Export Procedure

By Dr. Anil P. Dongre

Department of Management Studies North Maharashtra University Jalgaon (MS) India- 425001

Golden Rule: No one should ever try to tackle every market at once. Overseas design and product requirements must be carefully considered.

Sell Experience: If a person cannot easily export his goods, may be he can sell his experience. Alternatively, he can concentrate on supplying goods and materials to exporters' who already have established an export trade.
Testing Product: The risk of failure in export markets can be minimized by intelligent use of research. Before committing to a large-scale operation overseas, try out on a small scale. Approach: If possible some indication of the attitudes towards the product should be established, like any sales operation. Even if the product is successful, to obtain reactions from the customer. Selling in Export: In today's competitive world, everyone has to be sold. The customer always has a choice of suppliers. Selling is an honorable profession, and you have to be an expert salesman. On-Time Deliveries: Late deliveries are not always an exporters fault. Dock strikes, go-slows, etc. occur almost everywhere in the world. If one enters into export for the first time, he must ensure of fast and efficient delivery of the promised consignment. Communication: Communication internal and external must be comprehensive and immediate. Good communication is vital in export. When you are in doubt, pick up the phone or email for immediate clarification.

Selecting the markets

Target markets should be selected after careful consideration of various factors like political embargo, scope of exporter's selected product, demand stability, preferential treatment to products from developing countries, market penetration by competitive countries and products, distance of potential market, transport problems, language problems, tariff and non-tariff barriers, distribution infrastructure, size of demand in the market, expected life span of market and product requirements, sales and distribution channels. For this purpose you should collect adequate market information before selecting one or more target markets. The information can be collected from various sources like Export Promotion Council (EPCs)/Commodity Boards, Federation of Indian Export Organization, (FIEO), Indian Institute of Foreign Trade (IIFT), Indian Trade Promotion Organization (ITPO), Indian Embassies Abroad, Foreign Embassies in India, Import Promotion Institutions Abroad, Overseas Chambers of Commerce and Industries, Various Directories, Journals, Market Survey Reports

Selecting prospective Buyers

You can collect addresses of the prospective buyers of the commodity from the following sources: Enquiries from friends and relatives or other acquaintances residing in foreign countries, Visiting/ participating in International Trade Fairs and Exhibitions in India and abroad. Contact with the Export Promotion Councils, Commodity Boards and other Government Agencies ,consulting International Yellow Pages (A Publication from New York by Dun & Bradstreet, USA or other Yellow Pages of different countries like Japan, Dubai Etc., Collecting information from International Trade Directories/ Journals/periodicals available in the libraries of Directorate General of Commercial Intelligence and Statistics, IIFT, EPCs, ITPO etc., Making contacts with Trade Representatives of Overseas Govt. in India and Indian Trade and Other Representatives/ International Trade Development Authorities abroad. A list of international trade development authorities abroad like Foreign Chambers of Commerce etc., biweekly, fortnightly, monthly bulletins such as Indian Trade Journal, Export Service Bulletin, Bulletins and Magazines issued and published by Federation of Exporters' Organizations, ITPO, EPCs, Commodity Boards and other allied agencies, Visiting Embassies, Consulates etc. of other countries and taking note of addresses of importers for products proposed to be exported.

Selecting channels of distribution

Exports through Export Consortia Export through Canalizing Agencies Export through Other Established Merchant Exporters or Export Houses, or Trading Houses Direct Exports Export through Overseas Sales Agencies

Negotiating with Prospective Buyers

Whatever the channel of distribution for exporting to the overseas countries is proposed to be is utilized, it is essential that the exporters should possess the necessary skill for negotiating with the overseas channels of distribution. There should be coherence, creativity, compromise, concessions, commonality, consensus, commitment and compensation in business negotiations. The general problem you may face is about pricing. The buyer's contention is that prices are too high. It should be noted that though the price is only one of the many issues that are discussed during business negotiations, it influences the entire negotiating process

The following points should be kept in mind while preparing the price list Submit a typewritten list, printed on the regular bond paper and laid out simply and clearly (with at least an inch between columns and between groupings) Prominently indicate the name of your company, its full address, telephone and fax numbers, including the country and city codes. Fully describe the items being quoted. Group the items logically( i.e. all the fabrics together, all the made-up together etc.). Specify whether shipped by sea or by air, f.o.b. or c.i.f. and to what port. Quote exact amount and not rounded-off figures. Mention the dates up to which the prices quoted will remain valid. Where there is an internal reference number which must be quoted, to keep it short. As regards the factors determining your price, please refer to 'EXPORT PRICING AND COSTING

Processing an Export order

You should not be happy merely on receiving an export order. You should first acknowledge the export order, and then proceed to examine carefully in respect of items, specification, pre-shipment inspection, payment conditions, special packaging, labeling and marketing requirements, shipment and delivery date, marine insurance, documentation etc. if you are satisfied on these aspects, a formal confirmation should be sent to the buyer, otherwise clarification should be sought from the buyer before confirming the order. After confirmation of the export order immediate steps should be taken for procurement/manufacture of the export goods. In the meanwhile, you should proceed to enter into a formal export contract with the overseas buyer.

Entering into an Export contract

In order to avoid disputes, it is necessary to enter into an export contract with the overseas buyer. For this purpose, export contract should be carefully drafted incorporating comprehensive but in precise terms, all relevant and important conditions of the trade deal. There should not be any ambiguity regarding the exact specifications of goods and terms of sale including export price, mode of payment, storage and distribution methods, type of packaging, port of shipment, delivery schedule etc. The different aspects of an export contract are enumerated as under : Product, Standards and Specifications, Quantity, Inspection, Total Value of Contract, Terms of Delivery, Taxes, Duties and Charges, Period of Delivery/Shipment, Packing, Labeling and Marking, Terms of Payment, Amount/Mode & Currency, Discounts and Commissions, Licenses and Permits, Insurance, Documentary Requirements, Guarantee, Force Majeure of Excuse for Non-performance of contract, Remedies, Arbitration (The Indian Council of Arbitration Federation House)

Export Pricing and Costing

Export pricing should be differentiated from export costing. Price is what we offer to the customer. Cost is the price that we pay/incur for the product. Price includes our profit margin, cost includes only expenses we have incurred. Export pricing is the most important tool for promoting sales and facing international competition. The price has to be realistically worked out taking into consideration all export benefits and expenses. However, there is no fixed formula for successful export pricing. It will differ from exporter to exporter depending upon whether the exporter is a merchant exporter or a manufacturer exporter or exporting through a canalizing agency. You should also assess the strength of your competitor and anticipate the move of the competitor in the market. Pricing strategies will depend on various circumstantial situations. You can still be competitive with higher prices but with better delivery package or other advantages. Your prices will be determined by the following factors: Range of products offered, Prompt deliveries and continuity in supply, After-sales service in products like machine tools, consumer durables, Product differentiation and brand image, Frequency of purchase, Presumed relationship between quality and price, Specialty value goods and gift items, Credit offered, Preference or prejudice for products originating from a particular source, Aggressive marketing and sales promotion, Prompt acceptance and settlement of claims, Unique value goods and gift items

As regards quoting the prices to the overseas buyer, the same are quoted in the following internationally accepted terms

Ex-Works: 'Ex-works' means that your responsibility is to make goods available to the buyer at works or factory. The full cost and risk involved in bringing the goods from this place to the desired destination will be borne by the buyer. This term thus represents the minimum obligation for you. It is mostly used for sale of plantation commodities such as tea, coffee and cocoa. Free on Rail(FOR): Free on Truck(FOT):These terms are used when the goods are to be carried by rail, but they are also used for road transport. Your obligations are fulfilled when the goods are delivered to the carrier. Free Alongside Ship (FAS): Once the goods have been placed alongside the ship, your obligations are fulfilled and the buyer notified. The buyer has to contract with the sea carrier for the carriage of the goods to the destination and pay the freight. The buyer has to bear all costs and risks of loss or damage to the goods hereafter.

Free on Board (FOB): Your responsibility ends the moment the contracted goods are placed on board the ship, free of cost to the buyer at a port of shipment named in the sales contract. 'On board' means that a 'Received for Shipment' B/L (Bill of Lading) is not sufficient. Such B/L if issued must be converted into 'Shipped on Board B/L' by using the stamp 'Shipped on Board' and must bear signature of the carrier or his authorized representative together with date on which the goods were 'boarded'. Cost and Freight (C&F): You must on your own risk and not as an agent of the buyer, contract for the carriage of the goods to the port of destination named in the sale contract and pay the freight. This being a shipment contract, the point of delivery is fixed to the ship's rail and the risk of loss or of damage to the goods is transferred from the seller to the buyer at that very point. As will be seen though you bear the cost of carriage to the named destination, the risk is already transferred to the buyer at the port of shipment itself.

Cost Insurance Freight (CIF): The term is basically the same as C&F, but with the addition that you have to obtain insurance at your cost against the risks of loss or damage to the goods during the carriage.

Freight or Carriage Paid (DCP): While C&F is used for goods which are to be carried by sea, the term "DCP" is used for land transport only, including national and international transport by road, rail and inland waterways. You have to contract for the carriage of the goods to the agreed destination named in the contract of the sale and pay freight. Your obligations are fulfilled when the goods are delivered to the first carrier and not beyond. In case the buyer desires you to insure the goods till the destination, he would add 'including insurance' before the word 'Paid in Freight' or 'Carriage Paid to'.
EXS/EX-Ship: This is an arrival contract and means that you make the goods available to the buyer in the ship at the named port of destination as per sales contract. You have to bear the full cost and risk involved in bringing the goods there. Your obligation is fulfilled before the customs border of the foreign country and it is for the buyer to obtain necessary import license at his own risk and expense.

EXQ/Ex-Quay: Ex-Quay means that you make the goods available to the buyer at a named quay. As in the term 'Ex-Ship' the points of division of costs and risks coincide, but they have now been moved one step further -- from the ship into the quay or wharf i.e. after crossing the customs border at destination. Therefore, in addition to arranging for carriage and paying freight and insurance you have to bear the cost of unloading the goods from the ship.
Delivered at Frontier (DAF): The term is primarily intended to be used when the goods are to be carried by rail or road. Your obligations are fulfilled when the goods have arrived at the frontier, but before the 'Customs border' of the country named in the sales contract. Delivery Duty Paid (DDP): This term may be used irrespective of the type of transport involved and denotes your maximum obligation as opposed to 'Ex-Works'. You have not fulfilled his obligation till such time that the goods are made available at his risk and cost to the buyer at his premises or any other named destination. In the latter case necessary documents (e.g. transport document or Warehouse Warrant) will have to be made available to the buyer to enable him to take delivery of goods. The term 'duty' includes taxes, fees and charges. Therefore, the obligation to pay VAT (Value Added Tax) levied upon importation will fall upon you. It is, therefore, advisable to use 'exclusive of VAT' after the words 'duty paid'.

FAO/FOB Airport: 'FOB Airport' is based on the same main principle as the ordinary FOB term. You fulfill your obligation by delivering the goods to the air carrier at the airport of departure. Without the buyer's approval delivery at a town terminal outside the airport is not sufficient, your obligations with respect to costs and risks do not extend to the arrival of the goods at the destination. Free Carrier (Named Point) FRC: The term has been designed particularly to meet the requirements of modern transport like 'multi-modal' transport as container or 'roll-on-roll-off' traffic by trailers and ferries. The principles on which the term is based is same as applicable to FOB except that the seller or the exporter fulfills his obligations when he delivers the goods into the custody of the carrier at the named point.

Registration
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. This has since been dispensed with and registration with the licensing authorities is sufficient before commencing export or import. 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. For obtaining IEC number you should apply to Regional Licensing Authority duplicate in the prescribed form. Before applying for IEC number it is necessary to open a bank account in the name of your company / firm with any commercial bank authorized to deal in foreign exchange. The duly signed application form should be supported by the following documents: Bank Receipt (in duplicates)/Demand Draft for payment of the fee of Rs. 1,000/-. Certificate from the Banker of the applicant firm as per Annexure 1 to the form given in Appendix 1 of this Book. Two copies of Passport size photographs of the applicant duly attested by the banker to the applicants.

A copy of Permanent Account Number issued by Income Tax Authorities. If PAN has not been allotted, a copy of application of PAN submitted to Income Tax Authorities. In case the application is signed by an authorized signatory, a copy of the letter of legal authority may be furnished. If there is any non-resident interest in the firm and NRI investment is to be made with repatriation benefits, a simple declaration indicating whether it is held with the general/specific permission of the RBI on the letter head of the firm should be furnished. In case of specific approval, a copy may also be furnished.
Declaration by the applicant that the proprietors/partners/directors of the applicant firm/company, as the case may be, are not associated as proprietor/partners/directors with any other firm/company which has been caution-listed by the RBI. Where the applicant is so associated with a caution-listed firm/company the IEC No. is allotted with a condition that he can export only with the prior approval of the RBI.

Exporter's Profile as per form attached to Appendix 1 of this book (See Appendix 1A of this Book). The Regional Licensing Authority concerned will on merits grant an IEC number to the applicant. The number should normally be given within 3 days provided the application is complete in all respects and is accompanied by the prescribed documents. An IEC number allotted to an applicant shall be valid for all its branches/divisions as indicated on the IEC number.

Risks in International trade

While selling abroad, you may undergo the following risks: Credit risk Currency risk Carriage risk Country risk These risks can be insured to a great extent by taking appropriate steps. Credit risk against the buyer can be covered by insisting upon an irrevocable letter of credit from the overseas buyer. An appropriate policy from Export Credit and Guarantee Corporation of India Ltd. can also be obtained for this purpose. Country risks are also covered by the ECGC. As regards currency risk, i.e. possible loss due to adverse fluctuation in exchange rate, You should obtain forward cover from your bank authorized to deal in foreign exchange. Alternatively, you should obtain export order in Indian rupee. Carriage risk, i.e. possible loss of cargo in transit can be covered by taking a marine insurance policy from the general insurance companies.

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.
Dispatching Samples As the overseas buyers generally insist for the samples before placing confirmed orders, it is essential that the samples are attractive, informative and have retention and reminder value. Besides, the exporter should know the Government policy and procedures for export of samples from India. He should also be aware about the cheapest modes of sending samples. Appointing Agents

Selling through an overseas agent is an effective strategy. These agents serve as a source of market intelligence. Regularly sending the latest trends on the current fashion, taste and price in the market. Being a man on the spot, the agent is in a position to render his advice to exporter or new methods and strategy for pushing up sales of your products. He also provides you support in the matter of transportation, reservation of accommodation, appointment with the government as and when required by you. In some countries it is compulsory under their law to sell through local agents only. It is, therefore, essential that you should carefully select your overseas agent.

Acquire Export Credit Insurance

Export credit insurance protects you from the consequences of the payment risks, both political and commercial. It enables you to expand your overseas business without fear of loss. Further, it creates a favorable climate for you under which you can hope to get timely and liberal credit facilities from the banks at home. You can obtain Export Credit Insurance from the Export Credit and Guarantee Corporation of India Limited. In order to provide you Export Credit Insurance, the following covers are issued by the ECGC

Pre-Shipment Finance
Exim Bank's scheme for grant of foreign currency pre-shipment credit to exporters for financing cost of imported inputs for manufacture of export products.

Scheme of export packing credit to sub-suppliers from export order.

Packing credit for deemed exports. Pre-shipment Credit in Foreign Currency (PCFC)

Post Shipment Finance Purchase of Export Documents drawn under Export Order Advances against Export Bills Sent on Collection Advance against Goods Sent on Consignment Basis Advance against Undrawn Balance Advance against Retention Money

Advances against Claims of Duty Drawback

THANK YOU