Rural Marketing report

On
← “HOW TO DO EXPORT
IN INDIA”

SUBMITTED BY

V. ARUNKUMAR [05]

ROLL: NO: 05

FINANCE-2

DATE: 23rd MARCH 2009

1
 TABLE OF CONTENTS

S.NO TABLE OF CONTENTS PAGE

1 EXECUTIVE SUMMARY 4

2 EXPORT 5

3 BASIC STEPS OF EXPORT 5

4 PROCESS INVOLVED IN EXPORTING 11

5 FIND OVER-SEAS BUYERS 12

6 HIRE THE RIGHT DISTRIBUTORS 14

7 PREPARE GOODS FOR DELIVERY 17

8 GET PAID 20

9 FLOW CHART 26

10 CONCLUSION 27

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 EXECUTIVE SUMMARY

Several sources point to a thriving system of international trade that linked the

ports of Southern India with those of Ancient Rome. "Not a year passed in which

India did not take fifty million sesterces away from Rome", wrote Pliny.. The use of

printing blocks in India may go as far back as 3000 B C, and some historians are

of the view that India may have been the original home of textile printing. Marco

Polo recorded the export of Indian textiles to China and South East Asia from

Andhra and Tamil ports in the "largest ships" then known. India also seems to

have been the first country of the Indian Ocean to possess a real Navy. An

extensive trade flourished between India and the Arab world, with the Portuguese

and the East India Trading Companies becoming very active after the 16th C.

However, protectionist barriers in Europe, Europe's monopolization of India's

external trade and colonization coupled with unfair trade practices led to a

precipitous decline in both trade and manufacturing after the 18th century. So, I

would like to take this golden chance to give some useful tips to future

Entrepreneurs about the process of doing Export in INDIA.

Exporting:

Since India is such a large county, with so much diversity, "exporting", is just like

selling in India! The basic steps are almost the same.

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BASIC STEPS:

Difference in Exporting:

Exports are often done through "intermediate players" in each country, not

directly to end-users:

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In most countries, “imports” are generally handled by “local agents” (on

commission basis). Another way in which imports are generally handled is by

“importer-distributors”, who buy (with their own money) from the exporters of

other countries, and resell to end-users in their country. These intermediate

players know the market and have contacts with the end-users.

It many seem that having another “distribution layer” between we and our end-

users will increase the cost and be bad for sales. However, good local agents and

distributors are actually very valuable when we are going in for export. Because of

their experience and knowledge in the local market, they are able to develop and

send we sales orders, arrange for payment, prepare required import documents,

and clear the delivered goods through customs and other import formalities.

Many are equipped to stock, install and service the goods too. The end-users

know and prefer to deal with these local agents and distributors, rather than buy

direct from we or other foreign suppliers.

As a new exporter, our best option is to find good agents or distributors to

represent us abroad. This is the best way to start off, at least in the beginning.

Exports usually involve an exchange of currency to pay for the purchase:

The importer pays in his local currency. However, exchange rates between

currencies are constantly fluctuating. If, after he pays us, the value of his

currency reduces with respect to our currency, we will loose money! To protect

against exchange rate fluctuations, we should quote our selling price in a strong

currency. We could also quote our selling price in “Rs.” That way, we get the full

amount we quoted, regardless of currency fluctuations.

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However, this is not always possible. If all our competitors are willing to except
payment in the local currency then we have no option but to do the same. This is
generally the case in a “sellers market” where there is a lot of competition.

Exports sales use different payback methods:

Exporters usually receive payment through a process handled by banks in our

country and the importer's country. The most common method is called the
“Letter Of Credit”. It insures prompt payment with minimal free. It’s a very simple
concept; the importer gives the money in advance to his local bank. The
importer’s bank sends these funds to a bank in our country, which pays us, the
exporter, when the goods are delivered. We can also purchase “export credit
insurance” to reduce risks of non-payment.

Different laws and business practices exist in other countries:

Trade, monetary policy; pricing, distribution and promotion; treatment of
intellectual property; health, safety and technical standards, etc. are different
from country to country. These laws and practices affect what we're allowed to do
and what we are not allowed to do.

Although many practices are “business friendly” and similar to those in our

country, some are obstacles and risks for exporters. It's best to research each

country and look for advice from an international firm if needed.

Linguistic, Demographic and environmental Variations:

These differences, if ignored, can break our sales efforts abroad. Take care not to

offend our foreign customers in the words, symbols and body language we use in

our advertising and promotion material and business negotiations.

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In addition, our products must "fit" the market environment -- the climate,

terrain, sizes of people and things, consumer tastes and preferences, etc.

Exports are subject to customs duties and taxes in the importing countries:

The above explanation must have given we a basic idea about what exporting is

all about. However, many companies choose not to export because of certain

"wrong ideas" or myths they have about exporting. Let us confirm that we do not

have these wrong ideas...

Many companies do not export at all. Other companies do not export as much as

they can. Why do so many companies not export? The usual reason is "I'm

satisfied with the domestic market" or "I'm too busy with the domestic market to

think about exporting." That's understandable in a very large market like India.

However, this is a shortsighted view. In effect, these companies are saying "I'm

not interested in the additional sales and good profits!" Yet, if asked whether they

would not go for a sales order because it came from abroad, many answer, "Of

course not!"

Mainly, people do not export because of fear and ignorance, ”I'm too small", "I

can't afford it", "I can't compete", "It's too risky", "It's too complicated." These are

myths and misconceptions. All these can be overcome.

I'm Too Small to Export

"Only large firms with name recognition, ample resources, and export

departments can export successfully."

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False! The vast majority of exporting firms in most countries are small and

medium-sized enterprises (SMEs). Many have less than 50 employees. It's true

that large firms typically account for a huge part of the total exports, but SMEs

dominate the world’s exporting population.

I Can't Afford to Export

"I don't have the money to hire people, market myself abroad, or expand

production if I get new export business."

Not true! There are low-cost ways to market and promote abroad, handle new

export orders, and finance. These don't require hiring new staff or setting up an

export department. At little or no cost, for example, we can get product and

country market research, worldwide market exposure, generate trade leads, and

find qualified overseas distributors to represent we.

I Can't Compete Overseas

"My products are unknown and my prices too high for foreign markets."

Since we are an Indian company, this is most likely NOT the case. The Indian

industries are able to produce goods at a much lower cost as compared to

companies in other countries around the world. The products sold in India, are

sold at a fraction of the cost at which they are sold worldwide.

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This is because, for a company to be successful in India it has to come up with

ways to reduce the cost of the product it is selling. Until very recently a large part

of India did not have a very high buying capacity. Because of this, if a product

was to be sold all over India, the companies here had to innovate and lower the

prices so that the product will not be too costly for the people.

Don't assume our price is uncompetitive. Our products could still be a bargain in

strong-currency countries, even after adding overseas delivery costs and import

duties.

So most of the products manufactured in India are very cost competitive as

compared to products manufactured in most other countries.

Besides that, the world is large, with varied needs and interests. If our product is

popular in the domestic market, it might be wanted somewhere else in the world!

What makes our product sell in the home market can help it sell abroad! Price is

important, but it is not the only selling point. Other competitive factors are need,

utility, quality, service, credit, consumer taste - these may override price.

Exporting is Too Risky

"I might not get paid. I might break a law I didn't know about."

Not likely! Selling anywhere has risks. But doing the right things can reduce the

risk. There are a number of insurance programs that help us safeguard against

the risk involved in exporting. Besides that, as explained earlier, the Letter Of

Credit etc. can be used to insure payment when exporting.

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Exporting is too complicated

"Exporting is too complicated; I don't know how."

Wrong! We don't need to be an expert to export. Almost all the complicated parts

of exporting can be outsourced. There are Export Management Companies

(EMCs), overseas agents and distributors, who can represent us, find overseas

customers, present us with sales orders, handle all the export paperwork, and

deliver the goods. We fill the orders and get paid for the sale. We pay them a fee or

commission.

PROCESS INVOLVED IN EXPORTING:

Having decided which country we are going to export to, doing the required

market research and finally developing a "market entry plan" for the country as

explained in the previous sections, the next step is to actually export.

Here I have provided a step-by-step guide to actually exporting the goods. In the

next few pages, we will learn to:

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FIND OVER-SEAS BUYERS:

Finding the agents or distributors for each market is crucial. We need good

overseas business partners to generate sales. Agent/distributor selection is

especially important. A poor sales rep. could seriously hamper us in good

markets. Therefore, we want to choose carefully.

Here are techniques for finding "interested buyers" and "qualified agents and

distributors".

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Find Potential Buyers

We can't assume that the buyers will find us. We need to search for our own

leads.

The best leads are the “first-hand leads” we uncover on foreign business trips or

that our overseas reps. find for we. These leads are also more costly to develop.

If we don't have overseas reps. or can't afford overseas sales trips, give the

"second-hand" leads a try. Second hand leads, are those we find out about by

reading on the internet, though magazines etc. They're often very good leads too.

However, since our competitors can learn about them too, we MUST follow up

quickly on these leads.

Some of the best leads are for “development projects” still in the planning stage.

These future projects offer opportunities for equipment, supplies and services of

all kinds. They often have government support and financing.

Find Potential Agents/Distributors

Finding and keeping good overseas reps. is a four-step process:

1. Identify and contact prospects in each market

2. Screen and select the best prospects

3. Contractually appoint the selected reps

4. Support the reps over time.

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Step 1: Contact and Screen Prospective Reps

First impressions count, so what we say first is very important.

The initial message should convey:

• Basic facts about our company and products

• Our market objectives

• The qualifications we seek in a potential rep

• What the rep could expect from we (pricing, payment terms, delivery,

promotional support, etc.)

We should respond promptly to all serious responses, try to answer all questions

as fully as possible, and provide product information etc. Do use discretion in

sending costly product samples, especially if they could be easily copied. Product

samples should be reserved for the top prospects.

Once we've located some prospects, how can we tell

who's best?

The key is to know what we want in a rep. We should identify the qualifications

needed for effective representation. The requirements may vary by product, but

five basic qualities are fundamental:

Experience: a rep with a solid track record as an agent or distributor; expertise

in the product area; and strong connections in the user community.

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Capability: a rep who can market and support the products in the way required

(e.g., promote the product, train users, install and service equipment)

Motivation: a rep who is enthusiastic about the product and able and willing to

give it priority

Loyalty: a rep who would not desert we for a competitor or represent a firm with

a competing product

Honesty: a rep with a good reputation in the industry and good bank and trade

references

When finding our rep. make sure we know the following background information

on each prospect:

 Current status and history, including background on principal officers.

 Personnel and other resources (sales people, warehouse and service

facilities, etc.).

 Sales territory covered.

 Current sales volume.

 Typical customer profiles.

 Names and addresses of foreign firms currently represented

 Trade and bank references

 Capability to meet our special requirements

 Opinion on the market potential for our products

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Don't hesitate to ask prospects for this information. They'll respond if they want

our business. Of course, don't go by what they say alone. A face-to-face meeting

with top prospects is also wise at some point, preferably at their premises for a

first-hand evaluation.

Select and Appoint the Best Reps

Once we've identified the best prospects, we should formalize the appointment

with an “agent/distributor agreement”. These agreements clearly specify the

terms of the relationship and the responsibilities of each party.

The “agent/distributor agreement” should cover the following:

• Products covered

• Territory covered (e.g., country)

• Degree of exclusivity

• Minimum sales/purchase obligations

• Responsibilities for marketing, promotion, shipping

• Responsibilities for technical support, training, after-sales Service.

• On-hand inventory requirement

• Allocation of expenses

• Terms of commission/payment

• Handling of complaints and disputes (e.g., arbitration)

• Conditions of termination

These points are negotiable. Aim for a mutually beneficial agreement that
motivates the rep and protects our interest. The rep will also ask us to respond
promptly to orders, deliver the product on time, pay the agreed commission,
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provide training or other specified support, and pay a fair share of any joint
marketing and promotion expenses. These are reasonable conditions. In turn, we
should seek the following commitments from the rep:

• To apply the utmost skill and ability to the sale of our products

• To effectively perform the marketing, promotion and support tasks we

specify

• To meet any performance goals we specify (e.g., sales volume and growth)

• Not to handle competing lines

• Not to disclose confidential information about our company and products

• Not to bind we to agreements without our prior approval

Please Note: It's also very important to have an “escape clause” in the agreement.

We need the flexibility to change our rep. if the rep doesn't perform as agreed.

Most agreements specify a specified duration (usually one year), with automatic

annual renewal, unless either party opts to terminate. Typically, advance notice is

required for termination (e.g...30, 60 or 90 days) however, some countries limit

termination rights in order to protect local businesses. Without an enforceable

termination clause, we might have to retain a poor performer longer than we

want, or pay a high fee to end our relationship with our rep. We should consult

an internationally experienced attorney before signing any agent or distributor

agreement.

Support Our Overseas Reps

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Good reps need our co-operation and support as much as we need theirs. Treat

them as we would our domestic sales force. Prices, terms and commissions

should be reasonable. At the least, we should:

• Alert our reps to planned changes to the product line, pricing and

delivery

• Respond promptly to their calls and correspondence

• Provide product training and customer support as needed

• Consider help with promotions, including cost sharing for trade shows

and media ads.

• Deliver the goods when and as promised

Basic Rules

Reply quickly or not at all: Delay implies lack of interest to the prospect's needs.

Also, MOST IMPORTANTLY, delays give competitors more time to win the

business. Use E-mail, fax, airmail or express delivery as appropriate.

Answer all questions: The inquirers may ask many questions, but should not

have to ask the same questions twice. If one of our standard letters answers the

questions, send the letter. If not, revise the letter to answer the questions.

Use a business-like tone: Impersonal letters and responses don't make a good

impression. Edit our letter and make it specific to the inquirer. Be friendly and

courteous, but avoid slang or informal responses. Include name, title and contact

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information in all correspondence (phone, fax, E-mail and Web address). Print all

letters on company letterhead.

Reply in the language specified: Most inquiries are in English. Some are in the

author's language but ask for a reply in English. If the inquiry is not in English,

have it translated so it’s clear what the prospect wants. Translate the response if

requested. Commercial translators will do this for a fee. Some colleges and

universities also offer translation services.

Enclose product brochures, price lists and other information: Use our materials to

answer most questions, so that the next communication will be a request for

quote!

Handling Requests for Information and Price Quotes

Handling requests for information and price quotes. As inquiries lead to interest,

prospects will send us a “Request for Quote”. Our “Export Quotation” in response

should cover all costs to produce and deliver the goods, plus ancillary fees and

markup.

Although formats can vary, “export quotation invoices” or “Performa invoices”,

cover the following points:

• Date prepared
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 • Exporter's name, address and telephone/fax/telex numbers

• Buyer's name and address

• Buyer's reference number and date of inquiry

• List and brief description of requested products

• Price of each item

• Trade discount, if applicable

• Country of origin of the goods

• Gross and net shipping weight (in metric units where appropriate)

• Total cubic volume and dimensions (in metric units as needed) packed for

export

• Delivery point

• Terms of sale

• Payment terms and method, including currency to be used for payment

• Insurance and shipping costs, specifying who will pay

• Total charges to be paid by customer

• Estimated date of shipment arrival

• Any other terms of the proposed sale

• An explicit expiration date for quotation

When we and the buyer have agreed on the final price and terms, a “Commercial

Invoice” is used for billing.

A commercial invoice lists the quantity, weight, unit price, and total price of each

item exported, along with other basic information about the transaction (such as
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the address of the shipper and seller, and the delivery and payment terms). The

buyer needs the invoice to prove ownership and to arrange payment. Some

governments use the commercial invoice to assess customs duties.

To move the goods overseas, we'll need to pack, label, document, insure, and ship

them. Some of this preparation is to protect the goods from damage, theft, or

delay in transit.

Some actions are legally required, either by the exporting or importing country.

Packing for Export

Exported goods face greater physical risks on route than domestic shipments.

They're more vulnerable to breakage, theft, and damage. At some ports, goods

may be loaded or unloaded in a net or by a sling, conveyor, chute, or other

method, putting added strain on the package. Goods might be stacked on top of

each other or bump against other goods.

Overseas, the cargo might be dragged, pushed, rolled, or dropped. Moisture is

also a danger. The cargo also might be unloaded in the rain. Some foreign ports

do not have covered storage facilities. Goods can also be stolen when inadequately

protected.

If we're not equipped to pack the goods ourselves, use a professional packing firm.

This service is usually provided at a moderate cost.

To avoid problems:

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To deter theft, shrink wrapping where possible and don't list the contents or show

brand names on the outside of the packages.

• For sea shipments, containerize our cargo whenever possible. Containers

vary in size, material, and construction and are best suited for standard

package sizes and shapes.

• For air shipments, we can use lighter weight packing, but we must still

take precautions. Standard domestic packing should suffice, especially if

the product is durable.

Export Marking and Labeling

Export packages need to be properly marked and labeled to meet shipping

regulations, ensure proper handling, conceal the identity of the contents, and

help receivers identify shipments. The buyer usually specifies export marks that

should appear on the cargo, such as:

• Shipper's mark

• Country of origin

• Weight marking (in pounds and in kilograms)

• Number of packages and size of cases (in inches and centimeters)

• Handling marks (international pictorial symbols)

• Cautionary markings, such as "This Side Up."

• Port of entry

• Labels for hazardous materials

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Mark containers clearly to prevent misunderstandings and delays in shipping.

Letters are generally stenciled onto packages in waterproof ink. Markings should

appear on three faces of the package, preferably on the top and the other two

sides.

Comply with Trade Requirements

When exporting from India, there are certain things we must do. Basically, for

exporting any goods, we require to get the goods approved by certain “Customs

Authorities”.

There are a number of documents required. There are also many incentives that

the government gives for export of certain goods.

After the goods leave, we want to make certain we’ll get paid. We need to be

familiar with the payment methods used for export transactions. They differ from

methods used domestically, and some methods are riskier than others. Foreign

buyers expect to pay only when the goods arrive, or later if possible. Few will be

willing to pay in advance.

Letters of Credit (L/Cs) is the most common export payment method.

Letter of Credit

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With an L/C, a bank pays us. The bank collects independently from the importer.

An L/C can be at sight (immediate payment upon presentation of documents) or a

time or date L/C (payment to be made at a specified future date).

Here's a typical L/C scenario:

The exporter and the importer agree on the terms of a sale.

The importer applies for the L/C for the amount due from a local commercial

bank. The L/C is normally “irrevocable” to protect both parties (no changes

permitted without the consent of both the buyer and the seller). The bank

typically requires the buyer to put up collateral to cover the L/C amount. At this

point, the buyer’s bank takes on the obligation to pay us.

The importer's bank prepares the irrevocable L/C and all instructions concerning

the shipment.

1. The importer's bank sends the irrevocable L/C to a correspondent bank in the

exporter’s country, requesting “confirmation”. At this point, the confirming

bank accepts the obligation to pay the exporter.

The confirming bank sends the exporter a letter of confirmation along with the

“confirmed, irrevocable” L/C.

2. The exporter reviews and accepts all conditions in the L/C.

3. The exporter arranges to deliver the goods to the appropriate exit port or

airport.

4. When the goods are loaded, the exporter completes the necessary documents.

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5. The confirming bank checks that documents are in order and sends them to

the importer's bank for review.

6. The importer gets the documents from his bank and uses them to claim the

goods.

7. The confirming bank pays the exporter by draft at the time specified.

8. Satisfying all the conditions of the L/C terms is crucial. We should carefully

review the L/C and make sure the price and terms are the same agreed to in

price quotes and other documents.

If the L/C terms are not precisely met, the bank might not pay. Also, the bank will

only pay the amount in the L/C, even if higher charges for shipping, insurance, or

other factors are documented.

If the L/C terms can't be met, or it has errors or even misspellings, we should

contact the buyer immediately and ask for an amendment to the L/C to correct

the problem.

To get paid, we must provide documentation showing that the goods were shipped

by the date specified. The freight forwarder can advise about any unusual

conditions that might delay shipment. We must also present the documents by

the date specified. The bankers can advise whether there’s enough time to meet a

presentation deadline. We should always request that the L/C specify that partial

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shipments and transshipment will be allowed. This will avoid unforeseen

problems at the last minute.

FLOW CHART:

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CONCLUSION: We have to understand that Export is important for a country’s

improvement and as a future Entrepreneurs we should be familiar with the

mode of doing Export and proper care, right decisions must be taken to make

sure we make money out of the Export. Thus all the above mentioned steps

must be followed to make sure that there won’t be any problem or error in our

future.

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