Page 1
1 MODULE - I
1
PRODUCT PLANNING AND PRICING
DECISION FOR EXPORT MARKETING - I
Unit Structure
1.0 Objectives
1.1 Introduction
1.2 Planning for Export Marketing
1.3 Summary
1.4 Exercise
1.5 References
1.0 OBJECTIVES The main purpose of this chapter is:
To understand the planning for export marketing with respect to
product,
To discuss the planning for export marketing with respect to branding,
To analyse the planning for export marketing with respect to
packaging.
1.1 INTRODUCTION Export marketing means exporting goods to other countries of the world.
It involves lengthy procedure and formalities. In export marketing, goods
are sent abroad as per the procedures framed by the exporting country as
well as by the importing country. Export marketing is more complicated to
domestic marketing due to international restrictions, global competition,
lengthy procedures and formalities and so on. Moreover, when a business
crossed the borders of a nation, it becomes infinitely more complex. Along
with this, export ma rketing offers ample opportunities for earning huge
profits and valuable foreign exchange.
Export marketing has wider economic significance as it offers various
advantages to the national economy. It promotes economic / business /
industrial development, to earn foreign exchange and ensures optimum
utilization of available resources. Every country takes various policy
initiatives for promoting exports and for meaningful participation in global
marketing. Global business is a reality and every country has t o participate
in it for mutual benefits. Every country has to open up its markets to other
countries and also try to enter in the markets of other countries in the best
possible manner. This is a normal rule which every country has to follow
under the pres ent global marketing environment. In the absence of such munotes.in
Page 2
Export Marketing Paper - II
2 participation in global marketing, the process of economic development of
the country comes in danger
1.2 PLANNING FOR EXPORT MARKETING Every successful market ing plan begins with thorough market re search.
Your first market research project is usually the toughest because it's all
unfamiliar terrain. But once you have collected the data you need to
predict how a specific type of product will sell in a specific g eographic
location, you can use the inf ormation over and over again as a guideline
for exports of similar products. As you build your personal information
database on global markets and learn to keep yourself up -to-date on
developments in international tra de, it will become less of a chore to
determine where to take your product. You will find that market research
is a powerful tool for exploring and taking control of your global territory.
A - Product :
Regarding the products that will be exported, a thorough p lan needs to be
created. To meet de mand from outside, new products should be created on
a larger scale. Export items must be continuously available. Only when
there is an excess of supply over demand should goods with high domestic
demand be exported. Expo rt products should have competitive prices and
superior quality.
The entire process of introducing a new good or service to a new market is
referred to as "product planning" in the context of exporting. In the
process of planning an export product, there a re two parallel routes that
must be followed: one involves concept creation, product design, and
technical engineering; the other involves market research and marketing
analysis.
Typically, businesses view the creation of new products as the initial step
in the entire strategic process of p roduct life cycle management, which is
utilised to maintain or increase market share.
Choosing which products to introduce into which nations, what changes to
make to the products, what new products to add, what brand nam es to use,
what package designs to use, what guarantees and warranties to give, what
after-sales services to offer, and finally, when to enter the market, are all
part of the export product planning process. These are all important
choices that call for va rious informational inputs.
Althoug h the fundamental purposes of exporting and domestic selling are
the same, there are significant differences between domestic and foreign
markets due to some uncontrollable environmental circumstances. These
include exter nally generated inflation, taxation , tariffs, and controls/risks
related to currency exchange. Managers that are aware of global risks and
opportunities are needed to handle these variations.
It is logical to presume that a company's product or service - which it
already manufactures - is what will be exported. Before investing their munotes.in
Page 3
3 Product Planning and Pricing Decision for Export Marketing - I resources in the foreign trade industry, businesses must first assess a
product or service's exportability.
Product planning involves a number of product related decisions such as
product design, product -mix, br anding, pricing etc. Therefore, the exporter
has to adopt various product planning strategies such as
(a) Product Design Strategies:
Exporters have the following options in respect of product design
strategies.
(i) Produ ct Innovation Strategy:
Under this strategy, the exporter develops a new product in response to the
demand prevailing in overseas markets. Low cost items for developing
countries and high cost items for developed countries may be developed
for example rea dymade garments to take advantage o f fashion in different
countries
(ii) Product Adaptation Strategy:
Under this strategy, both the product and the message are changed to
increase the adaptability of the product. This helps to meet the specific
needs of t he foreign buyers. Products like of fice machines, health goods,
and electrical goods require this strategy. It is a costly strategy. It is
generally used to serve large size markets.
(iii) Product Standardization Strategy:
Under this strategy, the exporte r sells the same product all ove r the world
with ―One product, o ne message -worldwide‖. For example: Coca -cola,
Sony etc. The exporters use this strategy when their product is too well
known and enjoys global reputation. It is an economical strategy. This is
because it does not require any modification. Moreover, it enjoys the
economies of large -scale production and marketing.
Regarding the products that will be exported, a thorough plan needs to be
created. To meet demand from outside, new products should be created on
a larger scale. Expor t items must be continuously available. Only when
there is an excess of supply over demand should goods with high domestic
demand be exported. Export products should have competitive prices and
superior quality.
Success i n all areas of life, including the export business, depends on
selectivity. An exporter might want to deal in all different kinds of goods
and sell them all over the world. However, he is unable to do so because
of the vastness and wide range of demand in many global markets.
Therefore, in order to conduct business internationally, an exporter must
choose the appropriate product(s) and market(s).
munotes.in
Page 4
Export Marketing Paper - II
4 Selecting exportable goods:
When deciding which product(s) to choose for the international market, an
exporter m ust take the following into account : Export Trends (a)
(a) Export Trends:
For proper product selection, an exporter should examine trends in the
export of various goods to the international market(s). The following
resources can be used to collect such i nformation:
India's monthly foreign trade data.
Bulletins from the Export Promotion Council (EPC).
Times of Export and Import
However, one's aptitude and product expertise will ultimately
determine which product they choose.
(a) Supply Base:
In addition t o examining a product's demand on t he global market, it is
important to examine its supply base on the domestic market. The majority
of agricultural products contradict this standard because they are
dependent on a variety of natural causes for their suppl y. Seasonal goods
like rice, wheat, sugar, onions, and even fruits have not shown to be
successful for long -term export company. Due to things like strikes, power
outages, lockouts, transportation issues, etc., even produced goods might
not have a reliable supply base.
(b) Production Capaci ty and Product Availability:
Selling a product in foreign markets has no boundaries. Thus, before
engaging into an export contract, a manufacturer exporter must take into
account his production capacity, and a merchant e xporter must take into
account the availability of the goods chosen for sale. Exporters should
concentrate on smaller markets if manufacturing capacity or supply is
constrained. However, a persistent export drive is beneficial if the product
can be made ea sily accessible.
(c) Product Adapta bility:
The ability to modify the product to meet the demands of international
markets is correlated with production capacity and availability. Buyer
demands and desires vary from market to market and country to country.
What sells well in one market may not sell at all in other markets. This
necessitates product flexibility. Product adaptability is a difficult
endeavour since it involves significant investment in changing the
production process to meet the demands of var ious markets.
munotes.in
Page 5
5 Product Planning and Pricing Decision for Export Marketing - I (d) Servicing Facil ities:
If the product chosen for export needs servicing after sales, the exporter
needs to make sure he can make such T facilities available to the buyers
abroad. Opening servicing centres overseas is not always simple o r
affordable. Finding a distributor or agent with servicing facilities is also
challenging. Exporters should not take the risk of exporting such products
if they are unable to offer such servicing facilities.
B - Branding :
Branding involves developing and implementing a number of identifiab le
features to your business so your consumers can associate themselves with
your business. Branding increases the recognisability of products and
services amongst your consumers, giving you that competitive edge within
the market.
Creating a bridge betwee n your products and your ideal customer that
helps to shorten the buyer’s journey to choose your products without any
kind of hesitation, branding is vital for marketin g activities. It helps to
define how customers recognize your brand. Typically comprising of a
name, tagline, logo or symbol, design and brand voice, it also refers to the
underlying values of the business and overall experi ence a customer
undergoes when interacting with a business — as a customer, supplier,
social media follower, or a mere bystander.
Brand Messaging important to focus on your brand messaging, as these
messages communicate who you are and what your purpose is in order to
speak to your ideal clients. Ensuring that you have a consistent brand
message and voice so new and existing customers immediately relate to
what your business values are, and how engaging with your business can
benefit them, is the ultimate goal here. That recognisability and emotional
connection assists in communicating to your customers and it is what
separates you from your competitors.
Brand Identity In order to grow your brand’s recognition, it is essential
that you have a strong brand identity. Having a distinguishab le and
cohesive brand identity means that your customers can automatically
identify your brand at first glance. This visual representation that your
brand identity (Logo, Tagline, Font etc) illustrates is important as it is a
way to effectively communicate your business’ values and messaging to
your customers.
Customers are your best allies when it comes to fortifying your brand. In
today’s world where perception determines your brand’s value, creating a
brand that has recogn isable features and delivers upon their values
inculcates brand loyalty amongst consumers. According to the Harvard
Business Review, 64% of consumers say that sharing the same values with
a brand is the primary reason they have a relationship in the first place.
No one discovers a pra gmatic issue separate from this branding. Brand
names were developed to give products identity and set them apart from munotes.in
Page 6
Export Marketing Paper - II
6 one another. The ability to identify is crucial to competition since without
it, the only option for decis ion-making is chance. Brand nam es encourage
responsible behaviour in addition to facilitating choice.
The following details define its precise function:
1. Brand is a Powerful Asset:
Because brand name is so difficult to replicate, brand is regarded as a
significant intangible asset. Th is is in contrast to all physical assets, such
as plant, equipment, inventory, buildings, stocks, and bounds.
It has been demonstrated by the numerous instances where businesses
have failed while still maintaining their well -known brands.
2. Brand is a Pro motional Tool:
The concept of product identity or product differentiation forms the basis
of sales promotion. A brand creates this distinction. Advertising is a key
tool for popularising products. Additionally, promoting a p roduct without
a brand name is useless.
Without a brand identity, even salespeople's efforts would be ineffective.
As a result, branding contributes greatly to the success or failure of a
product.
3. Brand Is a Survival Drug for Middlemen:
If a product gai ns consumer trust, the producer s have more control over
how it is distributed. A successful brand is always preferred by the
middleman class. In other words, these middlemen have trouble deciding
what to buy and sell if there is no brand recognition.
In fa ct, brand names can be so poten t and invasive that middlemen's
ability to sell a product with a strong brand name is crucial to their
existence.
4. Brand is a Customer Identification Tool:
A customer can most easily recognise a product or service by its b rand.
For him, a brand represen ts worth, excellence, character, prestige, and
image.
In his opinion, a branded item is a unique item. Therefore, Philips bulbs
are available wherever they are purchased.
Once more, branded goods frequently see quality improv ements over time.
It is inheren tly exempt from rivalry. As a result, Aspro tablets from 1960
and 1970 were very dissimilar.
C - Packaging :
Marketing research may be conducted to design better and appropriate
packaging for the consumers. Different customers may prefer the package munotes.in
Page 7
7 Product Planning and Pricing Decision for Export Marketing - I design differently. Through packaging design research, a company may
identify the right design required by its target customers.
An attractively designed packaging can influence or induce the prospects
to buy the product. A well designe d packaging can communicate the type
and quality of the product. Packaging often has attention attracting value.
Several tools for product promotion can be used by the manufacturer these
are: advertising, sales promotion, personal selling, public relation, direct
mailing, publicity, packaging, sales promotion, trade fairs and exhibitions,
internet etc.
Export packaging enables your goods arrive intact and undamaged with
your overseas buyer. Export packaging is also often referred to as
transport packaging.
Export packaging is actuall y one of three different layers of packaging that
are likely to be needed when exporting your goods.
1. Sales packaging is the immediate layer of packaging around your
goods. This is the packaging that remains when the goods reach t heir
end-user, eg the bottl es in which beverages are contained, or the
boxes many electronics items are sold in. Sales packaging often also
serves a marketing purpose by containing prominent branding images
and information.
2. Outer packaging is a middle laye r of packaging, usually con taining
multiple sales packages. It often also serves a retail or promotion
purpose, eg a box containing sales units that doubles as a retail
display fixture and can be placed directly on a shop shelf.
3. Transport or export packagi ng is the outermost layer o f packaging and
is designed to protect your goods during transit. Examples of export
packaging include wooden crates or boxes, metal drums and plastic
shrink -wrapping.
Functions and Purpose of Packaging:
Packaging plays a crucial part in today's dynamic an d competitive
marketing environment. It has evolved into a highly specialised business
that boosts producers' fortunes, prolongs the stay of middlemen, and
increases consumer convenience. The various tasks that packaging
complete s make clear what its purpo se is.
The following is a list of the purposes of effective packaging:
It safeguards the contents, first:
Protection of the contents from damage, dust, dirt, leakage, theft,
evaporation, moisture, contamination, and other hazards has been the
primary purpo se of packing for a long time. The inherent qualities, traits,
or standards are preserved in their whole. As a result, the contents are kept
fresh, spotless, undamaged, and undamaged. munotes.in
Page 8
Export Marketing Paper - II
8 It offers product density:
The density of th e product is raised through packing. Product density
entails choosing packaging materials, designs, and shapes that maximise
the use of the available space. Product density enhances the beauty and
poise of arrangement, permits better use of storage and con sumption
space, and improve s relationships with common carriers.
It serves as a marketing tool:
As a promotional technique, effective packaging can increase sales more
quickly and simply. This salesperson is "quiet." It serves as an advertising
medium, sel f-promotional tool, and mea ns of exhibition and publication.
An attractive package increases the chance of an impulse purchase. Its
capacity to draw the valuable attention of clients or prospects depends on
the package's size, design, colour schemes, and v isuals.
It offers convenien ce to the user:
Another necessity is that the product be easy to handle, store, transport,
and use. This is enhanced by good packaging. As a result, the marketing
tasks of handling, storage, and transportation are carried out eff iciently
and without wastag e.
As long as the product is in use, consumers are tremendously helped. In
reality, elegant packaging has reduced expenses associated with space,
time, packing, and inventory.
It makes product identification easier:
Today's envir onment of intense competiti on is characterised by product
differentiation. Effective product identifiers, such as branding and
packaging, support this process of product diversification.
No matter where you see it, how you see it, or when you see it, the p roduct
is identifiable by i ts packaging.
An item's personality and actuality are embodied in its packaging. With
distinctive packaging, it is simple to identify the product because it
enhances its personality or image. Because they rely on distinctive prod uct
packaging, consumers ne ed not be confused by the wide variety or misled
in their purchasing decisions.
It enables simple product mixing
The product lines and variety of sizes, colours, measurements, grades, and
package kinds, among other things, that t he selling firm offers are referred
to as the product mix. The packaging can affect the weight, size, and
dimensions of the products, which opens the door to changes in the
product mix. munotes.in
Page 9
9 Product Planning and Pricing Decision for Export Marketing - I A carefully chosen mix of sales and products will make it easier to pr ice
products, transport the m, store them, stock them, handle them, display
them, and other activities in various market segments.
It increases product life -cycle:
A product's package may be utilised to increase product life -cycle. A more
modern appearance for the pack might be achi eved by updating the design.
It is becoming more and more challenging to create whole new products,
but any type of packaging innovation that offers benefits that consumers
desire and are ready to pay for can be offered as a sort of product
innovation. Thi s can be done by making packages easier to store, price,
mark, display, and identify for both consumers and wholesalers and
merchants as well as for customers.
1.3 SUMMARY Product planning involves a number of product related dec isions such
as product desi gn, product -mix, branding, pricing etc.
Branding involves developing and implementing a number of
identifiable features to your business.
An attractively designed packaging can influence or induce the
prospects to buy the product .
Export packaging enables your goods arrive intact and undamaged
with your overseas buyer. Export packaging is also often referred to
as transport packaging.
1.4 EXERCISE A. Descriptive Questions:
Short Answers:
1. Write in short Export marketing.
2. Write a step of planning in export marketing
3. What are the Product Design strategies?
4. Explain the terms Brand Messaging.
5. Features of Export marketing
Long Answers:
1. Explain in brief Product
2. How the transport plays a role in export marketin g? munotes.in
Page 10
Export Marketing Paper - II
10 3. How the brand create s awareness towards customer?
4. Write in detail p lanning for Export Marketing regard to Product,
Branding and Packing?
5. How the exporter packing their product?
B. Multiple Choice Questions:
1. …….. has wider economic signif icance as it offers various advantages
to the national economy.
a. Export marketing
b. Import Marketing
c. Domestic marketing
d. Online marketing
2. ……………. strategy, both the product and the message are changed
to increase the adaptability of the product.
a. Product Standardization
b. Product design
c. Product Adaptation
d. Price adaption
3. …………… increases the recognisability of products and services
amongst your consumers.
a. Branding
b. Product
c. Transport
d. Packing
4. Exporting in international market is very _________due to hi gh
competition.
a. Easy
b. Challenging
c. Casual
d. None of these
munotes.in
Page 11
11 Product Planning and Pricing Decision for Export Marketing - I 5. ………… strategy, the exporter develops a new product in response
to the demand prevailing in overseas markets.
a. Product Innovation
b. Product Adaptation
c. Produc t Standardization
d. Produc t design
Answer: 1-a, 2-c, 3-a, 4-b, 5-a
C. Fill in the blanks:
1. Every successful marketing plan begins with thorough ……….
2. Marketing research may be conducted to design better and appropriate
…………. for the consumer.
3. Product planning involves a n umber of ………. related decisions.
4. ……… communicate who you are and what your purpose is in order
to speak to your ideal clients.
5. …………. helps to meet the specific needs of the foreign buyers.
Answer:
1. market research
2. packaging
3. product
4. Brand Messaging
5. Product Adaptation
D. State whether the following sentence are True / False:
1. Export marketing offers ample opportunities for earning huge profits
and valuable foreign exchange
2. Export packaging is also often referred to as transp ort packaging
3. Product Adaptation is a cheap strategy
4. Output packaging is the immediate layer of packaging around your
goods.
5. Export packaging is the outermost layer of packaging and is designed
to protect your goods during transit
Answer:
True - 1, 2 and 5
False - 3 and 4 munotes.in
Page 12
Export Marketing Paper - II
12 1.5 REFERENCES Export Policy Procedures& Documentation – M. I. Mahajan, Snow
White Publications Pvt. Ltd, 26th Edition,
International Business, K. Aswathappa, McGraw -Hill Education
(India) Pvt. Ltd.,6th Edition
Export Import Pro cedures - Documentation and Logistics, C. Rama
Gopal, New Age International
Publishers, 2006 / Reprint Jan 2016
International Trade and Export Management, Francis Cherunilam,
Himalaya Publishing House, 20th
R. K. Jain's, Foreig n Trade Policy & Handbook o f Procedures [With
Forms, Circulars & Public Notices],
EXIM Policy & Handbook of EXIM Procedure – VOL I & II
International Marketing and Export Management, Gerald Albaum,
Edwin Duerr, Alexander Josiassen,
Pearson Publications, 8th Edition, June 2016
International Marketing Strategy, IsobelDoole and Robin Lowe, 5th
Edition, Thomson Learning, 2008.
New Import Export Policy - Nabhi Publications, 2017
P.K. Khurana, Export Management, Galgotia Publishing Co, New
Delhi
P.K.Vasudev a, International Marketing -, Excel Books, fourth edition,
New Delhi
***** munotes.in
Page 13
13 2
PRODUCT PLANNING AND PRICING
DECISION FOR EXPORT MARKETING - II
Unit Structure
2.0 Objectives
2.1 Introduction
2.2 Need for Labelling and Marking in Exports
2.3 Factors determining Export Price
2.4 Objectives of Export Pricing
2.5 Summary
2.6 Exercise
2.7 References
2.0 OBJECTIVES After studying this unit, you will be able to :
To discuss the need for Labelling and Marking in Exports
To analyse the factors determining Export Price
To understand the objectives of Export Pricing
2.1 INTRODUCTION Pricing your product properly, giving complete and accurate quotations,
choosing the terms of the sale, and selecting the payment method are four
critical elements in making a profit on your export sales. Pricing can be
the most challenging due to different market forces and pricing structures
around the world.
The key elements include assessing your company’s foreign market
objectives, product -related costs, market demand, and competition. Other
factors to consider are transportation, taxes and duties, sal es commissions,
insurance, and financing.
2.2 NEED FOR LABELLING AND MARKING IN EXPORTS Since the distance between exporter and importer is very far, the cargo is
moved thousands of miles away from its origin. If the cargo is less
container load, (Lesser than a container), chances are there to transship
your cargo from different locations. Many times goods are moved. For
example, you need to move a cargo from New York to China. The cargo
will be sent by truck to nearest CFS of your factory - unloading to
warehouse - stuffing in to container - moving to New York - again unload munotes.in
Page 14
Export Marketing Paper - II
14 at port - loading to container - moving to on board in to ship - unloading to
transshipment point if any - again sorting - loading to container -
unloading in CFS
https://howtoexportimport.com/UserFiles/WindowsLiveWriter/Whylabeli
ngandmarkinginExportbusiness_F1A3/Why labeli ng and marking in
Export business_2.jpg
after arrival in Singapore - moving for inspection procedures - loading to
truck after customs clearance. Apart from the above mentioned
movements, in each warehousing point, there are chances of further
movement of your goods due to re -arranging the slots, movements for
survey, inspection etc.
Marking and labeling is the only and best method of identifying your
cargo during all the operations above till reaching your cargo to buyer’s
door step. All documentation i s made in such a way to incorporate marks
and numbers of each parcel, so as to enable all officials to identify and
move accordingly.
So before generating commercial invoice and packing list, the packing
department in factory has to properly mark and label the cargo. Once
packing completed, the marks and numbers must be clearly mentioned in
packing list and commercial invoice. This information is very crucial in all
forthcoming documentation till arriving the cargo at the door step of
buyer. Once moved carg o to nearest Container Freight Station (CFS) for
customs clearance, the cargo will be unloaded in ware house. The survey
will be conducted by the CFS authorities on the basis of packing list
issued by you (exporter). Survey report is prepared on the basis of
reconciliation of marks and numbers mentioned in packing list with the
marks and numbers labeled on the parcel to be exported. This process
matching will continue at many locations during transit of your goods till
arriving destination. Marking and numb ers are also reflected on Carrier’s
document (Bill of lading or airway bill) in order to verify and match
during transit where ever applicable.
Labeling requirements for packaged food products as laid down in the Part
VII of the Prevention of Food Adultera tion (PFA) Rules, 1955, and the
Standards of Weights and Measures (Packaged Commodities) Rules of
1977, require that the labels contain the following information:
Name, trade name or description
Name of ingredients used in the product in descending order o f their
composition by weight or volume
Name and complete address of manufacturer/packer, importer,
country of origin of the imported food (if the food article is
manufactured outside India, but packed in India)
Net weight, number or volume of contents
Distinctive batch, lot or code number munotes.in
Page 15
15 Product Planning and Pricing Decision for Export Marketing - II Month and year of manufacture and packaging
Month and year by which the product is best consumed
Maximum retail price
Wherever applicable, the product label also must contain the
following:
The purpose of irradiation an d license number in case of irradiated
food
Extraneous addition of coloring material
Non-vegetarian food – any food which contains whole or part of any
animal including birds, fresh water or marine animals, eggs or product
of any animal origin as an ingred ient, not including milk or milk
products – must have a symbol of a brown color -filled circle inside a
brown square outline prominently displayed on the package,
contrasting against the background on the display label in close
proximity to the name or bran d name of the food
Vegetarian food must have a similar symbol of green color -filled
circle inside a square with a green outline prominently displayed
All declarations may be:
Printed in English or Hindi on a label securely affixed to the package,
or
Made o n an additional wrapper containing the imported package, or
Printed on the package itself
2.3 FACTORS DETERMINING EXPORT PRICE Pricing of goods to be exported depends on several factors. The demand
for exported goods in the international market, competitive environment
and regulations of the government should also be evaluated by the
exporters besides manufacturing costs.
There are still some other factors that an expo rter should consider when
fixing the export pricing for international market . The various factors that
affect pricing decisions can be briefly summarized as foll ows:
1. Cost:
One of the most important factors in fixing export price for goods is the
cost. It constitutes a large part of the price. The direct cost involved in
export pricing such as raw materials should be taken into account. Indirect
cost like distri bution overheads should also be considered.
munotes.in
Page 16
Export Marketing Paper - II
16 2. Demand:
Price of goods to a great extent depends upon the shape of the demand
curve for the product. If there is a lot of demand for the goods it will result
in profit maximization, even if there is no rise in costs and a rise in cost
may justify an increase in price. However, in all cases, it may not be
possible to do so because of the reaction of the market conditions.
3. Competition:
The competition in the foreign market is much more severe than in the
domestic market, as the exporters have to compete with foreign producers
who manufacture under different environment and conditions, as well as
their country’s regulations.
Competition from developed countries would be tough because of the
certain established advantages; and developing countries may have to
mark the price to compete in the foreign market.
4. Attitude towards Countries’ Products:
Buyers in the International market normally develop prejudice against
goods imported from the developing countries. Exporters should take this
factor into account while fixing price, as goods from developed countries
command higher prices as compared to the goods from the developing
countries.
5. Product differentiation and Brand Image:
If products are well differentiat ed and if they have built a brand image for
themselves, manufacturers would be in a comfortable position to charge
competitively higher prices. Brand names like Dunlop, Bata, Colgate, etc.,
command higher prices due to their brand image.
6. Nature of Purch ase
Price, at times, depends upon the frequency of purchase. In case of gift
items, people will be willing to pay a high price, if the particular goods
catch their fancy.
7. Quality and Price Relationship:
Consumers tend to rely on price as an indicator of product’s quality,
especially in the case of prestige products. The general consideration is
that, when the price is low, it results in higher sales which may not be true
is all cases.
It should also be noted that customers in developed countries may wish to
pay higher price for the product when compared to those from developing
ones.
munotes.in
Page 17
17 Product Planning and Pricing Decision for Export Marketing - II 8. Delivery Schedule:
If the goods are supplied punctually according to the delivery schedule,
the seller can quote a higher price than otherwise.
9. Marketing Policies:
The price is also affected by channels of distribution , sales promotion
policies , after -sale-service etc. For instance, longer the chain of
distribution, higher could be the price.
10. Period of Export Strategy
The shorter the period, higher could be the price so as to skim the cream
from the market and longer the period, lower be the price in the initial
stages to penetrate the market.
11. Exchange and Inflation Rate:
Differential pricing strategy can be adopted while fixing price of go ods to
be exported. While doing so, the stability of exchange and inflation rates
prevailing in the country should also be taken into account.
Higher prices can be charged on exports for a particular country which is
subject to continuous fluctuations in e xchange and inflation rates.
12. Objectives of the firm:
Internationally, pricing must consider costs, nature of markets and at the
same time, it must be consistent with the firm’s worldwide objectives such
as profit maximization, market share, etc.
13. Government Factors:
The Government policies in respect of imports and exports must be taken
into account while fixing prices. The importing as well as exporting
countries’ governments play an important role in export pricing.
The Government may influence the price by:
1. Controlling the prices directly on certain items by fixing minimum
floor price or fixing maximum ceiling price, beyond which the
exporter cannot quote the prices.
2. Assistance and incentive : Government of exporting country may
provide a nu mber of financial assistances such as Duty Drawback
Scheme, Exemption of Sales tax, exemption of Excise Duty,
Exemption of income -tax, m arketing development Assistance (MDA.)
etc.
3. Custom duties and taxes : The governments of the importing
countries impo se duties and taxes. The exporter should take such
expenses while fixing the export price. munotes.in
Page 18
Export Marketing Paper - II
18 4. International Agreements : Export prices, at times are bound by
international agreements which may be bilateral or multilateral. The
exporter has to abide by this price fixed by agreement and he cannot
fix more price .
2.4 OBJECTIVES OF EXPORT PRICING Export pricing is a technique of fixing the prices of goods and services
which are intended to be exported and sold in the overseas markets.
Export pricing is much mor e difficult than domestic pricing, because the
exporter has to take into account not only the cost of production but also
the influence and impact of the conditions prevailing in the international
markets.
Therefore, export pricing is not just an arithmeti cal calculation, but a
practical proposition based on market situation. The success of an export
firm largely depends on its effective pricing policy.
The principal objectives o f export pricing are as follows:
1. Survival :
An exporter faces competition not only from his fellow -exporters, but also
from other country exporters. In much competitive markets, one of the
marketing tools which can make the exporter survive the competition is
pricing.
Making price competitive, thereby earning less profit in order t o survive,
could be one of the objectives of pricing . Keeping prices competitive and
maintaining low prices is a short -term objective, as every exporter aims at
increasing profits at a later stage.
2. Maximum Sales Growth :
As an exporter survives the competition, the objective shifts to having
maximum sales growth. Depending upon competition and sensitivity of
market to price, the final pricing decision needs to be taken. There are two
alternatives available for this purpose.
1. Setting lower prices to overseas buyers leads to higher sales volume,
thereby earning more profits. For this purpose, marke t should be
highly price sensitive. Such low prices discourage competition,
thereby further increasing sales.
2. Setting higher prices to indicate the superior quality of the product.
Such indications lead consumers to rate products higher compared to
that of competitors. Due to this perception, sales volume of the
product increases.
3. Maximum Current Profit :
An exporter may determine his object of securing maximum Profits. A
price which would generate such a profit is to be established. For this munotes.in
Page 19
19 Product Planning and Pricing Decision for Export Marketing - II purpose, it is necessary to have complete information of cost and demand.
A price which can generate maximum cash flows or a higher rate of return
is determined . But this object ive is more of a short term nature and bases
its performance on profits which may turn out to be dangerous in export
markets.
4. Establishing Leadership :
Another objective behind pricing is to establish not only a superior quality
image, but also emphasize on leadership or number one position in the
export markets. By charging a higher price and making a noticeable
difference in the price as compared to that of competitors, this objective
can be fulfilled.
2.5 SUMMARY Marking and labelling is the only and b est method of identifying your
cargo.
Price of goods to a great extent depends upon the shape of the demand
curve for the product.
Consumers tend to rely on price as an indicator of product’s quality.
Export pricing is a technique of fixing the prices of g oods and
services.
An exporter may determine his object of securing maximum Profits.
Making price competitive, thereby earning less profit in order to
survive, could be one of the objectives of pricing .
2.6 EXERCISE A. Descriptive Questions:
Short Answers:
1. Describe the term Labelling
2. Explain in short Pricing product.
3. Describe the term Prevention of Food Adulteration.
4. What are the different exporter and importer?
5. Explain what the word "export price" means.
Long Answers:
1. What is the significance of export pricing for the government?
2. Explain needs for Labelling and Marking in Exports.
3. What are the advantages of Export Price? munotes.in
Page 20
Export Marketing Paper - II
20 4. Explain the objective of Export pricing
5. Which are the factor determining Export price?
B. Multiple Choice Questions:
1. CFS stands for:
a. Container Freight Station
b. Consumer Freight Station
c. Combined Freight Station
d. Current Freight Station
2. PFA stands for:
a. Promo tional of Food Adulteration
b. Productive of Food Adulteration
c. Performance of Food Adulteration
d. Prevention of Food Adulteration
3. The success of an export firm largely depends on its effective
…………….
a. functional policy
b. fiscal policy
c. pricing policy
d. insurance policy
4. ……………. is the sole and most effective technique of identifying
your cargo during all export processes?
a. labelling
b. production
c. packaging
d. forecasting
5. …………. pricing is a technique of fixing the prices of goods and
services which are intended to be exported
a. import
b. Export
c. domestic
d. online
Answer: 1-a, 2-d, 3-c, 4-a, 5-b munotes.in
Page 21
21 Product Planning and Pricing Decision for Export Marketing - II C. Fill in the blanks:
1. Prevention of Food Adulteration (PFA) Rules, ………….
2. Price of goods to a great extent depends upon the shape of the
………...curve for the product
3. One of the marketing tools which can make the exporter survive the
competition is ………….
4. The Government policies in respect of imports and exports must be
taken into account while fixing …………….
5. …………. constitut e a large part of the price
Answer:
1. 1955
2. demand
3. pricing
4. prices
5. Cost
D. State whether the following sentence are True / False:
1. The importing as well as exporting countries’ governments play an
important role in export pricing.
2. Direct cost like distribution overheads should also be considered
3. Vegetarian food must have a similar symbol of red color.
4. An exporter faces competition not only from his fellow -exporters, but
also from other country exporters
5. Standards of Wei ghts and Measures (Packaged Commodities) Rules
of 1955
Answer:
True - 1 and 4
False - 2, 3 and 5
2.7 REFERENCES Export Policy Procedures& Documentation – M. I. Mahajan, Snow
White Publications Pvt. Ltd, 26th Edition,
International Business, K. Aswathappa, McG raw-Hill Education
(India) Pvt. Ltd.,6th Edition munotes.in
Page 22
Export Marketing Paper - II
22 Export Import Procedures - Documentation and Logistics, C. Rama
Gopal, New Age International
Publishers, 2006 / Reprint Jan 2016
International Trade and Export Management, Francis Cherunilam,
Himalaya Publ ishing House, 20th
R. K. Jain's, Foreign Trade Policy & Handbook of Procedures [With
Forms, Circulars & Public Notices],
EXIM Policy & Handbook of EXIM Procedure – VOL I & II
International Marketing and Export Management, Gerald Albaum,
Edwin Duerr, Ale xander Josiassen,
Pearson Publications, 8th Edition, June 2016
International Marketing Strategy, IsobelDoole and Robin Lowe, 5th
Edition, Thomson Learning, 2008.
New Import Export Policy - Nabhi Publications, 2017
P.K. Khurana, Export Management, Galgo tia Publishing Co, New
Delhi
P.K.Vasudeva, International Marketing -, Excel Books, fourth edition,
New Delhi
*****
munotes.in
Page 23
23 3
PRODUCT PLANNING AND PRICING
DECISION FOR EXPORT
MARKETING - III
Unit Structure
3.0 Objectives
3.1 Introduction
3.2 International Commercial (INCO) Terms
3.3 Export Pricing Quotations
3.4 Cost Insurance and Freight (CIF) and Cost and Freight (C&F )
3.5 Problems on FOB quotation
3.6 Summary
3.7 Exercise
3.8 References
3.0 OBJECTIVES The main purpose of this chapter is:
To understand the International Commercial (INCO) Terms
To discuss the Export Pricing Quotations
To learn about Cost Insurance and Freight (CIF) and Cost and Freight
(C&F)
To analyse the problems on FOB quotation
3.1 INTRODUCTION Pricing your product properly, giving complete and accurate quotations,
choosing the terms of the sale, and selecting the payment method are four
critica l elements in selling a product or service overseas. Of the four,
pricing can be the most challenging, even for an experienced exporter.
Incoterms 2020 rules are the official commercial terms published by
the International Chamber of Commerce (ICC). They are a voluntary,
authoritative, globally -accepted and adhered -to text for determining the
responsibilities of buyers and sellers for the delivery of goods under sales
contracts for international trade. Incoter ms closely correspond to the U.N.
Convention on Contracts for the International Sales of Goods. Incoterms
are known and implemented by all major trading nations.
It’s no small task to be in charge of an international standard. These
international trade ter ms are decided upon by 13 ICC commissions made
up of private -sector experts from across the world. These individuals munotes.in
Page 24
Export Marketing Paper - II
24 specialize in everything from fields of immediate concern to international
business.
3.2 INTERNATIONAL COMMERCIAL (INCO) TERMS Internationa l Commercial Terms, or Incoterms , are pre -defined
commercial terms that are used to define the transport component and the
share of costs and risks for international commercial transactions. They
are part of the documentation that accompanies cargo, which used to be in
a printed form and which is now increasingly in a digital form. They were
initially set by the International Chamber of Commerce in 1936 and
became a standard set through the United Nations Convention on
Contracts for the Sale of Goods (CISG) . It defines a consistent framework
of the expected transport service to be provided, removing uncertainty and
defining legally enforceable responsibilities across international
jurisdictions. Incoterms set a named place where the responsibility
switches f rom the supplier to the buyer. This location and the conditions
are summarized in three -letter words. By 2020, there were 11 different
Incoterms, with the most common being:
EXW (Ex Works):
The buyer virtually takes care of all the transport responsibilit ies. The
seller’s only obligation is to have the cargo available at an agreed -upon
time and premise (factory, distribution center). It often refers to the factory
price since it excludes all transportation costs, such as insurance and
duties. EXW can be co mplex to enforce since it technically does not
include the tasks related to the assembly of the cargo into load units at the
seller’s facility. The buyer becomes the cargo owner once the goods have
been picked up.
FCA (Free Carrier):
The seller’s responsi bility is simply to provide the cargo that has been
cleared for export (duties paid) at a specific delivery point. This is
common for intermodal transport since the transport load, such as a
container, has been assembled and is ready to be picked up.
FAS (Free Alongside Ship):
Usually used for maritime bulk cargo (resources and raw materials) for
which the seller provides the cargo at the dock, which is ready to be
loaded on a ship. For instance, a grain seller would make available bulk
grain at a dockside grain elevator, and it would be the buyer’s
responsibility to charter a bulk cargo ship and load the cargo. This allows
the buyer to use the point of export as a warehouse and organize sales and
distribution according to its requirements in terms of quant ity and
destination market.
munotes.in
Page 25
25 Product Planning and Pricing Decision for Export Marketing - III FOB (Free On Board):
The seller provides, transports, and loads the cargo on board a vessel,
which is usually selected by the buyer. Once on board, the responsibility
then shifts to the buyer. Common for bulk cargo as it allo ws the buyer to
decide the routing and the destination market of the cargo, allowing for
additional flexibility.
CFR (Cost and Freight):
The seller brings and unloads the cargo at a port of destination, but the
buyer assumes the risk as soon as the cargo is loaded at the port of origin.
The buyer has the responsibility of picking up the cargo at the port of
destination.
CIF (Cost, Insurance and Freight):
Same as above, but the seller also provides insurance for the cargo up to
the port of destination. It usually applies to bulk cargo.
CIP (Carriage and Insurance Paid):
Common in intermodal transport chains where the seller takes the
complete responsibility of bringing the cargo to the point of destination
(e.g. the door of a distribution center) as well a s providing insurance. The
buyer is responsible for unloading the cargo at the point of destination.
This is convenient when the buyer has a known and stable demand that
can be organized from known distribution points (e.g. an import
warehouse or a series of distribution centers).
Although for many transactions, it is either the seller or the buyer’s
responsibility to carry the cargo, this task is often attributed to a shipper or
a third -party logistics provider that will act on their behalf.
3.3 EXPORT PRICING QUOTATIONS A quotation describes the product, states a price for it, sets the time of
shipment, and specifies the terms of sale and terms of payment. Because
the foreign buyer may not be familiar with the product, the description of
the product in an overseas quotation usually must be more detailed than in
a domestic quotation.
Many export transactions, particularly initial export transactions, begin
with the receipt of an inquiry from abroad that is followed by a request for
a quotation. A pro forma i nvoice is a quotation prepared in the format of
an invoice; it is the preferred method in the exporting business.
The quote, which is often presented in the form of a Proforma invoice ,
serves as a formal statement of promise by your firm that you will provide
certain goods or services at specified prices and within an identified period
of time. Acceptance of the quote by the buyer constitutes an ag reement
binding on both parties. munotes.in
Page 26
Export Marketing Paper - II
26 A Checklist for Preparing a Quote :
Since a quote is so important, it will benefit you and your potential
customer if you have a standard checklist that you use to identify the
important details and items that are points of negotiation. The details also
provide the buyer with the information needed to determine what they
might owe in duties, fees (including banking fees), and taxes.
The following checklist includes some of the facts about your firm, the
products, and the tran saction that should be agreed upon by the buyer
(export) and the seller (importer):
1. The seller's name, address, contact information, and possibly its tax
identification number.
2. The time when and the place where the merchandise is sold.
3. The buye r's full name, address, contact information, and possibly its
tax identification number.
4. The ship -to party's full name, address, contact information, and
possibly its tax identification number.
5. A detailed description of the merchandise including:
Harmonized System Number (first six digits of the Schedule B or
HTSUS number);
Name by which each item is known;
Grade or quality;
Marks, numbers and symbols under which the merchandise is sold;
Currency;
Country of origin;
Quantity; and
Price per unit.
6. The country of shipment.
7. The relevant trade term and the location associated with the term,
such as Incoterms 2010 , Free Carrier At Your Forwarder's Facility,
Chicag o, IL USA.
8. All goods and services provided by the buyer for the product of the
merchandise (e.g. assists such as tools, dies, molds and engineering
work).
9. Additional information such as:
Import license requirements, if known; munotes.in
Page 27
27 Product Planning and Pricing Decision for Export Marketing - III Additional certificati ons and statements required by the buyer's
country;
U.S. government issued certifications to be provided;
U.S. export controls (e.g. EAR99, ECCN or US ML);
Where title will transfer from the seller to the buyer;
Method of payment;
Expiration date of the quote; and
Relevant law.
The quotation sets the stage for the negotiation that will follow and the
successful completion of a sales contract with your f oreign customer!
Pro forma invoices are not used for payment purposes. In addition to the
15 items previously mentioned, a pro forma invoice should include two
statements —one that certifies the pro forma invoice is true and correct,
and another that indica tes the country of origin of the goods. The invoice
should also be clearly marked “pro forma invoice.” Pro forma invoices are
models that the buyer uses when applying for an import license, opening a
letter of credit, or arranging for funds. In fact, it is a good practice to
include a pro forma invoice with any international quotation, regardless of
whether it has been requested. When final commercial invoices are being
prepared before shipment, it is advisable to check with your local Export
Assistance Cen tre for any special invoicing provisions that may be
required by the importing country. If a specific price is agreed on or
guaranteed by your company, the precise period during which the offer
remains valid should be specified.
3.4 COST INSURANCE AND FREI GHT (CIF) AND COST AND FREIGHT (C&F) The term CIF is only used between parties who deal in goods that are
transported by sea.
CIF agreements are nearly identical to CFR agreements. The seller is still
responsible for all shipping arrangements and costs to the agreed -upon
destination port. Once the ship arrives in port, the receiver assumes full
financial responsibility.
The difference between the two agreements, however, is that the shipper
(seller) is also required to provide a minimum amount of marine ins urance
on the goods being shipped.
This includes any additional paperwork required for customs or
inspections, as well as any rerouting required during transport.
Once the goods arrive at the required port and are taken off the vessel,
they become the resp onsibility of the buyer or receiver. munotes.in
Page 28
Export Marketing Paper - II
28 Prior to transport, the contract terms will outline the exact nature of the
seller's responsibilities. Most CIF contracts will include the following
provisions for the seller:
Purchase of required export licences for th e product
Taking care of the costs and contracts for transporting the goods
Insurance is required to protect the order.
Performing the necessary product inspections
Paying for any damage or destruction to the order, if necessary.
Cost and Freight (C&F) :
In international trade, cost and freight is a legal agreement between a
buyer and a seller. The rule is applicable to goods transported by sea.
It necessitates that the seller ship goods by sea to the buyer's (required)
destination. As a result, the seller b ears the cost. The seller is also required
by CFR to provide the buyer with the documentation required to pick up
the goods from the carrier.
CFR agreements place more responsibility on the shipping party to
arrange and pay for transportation than minimal free on board (FOB)
shipping, in which the shipper is only responsible for delivering goods to
the port of origin for shipping.
The agreement, however, does not require the seller to purchase marine
insurance against the loss, destruction, or damage of the goods while in
transit. Once the goods reach the vessel, the risk of loss passes to the
buyer, and the seller is no longer liable.
Once the ship docks in the destination port, the receiver —or buyer —takes
over responsibility. The receiver or buyer then ass umes all remaining
costs, including those for unloading and any additional transportation
costs.
3.5 PROBLEMS ON FOB QUOTATION If you’re buying goods from a supplier based abroad, you’ve probably
come across Incoterms. These are International Commercial Te rms,
defined by the International Chamber of Commerce. Incoterms appear in
contracts and quotations from suppliers, and should explain who is
responsible for the tasks and costs involved in international shipping.
Free on Board :
which is more commonly cal led FOB – is most commonly used in sea
freight. It’s a popular way to arrange import of consumer goods from Asia
to Europe, for example. munotes.in
Page 29
29 Product Planning and Pricing Decision for Export Marketing - III Under FOB terms, the seller is effectively responsible for costs up to the
point that the goods are loaded onto a ship, at a named port in the country
of origin, and ready for transportation.
FOB Value shall be calculated as follows: (a) FOB Value = Ex -Factory
Price + Other Costs
There is some possible problem of using FOB terms you’ll need to be
aware of, too.
Higher unit prices :
You’ll usually find that the unit prices of goods to be provided under FOB
terms is higher than if you’re looking at Ex Works (also called EXW)
shipments. However, this doesn’t necessarily mean the overall cost will be
higher, as this price includ es some transport costs.
Supplier might include a markup on the local transport costs :
Because you don’t have control over the arrangements for getting your
products to the port in the country of origin, you can’t be sure you’ll get
the best available deal . You might find that the supplier adds a percentage
to the actual costs, and keeps it as their own profit.
Risks :
If you buy products overseas using FOB terms, you take on the risk and
costs associated with the shipment, from the point it’s loaded onto a vessel
for transportation. That means any loss, damage, or added costs from that
stage onwards fall to the buyer.
For example:
FOB terms of delivery with a simple example. You are a Machinery seller
situated near Mumbai, India. The buyer is situated in a place near New
York. You are the seller of goods and you have contracted with the buyer
and agreed to sell the goods on FOB, Mumbai price of USD 5300. Here
the selling cost of goods is USD 5300 FOB Mumbai. So the seller meets
all the expenses to carry the goods to Mumbai port and meet all expenses
including customs clearance in Mumbai to get the goods on board to
Airlines or On Board to Ship. As I have explained, all further cost to reach
the goods to the buyer's place has to be met by the buyer. The
buyer nominates the shipping company or airlines and seller ships goods
as per buyer's advice. The buyer pays the cost of freight to the shipping
company or airlines. Buyer arrange to insure the goods and pay the cost of
insurance.
3.6 SUMMARY International Comm ercial Terms, or Incoterms , are pre -defined
commercial terms that are used to define the transport component and
the share of costs and risks for international commercial transactions. munotes.in
Page 30
Export Marketing Paper - II
30 A quotation describes the product, states a price for it, sets the time of
shipment, and specifies the terms of sale and terms of payment.
Pro forma invoices are not used for payment purposes.
The term CIF is only used between parties who deal in goods that are
transported by sea.
In international trade, cost and freight is a legal agreement between a
buyer and a seller.
FOB Value shall be calculated as follows: (a) FOB Value = Ex -
Factory Price + Other Costs
3.7 EXERCISE A. Descriptive Questions:
Short Answers:
1. Explain in short International Chamber of Commerce.
2. Explai n the term C&F.
3. Explain the term FAS
4. Explain the word Quotations
5. Explain the term CIF.
Long Answers:
1. Write in brief INCO
2. Which are the Export Pricing Quotations?
3. Explain the problem of FOB quotation.
4. What are the different betw een CIF and C&F
5. Explain FOB and give example.
B. Multiple Choice Questions:
1. ………………… also called EXW
a. Ex Works
b. X Works
c. XY Work
d. Xe Works
munotes.in
Page 31
31 Product Planning and Pricing Decision for Export Marketing - III 2. …………… is only used between parties who deal in goods that are
transported by sea
a. C&F
b. CIF
c. Ex Work
d. CFR
3. The transport component and the share of costs and risks for
…………. commercial transactions
a. direct
b. national
c. international
d. indirect
4. CIF agreements are nearly identical to …………agreements
a. FCA
b. FOB
c. C&F
d. CFR
5. FOB stands for
a. Freight o n Board
b. Free on Board
c. Fiscal on Board
d. Forma on Board
Answer: 1-a, 2-b, 3-c, 4-d, 5-b
C. Fill in the blanks:
1. …………. invoices are not used for payment purposes
2. ………………. the buyer has the responsibility of picking up the
cargo at the port of destination.
3. …………… defines a consistent framework of the expected transport
service to be provided
4. ……………. rrefers to the factory price since it excludes all
transportation costs, such as insurance and duties munotes.in
Page 32
Export Marketing Paper - II
32 5. Incoterms set a named place where the responsibility switches from
the ……….
Answer:
1. Pro forma
2. C&F
3. Incoterms
4. EXW
5. supplier to the buyer
D. State whether the following sentence are True / False:
1. EXW can be complex to enforce since it technically do es not include
the tasks related to the assembly of the cargo
2. CFR the rule is applicable to goods transported by sea.
3. CFR agreements place more responsibility on the shipping party to
arrange and pay for transportation than minimal free on board
4. In international trade, cost and freight is a illegal agreement between a
buyer and a seller
5. Incoterms appear in contracts and quotations from suppliers.
Answer:
True - 1, 3 and 5
False - 2 and 4
3.8 REFERENCES Export Policy Procedures& Documentation – M. I. Mahajan, Snow
White Publications Pvt. Ltd, 26th Edition,
International Business, K. Aswathappa, McGraw -Hill Education
(India) Pvt. Ltd.,6th Edition
Export Import Procedures - Documentation and Logistics, C. Rama
Gopal, New Age International
Publishe rs, 2006 / Reprint Jan 2016
International Trade and Export Management, Francis Cherunilam,
Himalaya Publishing House, 20th
R. K. Jain's, Foreign Trade Policy & Handbook of Procedures [With
Forms, Circulars & Public Notices],
EXIM Policy & Handbook of EX IM Procedure – VOL I & II munotes.in
Page 33
33 Product Planning and Pricing Decision for Export Marketing - III International Marketing and Export Management, Gerald Albaum,
Edwin Duerr, Alexander Josiassen,
Pearson Publications, 8th Edition, June 2016
International Marketing Strategy, IsobelDoole and Robin Lowe, 5th
Edition, Thomson Lea rning, 2008.
New Import Export Policy - Nabhi Publications, 2017
P.K. Khurana, Export Management, Galgotia Publishing Co, New
Delhi
P.K.Vasudeva, International Marketing -, Excel Books, fourth edition,
New Delhi
*****
munotes.in
Page 34
34 MODULE - II
4
EXPORT DISTRIBUTION AND
PROMOTION - I
Unit Structure
4.0 Objectives
4.1 Introduction
4.2 Factors influencing Distribution Channels
4.3 Direct and Indirect Exporting Channels
4.4 Distinction between Direct and Indirect Exporting Channel s
4.5 Summary
4.6 Exercise
4.7 References
4.0 OBJECTIVES The main purpose of this chapter is:
To discuss the factors influencing Distribution Channels
To understand the Direct and Indirect Exporting Channels
To outline the distinction between Direct an d Indirect Exporting
Channels
4.1 INTRODUCTION A distribution channel is a critical component of the downstream supply
chain of any organization. Distribution channels are part of a company’s
overall marketing strategy for promoting, pricing and selling the product
to the consumer. The supply chain also reflects the payments from the
consumer through intermediaries to the company.
Distribut ion channels may be lengthy with more intermediaries or maybe
short with fewer intermediaries. The length and breadth of the distribution
may depend on the logistics and time required to reach to an end
consumer.
A lengthy channel may take more time to reach the consumer, restrict
margins and also take more time to realise the payments. An increase in
the variety of intermediaries helps a consumer find the goods and also
increases the market penetration for a company’s products.
Distribution channels are broadly categorized of two different forms: (a)
direct (b) indirect. munotes.in
Page 35
35 Export Distribution and Promotion - I A consumer can make direct purchases from the manufacturer through a
direct channel. In an indirect channel, a consumer obtains the goods from
an intermediary such as a wholesaler or a retailer.
Goods sold under the traditional brick and mortar stores are part of the
indirect ch annel. The price of goods tends to increase in a case where
more intermediaries are involved.
The key distribution channels, singly or in a combination are
manufacturer, wholesaler and retailer, reaching out to an end consumer. A
channel that involves all intermediaries from the manufacturer to
consumer is the longest.
4.2 FACTORS INFLUENCING DISTRIBUTION CHANNELS Distribution channel refers to a network of intermediaries who enable
distribution of a product from the manufacturer to the ultimate consumer.
The various intermediaries include distributors, wholesalers, retailers and
e-tailers/e -commerce intermediaries. The distribution channels are part of
a downstream supply chain oriented towards reachi ng out to the ultimate
consumer.
Product Characteristics :
Seasonal products are distributed through less layer of middlemen. Non
standardized products that are made according to customer specifications
may be delivered directly. But standardized products may be passed on
through middlemen. Trucks which are heavily needed to be distributed
with less layers of distribution. The life of perishable products is limited
and should reach the consumer at the earliest. e.g., Flowers and milk.
Technical products whic h require pre -sale and post -sale advice from
technicians should be directly distributed by produce r or with middlemen.
e.g.: Air -conditioners, Washing machine.
Market Characteristics :
The size of the market for the goods is a major factor while selecting t he
route for distribution of products. Distribution in large geographical area
requires more middlemen. Middlemen are not required to distribute
products in a limited area.
Number of Consumers :
Large purchases made by few consumers require centralised dis tribution.
Large number of consumers making purchases in small quantities requires
more middlemen.
Middlemen factor :
Middlemen who are experienced and have produced more sales are
wanted by all producers. Long channel naturally increases the cost and
price of the product. The number of layers of middlemen should be kept to munotes.in
Page 36
Export Marketing Paper - II
36 the minimum. The competitor who is efficient in reducing distribution cost
will sell more as his price tends to be lower. More the middlemen are
lesser will be the level of control and mo re problems on the part of the
producers. Quality of distribution service can be ensured and loyal
customer base can be created with less middlemen. In some areas there
may be scarcity of right middlemen and in some other cases the policies of
producers ma y be not acceptable to the middlemen.
Capacity of the Manufacturer :
A financially strong producer may select a high technology -oriented
channel which will reduce cost in the long run. Manufacturers with large
volume of production may open direct branches in cities and towns
where there are more sales. They can also provide more services expected
by consumers. Small and medium producers require the services of
middlemen for selling their products. A producer offering wide range of
products can have a long channel as he can defray the cost of distribution
over a greater number of products
Cost and Time Involved in the Channel of Distribution :
The channel cost should go along with the quality of service provided by
middlemen. Ordinary goods are routed throug h economical channel even
though the time taken by the channel for delivery is more.
Services Required along with the Product :
Machinery or equipment which need to be installed and demonstrated
should be sold with shorter channel. Technical services can be provided by
manufacturers or by their trained technicians. Therefore, a shorter channel
is preferred for sales.
Life Cycle of the Product :
An established product can select an ordinary channel. But a new product
entering into the market should be careful ly promoted by experienced
middlemen.
4.3 DIRECT AND INDIRECT EXPORTING CHANNELS Direct exporting involves an organization selling goods directly to a
customer in an international market. Organizations can sell to a wide range
of customers, some of whom ac t as intermediaries in the target market.
Even if an intermediary is involved, the export is still direct because the
intermediary is a customer based in the target market. Some of the most
important customers for direct -exporting organizations include imp orters,
wholesalers, distributors, retailers, government procurement departments
and consumers themselves. 2. Advantages and disadvantages of direct
exporting
munotes.in
Page 37
37 Export Distribution and Promotion - I Advantages:
Direct exporting as a market entry strategy has its advantages. The
organization: Controls all its manufacturing processes, which are based in
its facilities, thus avoiding the risks associated with production overseas
(e.g., poor production standards, use of child labour) and the risks
associated with political instability in a foreig n market. Can withdraw
from the market relatively cheaply and easily, if needed. Can obtain in -
depth information about trade in the target market, enabling it to make
future decisions about whether to invest in facilities in the market
However, direct expo rting can be difficult, especially for organizations
new to international trade.
Disadvantages :
The need to invest significantly in researching market information and
preparing marketing strategies. A lack of exporting skills and experience
leading to exp ensive errors. The difficulties breaking into target markets in
trade blocs. The difficulties the exporting organization will have when the
domestic currency is very strong against the target market’s currency. The
inability to rely on intermediaries, who will be representing other
organizations and may not operate in the best interests of the exporting
organization.
Direct exporting a suitable strategy :
Direct exporting is a simple entry strategy that might be suitable for
organizations that want to expand their market share or maximize profits.
An organization of any size can start direct exporting activities, but not all
will have the necessary resources in terms of skills, knowledge and
finances. Direct exporters must make the export sale, arrange for sh ipping
and insurance, organize permits and licences, prepare all the paperwork
and process the letter of credit that provides for payment. These tasks are
time consuming and require skill to be performed correctly —mistakes can
result in serious business lo sses. Considerable time must also be spent
researching the market so goods and services can be promoted and priced
appropriately. Direct exporting can be very successful if the selected
market is readily accessible and has similar regulations and customs t o the
organization’s country. If the target market has different regulations, legal
systems, cultures or ways of conducting business, and the organization is
inexperienced in international trade, direct exporting might be very
difficult and risky. In these situations, organizations should consider
another strategy. Depending on the market selected, the distance goods
must be transported and the means of transportation, direct exporting can
make goods too expensive for customers to purchase. These factors mi ght
also seriously impact profits made in the market. A direct exporter of
products must assume responsibility for all losses during shipping and
storage overseas. Substantial amounts must be invested in marketing and
sales activities, and there is a risk that these expenses will not be recouped
if the venture is not successful.
munotes.in
Page 38
Export Marketing Paper - II
38 Indirect exporting :
Indirect exporting involves an organization sells to an intermediary in its
own country. This intermediary then sells the goods to the international
market and takes on the responsibility of organizing paperwork and
permits, organizing shipping and arranging marketing. An indirect
exporter can sell to the following intermediary customers: export houses
(trading houses or export merchants, confirming houses, and f oreign
organizations based in the organization’s country (buying offices).
Advantages and disa dvantages of indirect exporting:
Indirect exporting is the cheapest entry strategy available to an
organization. It is flexible, and exporting activities can ceas e immediately
if required. Its greatest advantage is that the intermediary organizations
handle all the exporting activities. No exporting experience or skills are
required; and the intermediary organization takes on all the risks
associated with shipping and organizing payment from the international
market. The main disadvantage is that the control of activities overseas
transfers to the intermediary organization. Organizations interested in
expanding into a target market will not gain valuable knowledge a bout
how that market functions. It is also impossible for organizations to
establish after -sales service or value -added activities, and this can have an
adverse effect on their reputation in a foreign country.
Indirect exporting a suitable strategy :
This market entry strategy should be considered by organizations that
want to enhance cash flow or increase profits. However, it will not be
useful for those that want to develop long -term market share. It is also not
suitable for organizations with a service t o sell rather than a product. This
is because once the intermediary business has been identified, the
organization does not have to worry about additional planning, marketing
or expenses. It is also a very useful strategy for organizations that cannot
deal with considerable risk. With indirect exporting, the buyer assumes all
risk associated with exporting and selling the product. Organizations that
choose an indirect exporting strategy must be able to make product
adjustments as dictated by the businesses purchasing them. Buyers will
also specify delivery times, levels of quality and packaging requirements.
If an organization cannot meet these requirements, it can lose the deal with
the buyer. Because the buyer takes responsibility for exporting and selling
the goods, the organization has no control over the market its products are
sold to, how they are sold, how they are marketed or the price obtained for
them. This makes it an unsuitable market entry strategy for organizations
that must control the export or marketing of their products to maintain
their reputation. Organizations that are interested in modifying their
products to meet demand in other markets will also find indirect exporting
unsuitable, because they will be unable to develop direct contact w ith the
end user.
munotes.in
Page 39
39 Export Distribution and Promotion - I 4.4 DISTINCTION BETWEEN DIRECT AND INDIRECT EXPORTING CHANNELS Direct exporting Indirect exporting Meaning: When the export activity is directly carried out by the manufacturer of the goods, it is called as direct exporting. In indirect exporting the manufacturer hires the services of an export intermediary agency to export his goods through the intermediaries. Control: Because all activities such as packing, promotion, shipment, and distribution are handled by the manufacturer, the company has complete control over the export process. There is no control at the
manufacturer because the services
are outsourced to export
middleman organisations. Export
agencies handle every aspect of
the process. Customer interaction: The exporter contacts the customer directly in direct exporting. This allows the buyer to get to know the seller better, increasing his trust and confidence in the exporter. Direct engagement with customers allows the exporter to gain a better understanding of the market pulse. The maker and the customer have no direct touch. Intermediaries hired by the manufacturer communicate with and contact the customer. As a result, the original exporter has little opportunity to engage with buyers in other countries. Reputation overseas: The direct exporter deals directly with the foreign buyer. This will assist him in gaining the trust of the in the international market. It is impossible for the original exporter to develop a name in the international market since he does not personally brand his products by outsourcing them to exporting organisations. Risks involved: From production to distribution, the direct exporter is responsible for all risks. After the products have been shipped, the export agency will be responsible for all risks. Investment involved: To directly export goods, manufacturers must invest in expanding their foreign network and establishing the essential export infrastructure. There is no need to spend money on developing export infrastructure. The exporting intermediary will already have a network and infrastructure in place. munotes.in
Page 40
Export Marketing Paper - II
40 Pricing decisions: Because the manufacturer is the one who does the exporting, he has the authority to set his own prices for his products in other countries. Exporting intermediaries make pricing decisions. The original manufacturer will have no say over the price of his items. Export incentives: Because all required documentation and invoices are in his name, a direct exporter can claim all possible export credits and duty drawbacks. Unless the invoices and supporting documentation are in his name, the original manufacturer may not be able to claim the credits and incentives. Suitability: Because it entails more expenses and resources, this strategy is best suited for large businesses. This strategy is ideal for startups and small businesses, as they may not have the financial resources to invest in the essential export infrastructure. Future oriented: Direct interaction with abroad clients will provide firsthand market intelligence that will aid future international expansion. Export intermediates have access to first-hand market information that the original manufacturer does not. As a result, if one intends to develop directly into the overseas market in the future, it is not a future-oriented strategy. Technical inputs: If you're new to exporting, you'll have to rely on external agencies for all of the information you'll need to complete your export operations successfully. Because they are solely involved in exports and imports, exporting intermediaries have a wealth of expertise and specialised knowledge. As a result, you can seek their technical advice anytime you need it. More transparent: Direct communication between the manufacturer and the foreign consumer ensures complete transparency in terms of product legitimacy, after-sale services, and patent and trademark usage. Because client transactions are handled through export intermediaries, there is little room for such openness.
4.5 SUMMARY Distribution chann el refers to a network of intermediaries who enable
distribution of a product from the manufacturer to the ultimate
consumer.
Large number of consumers making purchases in small quantities
requires more middlemen. munotes.in
Page 41
41 Export Distribution and Promotion - I Direct exporting involves an organization selling goods directly to a
customer in an international market.
Direct exporting is a simple entry strategy that might be suitable for
organizations that want to expand their market share or maximize
profits.
Indirect exporting involves an organization se lls to an intermediary in
its own country.
4.6 EXERCISE A. Descriptive Questions:
Short Answers:
1. Explain the term distribution channel
2. Describe the term Product Characteristics
3. What is known as Middlemen factor?
4. What are the advantages of I ndirect Channels?
5. What are the disadvantages of direct channels?
Long Answers:
1. Explain the Indirect channels.
2. Which are the Factors influencing Distribution Channels?
3. What are the Indirect exporting a suitable strategy?
4. Explain the Dire ct Channels.
5. Different between Direct and Indirect Exporting Channels.
B. Multiple Choice Questions:
1. A …………… channel is a critical component of the downstream
supply chain of any organisation
a. distribution
b. physical
c. traditional
d. modern
munotes.in
Page 42
Export Marketing Paper - II
42 2. ……………… market entry strategy should be considered by
organizations that want to enhance cash flow or increase profits.
a. Direct
b. Indirect
c. Import
d. Export
3. Small and medium producers require the services of ……………for
selling their products
a. middleman
b. agent
c. wholesaler
d. retailer
4. In …………. a consumer obtains the goods from an intermediary
such as a wholesaler or a retailer.
a. traditional channel
b. online channel
c. direct channel
d. indirect channel
5. A consumer can make direct pu rchases from the manufacturer
through a ………….
a. online channel
b. direct channel
c. indirect channel
d. traditional channel
Answer: 1-a, 2-b, 3-a, 4-d, 5-b
C. Fill in the blanks:
1. The supply chain reflects the payments from the consumer through
interme diaries to the …………….
2. Distribution channels are broadly categorised of two different forms
…………………
3. Seasonal products are distributed through less layer of ……………. munotes.in
Page 43
43 Export Distribution and Promotion - I 4. …………………. services can be provided by manufacturers or by
their trained technicians
5. Goods sold under the traditional brick and mortar stores are part of the
……………….
Answer:
1. company
2. direct and indirect
3. middlemen
4. Technical
5. indirect channel
D. State whether the following sentence are True / False:
1. In direct exporting, exporter directly contacts the customer
2. When the export activity is directly carried out by the manufacturer of
the goods, it is called as indirect exporting.
3. Direct exporter engage s with the foreign customer directly
4. No indirect contact exists between the manufacturer and the customer
5. Direct exporter himself has to bear all the risks involved from
production to distribution.
Answer:
True - 1, 3 and 5
False - 2 and 4
4.7 REFERE NCES Export Policy Procedures& Documentation – M. I. Mahajan, Snow
White Publications Pvt. Ltd, 26th Edition,
International Business, K. Aswathappa, McGraw -Hill Education
(India) Pvt. Ltd.,6th Edition
Export Import Procedures - Documentation and Logistics, C. Rama
Gopal, New Age International
Publishers, 2006 / Reprint Jan 2016
International Trade and Export Management, Francis Cherunilam,
Himalaya Publishing House, 20th
R. K. Jain's, Foreign Trade Policy & Handbook of Procedures [With
Forms, Circulars & Public Notices], munotes.in
Page 44
Export Marketing Paper - II
44 EXIM Policy & Handbook of EXIM Procedure – VOL I & II
International Marketing and Export Management, Gerald Albaum,
Edwin Duerr, Alexander Josiassen,
Pearson Publications, 8th Edition, June 2016
International Marketing Strategy, Isobel Doole and Robin Lowe, 5th
Edition, Thomson Learning, 2008.
New Import Export Policy - Nabhi Publications, 2017
P.K. Khurana, Export Management, Galgotia Publishing Co, New
Delhi
P.K.Vasudeva, International Marketing -, Excel Books, fourth edition,
New Del hi
*****
munotes.in
Page 45
45 5
EXPORT DISTRIBUTION AND
PROMOTION - II
Unit Structure
5.0 Objectives
5.1 Introduction
5.2 Components of Logistics in Export marketing
5.3 Selection criteria of Modes of Transport
5.4 Need for Insurance in Export Marketing
5.5 Summary
5.6 Exercis e
5.7 References
5.0 OBJECTIVES The main purpose of this chapter is:
To discuss the components of Logistics in Export marketing
To analyse the selection criteria of Modes of Transport
To understand the need for Insurance in Export Marketing
5.1 INTRODUCT ION If your business is new to exporting or importing, it is important to assess
and plan for the different risks you will invariably face. When you
evaluate the risks of your potential customers, remember also to look into
risks associated with the countr ies in which they operate.
As well as physical loss or damage to goods, you need to plan for
problems of cash flow to allow for the time that goods are in transit or in
bonded warehouses here or abroad and/or heightened risk of non -payment
by your customer s. In some cases, you also need to plan for risks
associated with faulty goods or services.
This guide outlines the key risks you should consider and the available
insurance and financing options. It also provides links to experts who can
offer you advice or find you insurance.
Shipping raw materials or products overseas certainly brings payment risk
along with it. And there can be many reasons why payments would not be
made, though some are more common than others. For instance, if the
goods you are shippi ng arrive damaged or destroyed, the importer may not
be obliged to pay. munotes.in
Page 46
Export Marketing Paper - II
46 5.2 COMPONENTS OF LOGISTICS IN EXPORT MARKETING In its most basic form, logistics refers to the planning and execution of a
complex operation. This can include both long & short -term l ogistics
operations. Logistics management is part of the supply chain. It involves
planning, implementing, and overseeing the effective storage of goods and
their transportation from the point of origin until the final destination (the
point of consumption ). In other words, logistics manages forward and
reverse merchandise flows .
Logistics managers have to move products from their point of origin to
their point of sale under optimum conditions. That means managing
inventory, equipment, locations, distributo rs and costs. It has a knock -on
effect at different levels of the economy. Good logistics has the power to
minimize costs, increase profits and drive international imports and
exports. Logistics is a precision process that relies on targeted planning
and r esource management for its success.
Logistics comprises five essential components. Logistics companies are
responsible for executing each one of these components to the highest
degree of accuracy. Here are the five key components of any logistician’s
job.
1. Demand planning :
To guarantee customer order fulfilment, demand planning is an essential
logistics function. By ordering merchandise in the correct quantities and at
the right price and mobilizing suitable transport, customer demand is met
and profits protected.
2. Storage and materials :
Because demand is unpredictable, it’s important to have surplus goods on
standby until consumers demand them. Warehouses are responsible for the
storage, care, retrieval, packaging, and unitization of merchandise.
Ware house management systems (WMS) optimize storage capacities,
equipment (forklifts, for example), retrieval speeds, and warehousing
processes.
3. Inventory management :
Inventory management controls the flow of goods in and out of a
warehouse. It dictates ho w much stock to hold and where to locate it using
targeted data to predict consumer demand.
4. Transportation management :
Logistics involves mobilising different modes of transport to move
merchandise from one stage of the supply chain to the next. Mercha ndise
might need to travel via road vehicles, freight trains, shipping, or even air
travel for long -distance supply chains. munotes.in
Page 47
47 Export Distribution and Promotion - II Consolidation is the process by which shipping companies or carriers
combine multiple smaller shipments in one. These speeds up deli veries
and keeps costs low.
5. Control :
Logistics is a complex operational procedure that requires a lot of precise
information to be effective. Forecasting demand, transportation times, and
inventory are crucial to keeping the operations to a tight time scale.
6. Packaging and Handling :
A large part of logistics is keeping track of materials, equipment,
supplies, and packaging materials so that goods are preserved and
stored correctly. This includes repair parts, computer resources, and
mobile facilities . All of these components must be managed so that the
logistics process runs smoothly.
5.3 SELECTION CRITERIA OF MODES OF TRANSPORT There are many aspects to consider when choosing a mode of transport for
your import or export shipment. Depending on th e destination, goods
consigned to a foreign market can be transported by road, rail, air, sea,
inland, waterways or a combination of any of these.
Putting some thought into contracting transportation equipment and modes
of transport reduces shipping and lo gistics costs. However, import and
export planning is not always as simple as choosing the most cost -
effective option. When choosing a mode of transport to use, the following
factors should be taken into consideration:
1) Cost of Transport:
When choosing how to best transport products for import or export, your
budget should be the most important factor when making decisions. Costs
can vary based on the type and amount of goods that need to be
transported. Bear in mind that the cost of transport will inf luence the cost
of goods.
If you are transporting heavy or bulky products over a long distance
inland, rail transport will be the most economical. Land transport,
typically by trucks, is best suited for small amounts of goods being
transported over short distances. It also saves packing and handling costs.
Water transport is without a doubt the cheapest mode of transport, and
very suitable for heavy or bulky goods that need to be transported over
long distances where time is not an important factor. For the
transportation of perishable, light or valuable goods, air transport will be
the most efficient mode of transport to use, although it is expensive. munotes.in
Page 48
Export Marketing Paper - II
48 Importers and exporters should also consider the overall cost of
transportation, keeping the “hidden cos ts” such as terminal charges,
insurance premiums and finance charges in mind.
2) Reliability and Regularity of Service:
Transport modes differ in reliability and regularity. Your decision on
which mode of transport to use will be influenced by the urgency and
speed by which you would like your goods to be delivered. Land, ocean
and air transport are usually affected by bad weather such as heavy rains,
snow, fog and storms which may cause delays.
3) Safety:
Safety and security of goods in transit also influe nce which mode of
transport to use. Land transport by truck may be preferred to railway
transport because your losses are generally less. Water transport exposes
the goods to the perils of the sea; hence from a safety point of view, sea
transport is the r iskiest. Also, to protect the goods in transit, certain types
of packaging are recommended, which might influence costs. Goods may
also require special facilities such as refrigeration or special security
measures that need to be taken into consideration.
4) Characteristics of goods:
The size and weight of goods also play a role in deciding which mode of
transport to use. Land and air transport cater mainly for light and small
shipments while rail - and sea transport cater for heavy shipments.
Choosing a mode of transport to use will also be dependent on how
dangerous, fragile or of high value the products are. Air and land transport
are usually the best option to use for breakable products of high value.
5) More considerations:
Other factors to keep in mi nd:
The terms of the export sales contract, e.g. the buyer may stipulate
that a particular mode of transport should be used.
The location of the foreign market – naturally a destination on another
continent will eliminate the road and rail option for the m ain transport
leg.
The location of the overseas buyer in relation to airports, sea ports and
railway stations.
The facilities at the port of destination, e.g., whether there is bulk
handling or container handling equipment.
munotes.in
Page 49
49 Export Distribution and Promotion - II 5.4 NEED FOR INSURANCE IN EXPORT MARKETING Insurance is as vital to your product delivery plans as safe vehicles and
sturdy cartons . When you ship important cargo over great distances, many
variables are out of your control. You don't want to take any chances on
your delivery floundering in a massive mid -ocean storm or your airline
losing track of your carg o. Insurance is a plan to be compensated for your
cargo's value in case of destruction or mishandling.
Insurance coverage for export shipments is traditionally provided either
through your airline, logistics specialist, freight forwarder, or from an
insurance company specializing in ocean and air cargo. There are three
types of coverage commonly provided for export shipments: perils, broad -
named perils, and all -risks. Let's disc uss the most robust policy, all -risk.
An all-risk policy covers all physical loss or damage from any external
circumstance, excluding loss or damage caused by war, riots, strikes, or
civil disobedience. It generally costs about 1 -2% of the declared value o f
your shipment. Coverage varies according to your product type and your
destination point; you can get coverage for a portside -to-portside shipment
or from the factory to your customer's door. Be sure to ask your policy
provider which type best suits your needs.
Import and Export Insurance Considerations:
1. Get enough coverage:
Talk to your transportation company about what kind of coverage you
expect should your cargo get lost or destroyed. Many people ask for
coverage in the amount of 110% of their tra nsaction value, including
freight costs and the insurance. The extra 10% is to compensate your lost
time, profits, and any legal or other expenses you might incur from the
ordeal. You do not want to find out later (insurance claims typically take
anywhere from one to six months to settle) that you're only covered for
20% of your transaction value.
2. Decide who will secure the insurance:
How much control do you want should something go wrong with your
shipment? Your terms of sale usually determine this. Yo ur liability ends at
the point in which the title to the goods changes from seller to buyer. If
you're guaranteed payment for your shipment regardless of its condition
upon arrival, you might be easier going about letting your customer handle
insurance. Ho wever, if you're shipping open account, we recommend that
you not only secure the insurance yourself but secure it through a U.S.
company to see that any claims will be settled expeditiously. Don't forget,
your customer is usually the first to discover dam age or loss of cargo. He
or she must take all reasonable measures to minimize the loss or damage
and to set aside merchandise to be kept as evidence for claim settlement.
munotes.in
Page 50
Export Marketing Paper - II
50 3. Decide who pays:
Sometimes your customers will request the insurance and offer to pay, and
sometimes they won't. How you and your customer assign financial
responsibility for insurance depends on the cost of the coverage and how
the expense will affect each party's bottom line. Negotiate the point to
achieve a win -win situation.
4. Leave a paper trail:
No matter who arranges and pays for the insurance, there are specific
documents you must be prepared to present in the event of a claim. When
you file a claim, you must present the following:
A letter of claim along with a copy of the bill of lading covering the
shipment.
5. A copy of an insurance certificate prepared by your transport
company or, if you purchased insurance through an independent
carrier, by you.
6. A survey report issued by a claim agent, plus an invoice showing the
amount of damage or loss.
5.5 SUMMARY Good logistics has the power to minimi se costs, increase profits and
drive international imports and exports.
Logistics is a precision process that relies on targeted planning and
resource management for its success.
Inventory management controls the flow of goods in and out of a
warehouse.
Logistics is a complex operational procedure.
Forecasting demand, transportation times, and inventory are crucial to
keeping the operations to a tight timescale.
Transport modes differ in reliability and regularity.
Insurance is as vital to your product d elivery plans as safe vehicles
and sturdy cartons .
5.6 EXERCISE A. Descriptive Questions:
Short Answers:
1. Describe in short cost of transport.
2. Characteristics of goods d uring exporting. munotes.in
Page 51
51 Export Distribution and Promotion - II 3. Explain the term Export shipment.
4. How handle the product during exporting?
5. What you mean by Logistics?
Long Answers:
1. What are the issues encountered when exporting products?
2. Explain the Components of Logistics in Export marketing
3. Describe the selection criteria of Modes of Transport
4. Which are the need for Insurance in Export Marketing?
5. How the exporter handles the product during exporting?
B. Multiple Choice Questions:
1. ……………… is the process by which shippi ng companies or carriers
combine multiple smaller shipments in one
a. Combined
b. Consolidation
c. Continued
d. Control management
2. ……………. transport is without a doubt the cheapest mode of
transport.
a. Water
b. Air
c. Land
d. Consolidation
3. Logistic s management is part of the …………….
a. handling
b. supply chain
c. packing
d. logging
4. ………………. management controls the flow of goods in and out of
a warehouse
a. Control munotes.in
Page 52
Export Marketing Paper - II
52 b. Transportation
c. Inventory
d. Worker
5. ………………… optimise storage capacities, eq uipment retrieval
speeds, and warehousing processes
a. WMS
b. WSE
c. WMW
d. MEX
Answer: 1-b, 2-a, 3-b, 4-c, 5-a
C. Fill in the blanks:
1. Logistics refers to the planning and execution ………………of an
operation
2. ……………… speeds up deliveries and keeps costs low
3. ……………. has the power to minimize costs, increase profits and
drive international imports and exports
4. …………… transport saves packing and handling costs for short
distances.
5. ……………. are responsible for the storage, care, retrieval,
packaging, a nd unitisation of merchandise.
Answer:
1. complex
2. Consolidation
3. Good logistics
4. Land
5. Warehouses
D. State whether the following sentence are True / False:
1. Logistics is a precision process that relies on targeted planning and
resource man agement for its success
2. To guarantee customer order fulfilment, demand planning is not an
essential logistics function
3. Safety and security of goods in transit also influence which mode of
transport to use munotes.in
Page 53
53 Export Distribution and Promotion - II 4. Transporting heavy or bulky products ov er a long distance inland,
water transport will be the most economical
5. The size and weight of goods also play a role in deciding which mode
of transport to use.
Answer:
True - 1, 3 and 5
False -2 and 4
5.7 REFERENCES Export Policy Procedures& Documenta tion– M. I. Mahajan, Snow
White Publications Pvt. Ltd, 26th Edition,
International Business, K. Aswathappa, McGraw -Hill Education
(India) Pvt. Ltd.,6th Edition
Export Import Procedures - Documentation and Logistics, C. Rama
Gopal, New Age International
Publishers, 2006 / Reprint Jan 2016
International Trade and Export Management, Francis Cherunilam,
Himalaya Publishing House, 20th
R. K. Jain's, Foreign Trade Policy & Handbook of Procedures [With
Forms, Circulars & Public Notices],
EXIM Policy & Handbook of EXIM Procedure – VOL I & II
International Marketing and Export Management, Gerald Albaum,
Edwin Duerr, Alexander Josiassen,
Pearson Publications, 8th Edition, June 2016
International Marketing Strategy, IsobelDoole and Robin Lowe, 5th
Edition, Thoms on Learning, 2008.
New Import Export Policy - Nabhi Publications, 2017
P.K. Khurana, Export Management, Galgotia Publishing Co, New
Delhi
P.K.Vasudeva, International Marketing -, Excel Books, fourth edition,
New Delhi
*****
munotes.in
Page 54
54 6
EXPORT DISTRIBUTION AND
PROMOTION - III
Unit Structure
6.0 Objectives
6.1 Introduction
6.2 Sales Promotion Techniques used in Export Marketing
6.3 Importance of Trade Fairs and Exhibitions
6.4 Benefits of Personal Selling
6.5 Essentials of Adverti sing in Export Marketing
6.6 Summary
6.7 Exercise
6.8 References
6.0 OBJECTIVES The main purpose of this chapter is:
To understand the Sales Promotion Techniques used in Export
Marketing
To discuss the importance of Trade Fairs and Exhibitions
To outli ne the benefits of Personal Selling
To understand the essentials of Advertising in Export Marketing
6.1 INTRODUCTION Production and distribution are two closely related activities. Goods
produced need to be distributed to consumer quickly and efficiently. The
function of distribution involves the critical process of ensuring that
products of the firm reach the proper location for sale at the proper time
and in proper quantity. Distribution is the route that goods take between
production and final consumer. Channels are the routes taken by goods on
their journey from producer to consumers.
Advertising is the best way to communicate to the customers. Advertising
helps informs the customers about the brands available in the market and
the variety of products u seful to them. Advertising is for everybody
including kids, young and old. It is done using various media types, with
different techniques and methods most suited.
A foreign marketing environment refers to marketing and advertising in
another country beyon d the one in which the company was founded.
Sometimes companies try to enter only one particular foreign market and munotes.in
Page 55
55 Export Distribution and Promotion - III need a unique marketing strategy to do so. At other times, companies
want to enter several different markets, or even attempt a global marke t
plan. Foreign markets have a profound impact on company advertising
with their individual cultures and trends.
6.2 SALES PROMOTION TECHNIQUES USED IN EXPORT MARKETING Promotion is vital for export marketing. However, a good number of
Indian exporters do not give much importance to promotion. Apart from
advertising, and sales promotion, Indian exporters must participate in trade
fairs and exhibitions. But in reality, a good number of Indian exporters are
not professional in advertising and sales promotion. They also do not take
part in trade fairs and exhibitions, and if they do so, they lack professional
approach in handling the visitors at the trade fairs and exhibitions.
Sales promotion includes activities that seek to directly induce, or
indirectly serv e as incentives to motivate, a desired response on the part of
target customers, and intermediaries. The various sales promotion
techniques include free samples, consumer contests, money -refund offers,
free gifts, quantity discount and instalment selling.
Sales promotion technique communicates with the audience through a
variety of non -personal media to supplement advertising. Sales promotion
technique is used extensively in domestic and overseas markets. In sales
promotion, various vehicles like free sampl es, gifts, coupons and contests
are used for the information of buyers.
There are many ways to promote sales and we briefly discuss these below
(they have beed divided into business -orientated and consumer -orientated
promotions):
A - Business -orientated pr omot ions:
Promotional allowances :
With space on retailers’ shelves at a premium, a promotional allowance is
often paid by a manufacturer or exporter to a retailer to acquire shelf or
display space where you can display your products.
Contests :
Encourage s ales by initiating a competition that allows the top
salespersons(s) in a country or region to win an attractive prize, such as a
luxury holiday for example, for generating the most sales in a particular
period. Be sure to obtain the permission of their ma nage ment before
introducing such a contest.
Cooperative advertising :
This occurs when you, as the manufacturer, are prepared to share the cost
of any advertising with your foreign buyer. You may agree to pay an
advertising allowance that is based on a perc entage of the retailer’s order. munotes.in
Page 56
Export Marketing Paper - II
56 Although this allowance is to be used for advertising by your
intermediary, it remains a sales promotion tool, as you are essentially
striving to promote sales through this means.
Sales training :
Be prepared to spend money to train the sales staff of your foreign
representatives. Not only will this generate increased sales, but it
strengthens the relationship between your two organizations.
Sales aids and brochures :
This is another area you should not fall short in. Make sur e that you
provide your foreign representatives with all the sales aids (such as
CD/DVDs, PowerPoint presentations, posters, etc.) and product brochures.
This will help them sell your products and should encourage buy -in from
the foreign sales staff. If yo u give them nothing, be prepared for poor
sales.
Demonstration models :
With some industrial goods, it is imperative that you provide the foreign
sales staff with demonstration models. If it is a very expensive item,
provide at least one model that they can keep at their head office and take
prospective clients to show. If you can afford more, supply more.
Demonstration models are a good way to encourage sales.
Slotting fees :
A slotting fee may need to be paid to get your product into the sales
catalogues o f wh olesalers or large retail chains. By ensuring that your
product is in the catalogue, you stand a good chance that down -the-line
retailers or branches will buy your products.
Discounts and rebates :
Discounts and rebates offered to your representatives and their customers
to stock your product(s), is another means of promoting sales.
Incentive programmes :
These are also often used to incentivize sales staff. You pay them an
‘additional’ commission for sales achieved. Bear in mind that you will
need to o btain the permission of the management of your foreign
representative; you cannot just introduce such incentives without their
permission. Targets should be achievable, or the sales staff will lose
interest and you may even loose sales this way.
B - Consum er-orien tated promotions :
Competitions and sweepstakes :
You may want to run a competition or sweepstake or contest to encourage
consumers to buy your products. Make sure of the legality of such munotes.in
Page 57
57 Export Distribution and Promotion - III activities, as they make be considered to be a form of gambli ng. Thes e
types of promotions, if well organised, are very popular and effective in
growing sales.
Sampling :
Giving away small samples (also called ‘give -aways’) to encourage
consumers to try your product and hopeful buy more of it, is a good sales
promot ion tech nique, if a little expensive. Not all products are suitable for
sampling.
Loyalty programmes :
Loyalty programmes involve incentives that reward repeat purchases. For
example, if you buy ten meals, the 11th meal is free.
Tie-in promotions :
These inv olve the selling of two different brands (either from the same
company or from different companies) as a single item. For example, if
you buy Colgate toothpaste at its normal (or slightly higher) price, you
will receive an Oral -B toothbrush with the toothp aste. Us ually, the
toothbrush and toothpaste are packaged together as a single item.
Price incentives :
A price incentive is a short -term price reduction (such as a sale,
introductory offer or special) to encourage customers to buy the product.
This form of sales p romotion is often used where brand loyalty is low and
where price incentives are necessary to encourage repeat purchases.
Coupons :
These are a form of price incentive and are small cut -outs or tear -outs or
inserts that are made available to custom ers in m agazines, in stores and
through other channels. The customer takes (tears out) the coupon and
visits any retailer that stocks the product and can then redeem the coupon
for the product usually at a discount (e.g. 10 cents off). Coupons are
popular in certa in parts of the world.
Premiums :
Another form of price incentive, premiums are a like a small gift you can
get if you sign up for a subscription or buy a product. The premium ‘item’
may be bundled with the main item of purchase.
Bonus pack :
An exa mple of this type of sales promotion method is is where you receive
a 400ml can when you buy a standard 330ml can. The can usually is
slightly bigger highlighting the fact that you are getting a free ‘bonus’
when you buy this product. munotes.in
Page 58
Export Marketing Paper - II
58 6.3 IMPORTANCE OF TRA DE FAIRS AND EXHIBITIONS Trade fairs and exhibitions are events where manufacturers and
distributors place their goods or services on display for current and
prospective customers, suppliers and other interested businesses.
They are a fairly traditional method o f marketing goods and services,
especially in Europe, and are a particularly valuable method of
communicating with agents, distributors and consumers in your overseas
markets.
They are also good opportunities for you as an exporter to view new
products, an d identify trends and competitors.
Usually, the trade fair is associated with businesses but consumer
exhibitions do take place such as the annual motor and boat shows.
The following are the functions or activities of Indi an trade promotion
organiz ation:
(a) Organising Trade Fairs and Exhibitions:
ITPO organizes trade fairs and exhibitions in India and abroad and to
book stalls/space for Indian exporters to participate in overseas trade fair
and exhibitions. ITPO acts as a publicity wing of governm ent of I ndia for
organizing trade fair and exhibitions in India and abroad.
(b) Publicity:
It gives publicity in connection with the organisation of trade fairs and
exhibitions in India, so that foreign parties may visit India to visit in such
trade fair s and ex hibitions.
(c) Collections of Information:
ITPO collects information of various trade fairs and exhibitions to be held
abroad. The information is collected in respect of place or venue of
exhibition, date and duration, products to be displayed, bo oking of space
formalities, etc.
(d) Supply of Information:
ITPO provides information to Indian parties regarding overseas trade fairs
and exhibitions. Such information may be useful to Indian parties or
exporters to take proper decisions in respect of p articipa tion in overseas
trade fairs, and exhibitions.
(e) Delegations:
Inviting trade delegations from abroad and sending Indian trade delegation
abroad. ITPO book orders for Indian goods. In addition, to send Indian
trade delegations abroad for market survey a nd for signing contracts for
the supply for Indian goods. munotes.in
Page 59
59 Export Distribution and Promotion - III (f) Booking of Space in Overseas Trade Fairs:
ITPO books necessary space/stalls for Indian exporters. This enables
Indian exporters to participate in overseas trade fairs and exhibitions.
(g) Con sultancy Services:
It provides consultancy services to Indian exporters to participate and
display their product in trade fairs and exhibition in India and abroad.
(h) Seminars and Workshops:
ITPO organizes seminars/workshops for giving informat ion/guid ance to
exporters about fairs and exhibitions arranged in India and abroad. ITPO
has set up a trade information centre at its headquarters in New Delhi. It is
considered as the best source of information on import and export trade.
6.4 BENEFITS OF PERSONAL SELLING Personal Selling is face to face communication with one or more
prospective buyers/users and influencing the buyer with the aim of
motivating the prospect toward a purchase decision. It is one of the four
tools of marketing communication. The othe r tools are public relations and
publicity, sales promotion and advertising. Arrange of top executives’
meetings with the top executives of a potential buying company. In
foreign markets personal selling is possible in trade fairs and exhibitions
and also at stores level.
Advantages of Personal Selling :
It is two -way communication. So, the selling agent can get instant
feedback from the prospective buyer. If it is not according to plan, he
can even adjust his approach or sales presentation according ly.
Since it is an interactive form of selling, it helps build trust with the
customer. When you are selling high -value products like cars, it is
important that the customer trusts not only the product but the seller
also. This is possible in personal sell ing.
It also is a more persuasive form of marketing . Since the customer is
face to face with the salesperson it is not easy to dismiss them. The
custo mer at l east makes an effort to listen.
Finally, direct selling helps reach the audience that we cannot reach in
any other form. There are sometimes customers that cannot be reached
by any other method.
6.5 ESSENTIALS OF ADVERTISING IN EXPORT MARKETING From launch ing a new product or service to simply trying to get your
brand out into the world, ad campaigns can help you reach more of the
right people. munotes.in
Page 60
Export Marketing Paper - II
60 Advertising is a type of paid promotion that brings attention to your key
message, and it’s the crucial next step for making your digital marketing
strategies work. It increases your exposure to help you achieve your
business goals, whether you’re aiming to build your customer base or
quickly grow your sales volume.
1. Build awareness :
One of the most direct results of advertising is increased awareness of
your brand, product, or service. Potential customers will likely have to
come across your business a handful of times before they start to
remember you, and ad campaigns help you achieve this.
Marketers often use paid ads to not only get in front of more people, but to
get in front of the same people several times over. Many digital platforms
use trackers called “cookies” to determine who has previously seen your
ad. Thanks to this data, businesses like yours are able to retarget the same
viewers. With this continuous reach, you can become well-known within
your target market.
2. Educate consumers :
Beyond simply building awareness, advertising helps you educate
consumers about how your products or services help them and what your
brand stands for. You can use ad campaigns to generate a deeper
understanding about everything from your company mission to the value
of what you sell.
As your target market understands more about your business, they’ll feel a
stronger connect ion to your brand, getting you one step closer to making a
sale and helping you build customer trust and loyalty.
You can also use ad campaigns to educate consumers about topics relevant
to your business. For example, a plumber marketing campaign may run
a social media ad that includes an infographic about a simple hack to fix a
toilet clog. By doing so, you can increase your visibility as an industry
expert while also driving consumers to learn more about your brand.
3. Boost your reputation :
Advertising enables you to enhance your small business reputation.
Both offline and online advertising can boost the prominence of your key
messages —the takeaways you want your target audience to have —and
highlight the good aspects of your company.
Ads that evoke a feeling of likeability have a proven impact on sales
growth , so advertising can affect perceptions. For instance, if you’ve had
any negative exposure, running an ad that highlights a positive part of
your business can redirect potentia l consumers away from the unwanted
attention.
munotes.in
Page 61
61 Export Distribution and Promotion - III 4. Acquire new customers :
Acquiring new customers is a must for business growth. Advertising is
important because it can help you reach more people within your target
audience with messaging that appe als directly to them.
Online advertising —including social media ads, Yelp Ads, and others —is
particularly crucial for customer acquisition these days. Through online
ads, you don’t have to appeal to a broad audience as you would
with traditional advertising mediums like print ads or television. Digital
advertising allows you to specifically reach the people who match your
exact target demographics, key interests, and more.
As you reach highly specific segments of your target market —without
wasting cash on those who won’t be as interested —you can send highly
targeted messages for a better return on investment (ROI). Because of this,
advertising can be one of the most cost-effective ways to gain leads and
convert new customers for your brand.
5. Retain current customers :
Customer retention is the foundation of business growth . You need loyal,
returning clients —these are the people who love your brand, send
you referrals via word of mouth, and likely spend more money on your
product or service.
Effective advertising drives repeat business by turning your customers’
attention back to you. You can use ad campaigns to retarget memb ers of
your target audience, including people who are already in your customer
base. As you consistently remind your buyers of your brand —perhaps
piquing their interest with new products or discount pricing for loyal
members —they’ll continue to feel connec ted to you and buy from you
instead of turning to your competitors.
6. Stay ahead of the competition :
No matter what type of business you run, you have competitors. There will
always be brands vying for the attention of the same consumers. Even if
you don’t know who those competitors are, there’s a good chance they’re
among the many brands contributing to the billion -dollar advertising
industry.
In this sense, advertising is important because everyone is doing it. If
you’re not using ads to put your brand at the forefront of people’s minds,
your competitors will gladly take the spotlight. And if you stay in the
shadows too long, you’ll lose relevance in consumers’ minds.
Staying ahead of the competition —especially in saturated industries —is
all about continu ous expo sure. Beyond the reach you gain organically or
through word of mouth, ads can help you achieve that.
munotes.in
Page 62
Export Marketing Paper - II
62 7. Make sales :
When answering the question “why is advertising important?” it would be
remiss not to mention its effects on sales. Ads are powerfu l tools for
helping small businesses earn the money they need to survive and thrive.
Ad campaigns can directly influence sales, driving more consumers
straight to your physical store, website, and even specific product pages if
you run an ecommerce brand. Digital search ads alone help businesses
gain about $11 per dollar spent on average. Ads of any medium can even
help you cross -sell products and services, incre asing the value of each
consumer’s individual purchase.
Many digital ad options allow you to set your own budget and pay only
when you receive clicks, such as pay-per-click (PPC) options. As such,
advertising can play a big role in improving your company’s overall
bottom line, too. As advertising helps you achieve high ROI, you’ll have
extra revenue that you can reinvest in your business for a continuous cycle
of advertising and growth.
6.6 SUMMARY Promotion is vital for export marketing.
Sales promotion te chnique is used extensively in domestic and
overseas markets.
Personal Selling is face to face communication with one or more
prospective buyers/users and influencing the buyer.
Personal Selling is two -way communication.
Advertising enables you to enhance your small business reputation.
Customer retention is the foundation of business growth.
6.7 EXERCISE A. Descriptive Questions:
Short Answers:
1. How to Educate consumers?
2. Is selling is importance for export marketing?
3. What is the ITPO?
4. Explai n in sho rt personal selling
5. How to Build awareness
munotes.in
Page 63
63 Export Distribution and Promotion - III Long Answers:
1. Discuss the primary purpose of a trade fair
2. Explain the Importance of Trade Fairs
3. Explain the Benefits of Personal Selling
4. Which are the Essentials of Advertising in Exp ort Mark eting.
5. Do you think that trade fairs are really useful? Discuss.
B. Multiple Choice Questions:
1. ………………. provide at least one model that they can keep at their
head office and take prospective clients to show
a. Sales training
b. Cooperative advertis ing
c. Slotting fees
d. Demonstration models
2. …………………. two-way communication
a. group selling
b. Personal Selling
c. online selling
d. manufacture selling
3. ……………... involve incentives that reward repeat purchases.
a. Slotting fees
b. Demonstr ation mo dels
c. Loyalty programmes
d. Tie-in promotions
4. ……………is often paid by a manufacturer or exporter to a retailer to
acquire shelf or display space where you can display products.
a. Business -orientated promotion
b. Promotional allowances
c. Coope rative a dvertising
d. Sales training
munotes.in
Page 64
Export Marketing Paper - II
64 5. ……………exporters must participate in trade fairs and exhibitions
a. Direct
b. Foreign
c. Indian
d. Domestic
Answer: 1- d ,2- b, 3-b, 4- b, 5-c
C. Fill in the blanks:
1. …………. technique is used extensively in domesti c and ov erseas
markets
2. ……………… where manufacturers and distributors place their
goods or services on display
3. …………………… is the best way to communicate to the customers
4. …………. is a short -term price reduction to encourage customers to
buy the product
5. Promo tion is vital for …………...marketing
Answer:
1. Sales promotion
2. Trade fairs and exhibitions
3. Advertising
4. Price incentives
5. export
D. State whether the following sentence are True / False:
1. A good number of Indian exporters do not g ive much importance to
promotion
2. ITPO acts as a publicity wing of government of India for organizing
trade fair and exhibitions in India and abroad
3. Delegations Inviting is considered as the best source of information
on import and export trade.
4. Persona l selling is according to plan he can even adjust his approach or
sales presentation accordingly
5. All products are suitable for sampling
munotes.in
Page 65
65 Export Distribution and Promotion - III Answer:
True - 1 and 2
False -3, 4 and 5
6.8 REFERENCES Export Policy Procedures& Documentation – M. I. Mahaja n, Snow
White Publications Pvt. Ltd, 26th Edition,
International Business, K. Aswathappa, McGraw -Hill Education
(India) Pvt. Ltd.,6th Edition
Export Import Procedures - Documentation and Logistics, C. Rama
Gopal, New Age International
Publishers, 2006 / R eprint J an 2016
International Trade and Export Management, Francis Cherunilam,
Himalaya Publishing House, 20th
R. K. Jain's, Foreign Trade Policy & Handbook of Procedures [With
Forms, Circulars & Public Notices],
EXIM Policy & Handbook of EXIM Procedure – VOL I & II
International Marketing and Export Management, Gerald Albaum,
Edwin Duerr, Alexander Josiassen,
Pearson Publications, 8th Edition, June 2016
International Marketing Strategy, IsobelDoole and Robin Lowe, 5th
Edition, Thomson Learning, 2008.
New Im port Export Policy - Nabhi Publications, 2017
P.K. Khurana, Export Management, Galgotia Publishing Co, New
Delhi
P.K.Vasudeva, International Marketing -, Excel Books, fourth edition,
New Delhi
*****
munotes.in
Page 66
66 MODULE - III
7
EXPORT FINANCE - I
Unit Structure
7.0 Objectives
7.1 Introduction
7.2 Methods of Payment in export marketing
7.3 Procedure to open Letter of Credit
7.4 Types and Benefits of Counter trade
7.5 Summary
7.6 Exercise
7.7 References
7.0 OBJECTIVES The main purpose of this chapter is:
To discuss the methods of Payment in export marketing
To understand the procedure to open Letter of Credit
To discuss the Types and Benefits of Countertrade
7.1 INTRODUCTION In the export trade, there are v arious payment methods. The parties to a
foreign trade transaction decide on the mode and manner of payment.
Banks are the most important players in this regard. The seller must ensure
that the sales proceeds are credited to his account within 180 days of the
goods being shipped.
Countertrade is an alternative method of structuring an international sale
when traditional payment methods are complicated or non -existent.
Bartering is the most common type of countertrade .
7.2 METHODS OF PAYMENT IN EXPORT MARKET ING There are several methods of securing payment of export proceeds, some
of which are as follows
Create an account :
Trade credit is another term for open account. Under this method, the
seller and buyer agree on the terms of credit and the rate of intere st on the
outstanding amount. The seller extends this facility to his overseas buyer munotes.in
Page 67
67 Export Finance - I only when he is confident in the buyer's integrity to honour his
commitments.
One advantage of this method is that it relieves the seller of the burden of
drawing and disc ounting bills of exchange. However, it can be used only
when the parties are well acquainted with one another and have cross -
dealings so that the accounts are at least partially squared up.
Advance Payment :
The buyer is expected to make the payment in adva nce under advance
payment. If this payment term is offered, there is no risk of not receiving
payment. This method may be effective when the buyer is completely
dominated by the exporter and the buyer is eager to obtain the goods. It is
customary for the e xporter to demand a certain percentage of the value of
goods in advance, especially when the goods manufactured are to the
buyer's specifications.
Payment against Shipment on Consignment :
The exporter delivers the goods to the overseas consignee or agent w ithout
actually transferring ownership. Payment is made only when the goods are
ultimately sold to third parties by the overseas consignee.
This method is expensive due to the commission to be paid to the
consignee, as well as other charges, and it is also risky. If the goods
remain unsold, the consignee may return them, and even the consignee
may fail to pay the dues on time. The final price is also uncertain because
it is determined by market conditions in the buyer's country .
However, this method benefit s the buyer because the buyer can inspect the
goods before purchasing, and the seller may receive a higher price if the
buyer is satisfied with the quality. In India, prior approval from the RBI's
exchange control department is required for consignment shi pments.
Documentary Bills :
When relevant documents pertaining to the title of the goods are sent
along with the foreign bill of exchange, it is referred to as a documentary
bill. Documents Against Payments (D/P) and Documents Against
Acceptance (D/A) are t he two types.
Documents against Payment (D/A) :
The documents are released to the importer in exchange for payment; this
method denotes that payment is made by sight draught. If there is a
payment delay, arrangements must be made to store the goods.
munotes.in
Page 68
Export Marketing Paper - II
68 Docum ents Against Acceptance (D/A) :
The documents are released in exchange for the acceptance of the time
draught, i.e. credit is granted for a set period of time, say 90 days.
However, the exporter does not have to wait for payment until the bill is
paid on ti me because he can discount the bill with the negotiating bank
and obtain funds immediately after shipment of goods.
Letter of Credit (L/C) :
When the exporter draws a bill of exchange on the importer, he runs the
risk of the importer breaching the contract. For the exporter, a superior
method of debt settlement is that if he exports the goods in accordance
with the contract and produces evidence to that effect, he will receive
payment without default.A letter of credit is an authorization issued by the
openi ng bank to the negotiating banks to make the payment if the exporter
presents the relevant set of documents.
A letter of credit is defined as "an undertaking by the importer's bank
stating that payment will be made to the exporter if the required
documents are presented to the bank within the letter of credit's validity
period.”.
7.3 PROCEDURE TO OPEN LETTER OF CREDIT In recent years, the letter of credit has become the most popular. Because
it is more secure than other payment methods.
A letter of credit i s an authorization issued by the opening bank to the
negotiating bank to make the payment if the exporter presents the relevant
set of documents. The following are the steps involved in opening a letter
of credit.
Exporter ‘s Request:
The exporter request s that the importer issue a letter of credit in his favour.
In foreign trade, L/C is the most secure form of payment.
Request to Importer's Bank :
The importer asks his bank to open a letter of credit. He can either pay the
credit amount in advance or ask t he bank to open credit in his current
account.
Issue of L/C :
The issuing bank issues the letter of credit and forwards it to its
correspondent bank with the request that the beneficiary be notified that
the letter of credit has been opened. If the benefici ary requests it, the
issuing bank may request that the advising bank include its confirmation
in the L/C. munotes.in
Page 69
69 Export Finance - I Receipt of L/C :
The exporter obtains possession of the L/C. He should make certain that
the L/C is confirmed.
Shipment of Goods :
The exporter then sup plies the goods and submits the complete set of
documents, along with the draught, to the negotiating bank.
Scrutiny of Documents :
The negotiating bank then examines the documents and, if they are in
order, pays the exporter.
1) Realisation of payment :
The issuing bank will reimburse the amount (which is paid to the exporter)
to the negotiating bank.
2) Documents to importer :
In turn, the issuing bank hands over the documents to the importer and
debits his account for the corresponding amount.
7.4 TYPES AND BENEFITS OF COUNTER TRADE Countertrade is estimated to account for 5 to 30% of total global trade. In
the 1980s, countertrade became extremely common. Perhaps the single
most important contributing factor is the decreasing ability of Least
Developed Count ries (LDCs) to finance their import needs through bank
loans.
One of the oldest forms of trade, countertrade, is a government mandate to
pay for goods and services with something other than cash. It is a practise
that requires a seller to contractually com mit to reciprocate and undertake
certain business initiatives that compensate and benefit the buyer as a
condition of sale. In a nutshell, a goods -for-goods transaction is a form of
countertrade. Unlike monetary trade, suppliers are required to accept
products from customers for their own use or resale. In most cases, there
are multiple deals that are distinct but related, and a contract connects
these distinct transactions. Countertrade may involve several products that
move at different points in time whi le involving multiple countries.
Monetary payments may or may not be included in the agreement.
There are several types of countertrades, including barter, counter
purchase, compensation trade, switch trading, offsets and clearing
agreements.
1. Barter:
The simplest of the many types of counter trade is barter, which is a one -
time direct and simultaneous exchange of products of equal value (i.e., one munotes.in
Page 70
Export Marketing Paper - II
70 product for another). By eliminating money as a medium of exchange,
barter allows cash -strapped countries t o buy and sell. Although price must
be considered in any counter trade, in the case of barter, price is only
implicit at best .
2. Counter purchase (Parallel Barter) :
When there are two contracts or a set of parallel cash sales agreements,
each paid in cash , a counter purchase occurs. Unlike barter, which is a
single transaction with an implied exchange price. A counter purchase
consists of two distinct transactions, each with its own cash value. A
supplier sells a facility or product at a fixed price and or ders unrelated or
non-result products to offset the initial buyer's cost. As a result, the buyer
pays in hard currency, while the supplier agrees to buy specific products
within a specified time frame.
3. Compensation Trade (Buyback) :
A compensation trade requires a company to provide machinery, factories,
or technology and to purchase products made from this machinery over a
set period of time. In contrast to a counter purchase, which involves two
unrelated products, the two contracts in a compensation tr ade are very
closely related. A supplier agrees to buy a portion of the plant's output for
a number of years under a separate agreement to the sale of plant or
equipment.
4. Switch Trading :
Switch trading necessitates a triangular trade agreement rather th an a
bilateral trade agreement. When goods from the buying country, in whole
or in part, are not easily usable or salable, it may be necessary to bring in a
third party to dispose of the merchandise. The third party pays a
significant discount in hard curr ency for the unwanted merchandise.
5. Offset :
In exchange for the right to sell its products locally, a foreign supplier is
required to manufacture/assemble the product locally and/or purchase
local components. In effect, the supplier is forced to manufact ure in a
location that may not be economically advantageous. Offsets are
frequently found in aircraft and military equipment purchases. According
to one study, more than half of the companies counter trading with the
Middle East were in the defence industr y, with offset being the most
common type of counter trade. These companies believed that counter
trade was a necessary component for entry into these markets.
6. Clearing Agreement :
A clearing agreement is a clearing account barter agreement that does not
require a currency transaction. The trade in this case is continuous, with a
line of credit established in the central banks of the two countries, and the
exchange of products between two governments is designed to achieve an munotes.in
Page 71
71 Export Finance - I agreed -upon value or volume o f trade tabulated or calculated in
nonconvertible "clearing account units.”
Benefits of Countertrade :
Regardless of its complexity, companies continue to use countertrade
as a growth strategy because it:
Allows for entry into difficult markets.
Increases company sales in areas where you might not normally have
business.
Overcomes credit problems.
Allows for the disposal of obsolete or surplus products.
Obtains a competitive advantage over competitors.
7.5 SUMMARY The exporter delivers the goods to the over seas consignee or agent
without actually transferring ownership.
Documents Against Payments (D/P) and Documents Against
Acceptance (D/A) are the two types.
A letter of credit is an authorization issued by the opening bank to the
negotiating banks to make t he payment if the exporter presents the
relevant set of documents.
A compensation trade requires a company to provide machinery,
factories, or technology and to purchase products made from this
machinery over a set period of time.
A counter purchase consis ts of two distinct transactions, each with its
own cash value.
The simplest of the many types of counter trade is barter.
A clearing agreement is a clearing account barter agreement that does
not require a currency transaction.
7.6 EXERCISE A. Descriptive Questions:
Short Answers:
1. What is the Countertrade?
2. Explain the documentary bills munotes.in
Page 72
Export Marketing Paper - II
72 3. Explain the buyback.
4. Explain in short clearing Agreement
5. Explain the benefits of Countertrade
Long Answers:
1. Explain the methods of payment in export marketing.
2. What is the different between barter and parallel barter?
3. How to open Letter of Credit?
4. Explain the types of Countertrades.
5. What is the function of export trade?
B. Multiple Choice Questions:
1. ………………… clearing account barter agreement that does not
require a currency transaction.
a. Switch Trading
b. Compensation Trade
c. Offset
d. Clearing Agreement
2. LDCs stands for:
a. Least Developed Countries
b. Level Developed Countries
c. Low Developed Countries
d. Language Develop ed Countries
3. ………. authorization issued by the opening bank to the negotiating
bank to make the payment if the exporter presents the relevant set of
documents.
a. letter of credit
b. Countertrade
c. post-shipment
d. Pre-shipment
munotes.in
Page 73
73 Export Finance - I 4. ………….is an alternat ive method of structuring an international sale
when traditional payment methods are complicated
a. Letter of credit
b. Countertrade
c. post-shipment
d. Pre-shipment
5. …………... payment term is offered, there is no risk of not receiving
payment.
a. Post pay ment
b. Advance Payment
c. current payment
d. Realisation of payment
Answer: 1- a, 2- a, 3-a, 4-b, 5-b
C. Fill in the blanks:
1. …………. credit is term for open account.
2. …………… is the two contracts or a set of parallel cash sales
agreements, each paid in cash, a counter purchase occurs.
3. ………….is the most common type of countertrade
4. …………… is a government mandate to pay for goods and services
with something other than cash
5. The buyer is expected to make the payment in advance
under………….
Answer:
1. Trade
2. Counter purchase
3. Bartering
4. countertrade
5. advance payment
D. State whether the following sentence are True / False:
1. Switch trading necessitates a triangular trade agreement rather than a
bilateral trade agreement munotes.in
Page 74
Export Marketing Paper - II
74 2. non-monetary p ayments may or may not be included in the
agreement.
3. The simplest of the many types of counter trade is barter.
4. The exporter obtains possession of the L/C
5. Non-countertrade is estimated to account for 5 to 30% of total global
trade
Answer:
True - 1, 3 and 4
False -2 and 5
7.7 REFERENCES Export Policy Procedures& Documentation – M. I. Mahajan, Snow
White Publications Pvt. Ltd, 26th Edition,
International Business, K. Aswathappa, McGraw -Hill Education
(India) Pvt. Ltd.,6th Edition
Export Import Proce dures - Documentation and Logistics, C. Rama
Gopal, New Age International
Publishers, 2006 / Reprint Jan 2016
International Trade and Export Management, Francis Cherunilam,
Himalaya Publishing House, 20th
R. K. Jain's, Foreign Trade Policy & Handbook of Procedures [With
Forms, Circulars & Public Notices],
EXIM Policy & Handbook of EXIM Procedure – VOL I & II
International Marketing and Export Management, Gerald Albaum,
Edwin Duerr, Alexander Josiassen,
Pearson Publications, 8th Edition, June 2016
International Marketing Strategy, IsobelDoole and Robin Lowe, 5th
Edition, Thomson Learning, 2008.
New Import Export Policy - Nabhi Publications, 2017
P.K. Khurana, Export Management, Galgotia Publishing Co, New
Delhi
P.K.Vasudeva, International Marketing -, Excel Books, fourth edition,
New Delhi
*****
munotes.in
Page 75
75 8
EXPORT FINANCE - II
Unit Structure
8.0 Objectives
8.1 Introduction
8.2 Features of Pre-Shipment and Post-shipment finance
8.3 Procedure to obtain Export Finance
8.4 Distinction between Pre - and Post -Shipment Finance
8.5 Summary
8.6 Exercise
8.7 References
8.0 OBJECTIVES The main purpose of this chapter is:
To discuss the features of Pre-Shipment and Post-shipment finance
To explain the procedure to obtain Export Finance
To outline Distinction between Pre -Shipment Finance and Post
Shipment Finan ce
8.1 INTRODUCTION Export finance is the study of the financial need and institutional
framework to provide finance for export trade, including export credit
institutions, foreign exchange implications, and methods of securing
payment of export proceeds.
Exporters are provided with short -term, medium -term, and long -term
financing based on the type of goods to be exported and the terms of
payment offered by finance institutions to overseas buyers.
In India, commercial banks such as SIDBI and EXIM bank are d irectly
involved with export financing. The Reserve Bank of India is indirectly
concerned with export financing because it establishes rules and
regulations governing the terms and conditions of export finance that
commercial banks and other financial inst itutions must follow. The ECGC
is also involved in export finance. It safeguards exporters against the risk
of non -payment by the importer.
Short, medium, and long -term financing may be required by the exporter.
Short -term financing is required to meet "Wo rking Capital" requirements.
Working capital is used to meet a company's regular and recurring needs.
A business's regular and recurring finance needs include the purchase of
raw materials, payment of wages and salaries, and expenses such as rent
and adver tising. munotes.in
Page 76
Export Marketing Paper - II
76 8.2 FEATURES OF PRE -SHIPMENT AND POST -SHIPMENT FINANCE Pre-shipment financing is also known as packing credit. It is a bank or
financial institution advance credit facility held by an exporter. It is
defined by the Reserve Bank of India as "any loa n to an exporter for
financing the purchase, processing, manufacturing, or packing of goods."
It is, precisely, an interim advance provided by a bank to assist the
exporter in purchasing, processing, packing, and shipping the goods.
Packing credit is a typ e of working capital given to an exporter.
Features of Pre -Shipment Finance:
The salient features of packing credit are as follows :
Eligibility:
Exporters who have an export order or a letter of credit in their name from
a foreign buyer are eligible for pa cking credit. An indirect exporter can
also obtain packing credit if:
a) He produces a letter from the concerned export house or other
concerned party stating that a portion of the export has been allotted
in this favour.
b) Export houses or other intere sted parties should also state that they do
not want packing credit for the same.
Purpose:
Packing credit is given to the exporter in order to meet working capital
requirements prior to shipment of goods, such as payment of raw materials
and wages.
Documen tary Evidence:
Pre-shipment financing is provided in exchange for evidence of an
irrevocable L/C confirmed order for export. The L/C confirmed order
document must be deposited with the lending institution.
Form of Finance:
Packing credit can take the form of a funded or unfunded advance. L/Cs
with a red clause and a green clause are examples of funded finance.
Domestic L/Cs, back -to-back L/Cs, and various guarantees are examples
of non -funded facilities.
Amount of Packing Credit:
The amount of packing credi t is determined by the amount of export
orders and the bank's credit rating of the exporters. The bank may also
take into account receivable export incentives such as DBK, IPRS, and so
on. munotes.in
Page 77
77 Export Finance - II Period of Packing Credit:
Normally, it is granted for a period of 1 80 days. A further extension of 90
days is being considered with the RBI's prior approval.
Rate of Interest:
Packing credit is available at a low interest rate. The difference between
the normal rate of interest and the export finance rate of interest is r epaid
to banks by the RBI.
Loan Agreement:
Banks require the exporter to sign a formal loan agreement before the loan
is disbursed.
Maintenance of Accounts:
According to RBI guidelines, banks must keep separate accounts for each
pre-shipment advance. Runni ng accounts are permitted, however, for
certain items manufactured in FTZs/EPZs and 100 percent EOUs.
Disbursement of loan:
Pre-shipment finance advances are typically not sanctioned in lump sums,
but rather disbursed in stages.
Monitoring the Use of Advan ce:
The bank advancing packing credit should monitor the use of pre -
shipment finance by the exporter, i.e. whether the amount is used for
export purposes or not, and a penalty for misuse can be imposed.
Repayment:
When the export proceeds or incentives are realised, the exporter is
expected to liquidate or repay the advance amount plus interest.
Post-Shipment of Finance :
When an Indian exporter requires an advance or a loan after completing
the process of shipping goods, this is referred to as "Post -shipmen t
Finance." This funding is required after the shipment has been completed
but prior to the receipt of payment from overseas buyers.
Post-shipment financing is available to meet working capital requirements
following the shipment of goods.
Features :
The ma in features of post-shipment finances are as follows:
1. Eligibility:
This facility is available to exporters who have shipped the goods or to an
exporter in whose name the export documents have been transferred. munotes.in
Page 78
Export Marketing Paper - II
78 2. Purpose:
Post-shipment finance provides the exporter with working capital from the
date of shipment to the date of realisation of export proceeds.
3. Documentary Evidence:
It is extended in the case of deemed and project exports against the
evidence of shipping documents indicating the complianc e of actual
shipment of goods or other necessary evidence.
4. Forms of Post-Shipment Finance:
Banks offer post -shipment finance in a variety of forms, including
discounting of export bills, advances against goods sent on a consignment
basis, advances again st retention money, and so on.
5. Amount of Post-Shipment Credit:
The amount of post -shipment finance is determined by the exporter's
working capital requirements following the shipment of goods.
6. Period of Post-Shipment Finance:
Commercial banks typical ly provide 90 -day short -term loans. EXIM bank
offers medium -term financing for periods ranging from 90 days to 5 years,
as well as long -term loans for capital goods and turnkey projects with
terms ranging from 5 years to 12 years.
7. Rate of Interest:
The post-shipment finance facility is granted at a lower interest rate than
that charged to domestic or local parties.
8. Loan Agreement:
Before the loan is disbursed, the exporter must execute a formal loan
agreement with the bank.
9. Maintenance of Accounts:
According to RBI guidelines, banks must keep a separate account for each
post-shipment advance. Running accounts are permitted in the case of
SEZ/EPZ units and 100 percent EOUs.
10. Disbursement of Loan Accounts :
Post-shipment credit advances are typicall y not given in lump sums. It is
paid out in instalments as needed by the exporter.
11. Monitoring the use of Advance:
The bank advancing post -shipment credit should monitor the exporter's
use of post -shipment credit, i.e., whether the amount is used for export
purposes or not. Misuse can result in a penalty. munotes.in
Page 79
79 Export Finance - II 8.3 PROCEDURE TO OBTAIN EXPORT FINANCE Finance is required by the exporter both before and after the shipment.
Per-shipment finance or packing credit refers to the financing required to
cover various expenses prior to the shipment of goods. Post -shipment
finance refers to the financing provided by banks after the shipment of
goods.
The following are a list of them:
1. Having an Export Order:
Export order processing begins with the receipt of an export order. Simply
put, an export order means that there should be an agreement in the form
of a document between the exporter and the importer before the exporter
begins producing or procuring goods for shipment. In most cases, an
export order will take the f orm of a proforma invoice, purchase order, or
letter of credit . These were already taught to you in the preceding section.
2. Examination and Confirmation of Order:
After receiving an export order, the exporter should review it in light of
the contract's t erms and conditions. In fact, this is the most important stage
because all subsequent actions and reactions are determined by the terms
and conditions of the export order.
3. Manufacturing or Procuring Goods:
Under the export credit (interest subsidy) sche me, the Reserve Bank of
India (RBI) extends pre -shipment credit to exporters to finance working
capital needs for the purchase of raw materials, processing them, and
converting them into finished goods for export. The exporter approaches
the bank in accord ance with the pre -shipment credit procedures. After
receiving credit, the exporter begins to manufacture / procure and pack the
goods for export.
4. Clearance from Central Excise:
As soon as the goods are manufactured / purchased, the process of
obtaining clearance from central excise duty begins. The Central Excise
and Sale Act of India, as well as the accompanying rules, provide for the
refund of excise duty paid. There are two alternative schemes under which
export products receive a 100% duty rebate upo n submission of proof of
shipment.
5. Pre-Shipment Inspection:
According to the Government of India's notification, there are a number of
goods whose export requires quality certification. As a result, before
allowing the shipment of goods, the Indian cus toms authorities will
require the submission of an inspection certificate issued by the competent
and designated authority. munotes.in
Page 80
Export Marketing Paper - II
80 6. Appointment of Clearing and Forwarding Agents:
On completion of the process of obtaining the Inspection Certificate from
the cust om agencies, the exporter appoints clearing and forwarding agents
who perform a number of functions on behalf of the exporter.
The main functions performed by these agents include packing, marking
and labeling of consignment, arrangement for transport to t he port
arrangement for shipment overseas, customs clearance of cargo,
procurement of transport and other documents.
7. Goods to Port of Shipment:
Following the completion of the excise clearance and pre -shipment
inspection formalities, the goods to be exp orted are packed, marked, and
labelled. Proper marking, labelling, and packing aid in the safe and timely
transportation of goods. The export department takes steps to reserve
space on the ship that will transport goods to the importer.
8. Port Formalities and Customs Clearance:
After receiving the documents from the export department, the clearing
and forwarding agent collects the cargo from the railway station or road
transport company and stores it in the warehouse. He also obtains customs
clearance and port authority permission to bring the cargo into the
shipment shed.
9. Dispatch of Documents by Forwarding Agent to the Exporter:
The clearing and forwarding agent send all documents to his or her
exporter after receiving the Bill of Lading from the shipp ing company.
10. Certificate of Origin:
Upon receipt of the above documents from the forwarding agent, the
exporter applies for and receives a Certificate of Origin from the Chamber
of Commerce. If the goods are exported to countries that offer GSP
concess ions, the exporter must obtain a GSP Certificate of Origin from the
relevant authority, such as the Export Inspection Agency.
11. Dispatch of Shipment Advice to the Importer:
Finally, the exporter sends a 'Shipment Advice' to the importer informing
them of the date of shipment of the consignment by a named vessel and
the expected time of arrival at the importer's destination port.
12. Submission of Documents to Bank:
At the end of the process, the exporter presents the following documents
to his bank in order to receive payment from the importer:
(i) Commercial Invoice’
(ii) Certificate of Origin munotes.in
Page 81
81 Export Finance - II (iii) Packing List
(iv) Letter of Credit
(v) Marine Insurance Policy
13. Claiming Export Incentives:
After completing the processing of an export order at all three levels of
shipment, i.e., pre -shipment, shipment, and post -shipment, the exporter
claims any export incentives that are available to him or her.
8.4 DISTINCTION BETWEEN PRE & POST SHIPMENT FINANCE Basis For Comparison Pre-Shipment Finance Post-Shipment Finance Meaning Pre-shipment finance is a facility that extends working capital finance to the exporter of goods in order for them to be exported to another country. Post shipment finance is a type of loan provided by a bank to an exporter in exchange for the already completed shipment of goods. Objective To assist exporters in obtaining raw materials, labour, and supplies needed to produce, package, store, and transport goods. To finance export receivables from the date documents are submitted to the exporter's bank until the date proceeds from exported goods are realised. Eligibility Export company or company that exports goods via export houses. The exporter or the person in whose name the export documents are transferred. Source of Repayment The contract's proceeds Revenue from exports Risk involved Risks associated with payment and performance Only the payment risk exists.
8.5 SUMMARY Pre-shipment financing is also known as packing credit. It is a bank or
financial institution advance credit fa cility held by an exporter.
The difference between the normal rate of interest and the export
finance rate of interest is repaid to banks by the RBI. munotes.in
Page 82
Export Marketing Paper - II
82 Post-shipment financing is available to meet working capital
requirements following the shipment of goods.
The amount of post -shipment finance is determined by the exporter's
working capital requirements following the shipment of goods.
8.6 EXERCISE A. Descriptive Questions:
Short Answers:
1. What is the pre -shipment finance?
2. What is the post shipment fin ance?
3. Who is Eligibility in pre -shipment finance?
4. Write feature of export finance?
5. Explain in short Export finance
Long Answers:
1. Explain the distinguish between Pre -Shipment Finance and Post
Shipment Finance
2. Write a feature of Post shi pment.
3. What is the Procedure to obtain Export Finance?
4. Write advantages of pre -shipment finance.
5. Explain in brief Export finance and advantage?
B. Multiple Choice Questions:
1. ……………… the contract's proceeds.
a. Pre shipment finance
b. Post sh ipment finance
c. Export finance
d. Import finance
2. Pre-shipment financing is provided in exchange for evidence of an
irrevocable ……………...order for export
a. L/C confirmed
b. L/B confirmed
c. L/D confirmed
d. L/F confirmed munotes.in
Page 83
83 Export Finance - II 3. The exporter or the person in whose name the export documents are
transferred in…………...
a. Pre shipment finance
b. Post shipment finance
c. Export finance
d. Import finance
4. Pre-shipment financing is also known as ……………...
a. packing credits
b. packing debit
c. packing goods
d. packing money
5. ………….is a type of loan provided by a bank to an exporter
a. Pre shipment finance
b. Post shipment finance
c. Export finance
d. Import finance
Answer: 1- a, 2-a, 3-b, 4-a, 5-b
C. Fill in the blanks:
1. …………………. a bank or financial institu tion advance credit
facility held by an exporter.
2. Banks offer post -shipment finance in a variety of forms, including
………………
3. The processing of an export order at all three levels of shipment, i.e
…………………, ………………..and ………..
4. Export order processin g begins with the …………. of an export order
5. Packing credit is a type of working capital given to an …………….
Answer:
1. Pre-shipment financing
2. discounting of export bills
3. pre-shipment, shipment, and post -shipment, the exporter claims
4. receipt
5. exporter munotes.in
Page 84
Export Marketing Paper - II
84 D. State whether the following sentence are True / False:
1. Long -term financing is required to meet "Working Capital"
requirements
2. The bank advancing packing credit should monitor the use of pre -
shipment finance by the exporter
3. Expor t houses or other interested parties should also state that they do
not want packing credit
4. The amount of post -shipment finance is determined by the exporter's
working capital requirements following the shipment of goods
5. In pre -shipment risks assoc iated with payment.
Answer:
True - 2, 3 and 4
False -1 and 5
8.7 REFERENCES Export Policy Procedures& Documentation – M. I. Mahajan, Snow
White Publications Pvt. Ltd, 26th Edition,
International Business, K. Aswathappa, McGraw -Hill Education
(India) Pvt. Ltd. ,6th Edition
Export Import Procedures - Documentation and Logistics, C. Rama
Gopal, New Age International
Publishers, 2006 / Reprint Jan 2016
International Trade and Export Management, Francis Cherunilam,
Himalaya Publishing House, 20th
R. K. Jain's, Fo reign Trade Policy & Handbook of Procedures [With
Forms, Circulars & Public Notices],
EXIM Policy & Handbook of EXIM Procedure – VOL I & II
International Marketing and Export Management, Gerald Albaum,
Edwin Duerr, Alexander Josiassen,
Pearson Publicati ons, 8th Edition, June 2016
International Marketing Strategy, IsobelDoole and Robin Lowe, 5th
Edition, Thomson Learning, 2008.
New Import Export Policy - Nabhi Publications, 2017
P.K. Khurana, Export Management, Galgotia Publishing Co, New
Delhi
P.K.Vas udeva, International Marketing -, Excel Books, fourth edition,
New Delhi
***** munotes.in
Page 85
85 9
EXPORT FINANCE - III
Unit Structure
9.0 Objectives
9.1 Introduction
9.2 Role of Commercial Banks
9.3 EXIM Bank
9.4 SIDBI in financing exporters
9.5 Role of ECGC
9.6 Summary
9.7 Exercise
9.8 References
9.0 OBJECTIVES The main purpose of this chapter is:
To understand the role of Commercial Banks
To discuss EXIM Bank
To explain about the SIDBI in financing exporters
To discuss the role of ECGC
9.1 INTRODUCTION Export finance is the study of the financial need and institutional
framework to provi de finance for export trade, including export credit
institutions, foreign exchange implications, and methods of securing
payment of export proceeds.
Exporters are provided with short -term, medium -term, and long -term
financing based on the type of goods to be exported and the terms of
payment offered by finance institutions to overseas buyers.
9.2 ROLE OF COMMERCIAL BANKS The exporter is expected to repay the loan to the bank as soon as the
export proceeds are received. In most cases, the lending bank recei ves the
export proceeds from the importer's bank.
Commercial banks provide a significant portion of export financing. They
provide financial assistance to exporters not only on a priority basis, but
also on liberal terms, both before and after shipment.
munotes.in
Page 86
Export Marketing Paper - II
86 The Reserve Bank of India's directives under the Exchange Control
Regulation Act require export payments to be settled through the medium
of an Indian bank authorised to deal in foreign exchange. Commercial
banks' services are classified as follows:
Fund Based Assistance (Financial Services)
Non-Fund Based Assistance (Non -Financial Assistance)
(a) Fund Based Assistance:
Commercial banks provide fund -based activities both before and after the
shipment.
(i) Pre-Shipment Stage :
Commercial banks provide financin g on a short -term basis for a normal
period of 180 days at a very low interest rate. Cash packing credit loan,
advance against hypothecation, advance against pledge, and other types of
advances are available. Post-Shipment Stage
Commercial banks typically provide finance at the post -shipment stage for
a period of 90 days at a low interest rate. Post -shipment finance can take
many forms, including bill negotiation under LC, bill
purchase/discounting, overdraft against bills under connection, and so on.
(b) Non-Fund Based Assistance :
(I) Banks Guarantees :
Banks are authorized to provide guarantees and bid bonds in favour of
foreign buyers. Bank guarantees include the following: -
1. Bid Bonds :
Bid bonds are issued by banks to enable exporters to participate i n and
quote prices in various global tenders.
2. Preference Guarantee :
This is required for capital goods exports, turnkey projects, and
construction contracts .
3. Advance Payment Guarantee :
Banks also provide advance payment guarantees to overseas buyers , who
typically make a specific advance payment to the Indian exporter in
exchange for a bank guarantee .
4. Guarantee for Payment of Retention Money :
Banks issue a guarantee for the payment of retention money by the
overseas party, who will only release th e retention money to the Indian
party after receiving the guarantee from the bank . munotes.in
Page 87
87 Export Finance - III 5. Guarantee for Foreign Currency Loans :
It is granted by a financial institution in another country to Indian
exporters who raise funds to finance their projects in anothe r country.
(ii) Credit Rating of Importers :
On the request of exporters, banks conduct credit ratings on importers.
They gather vital information about their creditworthiness and provide it
to exporters.
(iii) Information about Foreign Exchange :
Banks also provide information on various countries' exchange rates.
(iv) Dollar Account :
Commercial banks offer their clients services by opening a 25% dollar
account. Under this account, an exporter is permitted to keep 25% of
receipts in foreign currency accounts with an Indian bank; these accounts
assist exporters in meeting payment in foreign currencies.
(v) Invoicing in a Foreign Currency :
A buyer may insist on invoicing in a foreign currency that is generally
acceptable to him. If the contract is not for major currencies, banks
provide the necessary information on this subject, such as whether the said
currency is marketable or not.
(vi) Confirmation of Letter of Credit :
Banks are also responsible for advising and confirming L/Cs opened by
importers.
(vii) Forw ard Trading :
Banks mitigate the risks associated with fluctuating foreign exchange rates
by fixing the rate in advance for future transactions. Forward exchange
rates are the name given to such rates.
(viii) Currency for Invoicing Services :
Because all cur rencies are not readily available and may require prior
permission for release, banks provide foreign currencies for invoicing
services.
9.3 EXIM BANK The Export -Import Bank of India (EXIM) is a public sector financial
institution that was founded on Janua ry 1, 1982. It began operations on
March 1, 1982. It was established by an Act of Parliament to finance,
facilitate, and promote foreign trade. It is also the primary financial
institution in charge of coordinating the activities of institutions involved
in financing India's foreign trade. munotes.in
Page 88
Export Marketing Paper - II
88 This bank was established primarily to finance medium and long -term
loans to exporters in order to promote the country's foreign trade.
Objectives of Exim Bank :
The following are EXIM Bank's primary goals and objectives:
1. Financing of export and imports of goods and services not only of
India but also of third world countries.
2. Financing of joint ventures in foreign countries.
3. Financing of Indian manufactured goods, consultancy and
technological services of defer red payment terms.
4. Financing R&D and techno -economic study.
5. Co-financing global and regional development agencies.
9.4 SIDBI IN FINANCING EXPORTERS The Small Industries Development Bank of India (SIDBI) was established
in April 1990 as a wholly own ed subsidiary of the Industrial Development
Bank of India, the country's premier development bank, by an act of
parliament, the Small Industries Development Bank of India Act, 1989.
Objectives :
SIDBI's main objectives are as follows:
(a) To serve as the primary financial institution for the promotion,
financing, and development of the small -scale sector.
(b) Coordination of the functions of institutions involved in promoting
and financing the development of the small -scale sector.
Functions :
The main fun ctions of SIDBI are as follows :
SIDBI offers a variety of schemes for the promotion, financing, and
development of units in the small scale and tiny sectors. The various
schemes are divided into three categories.
Refinance Assistance :
1) Seed capital schem e:
SFCS/SIDCS provide seed capital to SSI unit promoters. SIDBI can then
provide refinancing to the SFC/SIDC. This scheme enables entrepreneurs
to meet the promoter's equity contribution.
2) Equipment Refinance Scheme :
FVS/SIDCS provide equipment refinanci ng to SSI units in order for them munotes.in
Page 89
89 Export Finance - III to purchase equipment for expansion and modernization. If necessary, the
SFC/SIDC can seek refinancing from SIDBI.
3) Tourism Related Finance Scheme :
SFCS/SIDCS finance entrepreneurs who are developing tourism -related
activities such as amusement parks, cultural centres, restaurants, and so
on. SIDBI can then provide refinancing to the SFC/SIDC.
I) Direct Assistance :
1) Project Finance Scheme :
SIDBI provides direct financing to SSI units for the establishment of new
project s. Preference is given to units with an export orientation, import
substitution, hitech, and entrepreneurs with a proven track record.
The project cost should not be less than Rs. 75 lakh, and the debt -to-equity
ratio should not be greater than 2:1.
2) ISO 9000 Scheme :
SIDBI offers direct financing for ISO 9000 certification. The goals are to
promote quality systems in SSI units in order to improve their marketing
and export capabilities.
3) Equipment finance Scheme :
SIDBI provides direct financing to SSI u nits for the purchase of
equipment necessary for expansion and modernization.
9.5 ROLE OF ECGC Meaning :
In July 1957, the Government of India established the Export Risk
Insurance Corporation (ERIC) to provide export credit and insurance
support to Indian exporters. The company is now known as ECGC of
India Ltd.
The Government of India owns 100% of ECGC. It is administered by the
Ministry of Commerce and is governed by a board of directors comprised
of representatives from government, banking, insurance, tr ade, and
industry.
Objectives :
The main objectives of ECGC are as follows :
1. The ECGC is intended to protect exporters from the consequences of
both political and commercial payment risks.
2. It enables exporters to expand their overseas operations with out fear
of losing money. munotes.in
Page 90
Export Marketing Paper - II
90 3. It allows exporters to obtain timely and liberal/bank financing.
4. It provides financial guarantees to banks in order to protect their
interests.
5. It allows exporters and importers to take calculated business risks.
Polic ies Issued By the ECGC:
The ECGC has several policies and guarantees, which are as follows:
1) Standard Policies :
Standard policies are issued to exporters to protect them from payment
risks associated with short -term credit exports.
2) Specific Policies :
Specific policies designed to protect Indian firms from payment risk
associated with
(a) deferred payment exports,
(b) services rendered to foreign parties, and
(c) construction works and turnkey projects undertaken abroad..
3) Financial Guarantees :
Financial guarantees are issued to Indian banks to protect them from the
risks of loss associated with providing financial assistance to exporters at
the pre -shipment and post -shipment stages.
4) Special Scheme :
Special schemes, such as transfer guarantee, are designed to protect banks
by adding confirmation to letters of credit opened by foreign banks, as
well as insurance coverage for buyer credit.
9.6 SUMMARY Commercial banks provide financial assistance to exporters not only
on a priority basis, but als o on liberal terms, both before and after
shipment.
Commercial banks provide financing on a short -term basis for a
normal period of 180 days at a very low interest rate.
Bid bonds are issued by banks to enable exporters to participate in
and quote prices i n various global tenders.
Banks are also responsible for advising and confirming L/Cs opened
by importers. munotes.in
Page 91
91 Export Finance - III The Export -Import Bank of India (EXIM) is a public sector financial
institution that was founded on January 1, 1982.
The Small Industries Development Bank of India (SIDBI) was
established in April 1990.
SFCS/SIDCS provide seed capital to SSI unit promoters.
The Government of India owns 100% of ECGC.
9.7 EXERCISE A. Descriptive Questions:
Short Answers:
1. Meaning of ECGC
2. Explain the Exim bank
3. Explain the SIDBI
4. Explain the pre -shipment stage
5. Explain the importance of SIDBI
Long Answers:
1. Explain the role of Commercial banks.
2. Which are the objectives are there Exim Bank.
3. Explain the Functions of SIDBI in financing exports
4. What are the Objectives of ECGC?
5. How many policies issued by the ECGC?
B. Multiple Choice Questions:
1. Commercial banks provide fund -based activities both before and after
the shipment ………….
a. Fund Based Assistance
b. Refinance Assistance
c. Repay lo an Assistance
d. Non-Fund Based Assistance
munotes.in
Page 92
Export Marketing Paper - II
92 2. …………... provide seed capital to SSI unit promoters
a. Repay Loan Assistance
b. SFCS/SIDCS
c. Equipment Refinance Scheme
d. Tourism Related Finance Scheme
3. Commercial banks provide financing on a short -term basis for a
normal ………….. at a very low interest rate.
a. period of 90 days
b. period of 180 days
c. period of 60 days
d. period of 50 days
4. Commercial banks typically provide finance at the post -shipment
stage for a ……….
a. period of 90 days
b. period of 60 days
c. period of 50 days
d. period of 14 days
5. Commercial banks offer their clients services by opening a
………………dollar account.
a. 15%
b. 30%
c. 50%
d. 25%
Answer: 1-a, 2-b, 3-b, 4-a, 5-d
C. Fill in the blanks:
1. …………. are issued by banks to e nable exporters to participate in
and quote prices in various global tenders
2. SIDBI can then provide refinancing to the ………….
3. …………... required for capital goods exports, turnkey projects,
and construction contracts
4. ………………. is a public sector fin ancial institution that was
founded on January 1, 1982. munotes.in
Page 93
93 Export Finance - III 5. ………. provide equipment refinancing to SSI units in order for them
to purchase equipment for expansion and modernization
Answer:
1. Bid bonds
2. SFC/SIDC
3. Preference Guarantee
4. EXIM
5. SFVS/SIDCS
D. State whether the following sentence are True / False:
1. Exporters are provided with short -term, medium -term, and long -term
financing based on the type of goods to be exported.
2. EXIM began operations on March 1, 1988.
3. EXIM bank was est ablished primarily to finance medium and long -
term loans to exporters in order to promote the country's foreign trade.
4. The Government of India owns 50% of ECGC.
5. Standard policies are issued to exporters to protect them from
payment risks associated with long -term credit exports
Answer:
True - 1, 3 and 4
False - 2 and 5
9.8 REFERENCES Export Policy Procedures& Documentation – M. I. Mahajan, Snow
White Publications Pvt. Ltd, 26th Edition,
International Business, K. Aswathappa, McGraw -Hill Education
(Indi a) Pvt. Ltd.,6th Edition
Export Import Procedures - Documentation and Logistics, C. Rama
Gopal, New Age International
Publishers, 2006 / Reprint Jan 2016
International Trade and Export Management, Francis Cherunilam,
Himalaya Publishing House, 20th
R. K . Jain's, Foreign Trade Policy & Handbook of Procedures [With
Forms, Circulars & Public Notices],
EXIM Policy & Handbook of EXIM Procedure – VOL I & II munotes.in
Page 94
Export Marketing Paper - II
94 International Marketing and Export Management, Gerald Albaum,
Edwin Duerr, Alexander Josiassen,
Pears on Publications, 8th Edition, June 2016
International Marketing Strategy, IsobelDoole and Robin Lowe, 5th
Edition, Thomson Learning, 2008.
New Import Export Policy - Nabhi Publications, 2017
P.K. Khurana, Export Management, Galgotia Publishing Co, New
Delhi
P.K.Vasudeva, International Marketing -, Excel Books, fourth edition,
New Delhi
*****
munotes.in
Page 95
95 MODULE - IV
10
EXPORT PROCEDURE AND
DOCUMENTATION - I
Unit Structure
10.0 Objectives
10.1 Introduction
10.2 Registration with different authorities
10.3 Pre-shipment Procedure involved in Exports
10.4 Procedure of Quality Control and Pre-Shipment In spection
10.5 Summary
10.6 Exercise
10.7 References
10.0 OBJECTIVES The main purpose of this chapter is:
To understand the registration with different authorities
To discuss Pre -Shipment Procedure involved in Exports
To analyse Procedure of Qual ity Control and Pre-Shipment Inspection
10.1 INTRODUCTION The execution of an order received from an overseas buyer is referred to
as the export procedure, and it includes everything that the exporter is
required to do from the receipt of a confirmed order to the realisation, o/s
final payment. Receiving an export order is not difficult, but successfully
and satisfactorily carrying it out is extremely difficult. This is due to the
fact that exporting goods overseas follows the same specific procedure and
is subjec t to legal constraints.
Export trade is governed by legal controls, and as a result, every function
of it is carried out in accordance with specific procedures. The various
procedures that are followed in the export of goods facilitate systematic
export ex ecution.
The export market is more than just an extension of the domestic market.
Aside from basic business principles in both the domestic and foreign
markets, selling abroad necessitates specialised knowledge in areas such
as detailed market surve ys, shi pping, marine insurance, customs and
foreign exchange formalities, and so on. munotes.in
Page 96
Export Marketing Paper - II
96 10.2 REGISTRATION WITH DIFFERENT AUTHORITIES An exporter is required to register his company with a number of
institutions and authorities, which either directly or indire ctly as sist him in
the smooth operation of his export business. Some of the authorities with
which an exporter must register his company are:
(a) Registration of Organisation:
Exporters must register the types of organisations they have chosen to
carry o ut thei r export operations under the appropriate Act of the country,
namely, a joint stock company under the Companies Act of 1956.
Under the Indian Partnership Act of 1932, a partnership firm.
As needed, a sole proprietor should seek permission from the l ocal
authorities.
(b) Opening Bank Account:
Exporters must open a current account in the name of their firms or
companies with a commercial bank that is authorised to deal in foreign
currency transactions by the Reserve Bank of India (RBI). This account
handles all of the exporter organization's financial transactions. Such a
bank can also provide exporters with pre -shipment and post -shipment
financing.
(c) Obtaining Importer -Exporter Code Number (IEC No.):
Prior to.1.199711, it was mandatory for all expo rters t o obtain an
Exporter's Code Number (CNX) from the RBI. However, the CNX
number has since been replaced by the Direct General for Foreign Trade's
Importer Exporter Code (IEC) number (DGFT). The application form for
obtaining an IEC number must be acc ompanie d by a Rs. 1000 fee.
(d) Obtaining Permanent Account Number (PAN):
Export earnings are subject to a variety of exemptions and deductions
under various sections of the Income Tax Act. Exporters must register
with the Income Tax Authorities and obtai n a Per manent Account Number
in order to claim these exemptions and deductions (PAN). PAN is also
required for obtaining an IEC number.
(e) Registration with GST:
Goods manufactured for export as well as those purchased in the local
market for export are complet ely exempt from Value Added Tax and
Central Sales Tax, provided the exporter or his firm is registered with the
Value Added Tax authority of the state in question and obtains exemption
in accordance with the procedures outlined in the relevant Acts. Every
exporter is required to complete GST registration by the appointed date set
by the government of India in 2017. munotes.in
Page 97
97 Export Procedure and Documentation - I (f) Registration with Export Promotion Council (EPC):
Every exporter is required to register with the appropriate Export
Promotion Counc il (EPC ) and obtain the Registration -cum-Membership
Certificate (RCMC). There are currently 21 EPCs dealing with various
commodities. The benefits provided to exporters under the new Foreign
Trade Policy 2009 -2014 are only available to registered exporters with a
valid RCMC.
(g) Registration with Export Credit and Guarantee Corporation of
India (ECGC):
In the international market, exporters face both commercial and political
risks. As a result, in order to protect themselves against such risks,
exporters m ust reg ister with the ECGC. The ECGC also assists exporters
in obtaining financial aid from commercial banks and other financial
institutions.
(h) Registration with other Authorities: Exporters must also register
with a number of other authorities and inst itution s, including:
Federation of Indian Export Organizations (FIFO),
the Indian Trade Promotion Organization (ITPO),
Chambers of Commerce (COC),
Productivity Councils, etc.
10.3 PRE -SHIPMENT PROCEDURE INVOLVED IN EXPORTS Exporters who have been approved under S elf-Certification and IPQO
must submit their applications to the Export Inspection Agency in the
form of a 'Intimation for Inspection.' The Export Inspection Agency issues
the Inspection Certificate based on the performance reports submitted by
EIA officia ls. Units that are not approved under the Self -certification or
IPQC systems must go through the following procedure :
(a) Application to EIA:
The exporter must apply to EIA in the prescribed 'intimation for
Inspection' form (in duplicate) at least 7 days before the expected date of
shipment, along with the following documents:
Copy of export contract;
Copy of letter of credit;
Details of packing specifications;
Commercial invoice demonstrating FOB value of export
consignment; munotes.in
Page 98
Export Marketing Paper - II
98 Crossed cheque/D.D. in fav our of EIA for inspection fees;
Technical specifications of the importer are declared.
(b) Deputation of Inspector:
After receiving the 'Intimation for Inspections,' the EIA dispatches an
inspector to the exporter's factory or warehouse to conduct the pre -
shipment inspection. The exporter must keep the goods ready for
inspection on the day and time specified.
(c) Inspection and Testing:
The inspector conducts random inspections and prepares reports for
submission to EIA. The exporter is responsible for ar ranging for the
inspection facilities. In the absence of such facilities, inspection may be
carried out at private independent laboratories.
(d) Packing and Sealing of Goods:
If the inspector is satisfied with the quality of the goods, he issues an order
for goods packing in his presence. Following packing, the consignment is
marked and sealed with the Export Inspection Service's official seal.
(e) Submission of the Report to EIA and Issue of Inspection
Certificate:
The inspector's report is delive red to the Deputy Director of ElA. If the
report is favourable, the Director of EIA issues a triplicate inspection
certificate.
Customs requires the original copy to be submitted.
A duplicate copy is sent to the importer.
The exporter will keep a triplicat e copy for his records.
(f) The Rejection Problem Note:
If the inspector's report is unfavorable, the Deputy Director of EIA issues
a rejection note.
(g) Appeal against Rejection Note:
The exporter has 10 days from the date of receipt to file an appeal a gainst
the rejection note. When the EIA receives an appeal, it convenes a meeting
of the Appellate Panel. The panel examines the inspection report and, if
necessary, re -examines the consignment. The Appellate panel's decision is
final and binding. Both the export er and the Export Inspection Agency are
to blame.
Thus, marine insurance is used to cover transportation by any of the
modes of transportation listed below, either singly or jointly:
(a) Sea, Si Of land. munotes.in
Page 99
99 Export Procedure and Documentation - I (b) Inland water voyages.
(c) Rail/road.
(d) Air
(e) Post.
It provides insurance or protection for goods in 'transit,' as well as storage
of goods if such storage is incidental to transportation.
10.4 PROCEDURE OF QUALITY CONTROL AND PRE -SHIPMENT INSPECTION 1. Consignment -Wise inspection:
Each consign ment in packed condition is subjected to detailed inspection
by the Export Inspection Agencies under this system. They carry out the
inspection using a statistical sampling plan. They issue the inspection
certificate if the goods meet the specified quality . The certificate also
specifies the time frame within which the export consignment must be
shipped. Actual export consignment in packed condition is taken for
inspection in the case of consignment -wise inspection.
No consignment of any notified com modity may be exported unless
accompanied by a certificate issued by a recognised inspection agency.
Except for commodities subject to in -process quality control, this system
applies to all commodities. Small -scale manufacturers who cannot afford
their own facili ties and personnel typically use a consignment -by-
consignment inspection certificate procedure.
2. In-process Quality Control :
Paints and related products, linoleum, ceramics, printing ink, sanitary
wares, and other commodities fall under the purvie w of in -process quality
control.
Continuous process industries have the option of becoming approved
"export -worthy" units because they have the necessary infrastructure for
manufacturing/processing standard quality products. This status allows
them to cond uct ins pections, make declarations, and receive inspection
certificates based on their declarations.
3. Self-Certification :
The experience gained in operating India's mandatory Quality Control and
Pre-Shipment Inspection Scheme has resulted in a qualitativ e chang e in
the inspection system. A self -certification system was recently introduced.
This is based on the idea that the manufacturing unit, which is in charge of
quality control, should be able to certify its own product for export.
munotes.in
Page 100
Export Marketing Paper - II
100 10.5 SUMMARY Export ers mus t register with the Income Tax Authorities and obtain a
Permanent Account Number in order to claim these exemptions and
deductions (PAN).
The ECGC assists exporters in obtaining financial aid from
commercial banks and other financial institutions.
The Expo rt Inspection Agency issues the Inspection Certificate based
on the performance reports submitted by EIA officials.
Paints and related products, linoleum, ceramics, printing ink, sanitary
wares, and other commodities fall under the purview of in -process
quality control.
10.6 EXERCISE A. Descriptive Questions:
Short Answer :
1. What is the Importer -Exporter Code Number?
2. Describe the term Quality control.
3. Explain in short EPC
4. What is the term known as Pre -shipment?
5. What are the differen t types of channels of distribution in export
markets?
Long Answers:
1. Explain the Registration with GST with list of documents.
2. Explain in detail Consignment control
3. What is the Pre -shipment Inspection?
4. Explain in brief Pre -shipment Procedur e invol ved in Exports
5. Explain the registration with different authorities?
B. Multiple Choice Questions:
1. To protect themselves against such risks, exporters must register with
the …….
a. RBI
b. ECGC
c. RCMC
d. MEDA munotes.in
Page 101
101 Export Procedure and Documentation - I 2. RCMC stands for ……………….
a. Registr ation -cum-Membership Certificate
b. Registration - Certificate -Membership Certificate
c. Registration - cum -Membership cum
d. Registration - Certificate -Membership cum
3. …………… submit their applications to the Export Inspection
Agency in the form of a 'Int imation for Inspection
a. IPQO
b. RCMC
c. FIFO
d. ECGC
4. Exporters must register the types of organisations they have chosen to
carry out their export operations under the:
a. joint stock company under the Companies Act of 1956
b. joint stock com pany un der the Companies Act of 1965
c. joint stock company under the Companies Act of 1955
d. joint stock company under the Companies Act of 1966
5. ……………….. it was mandatory for all exporters to obtain an
Exporter's Code Number (CNX) from the RBI
a. Prior to.3 .199711
b. Prior to.2.199711
c. Prior to.1.199711
d. Prior to.0.199711
Answer: 1- b, 2-a, 3-a, 4-a, 5-c
C. Fill in the blanks:
1. Export trade is governed by ………………controls.
2. ……………. who cannot afford their own facilities and personnel
typically use a c onsignment -by-consignment inspection?
3. A sole proprietor should seek permission from the …………….
authorities
4. Exporters must open a current account in the name of their …………. munotes.in
Page 102
Export Marketing Paper - II
102 5. The exporter must apply to …………….in the prescribed 'intimation
for Inspe ction' form
Answer:
1. legal
2. Small -scale manufacturers
3. Local
4. Firms
5. EIA
D. State whether the following sentence are True / False:
1. The execution of an order received from an overseas buyer is referred
to as the export procedur e
2. The export market is less than just an extension of the domestic
market
3. If the inspector's report is favorable, the Deputy Director of EIA
issues a rejection note.
4. The application form for obtaining an IEC number must be
accompanied by a Rs. 1000 fe e.
5. The exporter has 1month from the date of receipt to file an appeal
against the rejection note.
Answer:
True - 1 and 4
False - 2, 3 and 5
10.7 REFERENCES Export Policy Procedures& Documentation – M. I. Mahajan, Snow
White Publications Pvt. Ltd, 26th Ed ition,
International Business, K. Aswathappa, McGraw -Hill Education
(India) Pvt. Ltd.,6th Edition
Export Import Procedures - Documentation and Logistics, C. Rama
Gopal, New Age International
Publishers, 2006 / Reprint Jan 2016
International Trade and Exp ort Management, Francis Cherunilam,
Himalaya Publishing House, 20th
R. K. Jain's, Foreign Trade Policy & Handbook of Procedures [With
Forms, Circulars & Public Notices], munotes.in
Page 103
103 Export Procedure and Documentation - I EXIM Policy & Handbook of EXIM Procedure – VOL I & II
International Marketin g and E xport Management, Gerald Albaum,
Edwin Duerr, Alexander Josiassen,
Pearson Publications, 8th Edition, June 2016
International Marketing Strategy, IsobelDoole and Robin Lowe, 5th
Edition, Thomson Learning, 2008.
New Import Export Policy - Nabhi Pu blicati ons, 2017
P.K. Khurana, Export Management, Galgotia Publishing Co, New
Delhi
P.K.Vasudeva, International Marketing -, Excel Books, fourth edition,
New Delhi
*****
munotes.in
Page 104
104 11
EXPORT PROCEDURE AND
DOCUMENTATION - II
Unit Structure
11.0 Objectives
11.1 Introduction
11.2 Shipping and Custom Stage Formalities
11.3 Role of Clearing & Forwarding Agent
11.4 Post-shipment Procedure for Realisation of Export Proceeds
11.5 Procedure of Export under Bond and Letter of Undertaking
11.6 Summary
11.7 Exercise
11.8 References
11.0 OBJECTIVES The main purpose of this chapter is:
To discuss about Shipping and Custom Stage Formalities
To understand the Role of Clearing & Forwarding Agent
To explain the Post -Shipment Procedure for Realisation of Export
Proceeds
To outline the Procedure of Export under Bond and Letter of
Undertaking
11.1 INTRODUCTION The execution of an order received from an overseas buyer is referred to
as the export procedure, and it includes everything that the exporter is
required to do from the receipt of a confirmed order to the realisation, o/s
final payment. Receiving an export order is not difficult, but successfully
and satisfactorily carrying it out is extremely difficult. This is due to the
fact that exporting goods overseas follows the same specific procedure and
is subject to legal constraints.
Export trade is governed by legal controls, and as a result, every function
of it is carried out in accordance with specific procedures. The various
procedur es that are followed in the export of goods facilitate systematic
export execution.
The export market is more than just an extension of the domestic market.
Aside from basic business principles in both the domestic and foreign
markets, selling abroad neces sitates specialised knowledge in areas such munotes.in
Page 105
105 Export Procedure and Documentation - II as detailed market surveys, shipping, marine insurance, customs and
foreign exchange formalities, and so on.
11.2 SHIPPING AND CUSTOM STAGE FORMALITIES The shipment of export cargo must be done with the permissio n and
supervision of the customs authorities. They cannot be loaded onto the
ship unless formal permission from the customs authorities is obtained.
The customs authorities grant this permission only if they are satisfied that
the goods being exported are of the same type and value as those declared
by the exporter or his C & F agent, and that the duty, if any, has been
properly calculated and paid.
The custom procedu re can be summarised as follows :
1) Submission of Documents :
For cargo customs clearance, t he exporter or his agent must submit
five copies of the shipping bill, as well as any necessary documents. as
Letter of credit or confirmed export order.
Commercial invoice., Packing list., Certificate of origin., G. R. Form
ARE -1 Form.,
Original copy of certification inspection., (Wherever necessary)
Marine insurance policy.
2) Verification of documents :
The customs appraiser verifies the information contained in each
document and ensures that the exporter has followed all formalities. It is
satisfied; h e issues "A Shipping Bill Number," which is critical from the
exporter's perspective.
3) Carting order :
The exporter's custom house agent approaches the superintendent of the
concerned port trust to obtain a carting order. The cargo is physically
moved ins ide the docks after obtaining the carting order, which is
essentially permission to move cargo inside the docks. An endorsement on
a duplicate copy of the shipping bill is used to issue the carting order.
4) Storing the goods in the sheds :
The goods are mo ved inside the docks after the carting order has been
secured. The goods are then stored in the dock sheds.
5) Examination of goods :
The customs examiner inspects the goods and seals the package in his
presence. If satisfied, the examiner issues a "Let Exp ort" order authorising
the loading of the goods onto the ship. The same procedure is now carried
out using an Electronic Data Interchange (EDI) system. munotes.in
Page 106
Export Marketing Paper - II
106 6) Obtaining ―Let ship order :
The Customs House Agent submits a duplicate copy of the shipping bill,
along with other documents, to the customs preventive offices. If the
customs preventive officer determines that everything is in order, he signs
the duplicate copy of the shipping bill with "Let ship order.”.
7) Loading of goods :
Following receipt of the "Le t ship" order, the goods are loaded onto the
ship, for which the mate of the ship issues a "Mate's Receipt" to the port
superintendent. That is how the mate's receipt reaches the port trust's
office.
8) Payment of port dues :
The exporter's agent then pays the necessary port dues and collects the
mate's receipt.
9) Obtaining Bill of lading :
As the final step, the exporter's agent submits the mate's receipt to the
shipping company whose ship the goods are loaded on. A bill of lading is
issued by the shipping company. The bill of lading is typically issued in
two or three negotiable and non -negotiable copies, as they will be required
on various occasions later on.
11.3 ROLE OF CLEARING & FORWARDING AGENT Their basic function is to provide different range of ser vices to exporters
to ensure smooth and timely shipment of goods. Forwarding and Clearing
Agents play a critical role in determining the mode and route of
transportation. They are the experts who can advise you on the best
shipping line/airline to use. Eve ry exporter is concerned with distribution
logistics to ensure that the goods reach the final buyer on time and at the
lowest possible cost in the condition in which they were sent. The essence
of distribution logistics is the choice of mode of transportat ion. The
clearing agent advises the exporter on the availability of alternative modes
of transport and guides the exporter in making the final decision on the
mode of transport to achieve the lowest possible cost while still meeting
the delivery deadline. They are the experts who can advise you on the best
shipping line/airline to use. Every exporter is concerned with distribution
logistics to ensure that the goods reach the final buyer on time and at the
lowest possible cost in the condition in which they were sent. The choice
of mode of transportation is the essence of distribution logistics. The
clearing agent advises the exporter on the availability of alternative modes
of transportation and guides the exporter in making the final decision on
the mode of transport to achieve the lowest possible cost of transportation.
In addition to these activities, he performs the majority of the functions
associated with exports, such as marking, labelling, and packing of goods,
advising on trade laws, arranging local transportation, and keeping up to
date on transportation developments and claiming duty -drawback claims munotes.in
Page 107
107 Export Procedure and Documentation - II on behalf of the exporter. An efficient clearing and forwarding agent goes
a long way toward making the exporter's journey easier, more
comfortable, and possibly cheaper. Above all, the agents serve as
troubleshooters for exports in the event of movement issues. A true
clearing agent, it is said, can perform all functions except selling goods!
When goods are transported by rail, export consignments must b e assigned
either B or C priority on the Railway Priority Schedule developed by the
Railway Board. The schedule has five priorities, ranging from highest A to
lowest E. As a result, B and C are fairly high priorities.
Customs House Agents, Freight Forward ers, and Shipping Agents are
other names for clearing and forwarding agents.
11.4 POST -SHIPMENT PROCEDURE FOR REALISATION OF EXPORT PROCEEDS The procedure for realising export proceeds is as follows:
(a) Documents to be presented to the bank for negotiatio n:
Following the shipment of goods, the exporter must submit the shipping
documents to an authorised dealer. Within 21 days of the date of shipment
for negotiation, the submission of relevant documents to the bank and the
process of receiving payment from the bank is referred to as "Negotiation
of the Documents," and the documents are referred to as a "Negotiable Set
of Documents." Normally, the set includes:
1. Sight Draft,
2. Bill of Exchange, or
3. Usance Draft.
4. Original Letter of Credit.
5. Customs Invoice.
6. Comm ercial Invoice with one copy duly certified by Customs.
7. Checklist for Packing
8. Forms for foreign exchange declarations, GR/SOFTEX/PP forms in
duplicate.
9. Control copies of the Shipping Bill should be exchanged.
10. Origin Certificate, GSP or APR Certificate, and so on.
11. Duplicate Marine Insurance Policy.
(b) Dispatch of Documents:
The bank negotiates these documents with the importer's bank in
accordance with the terms of the L/C. Before negotiating documents, the munotes.in
Page 108
Export Marketing Paper - II
108 exporter's bank examines them to ensure that all f ormalities have been met
and all documents are in order. The bank then sends the exporter the Bank
Certificate as well as attested copies of commercial invoices.
(c) Acceptance of the bill of exchange:
The Documentary Bill of Exchange is a bill of exchang e that is
accompanied by the above documents. There are two kinds of it:
(d) Documents against Payment (Sight Drafts):
In the case of a sight draught, the drawer instructs the bank to only hand
over the relevant documents to the importer in exchange for p ayment.
(e) Documents against Acceptance (Usance Draft):
In the case of a usance draught, the drawer instructs the bank to deliver the
necessary documents to the importer in exchange for his 'acceptance' of
the bill of exchange.
(f) Letter of Indemnity:
By signing a letter of indemnity, the exporter can receive immediate
payment from his bathe upon submission of documents. By signing the
letter of indemnity, the exporter agrees to indemnify the bank in the event
of non -payment from the importer, including accrued interest.
(g) Realization of Export Proceeds:
When the documentary bill of exchange is received, the importer either
releases payment in the case of a sight draught or accepts the usance
draught with an undertaking to pay on the maturity of the bi ll of exchange.
The payment is received by the exporter's bank via the importer's bank and
credited to the exporter's account.
(h) Processing of GR Form:
When the exporter's bank receives the export proceeds, it notifies the RBI
by recording the fact on t he duplicate copy of the GR. The RBI compares
the information in the duplicate copy of the GB to the information in the
original copy of the GR received from Customs. If the details are found to
be correct, the export transaction is considered complete.
11.5 PROCEDURE OF EXPORT UNDER BOND AND LETTER OF UNDERTAKING Procedure for Export :
1) Under Section 16 of the IGST Act, exports are treated as zero -rated
supplies.
2) Input Tax Credit is available for zero -rated export supplies.
3) An exporter may seek a refund under one of two circumstances: munotes.in
Page 109
109 Export Procedure and Documentation - II I. Export without paying IGST under a bond or Letter of Undertaking
and claim a refund of unutilized input tax credit; OR
II. Export after paying IGST and claiming a refund of such tax.
(Authority: Section 16(3) o f the IGST Act, Rules 96 and 96A of the
CGST Rules.)
After the export manifest or export report is delivered, an application
for refund must be filed electronically on the common portal for
option I.
There is no need for a separate application for optio n II above. The
shipping bill (SB) itself is considered a refund application. Only after
an export manifest or an export report has been filed and the exporter
has provided a valid return in Form GSTR -3 is a refund possible.
4) It is not permissible to cl aim a drawback at composite rates and a
refund of ITC or IGST at the same time under either of the above two
options.
5) However, a drawback of customs portions in conjunction with a
refund of ITC or IGST under either of the preceding two options is
permi ssible.
Bond/Letter of Undertaking :
1) The bond/LUT must be submitted in Form GST RFD – 11.
(enclosed).
2) The bond must be presented on non -judicial stamp paper of the
appropriate value for the state in which it is presented.
3) The bond pays the tax associated with the export.
4) Exporters can provide a running bond for the amount of tax liability
estimated by the exporter. The value of the remaining bond can be
increased later by providing additional bond.
5) The bank guarantee should normally not be more than 15% of the
bond amount.
6) Depending on the exporter's track record, the Commissioner may
waive the bank guarantee or reduce the amount of the BG.
7) The LUT can be submitted in lieu of a bond by: I. a status holder; OR
II. a registered pers on who received remittances of at least 10% of
export turnover (but not less than Rs.1 crore) in the previous fiscal
year.
III. The registered person has not been prosecuted under the CGST Act or
any other existing law for tax evasion in excess of Rs. 2.5 crore.
8) The LUT must be signed on the letterhead of the registered person by
the working partner, the managing director, the company secretary, or munotes.in
Page 110
Export Marketing Paper - II
110 the proprietor, or by a person duly authorised by such working partner
or the board of directors of such company or proprietor.
9) The bond/LUT must be accepted by the jurisdictional DC/AC with
jurisdiction over the exporter's principal place of business.
10) For the time being, the exporter is free to file the bond/LUT with the
central tax authority or th e state tax authority.
11) The LUT must be valid for a period of 12 months.
12) Bond/LUT in Form RFD -11 may be submitted manually to the
jurisdictional DC/AC until the module for submission is available on
the common portal.
11.6 SUMMARY Forwarding and Cl earing Agents play a critical role in determining the
mode and route of transportation.
The clearing agent advises the exporter on the availability of
alternative modes of transportation and guides the exporter in making
the final decision on the mode of t ransport.
Customs House Agents, Freight Forwarders, and Shipping Agents are
other names for clearing and forwarding agents.
The LUT must be signed on the letterhead of the registered person by
the working partner, the managing director, the company secreta ry, or
the proprietor, or by a person duly authorised by such working partner
or the board of directors of such company or proprietor.
11.7 EXERCISE A. Descriptive Questions:
Short Answers:
1. Explain the bill of lading.
2. What is the Marine Insurance P olicy?
3. Explain the word Export trade.
4. Explain the custom stage
5. What is the Letter of Undertaking?
munotes.in
Page 111
111 Export Procedure and Documentation - II Long Answers:
1. What is the Procedure of Export under Bond?
2. Explain the advantages of Export trade.
3. Explain the procedure of custom stag e
4. What is a role of Clearing & Forwarding Agent?
5. What is the procedure for realising export proceeds?
B. Multiple Choice Questions:
1. The submission of relevant documents to the bank and the process of
receiving payment from the bank is referred to as "
a. Original Letter of Credit
b. Commercial Invoice
c. Bill of Exchange
d. Negotiation of the Documents
2. …………. Tax Credit is available for zero -rated export supplies
a. Output
b. Input
c. Indirect
d. Direct
3. The LUT must be valid for a period of ………….
a. 12 months
b. 6 months
c. 3 months
d. 2 years
4. The export market is more than just an extension of the ………….
market.
a. domestic
b. import
c. online
d. industry
munotes.in
Page 112
Export Marketing Paper - II
112 5. EDI stands for:
a. Electronic Document Interchange
b. Electronic Dock s Interchange
c. Electronic Data Interchange
d. Electronic Database Interchange
Answer: 1-d , 2-b, 3- a, 4-a, 5-c
C. Fill in the blanks:
1. Control copies of the Shipping Bill should be ………………
2. Under Section 16 of the IGST Act, exports are treated as …………….
supplies
3. The goods are moved inside the docks after the carting order has
been…………….
4. The goods are loaded onto the ship, for which the mate of the ship
issues a "…………" to the port superintendent.
5. The bond pays the tax associated with th e ……………
Answer:
1. exchanged 2. zero -rated 3. Secured 4. Mate's Receipt 5. export
D. State whether the following sentence are True / False:
1. Under Section 17 of the IGST Act, exports are treated as zero -rated
supplies
2. The shipment of export cargo must be done with the permission and
supervision of the customs authorities
3. The bond must be presented on non -judicial stamp paper of the
appropriate value for the state in which it is presented
4. The cargo is technically moved inside the docks after obtaining the
carting order
5. The customs examiner inspects the goods and seals the package in his
presence
Answer:
True - 2, 3 and 5
False - 1and 4 munotes.in
Page 113
113 Export Procedure and Documentation - II 11.8 REFERENCES Export Policy Procedures& Documentation – M. I. Mahajan, Snow
White Publications Pvt. Ltd, 26th Edition,
International Business, K. Aswathappa, McGraw -Hill Education
(India) Pvt. Ltd.,6th Edition
Export Import Procedures - Documentation and Logistics, C. Rama
Gopal, New Age International
Publishers, 2006 / Reprint Jan 2016
International Trade and Export Management, Francis Cherunilam,
Himalaya Publishing House, 20th
R. K. Jain's, Foreign Trade Policy & Handbook of Procedures [With
Forms, Circulars & Public Notices],
EXIM Policy & Handbook of EXIM Procedure – VOL I & II
International Marketi ng and Export Management, Gerald Albaum,
Edwin Duerr, Alexander Josiassen,
Pearson Publications, 8th Edition, June 2016
International Marketing Strategy, IsobelDoole and Robin Lowe, 5th
Edition, Thomson Learning, 2008.
New Import Export Policy - Nabhi P ublications, 2017
P.K. Khurana, Export Management, Galgotia Publishing Co, New
Delhi
P.K.Vasudeva, International Marketing -, Excel Books, fourth edition,
New Delhi
***** munotes.in
Page 114
114 12
EXPORT PROCEDURE AND
DOCUMENTATION - III
Unit Structure
12.0 Objectives
12.1 Introduction
12.2 Importance of Commercial Invoice cum Packing list
12.3 Bill of Lading / Airway Bill
12.4 Shipping Bill / Bill of Export
12.5 Consular Invoice
12.6 Certificate of Origin
12.7 Summary
12.8 Exerc ise
12.9 References
12.0 OBJECTIVES The main purpose of this chapter is:
To discuss the Importance of - Commercial Invoice cum Packing list
To explain Bill of Lading/ Airway Bill
To understand Shipping Bill/Bill of Export
To analyse Consular Invoice
To understand Certificate of Origin
12.1 INTRODUCTION Every export shipment must include a number of documents. They play a
vital role in international trade. In the absence of shipping documents, a
foreign buyer may have difficulty clearing the goods, or he may be
required to pay a higher rate of import duty. As part of the sales contract,
the buyer and seller must agree on their documentary requirements. In
fact, the buyer specifies his documentary needs in the letter of credit. It is
the seller's responsibi lity to carefully review the types of documents
required by the overseas buyer and arrange them accordingly. He is also
required to prepare the necessary documents as required by his country's
foreign exchange and customs authorities.
An exporter must subm it a complete set of shipping documents for
negotiation to his bank. He is responsible for arranging shipping
documents required by customs authorities in his country as well as
documents required by the buyer's country. The buyer's documentary munotes.in
Page 115
115 Export Procedure and Documentation - III requirement is typically included in the letter of credit. The exporter must
submit the necessary documents, known as a "full set of shipping
documents," to his bank within 21 days of the date of shipment of goods.
12.2 IMPORTANCE OF COMMERCIAL INVOICE CUM PACKING LIST A commercial invoice is a statement of account prepared on the seller's
letterhead and sent by the seller to the buyer. It is a bill of lading for goods
shipped by an exporter.
The basic document in an export transaction is the commercial invoice.
All o ther documents are created using the information contained in the
commercial invoice. It includes information such as the description of the
goods, the price charged, the term of shipment, and the markings and
numbers on the packages containing the merchan dise. It is the seller's bill
for goods that contains all of the details about the consignment.
The commercial invoice should include the following information:
a) The exporter's and importer's names and addresses.
b) The description of the goods, such as quality, quantity, weight, and so
on.
c) The value of the goods, less any discounts.
d) The importer's net payable amount.
e) Sale terms and conditions
f) The exporter's signature.
Other shipment details to include are :
g) The ship's name
h) The l etter of credit number.
i) The export's import -export license number.
j) Bill of Lading No.
k) Packaging specifications and marketing
l) Package identification marks
m) The number and date of the shipping bill .
n) Shipping and handling terms and con ditions.
o) Freight charges and the cost of marine insurance.
p) Any additional information that may be required. munotes.in
Page 116
Export Marketing Paper - II
116 12.2.1 Importance of Commercial Invoice:
The commercial invoice is essential for both the exporter and the importer.
Importance to the Expor ter:
1) Payment collection :
A commercial invoice is the exporter's bill that must be paid by the
importer. It gives the exporter the ability to collect payment from the
importer.
2) Quality Control Inspection :
A commercial invoice copy must be submitted to the E xport Inspection
Agency (EIA).
3) Customs Clearance :
A copy of the commercial invoice must be submitted to customs for
clearance at the point of shipment.
4) Documentary Proof :
It can serve as documentary proof in the event of a dispute between the
exporter and the importer over the amount payable by the importer or any
other issue.
5) Preparation of other documents :
The commercial invoice assists the exporter and his agent in preparing
other documents, such as the shipping bill, based on the commercial
invoice.
6) Claiming of Incentives :
The exporter must provide a copy of the commercial invoice in order to
claim incentives such as DBK, Excise Refund, and so on.
7) Recording and Filing:
The exporter must keep a copy of the commercial invoice for the purpose
of recording a nd filing for future reference.
12.3 BILL OF LADING / AIRWAY BILL A bill of lading is a document issued by the shipping company when the
goods are shipped. It is an agreement between the shipper (exporter) and
the shipping company for the carriage of goods to the destination port. It is
a document of title to goods, and as such, the importer is required to clear
the goods at the port of destination.
A bill of lading is a document that certifies ownership of the goods. It is
issued by the shipping company an d serves as a receipt from the shipping munotes.in
Page 117
117 Export Procedure and Documentation - III company, which has agreed to deliver the goods at the agreed -upon
destination in exchange for freight payment.
A Bill of Lading contains are the following :
a) The shipping company's name.
b) The shipper's and expor ter's name and address.
c) The importer's or agent's name and address.
d) The vessel's name.
e) Voyage number and departure date
f) The names of the ports of discharge and shipment.
g) Quantity, quality, marks, and other details.
h) The total number of packages.
i) Whether or not the freight is paid or payable.
j) The number of originals distributed.
k) The date the goods were loaded onto the ship.
l) The issuing authority's signature.
In a nutshell, a bill of lading is a contract between the ship per and the
shipping company for the transportation of goods to the port of
destination. It is an acknowledgment that the goods accepted for
transportation are in good order and condition.
12.3.1 Importance of Bill of Lading:
I) The Exporter's Reliance on BL:
a) A bill of lading is a legally binding document. In the event of a
dispute, it can be brought before a court of law.
b) It is a transportation contract.
c) It is a formal acknowledgement of the receipt of goods on board the
ship.
d) It allows the exporter to send a shipment notification to the buyer.
e) It assists the exporter in filing a compensation claim if goods are
damaged in transit.
f) It assists the exporter in calculating the precise amount of freight
when submitting a CIF quotation.
munotes.in
Page 118
Export Marketing Paper - II
118 II) Importance of BL to the Importer :
a) It is a document of title to goods, and as such, he can claim
possession.
b) It is a semi -negotiable document, which means that its ownership can
be transferred through endorsement and delivery.
c) It allows him t o pa y the correct freight amount under the FOB
contract.
III) Importance of BL to the shipping company :
a) It makes it easier for the shipping company to collect the freight from
the shipper or importer.
b) It protects the shipping company in the sense t hat goods damaged
prior to loading on the ship are documented in the bill of lading.
12.4 SHIPPING BILL / BILL OF EXPORT The Shipping Bill is the primary document upon which customs
permission for export is granted. It is a multipurpose document that can b e
used as an application for export of goods, as a dock challan, and to claim
duty drawback and other export incentives.
The shipping bill includes a description of the goods as well as other
details such as.
a) The exporter's name, address, and IEC code
b) The ship's or vessel's name
c) Agent's name
d) Goods description
e) Package and marketing details
f) The item's monetary value.
g) The port of discharge.
h) Additional information, if any.
The main customs document is the shipping bill. It is r equire d by customs
authorities in order for them to grant permission for the shipment of
goods.
In general, the shipping bill is prepared in five copies:
a) Customs copy,
b) Drawback copy,
c) Export Promotion copy, munotes.in
Page 119
119 Export Procedure and Documentation - III d) Port Trust copy, and
e) Expo rts co py.
12.5 CONSULAR INVOICE The importer may request that the invoice be certified by the consulate of
his own country stationed in the exporter's country. The consular invoice
is a certified copy of the commercial invoice.
The council of the importing count ry stationed in the exporting country
issues a consular invoice. This is obtained by the exporter to ensure that
the goods are cleared as soon as the ship arrives. It is necessary to
persuade customs authorities that opening the packages and inspecti ng the
goods is necessary for calculating customs duty. If this is done, there will
be a significant delay and many hardships. To avoid this, a consular
invoice is obtained by submitting an application on a prescribed form to
the relevant consulate. It is usuall y prepared in triplicate, with one copy
sent to the customs authorities of the importing country and the third copy
given to the exporter to forward to the importer along with other
documents.
A consular invoice is a certificate issued by the Trade C onsula te of the
importer's country stating that goods of a specific value are being imported
from a specific country by a specific importer.
Importance of Consular Invoice to the Exporter
a) It makes it easier to clear goods through customs.
b) When the invoi ce is signed by the consulate of the importing country,
the exporter is assured that his goods will enter the buyer's country
without difficulty.
c) The exporter's interests are well protected. He can easily realise
foreign exchange against shipment .
Impo rtance of consular Invoice to the importer :
a) The importer receives goods quickly and without having to open the
containers for verification.
b) Goods are delivered promptly following the calculation of duty in
accordance with the consular invoice recei ved.
c) The importer can be confident that no prohibited goods will be sent.
Importance of consular invoice to the customs office :
a) Customs officials' jobs have become simpler and faster. Goods are
quickly cleared.
b) Duty calculation is possibl e base d on the consular invoice received.
This means that physical verification is no longer necessary. munotes.in
Page 120
Export Marketing Paper - II
120 c) There is no need to open the cargo to calculate the value of the goods.
Time is saved, and goods are not repackaged.
12.6 CERTIFICATE OF ORIGIN Certain co untries require importers to obtain a certificate of origin from
the exporter, certifying the origin of goods, without which import
clearance is denied. This certificate may be included as part of the
commercial invoice. This certificate is issued by a cha mber of commerce,
a trade association, or another appropriate authority.
Some countries, such as those in the Middle East and the Gulf, require a
certificate of origin attested by their consulate in India.
The certificate of origin (COO) certifies th at the goods being exported
were made in a specific country.
Certificate of Origin Contents
a) Goods description, quantity, and value. b) Number of packages and
markings on them.
c) The shipper's declaration
d) The issuing authority's certificate
Types of Certificates of Origin:
The certificate of origin is of three types such as:
1) Certificates for clearance :
All countries require these certificates for importers to clear goods. Trade
associations and chambers of commerce typically issue them. The export er
provides information in the prescribed form, submits a copy of the
commercial invoice, and pays the applicable fees. The chamber of
commerce issues a certificate of origin based on all of these documents.
2) Certificates for availing concessions under GSP :
These certificates are required to obtain concessions under the Generalized
System of Preferences (GSP). These certificates must be obtained in three
copies. Certain agencies in India, such as the Export Inspection Council,
the Central Silk Board, the Jut e Comm issioner, and others, are authorised
to issue GSP certificates.
3) Certificate for availing concessions under common wealth
preference (CWP) :
The above -mentioned organisations have the prescribed form of such a
certificate of origin. The Government of I ndia h as authorised these
organisations, through their regional offices, to issue certificates of origin
required for exports to preferentially treated countries under the CWP. munotes.in
Page 121
121 Export Procedure and Documentation - III 12.7 SUMMARY A commercial invoice is a statement of account prepared on the
seller's letterhead and sent by the seller to the buyer.
A commercial invoice is the exporter's bill that must be paid by the
importer.
A bill of lading is a document issued by the shipping company when
the goods are shipped.
The Shipping Bill is a multipurpo se doc ument that can be used as an
application for export of goods, as a dock challan, and to claim duty
drawback and other export incentives.
The consular invoice is a certified copy of the commercial invoice.
A consular invoice is a certificate issued by the T rade Consulate of
the importer's country stating that goods of a specific value are being
imported from a specific country by a specific importer.
12.8 EXERCISE A. Descriptive Questions:
Short Answers:
1. Clause Bill of lading
2. Explain in short Commer cial Invoice
3. Explain the Certificate of Origin.
4. Container bill of lading
5. Consular invoice
Long Answers:
1. Explain the types of Certificate of origin.
2. Enlist the important types of Bill of Lading
3. Write Importance of Commercial In voice.
4. Distinguish between Certificate of Origin and Consular Invoice
5. Explain the importance of shipping bill.
munotes.in
Page 122
Export Marketing Paper - II
122 B. Multiple Choice Questions:
1. ……………… is a bill of lading for goods shipped by an exporter.
a. Commercial invoice
b. Shipping Bill
c. Ai rway Bill
d. Consular Invoice
2. ……………… certificate is issued by a chamber of commerce, a
trade association, or another appropriate authority
a. certificate of origin
b. Consular Invoice
c. Airway Bill
d. Consular Invoice
3. ……………….is a documen t issu ed by the shipping company when
the goods are shipped.
a. certificate of origin
b. consular invoice
c. shipping bill
d. bill of lading
4. …………. is a document of title to goods, and as such, which can
claim possession?
a. BL to the Importer
b. BL to the Exporter
c. BL to the shipping company
d. BL to the industry company
5. EIA stands for:
a. Export Industry Agency
b. Export Insurance Agency
c. Export Inspection Agency
d. Export Import Agency
Answer: 1-a , 2-a, 3- d, 4-a, 5-c munotes.in
Page 123
123 Export Procedure and Documentation - III C. Fill in the blanks :
1. Shipping bill is a multipurpose document that can be used as an
application for ……………of goods
2. The ……………Bill is the primary document upon which customs
permission for export is granted
3. The ……………….is essential for both the exporter and th e impo rter
4. A ………………is a certificate issued by the Trade Consulate of the
importer's country
5. The council of the importing country stationed in the exporting
country issues a …………….
Answer:
1. Export 2. Shipping 3. Commercial invoice 4. Consular inv oice 5 .
Consular invoice
D. State whether the following sentence are True / False:
1. Every export shipment must include a number of documents.
2. A bill of lading is a document that certifies customer of the goods
3. Time is saved, and goods are not r epacka ged in consular invoice to
the customs office
4. The consular invoice is a certified copy of the Consular Invoice.
5. A bill of lading is a legally binding document
Answer:
True 1,3 and 5 False - 2 and 4
12.9 REFERENCES Export Policy Procedures& Do cument ation – M. I. Mahajan, Snow
White Publications Pvt. Ltd, 26th Edition,
International Business, K. Aswathappa, McGraw -Hill Education
(India) Pvt. Ltd.,6th Edition
Export Import Procedures - Documentation and Logistics, C. Rama
Gopal, New Age Internati onal
Publishers, 2006 / Reprint Jan 2016
International Trade and Export Management, Francis Cherunilam,
Himalaya Publishing House, 20th munotes.in
Page 124
Export Marketing Paper - II
124 R. K. Jain's, Foreign Trade Policy & Handbook of Procedures [With
Forms, Circulars & Public Notices],
EXIM Policy & H andboo k of EXIM Procedure – VOL I & II
International Marketing and Export Management, Gerald Albaum,
Edwin Duerr, Alexander Josiassen,
Pearson Publications, 8th Edition, June 2016
International Marketing Strategy, IsobelDoole and Robin Lowe, 5th
Edition , Thom son Learning, 2008.
New Import Export Policy - Nabhi Publications, 2017
P.K. Khurana, Export Management, Galgotia Publishing Co, New
Delhi
P.K.Vasudeva, International Marketing, Excel Books, fourth edition,
New Delhi .
*****
munotes.in