclusive rights should be negotiated with great care because once made they can be difficult to revoke and it is vital that you appoint the best possible people to represent your product in the market place. . Such agreements will vary considerably depending upon the market, the nature of the product and many other factors.
Clauses which are common to all such agreements are:
Nature of agreement
Is the agreement an exclusive distributorship, licence arrangement or agency agreement?
Territory
This clause defines the territory covered by the agreement.
Period
This clause defines the period over which the agreement will run and also any review options; for example - agreement to run for 5 years with a review after 1 year.
Remuneration
In an agency agreement this clause defines how commission will be calculated and how and when it will be paid.
Exceptions
In an exclusive distributorship or agency agreement this clause details any exceptional circumstances when the exporter may deal directly with importers in the market.
Warranties and repairs
This clause details the warranties, which the supplier offers to the distributor and which the distributor may in turn offer to the end user. It also details the after sales service available in the market place.
Promotional expenditure
This clause defines who will pay for advertising and sales promotional material including samples. It should also define the limit of expenditure, which can be incurred by the agent without authorisation from the principal.
Dispute resolution
This clause determines which legal or arbitration system will apply in the case of a dispute that cannot be resolved by the parties to the agreement themselves.
Performance level
Defines the minimum level of sales to be achieved in a given period. If this level is not achieved the agreement may be reviewed.
Rights
Defines the parties’ rights to use brand names, trade marks etc.
Having determined the type of agreement required and the principal points to be covered, it is essential that you consult a legal firm with experience in the area of international agreements. They will ensure that the final agreement reflects the wishes of both parties thus avoiding potentially disruptive and costly disputes.
9. Export Finance
The amount of finance required to enter overseas markets will vary from business to business and depend largely upon the export strategy which individual companies adopt. However, it is true that in all circumstances, export will require additional financial resources.
In an export context additional financial resources may be required for the following:
Pre-shipment Finance
Finance required for the purchase of product, raw materials or components prior to manufacture and export of the goods.
Post-shipment Finance
Finance required to continue operations in the period between dispatch of the goods and receipt of payment.
Working Capital
To facilitate the day to day operation of the firm, ie. overheads, wages, maintenance of plant and equipment etc. In an export context this may also involve documentation charges, entertainment for overseas visitors, market research, overseas visits, translations etc.
Applying for Finance
Banks and other lending institutions will usually provide their own forms on which to apply for finance. Naturally these will vary from bank to bank. However, most loan applications will require the following details:
• the amount of money required
• the purpose for which it is required
• preferred repayment terms
• security offered
• cash flow projections
• details of existing debt
• financial details of the business
• trading history
• stock valuation
• experience/qualifications of the proprietors
• management structure
• short term objectives
• long term objectives
• market research findings
• other relevant considerations, such as contracts, intellectual property, etc.
• lending institutions will probably also require a copy of your export strategy
10. Documentation
Export documents form a very important aspect of international trade. It is usually true to say that without the correct documents the exporter may not be paid and the importer may not be able to take possession of the consignment. An understanding of the most commonly used documents in international trade is essential for successful export operation.
The most important export documents are:
Letter of Credit
A Letter of Credit (more properly called a documentary credit) is an advice issued by the importer’s bank authorising payment of a specified sum of money by a correspondent bank to a named beneficiary upon delivery by the beneficiary of specified documents. The internationally accepted rules for the use of Letters of Credit are contained in "Uniform Customs and Practice for Documentary Credits” (commonly called UCP). Most Banks provide a booklet which contains these rules.
Bill of Lading
This is probably the most important document in international trade. It performs two completely separate functions. It defines the contract between the exporter and the ship owners to carry the goods from one named port to another. It is also the document of title to the goods and as such is fully negotiable. Legitimate transfer of the Bill of Lading effectively transfers ownership of the goods from one party to another.
Air Waybill
In the case of dispatch by air performs roughly the same function as a Bill of Lading with one notable exception. An Air waybill is not fully negotiable, so passage of the cargo to an importer is not dependent upon production of the original Air waybill. Cargo will be delivered to the importer immediately it arrives at the airport in the importer’s country.
Certificate of Origin
May be required for some destinations.
Bill of Exchange
In effect a Bill of Exchange is a demand for payment which the exporter prepares and presents to the importer. The importer will pay at sight or, if it is a term Bill, on the date it matures.
Certificates of Insurance
In a CIF contract, insurance is effected by the seller who will usually be required to provide to the importer a certificate to this effect.
THESE ARE THE BASIC INFORMATION , YOU SHOULD HAVE TO BE AN EFFECTIVE INTERNATIONAL TRADE MANAGER IN AN EXPORTING FIRM.