INTRODUCTION

MARKETING DECISION

EXPORT PROMOTION

PROCEDURE & DOCUMENTS

EXPORTS PAYMENTS

INTERNATIONAL TRADE UNIT ONE: Scope of International Marketing – International Marketing Vs Domestic Marketing – Motivation to Export – Special difficulties in International Marketing – International Marketing Environment – Features of Globalization – Essential Conditions – Pros and Cons. UNIT TWO: Marketing Selection and Entry Decision – Overseas Marketing Research – Competitive Intelligence – Standard Clauses of Sales Contract – International Trade policies – Tariffs, Subsidies and Quotas. UNIT THREE: Counter Trade – World Commodity Markets – World Trade in ServicesGATT – WTO – Institutional Infrastructure for Export promotion in India – EXIM Bank – ECGC. UNIT FOUR: Procedure for execution of Export order – Export of Goods – Export by Air and Sea – Export Documents (Quality control and Preshipment Inspection) –Marine Insurance. UNIT FIVE; Terms of Payments – Letter of Credit types – process – advantages – overview of EXIM Policy. Foreign Exchange – Exchange Rate Determination – Exchange Rate System – Fixed and Flexible Exchange – Advantages and Dis advantages. REFERENCE BOOKS:
INTERNATIONAL BUSINESS ENVIRONMENT – FRANCIS CHERUNILAM INTERNATIONAL BUSINESS – P. SUBBA RAO EXPORT MARKETING – RATHORE INTERNATIONAL MARKETING MANAGEMENT – RL. VARSHNEY AND MAHESWARI.

International marketing has also been defined as ' the performance of business activities that direct the flow of goods and services to consumers or users in more than in one nation'. Depending upon the degree of firm’s involvement. assembly or even complete manufacturing through direct investment.  Establishing joint ventures in foreign countries for manufacturing and or marketing and  Offering consultancy services and undertaking turnkey projects broad. International Marketing vs. it has a broader connotation in marketing literature. 1. Domestic Marketing: There are a number of similarities and differences between international and domestic marketing. Both in domestic marketing and international marketing success depend upon satisfying the basic requirements of consumers. thereby involving different markets and consumers who might have different needs. This necessarily involves finding out what the buyers want and meeting their needs accordingly.  Negotiating licensing/ franching arrangements whereby foreign enterprises are granted the right to use the exporting company's know-how's.. packaging. Scope of International Marketing: Though international marketing is in essence export marketing. there may be several variations of these arrangements.INTERNATIONAL TRADE UNIT ONE DEFINITION OF INTERNATIONAL MARKETING: Kotler defines marketing as 'human activity directed at satisfying needs and wants through exchange process. It is different from domestic marketing in as much as the exchange takes place beyond the frontiers. . patents. viz. processes or trademarks with or without financial investment. wants and behavioral attributes. It also means entry into international markets by:  Opening a branch/ subsidiary abroad for processing.' International marketing can be defined as "marketing carried on across national boundaries".

particularly import controls are a very important problem which an international marketer faces. However. For example. 4. Different Monetary Systems: Each country has its own monetary system and the exchange value of each country's currency is different from that of the other. Tariffs and customs duties Quantitative restrictions Exchange controls Local Taxes. Different Legal Systems: Each country has its own legal system and it differs from country to country. an advertisement medium very effective in one market may not be available or may be under developed in another market. . its tasks will be simpler than the one. Differences in the Marketing infrastructure: The availability of the marketing facilities available in different countries may vary widely. This my fall in any of the following categories. In case of domestic marketing there is only one currency prevailing in the country. Trade Restrictions: Trade restrictions. They are as follows: 1. The existence of different legal systems makes the task of businessmen more difficult as they are not sure as to which particular system will apply to their transactions. Cultural Differences: In domestic marketing there is only one nation. Research and development for product development and modification is necessary both for international marketing and domestic marketing. In the case of domestic marketing the buyers are aware of the legal systems in their country. Sovereign Political Entities: Each country has is a sovereign political entity and goods and services had to move across national boundaries.2. they may have to face a number of restrictions. The exchange rates between currencies fluctuate every day. there are some salient features of difference between international marketing and domestic marketing. 6. 5. which has not been able to do so. S a result. 3. 2. 3. It is necessary to build goodwill both in the domestic market and international market. same language and culture where as at international marketing many languages and different cultures. If a firm is able to develop goodwill of consumers or customers.

At international marketing multiple environments. They grouped as Pre-export behaviour and Motivation to Export. many of which are likely instable. This must give a clue to the question as to whether a present non-exporter will become an exporter and if so why and when. Temperamental decision to export is transient in character and totally unsuitable for export marketing. 10. transport cost is a major marketing expense where as in domestic trade transport cost influences only to certain extent. which can come only out of basic economic necessity as perceived by the corporate unit. which influence a non-exporting firm's decision to go in for export business. Degree of Risk: There is a greater degree of risk involved in international marketing than in domestic marketing due to  Large volume of transactions  Higher value of transaction  Longer time period  More time of transit  Longer credit period  Comparatively less knowledge  Exchange fluctuations. The point to be studied is what made some of these firms get involved in export business. Stability in Business Environment: In domestic marketing there is relatively stable business environment. 9. can be classified under the following categories: . TRANSITION FROM DOMESTIC TO INTERNATIONAL MARKET The Decision to enter foreign markets must be based on strong economic factors. Procedures and Documentations: Each country has its own procedures and documentary requirements and traders have to comply with these regulations if they want to export or import goods from foreign countries. 8. Pre-Export Behaviour: Every firm at some point of time starts as a non-exporter. 1.7. Transport Cost: In International trade. The factors. Success in exporting requires total involvement and determination.

Recession in the domestic market often serves as a stimulus to export ventures. the motivation of the firm to get involved in export business will be considerable. and the present and future market prospects in the domestic market are not much encouraging. Resources will be required for hiring new staff specialized in international marketing.(a) Firm characteristics: Firm characteristics include product characteristics. If the firm is manufacturing a product. market opportunity and government's stimulation in the form of incentives and assistance. which is internationally marketable. and potential export markets. 2. This is crucial because it will determine whether adequate resources will be made available for embarking on international marketing. size and growth of the domestic market.  Insufficiency of Domestic Demand: The level of domestic demand may be insufficient for utilizing the installed capacity in full. . (c) Perceived Internal Export Stimuli: This refer to the management's expectations about the effects of exports on the firm's business. Export business offers a suitable mechanism for utilizing the unused capacity. This covers the level of capacity utilization. (b) Perceived External Export Stimuli: This will include fortuitous order. the higher level of profits and the growth objectives of the firm. (d) Level of Organizational commitment: The decision makers must agree on the level of commitment. This will reduce costs and improve the overall profitability of the firm.Motivation to Export: (Economic reasons) There are some basic economic reasons which might influence a firm decision regarding export business: These are under:  Relative Profitability: The rate of profit to be earned from export business may be higher than the corresponding rate on the domestic sales. hiring of consultants for carrying out overseas market potential studies etc. optimum scale of production..

But there may not be any such restrictions. geographic diversification also provides the momentum to growth in as much as a single or few markets will have only limited absortive capacity. therefore.  Obtaining imported inputs: Nations have to pay for imports of materials.  Legal restrictions: Governments may impose certain restrictions on further growth and capacity expansion of some firms within the domestic market in order to achieve certain social objectives.  Increased productivity: Increased productivity is necessary for ultimate survival of a firm. They also build up their image in domestic marketing by their export activities. SPECIAL DIFFICULTIES IN INTERNATIONAL MARKETING There are a number of difficulties in undertaking international business. the firms will have to export. To meet the increased costs of Research and Development. Governments. Secondly.  Government regulations restricting imports by way of import licenses. reduce costs and discover new applications for its product. the downward fluctuations in sales in one market. They also look at exporting to attain status and prestige. which may be the domestic market. . technology or processes not available within their national boundaries. etc. if the additional capacity is utilized for exports. improve its product. especially those in need of imported inputs. may be compelled to impose export obligations on the firms. in order to import.  Technological improvement: Entry to export market may enable a firm to pick up new produce ideas and to add to product line. Then the firm may be tempted to export its products abroad. Some of them the special difficulties are as follows:  Quantitative restrictions to protect local industries. This will lead the firm to increase production and then move to export business. Reducing business risks: When a firm is selling in a number of markets. In other words. may be fully or partly counter balanced by a rise in the sales in other markets. larger markets become a necessity and exports become unavoidable.  Social responsibility: Sometimes businessmen themselves feel a sense of responsibility and contribute towards the national exchequer by increasing their exports.

 Lack of adequate export financing especially for small scale industries. export to any place by choosing any distribution channels and follow any promotional methods.  Lack of export incentives to exporters.  Trade barriers . There are some factors which can be controlled by the management may not be able to haves any control over them. etc. Now let us discuss these factors as follows: Controllable Factors: Control will have to be defined with reference to a company's management.Tariff and non tariff barriers. The company is in a position to control and design marketing mix elements i.  Competition from local exporters.  Different legal system regarding import and export of goods.  Differences in procedures and documentation. Sterling in UK.  Differences in market characteristics.  Paper work is more in export business. INTERNATIONAL MARKETING ENVIRONMENT It is necessary to know the concepts of "controllable" and "uncontrollable factors" in international marketing. . product.  Cultural dimensions of international marketing.  Shipping and freight problems.  Lower mobility of factors of production.  Non-availability of latest information about the market conditions.  Local taxes like sales taxes on imported goods. price. competition from exporters from other countries and competition from producers of goods in the importing countries.  Different monetary systems like Dollars in USA. YEN in Japan.  Economic Unions.e. Exchange controls.  Complications of Exporting.

Etiquettes differ from culture to culture. for example . So familiarity with cultural is necessary for success. or may even result in social or legal reprisals. The ways of meeting and greeting people. values associated with consumption. political philosophies and systems.Uncontrollable Factors: There are some factors on which the company can not have any control. government policies etc. could have a social influence of them Management may undergo a social transformation. The tastes and preferences. SOCIAL FACTORS: The social/cultural environment of a nation/market may profoundly influence business in different ways and dimensions. Because of cultural differences. a number of family owned business groups in India have ushered in professional management. In short. vary quite widely between cultures. lab our-management relations. entrepreneurial nature and attitude. the marketing strategies to be employed. The attitude of workers. the way the business should be organized and governed. governance. Such uncontrollable factors in international marketing are described here. table manners etc. the values and norms it should adhere to. method of consumption. purpose of consumption. expression of appreciation or disapproval. Religion and Climate . business ethics. ways of conducting meetings and functions. a promotion strategy that is very effective in one market may utterly fail in another. The need for good corporate governance is getting more and more recognition. the type of products to be manufactured and marketed. occasion of consumption. government-business relations. etc of a product may show wide variations between cultures. methods of showing respect. quantity of consumption. legal environment. are all influenced by social structure and the culture of a society. The other social factors which influences the international marketing inclusive of      National legal regime Political and Financial system Marketing infrastructure Language.

POLITICAL and GOVERNMENT FACTORS: The following political and government factors must be taken into consideration by an international marketer while planning to entry any market abroad:  Consistency of government policies.  The nature of political relationship between the target country and exporter's country.  The presence or absence of controls on foreign exchange, imports, prices,etc., in the target country.  Legal restrictions on foreign investments and the patent ability of the product in the target market. The company has no control over all the above factors mentioned and hence the exporter has to adjust him to these factors. ECONOMIC FACTORS: I. Commercial policy variables e.g. tariffs, quotas, licensing or any other non-tariff barriers. II. Currency restrictions - depending on the policy of the central bank of the country. III. Internal demand management policies and instruments followed by the country. The exporters have to be thorough with the above policies and adjust them accordingly. DEMOGRAPHIC FACTORS: Demographic factors such as size of the population, population growth rates, age composition, ethic composition, family size, family life cycle, income levels, have very significant implications for business. The demographic environment differs from country to country and from place to place within the same country or region. Further, it may change significantly over time. Because of the diversity of the demographic environment companies are sometimes compelled to adopt different strategies within the same market COMPETITON: Competition will also influence the international marketing. As like domestic marketing the trader always aware of his competitors. But the quantum of competitors is more in

international marketing than domestic marketing. Normally by the following ways the international merchant will face the competitors.    Competition vis-à-vis producers in the importing country. Competition vis-à-vis exporter from the competing countries. Competition vis-à-vis other exporters from one's own country.

The exporters have no control over these types of competition and hence they have to compete with all the three types of competitions. LOGISTICS: Logistics is that part of the supply chain process that plans, implements, and controls the efficient, effective forward and reverses flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers' requirements. The concept of logistics play vital role in international marketing by the ways sense.  The merchant has to seek the availability of required type of transport such as sea, air freezer space, etc.  Cost of transportation.

Unless the exporters are in a position to meet the above requirements of transport facilities and costs they cannot export their products to the target markets. RISKS: There is a greater degree of risk involved in international marketing than in domestic marketing due to  Large volume of transactions  Higher value of transaction  Longer time period  More time of transit  Longer credit period  Comparatively less knowledge  Exchange fluctuations.  Political risks  Commercial risks  Act of nature

 Act of enemies The exporters have to face these risks in the international markets. These risks can be covered by taking insurance policies from the ECGC and General Insurance.

CONCEPT OF GLOBALIZATION
"Globalization means the production and distribution of products and services of a homogeneous type and quality on a world wide basis”. Globalization also means globalizing the marketing, production, investment, technology and other activities. How do these happen? Globalization does not take place in singly instance. It takes place gradually through and evolutionary approach. FEATURES OF GLOBALIZATION     Operating and planning to expand business throughout the world. Erasing the differences between domestic market and foreign market. Buying and selling goods and services from/to any country in the world. Establishing manufacturing and distribution facilities in any part of the world based on the feasibility and viability rather than national consideration.  Product planning and development are based on market consideration of the entire world.  Sourcing of factors of production and inputs like raw materials, machinery, finance, technology, human resources, managerial skills from the entire globe.  Global orientation in strategies, organizational structure, organizational culture and managerial expertise.  Setting the mind and attitude to view the entire globe as a single market.

ESSENTIAL CONDITIONS FOR GLOBLAIZATION BUSINESS FREEDOM: There should not be unnecessary government restrictions which come in the way of globalization, like import restriction restrictions on sourcing finance or other factors fro broad foreign investments etc. FACILITIES: The extent to which an enterprise can develop globally from home country base depends on the facilities available like the infrastructural facilities.

Resourceful companies may find it easier to thrust ahead in the global market. COMPETITIVENESS: The competitive advantage of the company is a very important determinant of success in global business. government support can encourage globalization. . It helps the developing countries to implement new technology. PROS AND CONS OF GLOBALIZATION ADVANTAGES: Free Flow of Capital: Globalization helps for free the flow of capital from one country to the other. after sales service.GOVERNMENT SUPPORT: Although unnecessary government interference is a hindrance to globalization. A firm may derive competitive advantage from any one or more of the factors such as low costs and price. technological superiority. ORIENTATION: A global orientation on the part of the business firms and suitable globalization strategies are essential for globalization. Increase in Industrialization: Free flow of capital along with the technology enables the developing countries to boost-up industrialization in their countries. financial market reforms and so on. Free flow of Technology: Globalization helps for the flow of technology from advanced countries to the developing countries. marketing strength etc. which in turn increases the global investment. product differentiation. It helps the investors to get a fair interest rate or dividend and the global companies to acquire finance at lower cost of capital. Government support may take the form of policy and procedural reforms. Further Globalization increases capital flows from surplus countries to the needy countries. development of common facilities like infrastructural facilities. RESOURCES: Resources is one of the important factors which often decides the ability of a firm to globalize. R and D support. product quality product.

globalization reduces prices and thereby enhances consumption and living standards of people in all the countries of the world. . For example. Increase in Employment and Income: Globalization results in shift of manufacturing facilities to the low wage developing countries. increased production and consumption level enable the companies to produce and sell the products of high quality t lower prices. As such. Increased industrialization spread up of technology. Lower prices with high quality: Indian consumers have already been getting the products of high quality at lower prices. Cultural exchange and demand for variety of products: Globalization reduces the physical distance among the countries and enables people of different countries to acquire the culture of other countries. This in turn leads to the balanced development of all the countries. Higher Standards of Living: Further. Further. in turn makes the people to demand for a variety of products which are being consumed in other countries. it reduces job opportunities in advanced countries and alternatively creates job opportunities in developing countries. improves the skills of the people of developing countries.Spread up Production facilities throughout the Globe: Globalization of production. Increase in Production and Consumption: Increased industrialization in the globe leads increase in production and thus results in balanced industrial development along with increase in income which enhances the levels of consumption. Balanced development of world economies: With the flow of capital. Balanced Human Development: Increase in industrialization on balanced lines in the globe. which in turn contributes for the balanced human development across the globe. demand for American Pizza in India and Masala dosa and Hyderabad Briyani and Indian styled garments in USA and Europe. technology and locating manufacturing facilities in developing countries. leads to spread up manufacturing facilities in all the global countries depending upon the locational various favorable production factors. the developing countries industrialize their economies. The cultural exchange. the increased economic development of the country enables the government to provide welfare facilities like hospitals educational institutes etc.

Decline in Income: Unemployment and decline in demand for domestic products of both industrial agricultural goods leads to reduction in income of the people. Therefore. These companies employ child labor. Widening gap between rich and poor: Globalization not only results in decline in income but widens the gap between rich and poor. it is viewed that.. get abnormal income. and ignore workplace safety and health issues. Transfer of natural resources: MNCs establish their manufacturing facilities in developing countries exploit their natural resources and sell the products in other . Decline in demand for domestic products: Selling of high quality foreign products at low prices by MNCs reduces the demand for the domestic products. while other average people have to strive for even a minimum wage. Exploits Human Resources: The foreign companies which are located in developing countries invariably violate the labor and environmental laws in order to have the cost advantage. competent people. The domestic business of the developing countries fails to compete with the MNCs on the technology and quality front. pollute environment. DISADVANTAGES: Globalization kills Domestic Business: The MNCs from advanced countries utilize the opportunities created by globalization. This in term leads to reduction in employment opportunities particularly in less developed countries. However. people with innovative skills.Increase in the Welfare and Prosperity: The balanced industrial. This is because. efficiency etc. establish manufacturing and marketing facilities in developing countries. globalization enables the developing countries to become rich and enforce the labor and environmental regulations. Leads to Unemployment and Underemployment: MNCs produce the products in their home countries or in some other foreign countries and market in developing countries. social and economic development of the world nations consequent upon the globalization along with the welfare measures provided by the governments lead to increase in the welfare of the people and prosperity of the world countries. the domestic country’s operations are to be reduced. This results in widening the gap between have and the have-nots.

countries. No firm has unlimited resources. Through these means. money and materials to capitalize them. and the risks may be minimum. At the same time if the company is doing international trade they can concentrate for international market to balance the fall in demand in domestic market. UNIT TWO INTERNATIONAL MARKETING DECISION In developing a foreign operation. 1. the firm must have the resources in men. Whether it can meet the demand in domestic as well as in international market? 3. the first step is to choose the right place for the initial export venture. 2. the marketer has to take four decisions. These are:  Marketing Decision  Marketing selection decision  Market entry decision  Marketing Mix Decision Marketing Decision: All the business involves risk. it should develop a marketing strategy to be used for both domestic and foreign business. When a firm thinks of entering into an international market. Before taking the marketing decision of entering into international market it should satisfy itself for the following questions. Are there any opportunity open to firm and its product in abroad?. the natural resources of developing countries are transferred to other countries. One of the risk element is sudden fall in demand. Whether it can adapt the product according to the needs of the consumers? 4. MARKET SELECTION DECISION To be successful in initial exports. A proper selection of markets would ensure that time and efforts are not wasted. Whether it can formulate and implement a policy and regulations pertaining to exports and imports? Even if the opportunities appear favorable. In such circumstances the firm which concentrating only domestic market will find thread about its survival. . so that the returns may be quicker and certain.

4) The company also has discussion with some successful exporters. It would be unwise to sell in the more competitive European market.  Collect the address of potential customers abroad and start correspondence with them. 5) It can also have discussions with Commodity boards. etc 6) It may also contact our Trade representative located in our Embassies and High commissions abroad.While selecting initial markets for exports. Take guidance from government and non-government institutions. this will ensure success. Do not enter those markets where there are a lot of import restrictions. 3) The company can also visit some Government offices. avoid any trade disputes. Find a need and fill it. 2) It should examine import statistics of the product in the target markets. the trader should consider the following points carefully:  Select one or two markets initially so that is the activity may be within manageable units:  Smaller less obvious markets should not be overlooked. when a less competitive Arab or African market is available. settle them amicably. . The company can look into these statistics and find out where the products are exported. names of importers etc.   Make certain at the start that your export business is going to be profitable. but if such disputes arise.  It is advisable to spend some time and money on visiting the overseas market. SELECTION OF MARKET: The company in this connection has to take the following steps so that it can ultimately choose one or two markets of its choice:1) The company should examine export statistics of the product from its country. ECGC. The concerned export promotion council also publishes such statistics. Collect the latest data on export surveys and commercial intelligence from India's Commercial Representatives abroad.     Enter the export business only when the marketer is sure of its profitability. libraries. This will enable the marketer to solve many practical problems. trade associations to find out the policy.

9) It can take part in trade fairs and exhibitions conducted by ITPO and other agencies. some of the common elements are: (i)Size of the Market: The target territory should be one which is or has the potential to be a sizable market.7) It may also contact Foreign Embassies and High Commissions located in India. including international marketing. While the complete set will have to take into account the product and marketing characteristics of specific products. which will jeopardize any marketing efforts. After examining various details as above the exporters have to avoid a market in the following cases: 1) If shipping costs will be far too high 2) If the investment required is more 3) Those markets where there are a lot of import restrictions. (ii)Growth: It is enough that the market is existing but it should also be in the growth stage. Higher scales over time become easier when the overall demand is increasing. in the case f certain products. 11) It must also decide whether it should choose one market or a few markets. (iii) Logistics: Dispatching the goods to the right place at the right time is the essence of all marketing. It is not enough if additional sales come at the cost of the competitions. Further . social and cultural factors in the target markets. CRITERIA FOR SELECTION OF MARKET: The marketing firm should have a set of decision criteria for selecting the target markets. . special types of logistic infrastructure is necessary. Inadequate logistic support can play havoc in the planning of export shipments. 8) The company can also send some officers to the target markets to find out the market conditions there. 10) It must also find out economic. It is easier to capture a 5 per cent of a big market than to capture a 25 per cent share of smaller market.

The selection process of the target market will have to take this factor into account. the company should think twice before deciding to enter that market. A thorough study will have to be made to determine how the firm's product profile compares with that of the competitive product line. especially for products requiring pre-selling.(iv) Distance: The transport cost and distance are intimately correlated. the incidence of higher transport cost may reduce export competitiveness quite appreciably. A good distributor is essential. Even if a market is otherwise promising. For low-valued items. The various methods of market entry open to firm in a given country are:  Indirect exporting  Direct Exporting  Licensing  Franchising  Joint Venture  Foreign subsidiaries  Special Modes INDIRECT EXPORTING: . the next step relates to the decisions regarding the alternative methods of entry. if no good distributor or agent is available.sales services. unless it is in position to set up its own office there. such as after. (v) Competition: The nature and extent of competition is a very crucial factor to reckon with. The firm will have to evaluate whether it is in a position to match such competition onslaught. THE MARKET ENRTY DECISION: Once the target market has been identified. such as demonstration and post-selling. (vi) Distribution System: The availability of a capable agent or distributor is a very important consideration.

Some other companies regularly send buying teams for the same purpose.  It carries less risk. This can be done by: a) Selling to Merchant Exporter House in India and b) Selling to visiting/resident buyers Selling to Merchant Exporter or Export Houses in India: There are many merchant exporters and or recognized export houses in India.  The manufacturing firm is free to concentrate on production.  It requires less investment and the firm's capital is not tied up. Disadvantages of Indirect Exporting: . which are willing to buy goods from the Indian manufacturers and sell them abroad. Advantages of Indirect Exporting:  It involves little time or effort because the merchant exporter takes care of all the difficulties involved and assumes all the sales and credit risks. Merchant exporters or export houses sell and buy on their account and thus assume the risks involved in exporting. Selling to Visiting/Resident Buyers: Many big foreign companies have their resident buying representatives in India and other countries who are entrusted with the job of procurement. This method of exportation is useful when the company is small and. The amount of business that is conducted by such buying operations is substantial. The firm sells its products in its country to another party. where he will buy and at what price. and the firm does not have to spend money on market research or on setting up branches abroad. They usually have a system of gathering market information and keep a close watch on market trends. A merchant exporter is free to decided what he will buy.The indirect way of exporting is almost equivalent to domestic sales. The advantage of selling in this way is similar to what had been mentioned for exporting through export houses. who takes the responsibility of actual export. Merchant exporters are usually well financed and maintain their branches at port towns and in important centers abroad. therefore. not in position to start an export department to like after exports sales.  It makes possible the utilization of the know-how and experience of middlemen.

with the result that sales may suffer. Depending upon the firm's export sales turnover. The small manufacturer's products may be ignored. Advantages of Direct Exporting:  The manufacturer will have better knowledge of customers' requirements and market conditions. the manufacturer cannot be called an exporter.  The middleman. . or a supplement to the home organization. For practical purposes. Export merchants may concentrate on the products. He can enjoy the full returns on exports. it will have to choose most carefully between one and or the other kind of export sales organization to be created. and opts for direct exporting.  Indirect exporting provides little control over the operations of middlemen. which may be a substitute for.  Appointing home-based sales representatives. it may make a modest start. and he cannot claim or avail of export incentives given on a fairly liberal scale. If its export plans are ambitious and the prospects of selling in a number of markets are promising. which offer them the greatest profit.  Export merchants middlemen may not be available for all the markets. DIRECT EXPORTING: In case the firm decides not to operate through any of the intermediaries described in the earlier paragraphs.   He will have direct control over the marketing operations. may not be aggressive. it may create/set up a separate export department or even a separate export company. who would travel abroad and book orders.appoint an export manager plus a clerk. His profits will be more than selling the goods through middlemen. existing and potential. Direct Exporting may also be undertaken by:  Setting up a sales branch or a subsidiary sales organization in a foreign country. particularly the agent on commission basis. or suitable agents in that country who would sell it on commission basis without taking any title to it.  Selecting suitable distributors in a foreign country who would buy his product and sell it there.

especially in the following cases: If the product is technically unique If middlemen decline If importers wants only direct export If costs increase because of tariffs If after sales service is a must Disadvantages of Direct Exporting:      LICENSING: Under this method. It is clearly a method that involves little expense. opportunities licensee. a patent design or a trademark. maintain the product quality and promoting the product. technical information or some facility in return for some fee or royalty. Licensing mode carries low investment on Licensing agreements reduce the market the part of the licensor. Advantages and Disadvantages of Licensing Advantages Disadvantages Large financial resources needed Managerial ability is essential and more staff is required Increased distribution cost More risk Greater initial outlay before profit begins to flow in. Licensing mode carries low financial risk Both the parties have the responsibilities to to the licensor. Therefore one party can affect the other through their improper acts. Licensor can investigate the foreign market Costly and tedious litigation may crop up for both licensor and .sometimes the only possible way as in centrally planned economies. the manufacturer enters into an agreement with a licensee in the foreign country and this gives him the right to use the manufacturing process. It is often the quickest way of entering overseas markets . and avoids all distribution costs. Direct exporting is the only choice for certain products and not alternative to get success.

Under franchising. The licensee may sell the product outside the agreed territory and after the expiry of the contract. Franchisor can get the complicated than domestic marketing. Advantages and Disadvantages of Franchising Advantages Disadvantages Franchisor can enter global markets with International franchising may be more low investment and low risks.without much effort on his part. The franchisor can exercise more control over the franchise compared to that in licensing. secrets of the licensor. The franchisor provides the following services to the franchisee:  Trade marks  Operating system  Product reputations Continuous support systems like advertising. culture. Franchisor learns more lessons from the Franchising agents reduce the market experiences of the franchisees. between the effectiveness of the agreement. reservation service. and quality assurance programme etc. which he opportunities for both the franchisor and could not experience from the home franchisee. for parties misunderstanding despite the Licensing gets the benefits with less There is scope investment on research and development. information It is difficult to control the international regarding the markets. FRANCHISING: Franchising is also a form of licensing. . customers franchisee. License escapes himself from the risk of There is a problem of leakage of the trade product failure. and hurt both the parties and the market. an independent organization called the franchise operates the business under the name of another company called franchisor. and environment of the host country. employee training.

marketing activities. He is its exclusive owner and controller.  Any investor of a foreign country buys an interest in a manufacturing unit of the domestic investor already existing in that country. Franchisee can early start a business with Both the parties have the responsibilities to low risk as he selects an established and maintain product quality and product proven product and operating system. outsourcing. B. When a company engages in such production in a number of countries. Franchise gets the benefit of R & D with There is a problem of leakage of trade low cost. or both. or  A domestic investor and an investor in a foreign country together start a new venture in that foreign country.country’s market. it is called multinational company. secrets. SPECIAL MODES OF ENTRY: A. Management Contracts: This practice is called the contract of manufacturing or . promotion. the monarch of all that it contains. FOREIGN SUBSIDIARIES: The marketer establishes a subsidiary manufacturing unit in a foreign country. Contract Manufacturing: Some companies outsource their part of or entire production and concentrate on marketing operations. This is the culmination of international marketing. JOINT VENTURE: A joint venture involves a capital partnership and may be arranged for manufacturing activities. It is international production-cum marketing. Franchise escapes from the risk of product failure. This takes place when:  The domestic investor buys an interest in a manufacturing unit situated in a foreign country.

The main purpose of market research is to know about the consumers and markets of the exporter's products and services. advertisements. International turnkey projects include nuclear power plants.The companies with low level technology and managerial expertise may seek the assistance of a foreign company. air ports. railway lines etc. accessibility and competitive factors. organization. pacing problems etc relating to firm's product while on the other hand market research emphasis research on the market and market segments and consumers and their behaviour. This agreement between these two companies is called the management contract. products. growth. . The research is mainly concerned with details regarding consumers. Then the foreign company may agree to provide technical assistance and managerial expertise. sales promotion techniques. The research is mainly concerned with details regarding consumers. such as economic. social and political. Information regarding the nature. profitability of different markets. changes in markets and various factors. channels of distribution. Thus the market research is only a part of marketing. based on the market size. affecting those changes are studies vigorously. construct and equity a manufacturing/business/service facility and turn the project over to the purchaser when it is ready for operations for a remuneration. NEED FOR OVERSEAS MARKET RESEARCH :( Uses)  Market research is required to identify which markets should be selected as the target. consumers. C. oil refinery. size. national highways. warehousing. INTERNATIONAL MARKETING RESEARCH MARKET RESEARCH & MARKETING RESEARCH Market research is a complete analysis of the market. Turnkey projects: A turnkey project is a contract under which firms agrees to fully design. transport. Marketing research covers all aspects of the marketing activities such s markets.

Research also helps in taking appropriate packaging decisions. taking into account the socio-cultural factors. Desk research and field research. Research can help to determine the positioning of the product. reduces uncertainty in it and makes the environment known. Pricing is crucial for success in international marketing and a blunder can mar all prospects. fashion.      Research can help prevent the use of inappropriate market entry method. Detailed field research investigations are required to determine the extent of product adaptation required to make the product acceptable in a given market. habits and preferences are changing very fast. .  It is useful in converting uncertainty into certainty.  Identify the gaps in information still remaining. Considerable amount of data collection and analysis are required to arrive at pricing decisions..  Collect and analyse the secondary source materials.   The research becomes inevitable when the income. The uncertainty is mitigated. Promotional campaigns should be decided only when proper research has been carried out regarding their acceptability in a given environment. Identification of suitable products is also dependent upon research. Stepwise formulation of a research plan comprising both desk and field research will be as follows:  Identify the problem. The needs for research also arise when the sale of the product is showing a downward trend and the reason for the fall could not be established.  Identify the sources (primary and secondary) from where such information can be obtained.  Identify the information requirements to find out a solution to the problem. Marketing research by providing information on market information on market environment. METHODOLOGY FOR MARKET RESEARCH: Market research in almost all cases is carried out into two phases: viz.  Prepare a research brief for field research to collect information on the gaps.

Complaints received from foreign customers etc. and whether thee might any motive for misrepresentation.  Interview the respondents. External Source of Information: This information can be had from any published documents which may provide data on the problems to be analysed. national trade statistics UN. o From whom the data were collected.  Analyse and evaluate the results. Official statistical sources Embassies. However before relying on any published documents the researcher should consider the following points: o Exactly what products are included in the statistical classification o Who originally collected the data for what purpose.OECD. Chamber of Commerce . and how reliable the methodology might have been and o How consistent the data are with other local or international statistics. It involves collection of all relevant information from known published and unpublished documentations available within and outside the organization. DESK RESEARCH: Desk research is the first phase of the marketing research. INFORMATIONS Import statistics Production statistics Tariffs and quotas EXAMPLES OF SOURCES UN. Inside or Internal source of information: This information can be gathered from the following: past sales record enquires received from abroad reports from its branches and agents abroad and its officers dealing in export trade. The following table shows the agencies which can furnish the required information for desk research.  Prepare the sample of respondents. Design a questionnaire.

personal interview is the most dependable if reliable data are to be required. There are two specific important steps before field research can be undertaken viz. Techniques of Field Research: Interview methods. daily economic newspapers on commodity prices. Of the three methods. Field research can be conducted through personal interviews. however. in many developing countries. design and testing of a questionnaire and preparation of a sample of respondents. Generally speaking product specific marketing in formations are not available from secondary (desk) sources. First the recruitment of interview is difficult and ins some cultures it is impossible to recruit female interviewers at all. telephone interviews and stores checks. company catalogues. Reports of embassies and Journals Banks Freight forwarders and clearing agencies Previous market survey reports. the personal interview presents special problems for two main reasons.. Going directly to the market may cover the gaps in information. Unfortunately. FIELD RESEARCH: An analysis of data collected from desk research would reveal the gaps in information that still remain.Currency restrictions Health restrictions Political situation Domestic consumption Banks and Embassies Embassies and chamber of commerce Bank reports. In order to secure the best possible return on the limited time that can be spent on export market research. Identification of agents Credit and payment terms Transport cost Prices Directories. press reports and IMF year book Official statistics of chamber of commerce and commodity boards. Questionnaire and Observation method (Refer Research methodology book for further details for the above said techniques) COMPETITIVE INTELLIGENCE: .

character and size of competition to be met.Modern marketing is very competitive. and how are they trying to solve them? Are they involved in litigation? What kind? What relation do they have with government? Do they enjoy incentives or favours? Finance: What is the current financial position of the competitors? What are their investment programmes? What fees and royalties do they use? What are their financial resources and how do they finance expansion? What dividend policies do they pursue? Are they sacrificing long-term advantage for short term gains? Production: What plans do the competitors have? What production technologies are used? How efficient are the plants? What capacity of existing plant is being used? Do they have any labour problems? . Modern business is a many sided game in which rivals and opponents continuously try to formulate strategies to gain advantage over one another. It is therefore. Predicting the behaviour of one's competitors and outguessing of the competitor will need the services of marketing intelligence. necessary for the exporter to obtain competitive intelligence and make a study about competitions for his products. A marketer cannot survive under keen competitions without up to date market information particularly regarding the nature. Regarding that the trader should have answer for the following questions about his competitors: Basic Factors: What are the competitive products are sold in that particular country? Who are the competitors? What facilities do they have and where are they located? Who are their local officers. and how good are they? What problems do the face.

An Indian exporter selling his product to an importer. The function of a sales contract is to set forth in writing what one party agrees to do for the other and what each may expect of the other. Price per unit. however. . or on the settlement of disputes.What's their source of manpower? What is their manufacturing cost? How's their product quality? Marketing: What marketing channels they have? Their pricing strategy. say in the USA. and other terms are extended by foreign suppliers? STANDARD CLAUSES OF INTRNATIONAL SALES CONTACT One of the distinctive features of international marketing is that exporters have to deal with different legal systems.exporters and importers The description of the product. There are. if any arising out of the contract. must contend with the fact that US laws may well have some influence either on the contractual terms to be agreed upon between him and the importer. some elements that are almost universal in their application. Their promotional strategies. pricing. Quality of the product. What's their market share? How was it changed over the period of time? What are their advertising media? How much cost is incurred regarding that? Supplying the market: How do the competitive products get to the market? Who are the importers and how do they operate? What credit. These elements are as follows:     Names and addresses of the parties . The elements or the clauses of an export contract vary depending upon the nature of product being exported.

assuring repairs over a period. Documentations. Currency Tax and charges Packing specifications Mode of transport Delivery: Place and schedule Marking and labeling. Subsidies and Import quotas. if any Warranties . Passing of property. They are: Tariffs. an understanding of trade policies is more essential. Jurisdiction. But in case of global companies. . They are also called the instruments of trade policy. Inspection. Settlement of disputes. INTERNATIONAL TRADE POLICIES TRADE BARRIERS (METHODS OF PROTECTION) Managing any business strategically needs an understanding of the business policies. International trade policies deal with the policies of the national governments relating to exports of various goods and services to various countries either on equal terms and conditions or on discriminatory terms and conditions. Government announces their trade policies with regard to the following from time to time.                   Total value. Availability/ non-availability of export and import licenses. Insurance. Passing of risk. Credit period. Proper law of contract. Mode of payment.

Income and Employment Effect. It is a duty or tax imposed on internationally traded commodities when they cross the national borders. Redistribution Effect. This increase in the price of imports is likely to reduce imports and increase the demand for domestic goods. Import duties may also enable domestic industries to absorb higher production costs. The objectives of Tariffs are  To protect domestic industries from foreign competition  To guard against dumping  To promote indigenous research and development  To conserve foreign exchange resources of the country  To make the balance of payments position more favorable and  To discriminate against certain countries. domestic industries are able to expand their output. . IMPACT OF TARIFFS Tariff affect on economy in different ways. If the import duty causes an increase in the price of domestically produced goods. An import duty generally has the following effects: Protective effect: An import duty is likely to increase the price of imported goods.TARIFFS Tariff refers to the tax imposed on imports. a tariff means increased revenue for the government. Further a part of the consumer income is transferred to the exchequer by means of the tariff. Consumption Effect: The increase in prices resulting from the levy of import duty usually reduces the consumption capacity of the people. it amounts to redistribution of income between the consumers and producers in favor of the producers. Revenue Effect: As mentioned above. Thus. as a result of the protection by tariffs.

quotas are helpful in improving its balance of payments position. Terms of trade effect: In a bid to maintain the precious level of imports to the tariff imposing country. Price Effect: As quotas limit the total supply. Import quotas provide the protection to the domestic firms from the foreign countries. India had quotas of imports of various goods like cars. milk etc. they may cause an increase in domestic prices. the tariff importing country is able to get imports to a lower price. in fact. an anti-competitive effect in the sense that the protection of domestic industries against foreign competition may enable the domestic industries to obtain monopoly power with all its associated evils. up to 31st march 2001. Consumption Effect: If quotas lead to an increase in prices. QUOTAS Quota is direct restriction on the quantity of goods which are imported into a country. Competitive Effect: The competitive effect on the tariff is. people may be constrained to reduce their consumption of the commodity subject to quotas or some other commodities. This higher spending within the country ay cause an expansion in domestic income and employment. Protective Effect: . if the exporter reduces his prices.The tariff may cause a switch over from spending on foreign goods to spending on domestic goods. IMPACT OF QUOTAS Balance of Payment Effect: As quotas enable a country to restrict the aggregate imports within specified limits. These restrictions are imposed by issuing import licenses to certain firms and individuals to import certain quantity of the goods. motor cycles.

Tariffs are often regarded as relatively permanent measures and rapidly build powerful . A tariff seeks to discourage imports by raising the price of imported articles. but the effect of quotas on imports is certain. the government may obtain some revenue by charging a licence fee. Quotas may affect the terms of trade of the country imposing them. more easily imposed and more easily removed instruments of commercial policy than tariffs. Revenue Effect: Quotas may also have a revenue effect.  It has been argued that quotas tend to be more flexible.By guarding domestic industries against foreign competition to some extent. a quota is more effective than the tariff. Redistributive Effect: Quotas also have a redistributive effect if the fall in supply due to important restrictions enables the domestic producers to raise prices. The rise in prices will result in the redistribution of income between the producers and consumers in favour of the producers. TARIFFS Vs QUOTAS The differences between tariffs and quotas will be clear by the following way of comparison: Let us first examine the superiority of quotas to tariffs:  As a protective measure. It however fails to restrict imports when the demand for imports is price inelastic. The effect of quotas on the terms of trade depends upon the elasticity of the foreign offer curves. The reactions or responses to tariffs are not clear and accurately predictable. Terms of Trade Effect.  When compared to tariffs. As quotas are administered by means of licences. quotas encourage the expansion of domestic industries. quotas are much precise and their effects much more certain.

Quotas have many characteristics of a more temporary measure. If import quotas are allocated only to a few importers. are designed to deal only with a current problem. Tariffs also suffer from the same defect. government procurement of out put at a higher rate. Similarly. That is why GATT condemns quotas and prefers tariffs to quotas for controlling imports. quotas tend to promote the concentration of economic power among foreign exporters. SUBSIDIES In order to encourage domestic production or to protect the domestic producer from the foreign competitors. equity participation and supply of inputs at lower prices. they may enable them to amass fortunes by exploiting the market. which make them all the more difficult to remove.vested interests.  Quotas tend to restrict competition much more than tariffs by helping importers and exporters to acquire monopoly power. Tariffs in some respects are superior to quotas. however.  The effects of quotas are more rigorous and arbitrary and they tend to distort international trade much more than the tariffs. government pays to a domestic producers reducing operations cost. Such payments are called subsidies. loans and advances at low rate of interest.  Quotas offer greater scope for corruption than tariffs. and removable as soon as circumstances warrant. Subsidies are in different forms. suffer from certain effects. tax holidays. .  Quotas may support inflationary pressures within the country by restricting supply. Quotas. They are: Cash grants.

the exporter sells specified goods to the importer in exchange for specified goods. Basically it is a barter (exchange of one type of goods for another type of goods) or quasi-barter agreement. where cash may not involve but there is always a link between the imports and exports transactions. In other words barter involves trading goods for goods. This type of counter trade is not very common as it takes considerable time to find a suitable third party to whom the exporter can transfers the purchasing agreement. The contract period of buy back . In this case no cash in involved. the goods to be produced by the importer with the exporter s' equipment or technology. Buy back arrangement: This type of arrangement sis the most popular arrangement involving a relatively large volume of trade. provide plant. but the exporter transfers the purchasing commitment to a third party who may be an end user of products or a trading house. There are a variety of forms of counter trade. the exporter. on either bilateral or multilateral basis.INTERNATIONAL TRADE .UNIT III COUNTER TRADE Counter Trade refers to any one of several different arrangements by which goods and services re traded for each other. Compensation counter trade: Under compensation arrangement the exporter agrees to accept a part of consideration in cash and the balance in kinds. FORMS OF COUNTER TRADE: There are a number of forms of counter trade. For example India exports iron and steel against import of heavy machinery under a contract it is called a counter trade transaction. Pure barter of this type is rare in now a days. in full or part considerations. Barter: In the barter agreement. equipment or technology to an importer and agrees to accept. usually an industrial firm. Under this arrangement. We may examine them in detail in detail as in the following paragraphs. In other words imports are paid out of exports in counter trade.

t o enter new markets. it paid to the western firm direct the amount equal to the price of the plant sold to Russia. REASONS FOR THE GROWTH OF COUNTER TRADE The reasons to engage in counter trade include those basic to business. The goods purchased will not be used by the exporter himself and he will have to arrange for their sale with a third party who may market them. the exporter sells the goods. Switch: This method of counter trade is useful when international currency flow is sluggish or uneven. Such accounts are monitored by the country's bank of foreign trade that deals in foreign exchange and where the company maintains its accounts. the company sells its products or services to a local foreign trade organization and purchases goods and services of its requirements form another local foreign trade organization of the equal amount. Counter purchase arrangement: This type of counter trade arrangement is also common but it is complicated. chemicals and oils. within a specified period. This method of counter trade is useful when international currency flow is sluggish or uneven. Swap: In a swap contract two countries agree to trade. Under this arrangement. This is ideally suited for commodities such as sugar. Thus in a switch agreement. sell products and gain an edge over competition. services or technology to a foreign importer against the purchase of a specified total value of goods selected from a list that excludes those goods produced by the technology being exported. the amount is paid or accepted through a third country or party. Counter trade is . These kinds of transactions are set to occur over a specified period. considerably longer than that of counter purchase arrangements. However. One country that is a party to a bilateral trade agreement will transfer its imbalance to a third party or nation. by necessity.arrangements is. Russia had a clearing agreement with Australia which was buying natural gas to Russia. generally one year. products from different locations with a view to save transportation cost. One example of switch is western firm that sold a plastic manufacturing plant to the then USSR which had no cash to pay. Evidence Accounts: Under evidence accounts. In swap transactions differences in quality of the goods being substituted are worked out in swap contract.

The desire to conceal from the domestic public the fact that the sale is being made below its costs. of achieving bilateral balancing of trade-an important objective of foreign trade policy in the centrally planned East European countries.  It becomes costly as the manufacturing firms will have to set up subsidiaries to handle counter trade arrangements or employ the services of trading companies specializing in such activities. . COUNTER TRADE IN INDIA: The State Trading Corporation of India was involved since 1961 in one for or other of counter trade mechanism by way of trade promotion agreements.A counter trade transaction may provide some slight additional certainty in an uncertain world. at the same time. perhaps one gets done.  It is full of risks and uncertainties. shortage of foreign exchange and the desire to stimulate foreign technology inflows motivated East European countries to enter into counter trade arrangements. The developing countries.  It is time consuming to conclude the arrangements. -Developing countries will have confident to export their products to other countries. For every 10 to 20 deals that are talked about. Some other reasons for the growth of counter trade are as follows: . . India had long a longer Risks increase as counter trade . arrangements extend over several years. barter deals. special trading arrangements.considered a way of overcoming of uncertainty of domestic production plans and. In other worlds counter trade permits price discrimination among customers. creation of overcapacity etc. This requires planning and commitment. DRAWBACKS OF THE COUNTER TRADE Counter trade transactions are often extremely complex and difficult as compared with straightforward trade. have resorted to counter trade for the reasons such as balance of payments difficulties.A counter trade transaction permits concealed discounting in a period of weak markets. This motive for counter trade is important for many developing countries and also for a number of communist countries. etc. particularly those maintaining overvalued exchange rates.

This technique is being increasingly applied for importing technology. It came into force in January 1948. Expectations to this basic rule are allowed only in the case of regional trading arrangements and the developing countries. A Stable basis of trade: The binding of the tariff levels negotiated among the contracting countries provides a stable predictable basis for trade. Trade without discrimination: Trade must be conducted on the basis of nondiscrimination. . Its basic aim is to liberalize trade and for the last 45 years it has been concerned with negotiating the reduction of trade barriers and with international trade relations. 3. All contracting parties are bound to grant to each other treatment as favourable as they would to any country (most favoured nation) in the application and administration of import and export duties and charges. made in the case of developing countries where the demand for imports by development may require them to maintain quantitative restrictions in order to prevent an excessive drain on their foreign exchange resources. 119 governments which together account for 90 per cent of the world merchandise trade subscribe it to.history in the use of buy-back arrangements. 2. The aim of this rule is to make the extent of protection clear and to Make competition possible. Protection only through tariff: Protection should be given to domestic industries only through customs tariffs and not through other commercial measures. a return tariffs is discouraged by the requirement that any increase be compensated for. Although provision is made for the renegotiation of bound tariffs. Exception is. Binding of tariffs means that these cannot be increased unilaterally. however. The rapid and uninterrupted growth in the volume of international trade till 1992 provides a good testimony for the success of the GATT. GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) The General Agreement on Tariff and Trade is a multilateral treaty that lays down agreed rules for conducting international trade. especially for export-oriented projects. Basic Principles of GATT: 1.

the tariff rates for thousands of items entering into world trade were reduced or bound against increase. Consultation: A basic principle of GATT is that member-countries should consult one another on trade matters and problems. England) continued accession and tariff reduction negotiations. 5. 8. Trade Negotiations under GATT: Eight major trade negotiations took place under the GATT auspice as follows: 1. Dillon Round) involved further revision of the GATT and the addition of more countries. The second round in 1949 (Annecy. The third round in 1951 (Torquay. The seventh round in 1973-79 (Geneva. 3. The eight round (Uruguary Round ) started in 1986 and was concluded in April 1994. Tokya Round) centred on the negotiation of additional tariff cuts and developed a series of agreements governing the use of non-tariff measures. Part III: Conditions for membership and withdrawal. The fourth round in 1956 (Geneva) proceeded along the same track as earlier rounds. Part II: A code of fait trade practices to guide members in their commercial policies. 2.4. The average level of tariffs on manufactured goods in industrial countries was bout 3 per cent now as compared to about The principal emphasis was on tariff . France) involved negotiation with nations that desired GATT membership. and Part IV: Expansion of trade of developing countries through special concessions. The first round in 1947 (Geneva) saw creation of the GATT. 4. 7. The agreement consists of four parts: Part I: Main obligations of the contracting parties. The sixth round in 1964-67 (Geneva Kennedy Round) was hybrid of earlier product by product approach with across the board tariff reductions. negotiations. 6. The fifth round in 1960-61 (Geneva. As a result of these negotiations. They can call on GATT for a fair settlement of cases in which they feel that their rights under the GATT are being withheld or compromised by other members.

it completely replaces its predecessor and has a very different character. Under GATT. led to the formation of united Nations Committee on Trade and Development in 1946. The present membership accounts for more than 90 per cent of world trade. To achieve greater coherence in global economic-policy making in cooperation with World Bank and IMF. 5. 4.40 percent in the immediate second world was years. To provide a forum for negotiations among its members concerning their multilateral trade relations in matters dealt with in the agreements. As on 6th November 2000. Most negotiations and tariff reductions have taken place in respect of manufactured goods. However. So the trade gap for the developing countries has become more unfavourable. The WTO is based in Geneva. Switzerland. To administer the trade policy mechanism. To introduce the idea of 'sustainable development' in relation to the optimal use of the world resources and the need to protect and preserve the environment in a manner consistent with the various levels of national economic development. . Many more countries have requested to WTO. WEAKNESS OF GATT: The weakness of GATT is that its benefits have mainly gone to the industrialized countries. 76 Governments became members of the WTO on its first day. Its essential functions are as follows. 1995 WTO is the embodiment of the Uruguary Round results and the successor to GATT. A search for a new institutional arrangement. especially one which one would tackle the problems of the global trade of developing countries. 2. the success of GATT in promotion and securing liberalisation of much of world trade over 47 years was incontestable. 3. T is not a simple extension of GATT. the membership of the WTO stood at 139. 1. WORLD TRADE ORGANISATION Established on January 1. Developing countries were disappointed with Kennedy round and the Tokyo Round. To administer the understandings on Rules on Procedures governing the settlement of disputes. given its provisional nature and the limited field of action.

a multilateral agreement with no institutional foundation with only a small associated secretariat. Trade disputes that cannot be solved through bilateral talks are adjudicated under the WTO dispute settlement 'court'. more automatic and thus much less susceptible to blockages than the old GATT system. The mandate of the WTO includes trade in goods. The WTO is also a management consultant for world trade. . the least developed countries secure a better share of the growth of the international trade. governments chose to treat it as a permanent commitment. WTO is a watchdog of international trade. the WTO covers trade in services and trade related aspects of intellectual property.6. They are: Trade without discrimination Predictable and growing access to markets. and therefore selective. The WTO is a permanent institution with its own secretariat. trade in services. (v)The WTO dispute settlement system is faster. nature. It economists keep a close watch on the pulse of the global economy and provide studies on the main trade issues of the day. after more than 40 years. (iv)While GATT was multilateral instrument by the 1980s many new agreements had been added of plurilateral. (iii)The GATT rules applied to trade in merchandise goods. In addition to goods. make up the multilateral trading system . especially. HOW IS THE WTO DIFFERENT FROM THE GATT? (a) The GATT was a set of rules. The agreements which constitute the WTO are almost all multilateral and thus involve commitments for the entire membership. The WTO commitments are full and permanent. (ii) The GATT was applied on a "Provisional basis" even if. together. (vi)The WTO is more global in its membership than the GATT. regularly examine the trade regimes of individual members. A number of simple and fundamental principles run throughout all of the instruments which. To recognize that there is a need for positive efforts to ensure that the developing countries. trade related in investment measures and trade related intellectual property rights.

Encouraging development and economic reform. The growing importance of services is reflected in the international trade also. Service sector refers providing services and exchanging services to the public as well as society. however mean that all services require the physical proximity of the provider and user. The value of the international trade in services comes to about one fourth of the value of the value of the trade in goods. whether they are persons or machines. and (b) Those that do not. though such physical proximity may be useful. WORLD TRADE IN SERVICES The industrial sector can be classified as production sector and service sector. Production sector refers the industries that are engaged in production and supply of goods. Services make up a major share of the invisible account in the Balance of payments of a country. The services where physical proximity is essential fall into three categories: . That is services cannot be sepearated from their providers. The most important services in international trade include:         Transport Travel Communication Media Business services Insurances Engineering and constructions services Banking Financial Services Characteristics and Categories of Services: An important characteristics of services that has far reaching implications for marketing of services is their inseparability. CHARACTERISTICS: (a)Those that necessarily require the physical proximity of the provider and the user.- Promoting fair competition. This does not.

user goes towards the provider. transportation. compulsion to use local facilities etc. necessary for the exporters to acquaint themselves with these institutions and the nature of help they can render to them so that they can initially contact them to get whatever help they could get from these institutions in exporting their products. OBSTACLES OR RESTRICTIONS IN SERVICE SECTOR: Due to the special characteristics and the socio economic and political implications of certain services. film and other forms of communications and so on. For example the technical people of L & T Company in India goes to Srilanka and do the construction work. Similarly a technician may have to go a plant abroad to rectify a problem with the plant. In this case the provider goes into the place of user and doing services. For example a patient who wants an open-heart surgery will have to go to a hospital where the required facilities are available. Heavily protected r restricted services in different countries include banking and insurance. For example dry-docking facilities for ships. Protective measures include visa requirements. television. radio. they are generally subject to various types of national restrictions. It is therefore. investment regulations. . marketing regulations. I. In this case either the provider going to the user or the user going to the provider may achieve proximity. 1.DEPARTMENT OF COMMERCE: . restrictions on the employment of foreigners. -The third category consists of of mobile user and mobile provider.Mobile user and immosbile provider characterizes the second category.-The mobile provider and immobile user categorize the first category. INSTITUTIONAL INFRASTRUCTURE FOR EXPORT PROMOTION IN INDIA The Government of India has set up a number of institutions whose main functions are to help an exporter in its export efforts.e.

It has its members as follows: a. Presidents of FICCI.ADVISORY BOARDS Board of Trade : The Board of Trade is the highest advisory body under the Department of commerce to deliberate on policy matters. International Trade Policy Division Foreign Trade Territorial Division Export Products Division Export industries Division Export Service Division Economic Division 2. ASSOCHAM and FASSI b. Chairman of ITPO/MD of ECGC Export Promotion Board: under the chairmanship of cabinet Secretary. The department consisting of the following Divisions concerning with various subjects connected with exports and imports. Indian Government Commercial Representatives Abroad 3. Secretaries of Commerce and industry. Director General of commercial Intelligence and Statistics c. This department is headed by a Secretary and he is assisted in the discharge of duties by a Special Secretary . External Affairs and Textiles d. including commercial relations with other countries.The Department of commerce in the Ministry of Commerce and Industry is the Primary Government agency responsible for evolving and directing foreign trade policy and programmes. Directorate General of Foreign Trade b. Leading industries c. 3.AUTONOMUS BODIES: . Finance. Additional secretaries and a number of other senior officers functioning as Divisional heads. Export Processing Zones d.ATTACHED AND SUBORDINATE OFFICES a.

processing plants.(I) Export Promotion Councils: There are 20 export promotion councils covering the following products: Apparels. cotton textiles.. The councils also perform certain regulatory functions as they have the power to register and issue Registration cum-membership certificate under the Export and Import policy and also de-register errant or defaulting exporters. development. In respect of commodities concerned. gem and jewellery. The commodity boards del with the entire range of problems of production. assist manufacturers and exporters to overcome the various constrains and extend to them the full range of services for the development of market overseas. construction. storage premises and exports with a view to promote a healthy development. cashew. Silk. The councils also conduct market surveys. Some of these Boards have opened their branch in foreign countries in order to promote the consumption of the commodities under their jurisdiction. (II) Commodity Boards: There are 9 Statutory Boards for the following commodities: Handicrafts and Handloom. Registration of fishing vessels. sports goods and wool and woolens. chemicals. The department of commerce provides necessary financial assistance in relation to their export promotion work. rubber. coir. shellac. electronics and computer software. . Sponsor trade delegations and guide newcomers in the export trade. (III) Marine Products Export Development Authority: The main functions of the Authority are: 1. handlooms. leather. pharmaceuticals and cosmetics. These councils are registered under the companies Act as non-profit making agencies. Development of off-shore and deep. they act themselves as if they were the Export Promotion Councils. These councils advise the Government regarding current developments in the export sector and measures the necessary to facilitate future growth in exports. carpet. 2. tea. plastics. assist in product development. marketing etc. coffee. handicrafts. silk. poweerloom. tobacco and spices. Power loom. synthetic .sea fishing in all its aspects and conservation and management of off-shore and deep-sea fisheries.

processing and marketing. Laying down standards and specifications for marine products for the purpose of export.3. In addition to the normal risk policies. Publish papers. periodicals and other literature having a bearing on trade and commerce. Rendering financial assistance. This is registered under the Societies Act. Establish linkages with trade promotion bodies. regulatory bodies. (IV) Agricultural and Processed Food Products Export Development Authority (V) Indian Institute of Foreign Trade The Indian Institute of Foreign Trade is functioning under the Ministry of commerce. To suit varying needs of exporters. Organize training. chamber of commerce etc. seminars and conferences on matters related to trade and commerce. post shipment credit guarantee and export production finance guarantee. (VIII) Export credit and Guarantee Corporation: The ECGC a Government of India undertaking has been established for minimizing the risk element in export business and to facilitate the flow of finance from the banks to exporters. 5. the corporation assists the exporters through special schemes such as packing credit guarantee. Arranging for training in different aspects connected with export with special reference to fishing. (VI) India Trade Promotion Organization (VII) National Centre for Trade Information (NCTI): The main functions of NCTI inclusive of Create database at national and international levels for export promotion Collect information on various aspects of trade and commerce on different countries. the corporation provides different types of cover which may be divided into the following three broad groups: Standard polices . 4.

1982 for the purpose of financing. Bombay Office of the Jute Commissioner. (XI) Indian Institute of Packaging (XII) Indian Council of Arbitration (XIII) Federation of Indian Export Organization Other Institutions concerned with export promotion: Office of the Textile Commissioner. The bank is the principal financial institution in India for coordinating the work of institutions engaged in financing export and import trade. The EXIM bank concentrates mainly on medium and long term credit for export of goods and services on deferred payment terms. ECGC bears the main risks and pays the exporter 90% of his loss on account of commercial risks and Political risks. (IX) Export-Import Bank: The EXIM Bank was established on January 1. Kolkatta Indian Jute Mill Association. facilitating and promoting foreign trade of India.Financial guarantees Special policies Under its policies intended o protect the exporters against overseas credit risks. In order to ensure the quality of the products exported. a legislation entitled "Export (Quality control and Inspection) Act" was enacted by the Indian Parliament in 1963. It extends finance to exporters of capital and manufactured goods. Kolkatta. (X) Export Inspection Councils: Quality control and pre shipment inspection is one of the important factors in the export marketing. . The functions of this council are generally to advise the central government regarding the measures for the enforcement of quality control and inspection in relation to commodities intended for export and draw up a programme therefore. exporters of soft wares and consultancy services and overseas joint ventures and construction projects abroad. As per this act The Government of India has established the Export Inspection Council.

ROLE OF EXIM BANK OF INDIA Objectives: The Export-Import Bank of India was set up[ the Government of India in 1982 as a public sector financial institution under an Act passed in the parliament for the purpose of financing. facilititating and promoting foreign trade of India.  Finance for consultancy and technology services.  Finance for deemed exports. The board of directors manages the EXIM BANK with representation from government financial institutions.  Finance for EOU and EPZ Units  Software Training Institutes  Export marketing finance  Export-Product Development Finance: This Indian firms to undertake product development.  Forfeiting: This Indian exporters to convert sale to cash on without recourse basis. Services Offered to Indian Exporters:  Underwriting: This enables the Indian exporters to raise finance from capital markets with the backing of EXIM Bank's underwriting commitment. FUNCTIONS: Lending Programmes to Indian Exporters:  Suppliers credit: This enables the exporters to extend credit to overseas importers of eligible Indian goods. banks and business community. R & D for exports. This enables Indian exporters of consultancy and technology services to extend term credit to overseas importers.  Guarantee Facility: To execute export contracts and import transactions.  Business Advisory and Technical assistance .  Pre-shipment credit: This enables Indian exporters to buy raw materials and other inputs for fulfilling export contracts involving cycle time exceeding six months.

For Commercial Banks:  Refinance of Export credit  Bulk import finance  Guarantee cum Refinance supplier's credit Other activities:  The bank helps Indian companies go global by setting up subsidiaries and joint ventures abroad. raw material.  It provides information to potential exporters about projects abroad specially about multilaterally agencies. Some of the modifications done to facilitate the exporting units in the EOUs are as follows:    Simplification of customs/excise procedures Automatic approval under certain conditions to proposal for setting up units. These units have to operate under custom bond and achieve the level of value addition fixed by the Board of Approval.  It also entertains proposals for various facilities under he European Community Investment Partners like feasibility studies for setting up export units.  It also helps companies in preparing bids according to strict condition prescribed by the multilateral agencies. Leasing of capital goods from domestic companies by EPZ\EOU has been permitted. flexibility of operations and incentives. components and consumable at free of custom duties. Cooperation arrangement with African Management Services. .  The bank introduced the "cluster of Excellence" programme for up gradation of quality standards and obtaining ISO certification. At present more than 500 units are in operation under the EOU scheme.. 100% EXPORT-ORIENTED UNITS The scheme of 100 EOU's were introduced in 1980 with a view to generating additional production capacity for exports by providing an appropriate policy frame work. In order to enable them to operate successfully in the international market such units are allowed to import machinery.

ROLE OF EXPORT CREDIT GUARANTEE CORPORATION (ECGC) The risk element in export business is greater than the risk involved in domestic tradebecause the two parties of the export contract (exporter and importer) belong to different countries. EOU unit shall be positive net foreign exchange earner.  By products may also be sold in the domestic tariff are subject to achievement of positive net foreign exchange on payment of applicable duties within the overall entitlement. including capital goods required by it for its activities provided they are not prohibited items of imports.  Scrap/waste arising out of production process or in connection therewith may be sold in the domestic tariff area on payment of duties within the overall ceiling of 50% FOB value of exports.  An EOU unit may import without payment of duty for all type of goods.   Second hand capital goods may also be imported duty free without any age limit. The entire production of EOU units shall be exported subject to the following:  Rejects may be sold in the domestic tariff area on payment of duties on prior intimation to the customs authorities. Application for setting up of units under EOU scheme may be approved by the units Approvals Committee within 15 days. Giving credit poses two problems to an exporter: He should have enough money to offer credit to his overseas buyers and . Encouragement of agro and electronic units by providing higher domestic access. plant and machinery shall be considered for establishment under EOU scheme. The following privileges are enjoyed by the Export Oriented Units:  An EOU unit may export all goods and services except the items prohibited by the exim policy. Only project having an investment of Rs.1 crore and above in building. In the context of growing competition no exporter can manage without selling goods on credit.  EOU units may import/procure from Domestic Tariff Area without payment of duty.

a war in his country. there may be earthquake or typhoon. . he may go bankrupt. Commercial Risk: a. A. and d) Special schemes viz: Transfer Guarantee. Joint ventures and overseas investment. The buyer's protracted default to pay c. The ECGC. Line of credit. b) Specific policies designed to protect Indian Firms against the risk of not receiving payments in respect of Export on deferred payment terms Services rendered to foreign parties and Construction work-undertaken abroad. Restriction on remittance in the buyer's country or any government action which may block or payment to the exporter.- He should be prepared to take the credit risks. c) Financial guarantees issued to banks against risks involved in providing credit to exporters. RISKS COVERED UNDER STANDARD POLICIES: Under its policies to protect the exporters against overseas credit risks. The insolvency of the buyer b. buyer's failure to accept the goods. covers the exports against these risks. COVERS ISSUED BY ECGC: The covers issued by ECGC may be divided broadly into four groups as follows: a) Standard policies issued to exporters to protect them against the risk of not receiving payments while trading with overseas buyers on short term credit. In some special circumstances specified in the policy. when non-acceptance is not due to the exporter's actions. Political Risk: a. Exporting on credit is not without risk. which may wreck his fortunes. The ECGC also provides guarantees to the financing banks to enable them to provide adequate finance to the exporters. The overseas buyer may default. a Government of India undertaking. ECGC bears the main brunt of the risks and pays the exporter 90 per cent of his loss on account of commercial and political risks. Insurance cover for buyer's credit.

War. C.b. Loss or damage to goods which can be covered by general insurers: f. however. RISKS NOT COVERED ECGC.Failure of the exporter to fulfill the term of contract or negligence on his part. Any other cause of loss occurring outside India. including quality disputes raised by the buyer unless the exporter obtains a decree from a competent court of law in buyer's country in his favour. Causes inherent in the nature of goods: c. And beyond the control of both the exporter and the buyer.Flucturations in exchange rates (except under Exchange Fluctuation Risk over Schemes)and g.Insolvency or default of any agent of the exporter or of the collecting banks: . revolution or civil disturbances in the buyer's country c. Special mention may be made of the services policy to protect Indian firms against payment for their services policy to protect Indian firms against payment for their services policy o protect Indian firms against payment for their services and the construction works policy to cover all payments that fall due to a contractor under a composite contract for execution of services as well as supply of material. Commercial disputes.SMALL EXPORTER'S POLICY .g. Additional handling transport or insurance charges due to interruption or diversion of voyage which cannot be recovered from the buyer: and f. b. does not cover risks of loss due to: a. B. Cancellation of export license or imposition of new export licensing restrictions in India (under contracts policy) d.Buyer's failure to obtain import or exchange authorization from the appropriate authority: d.e. not normally insured by commercial insurers. New import licensing restrictions or cancellation of a valid import license in the buyer's country: e. SPECIFIC POLICIES Contracts for export of capital goods or projects for construction works and for rendering services abroad are insured by ECGC on case to case basis under specific policies.

To banks. (ECGC) has designed a scheme of Guarantees to Banks with a view to enhancing the credit worthiness of the exporter so that they would be able to secure better and large facilities from their bankers. Exporters my not. The Guarantee is issued for a period of 12 months against a proposal made for the purpose and covers all the advances that may be made by the banks during the period to a given exporter within an approved limit.The small exporter's policy is basically the Standard Policy. which undertake to obtain cover for packing credit advances.25 lakes. Packing Credit Guarantee: 2. The premium payable for a small exporter's policy is less than the standard policy. Export Performance Guarantee: 6. The Export Credit Guarantee Corporation. The Corporation has evolved the following types of Guarantees. purchasing or packing of goods meant for export against a firm order or letter of credit qualifies for packing Credit Guarantee. granted to all its customers on an all India basis. however. incorporating certain improvements in terms of cover. It will be issued to exporters whose anticipated export turnover for the next 12months does not exceed Rs. EXPORT PRODUCTION FINANCE GUARANTEE . at the pre-shipment as well as post-shipment stage. PACKING CREDIT GUARANTEE Any loan given to an exporter for the manufacture processing. Export Finance Guarantee 5. Post-shipment Export Credit Guarantee: 4. 3. 2. Export Finance (Overseas lending ) Guarantee 1. Export Production Finance Guarantee. 1. Are essential for exporters to realize their full export potential. To meet the varying needs of exporters. be able to obtain such facilities from their bankers for several reasons. in order to encourage small exporters to obtain and operate the policy. FINANCIAL GUARANTEE TO BANKS Timely and adequate credit facilities. D.

100/-per month The percentage of loss covered under the individual post-shipment Guarantee is 75% 4. 5.09% per annum for . If he wins the contract. An exporter who desires to quote for a foreign tender may have to furnish a bank guarantee for the bid bond. EXPORT PERFORMANCE GUARANTEE Exporters are often called upon to execute bonds duly guaranteed by Indian banks at various stages of export business. The Premium rate for this Guarantee is 7 paise per Rs. negotiations or discount of export bills or advances against such bills qualifies for the Guarantee. 3. Banks having WTPSG are eligible for concessional rate of premium and higher percentage of cover. 6. etc. EXPORT FINANCE GUARANTEE This guarantee covers post-shipment advance granted by banks to exporters against export incentives receivable in the form of duty drawback. Premium rate will be 0. Banks having WTPCG are eligible for concessionary premium rate and higher percentage cover. 100 per month and the cover is 75 percent. it can protect itself from the risk of non-payment by the contractor by obtaining Export Finance Guarantee. The extent of cover and the premium rate are the same as packing Credit Guarantee. POST -SHIPMENT EXPORT CREDIT GUARANTEE Post-shipment finance given to exporters by banks through purchase. that the exporter concerned should hold suitable policy of ECGC to cover the overseas Credit risks. he may have to furnish bank guarantees to foreign buyers to ensure due performance or against advance payment or in lieu of retention money or to a foreign bank in case he has to raise overseas finance for his contract.The purpose of this Guarantee is to enable banks to sanction advances at the pre-shipment stage to the full extent of cost of production when it exceeds the FOB value of the contract/order. the difference representing incentives receivable. It is necessary however. EXPORT FINANCE (OVERSEAS LENDING) GUARANTEE If a bank financing an overseas project provides a foreign currency loan to the contractor. The Premium rate for this Guarantee is 7paise per Rs.

There are essentially three major incentives. -Concessional rate of customs duty on imports of selected items of machinery for export production under EPCG scheme.Exemption from taxation of the profits from over seas projects to the extent of 50 percent. This benefit is also available to supporting manufacturers exporting through Export/ Trading Houses provided that the amount of deduction claimed is retained as a reserve for the purpose of the business of the assessee. EXPORT ASSISTANCE AND EXPORT PROMOTION MEASURES Export assistance has become an important tool in any developing country to motivate the manufacturer and businessmen to enter the international market. Claims under the guarantee will also be in Indian rupees. Premium is payable in Indian Rupees. . . HHC of the Income Tax Act allows a deduction of the whole of the profit derived from the export of goods or merchandise. . export incentive system in India has been made very simple. available to exporters. (ii) Fiscal concession: The different types of fiscal concessions are as follows: In the computation of total income Sec. Under the Libralised Exchange Rate Management System (LERMS) exporters will get benefit when rupee depreciates while importers will lose. India has also been providing export assistance for the past about forty years. the budget for the year 20002001 has reduced this exemption by 20% every year to be phased out in five years. fees or any similar payment obtained from the exports of technical know-how and technical services. commission.A 10 year tax holiday for 100 per cent export oriented units and for units located in Free trade zone/Export processing zones. However. When rupee appreciates the balance of benefits will the just the reverse.08% per annum for 90% cover. -Exemption from taxation 50 per cent of royalty.80.75% cover and 1. Most developing countries have resorted to a number of export promotion measures. From 1922. These are (i)Market-based Exchange Rate: Since March 1993 the exchange rate of the rupee is fully determined by the demand and supply condition in the market as the rupee was made fully convertible for export-import transactions in March 1993.

Certain transactions in which goods supplied do not leave the country and the payment for the goods which is received by the suppliers sin India have been treated as deemed exports and are entitled some benefits such as duty exemption in respect of deemed export categories. b. The commercial banks which give credit to exporters can also get guarantee from ECGC. Preshipment finance is provided to the exporter to meet such requirements. An exporter needs finance for processing or manufacturing or assembling or procuring or packing the goods for export. (b)Rebate of excise duty: If the goods exported attract central excise duty either the duty is exempted or refunded if already paid ©Export Finance: Exporters are allowed to get export finance both pre-shipment and post shipment credit at concessional rate of interest. (d)Insurance of credit risk: The ECGC is willing to cover 90% of the political and commercial risks of export operations. (a)Duty Drawback: This is a refund of import duty or excise duty paid on the raw materials and components. etc EXPORT FINANCE Businessmen. which have gone into the production of exported products. industrialists and others require finance for their day-to-day activities. special import license. (e)Deemed exports. d. After the shipment is made exporter will have to give credit the exporter has to wait till the documents reach the importer and he makes the payment. the Central Government is offering the following facility to exporters. In export business also finance plays an important role.(iii)Facilities available under the Export-Import Policy for Export: a. c. e. refund of terminal excise duty. deemed export drawback. It will take some more time . Export finance starts as soon as the exporter gets an order to export. EPCG Scheme Duty Exemption Scheme Export Houses/Trading Houses Export processing Zones 100 % Export oriented units (iv)Other facilities available to exporters: In addition to the above mentioned incentives.

normally finance the post-shipment credit in one the following ways: (i) Negotiating export bills under letter of credit The banks . Post-shipment finance is therefore provided to the exporter to meet his needs for funds during the intervening period between the shipment of the goods and the receipt of payment therefore. if any.before the advice of payment is finally. or Any other evidence of an order for exports of goods from India having been placed on the exporter or Relevant policy issued by the ECGC. COSTS COVERED BY PRE-SHIPMENT FINANCE Pre-shipment finance would normally cover the following costs.POST SHIPMENT CREDIT Post-shipment finance is required by the exporters to bridge the gap between the time of shipment of goods and the actual payment for the goods exported. Cost of purchase or production Packing including any special packing for export Costs of special inspection or tests required by the importer Internal transport costs Port. PRE-SHIPMENT CREDIT OR PACKING CREDIT Export packing credit is a loan or any other credit given by a bank to an exporter for financing (a) procuring raw materials and components to manufacture the product or (b) processing or assembling or packing the goods for export. The banks on the basis of the following give the packing credit. 2. customs and shipping agent's charges Freight and insurance charges if the contract is either CIF contract or C&F contract and Export duty or tax. or Personal bond in the case of party's already known to the exporter. communicated to the exporter. Post shipment credits are given by commercial banks Against the security of approved shipping documents tendered against-letters of credit or otherwise. 1. It is also provided at concessional rate of Interest. A letter of Credit (L/C) opened in favour of the exporter by the importer's bank: A confirmed or irrevocable order for the export of goods from India having been placed on the exporter.

(ii) Medium term: Medium term loans are offered for a period beyond 6 months and up to 5 years. These loans are also provided by commercial banks in collaboration with EXIM Bank of India. FORFAITING Forfaiting enable an exporter to convert an overseas credit sale into a cash sale through the process of discounting of export receivables. The understanding is that the agency will collect the dues from the importer on expiry of the said period. Guarantees provided by ECGC where a substantial part of the risk is covered by the ECGC. The period of credit is usually more than 5 years. Banks enjoy certain benefits for advancing loans to exporters. (i) (ii) Refinance by EXIM Bank of India. Banks usually charge a commission according to the rates prescribed by the Foreign Exchange Dealer's Association of India. and (iii) An advance against bills under collection. (iii) Long term: Long term loans are provided in the case of sale of capital goods complete plants and turnkey jobs.(ii) Discounting of bills drawn against shipment of goods-discounting of usance bills (D/A Bills ) drawn against shipment of goodsdiscounting of bills is usually done under limits sanctioned to different customers. Medium term loans are provided for in the case of durable consumer goods and light capital goods. follows. TYPES OF POST -SHIPMENT CREDIT Post shipment credit may be of three types: (i) Short term: The short term credit is usually for 6 months and provided by banks. 3. The rate of interest on post-shipment credit is also charged at concessional rate. They are as . The bill of exchange accepted by the importer is surrendered to the forfeiting agency which pays him in cash after deducting a fee.

standard design factory buildings. power. Entitlement for EPZ Units: Each of the zones provides basic infrastructure such as developed land for construction of factory sheds. are set up with the intension of providing an internationally competitive duty free environment for export production. in the international market. roads.FINANCE FOR EXPORTS ON DEFERRED PAYMENT TERMS Our exchange control regulations stipulate that exporter should realize the foreign exchange for their exports within 180 days from the date of shipment. EPZ operating units broadly under the product groups of electronics. chemicals and allied products. Foreign equity up to 100% is permissible in the case of EPZ units Procurement of raw materials. Extension of long term export credit has become an accepted export market strategy and therefore. garments. plastics and rubber products. To earn foreign exchange 2. India has seven EPZ at different parts of our country. The objectives of these units are: 1. To contribute to the overall development of the economy. Contracts for export of goods against payment to be received fully or partly after the expiry of the stipulated period for the realization of export proceeds are treated as deferred payment export contract. water supply and drainage. gems and jewellery. . textiles. components and consumables and export of finished products shall be exempt from central levies. To facilitate transfer of technology by foreign investment and other means. at low cost. FREE TRADE ZONE (EXPORT PROCESSING ZONES) These are also referred to as Export Processing Zones. In addition customs clearance is arranged within the zone at no extra charge. engineering items. 4. This enables the products of EPZ to be competitive. provision has been made for the extension of medium and long term credit to finance the sale of Indian capital goods and related services. To generate employment opportunities 3. Provision is made for locating banking\post office facilities and offices of clearing agents in the service centers located in each of the zones. both quality wise and price wise.4.

Shipping company 5. Port Trust 11. 3. Directorate General of Foreign Trade 9. and the terms of conditions as specified in the letter of credit. INTERNATIONAL TRADE – UNIT FOUR PROCEDURE FOR EXECUTING AN EXPORT ORDER The following the parties and agencies involved in executing an export order: 1. Exporter 2.The exporter should scrutinize the export order with reference to the terms and conditions of the contract.Exemption from industrial licensing for manufacture of items reserved for SSI sector. Inspection Agency 12.  Bill of Exchange (if D/A or D/P bill)  Commercial invoice  Bill of lading . document against acceptance or document against payment. Importer. The order should specify the mode of payment such as letter of credit. Customs House 10. Insurance company 6. ECGC 8. Reserve Bank of India 7. The following documents have to be prepared. Clearing Agents Procedure for executing an export order: The exporter has to process the export order in the following manner: 1. The negotiating bank 4.

They will obtain the marine insurance cover for the goods. 6. 4. Thereafter. Where the the .A delivery note (in duplicate) is to sent to the works manager or factory manager giving the description of goods to be exported along with the copy of the instruction given by the importer. Goods should be dispatched to the port of shipment. in the case of shed cargo. the clearing and forwarding agents presents the Port Trust copy of the shipping bill to the respective authorities.Thereafter the works manager sends a dispatch advice to the export department. The clearing and forwarding agent takes delivery of the consignment and arranges its storage in the warehouse. 3. Export inspection agency should be approached. Marine insurance  Packing list  Certificate of orgin  Export inspection certificate 2.As soon as the goods are manufactured and kept ready for shipment following have to be done: Clearance of the excise authority has to be obtained. AR-4 form has to be prepared. After the shipping ill has been passed by the customs. Thereafter he prepares requisite copies of shipping bill and submits them to the Export Department of the Customs house along with necessary documents mentioned above. Then the exports department sends the following documents to its clearing and forwarding agents along with detailed instructions: Commercial invoice Original export order Original L/C Packing list Certificate of inspection Endorsement regarding floor price 5. the Dock challan is prepared.

Finally the exporter will get the value of the value of export consignment against the above-mentioned documents. After paying all the port dues. berth. Certificate of origin. he completes the remaining formalities. the dock charges are indicated in the shipping bill itself and therefore. 7. 10. Packing list. the clearing agent collect the mate receipt from the Port Trust Authorities. As soon as the exporter receives the above documents from the clearing and forwarding agent. The negotiating bank transmits duplicate copy of the GR form to the exchange control department of the Reserve Bank of India after receipt of the export proceeds.The passed Shipping Bill including dock challan will be submitted to the Port Commissioners.The original copy of the bank certificate along with attested copies of the commercial invoice are returned to the exporter. In response to that the Ship's Export Clerk calls for cargo from shed or boat and after loading prepares the Mate Receipt. no dock challan is prepared. Customs invoice. marks and numbers. 12.ship loads overside. description of packages. The mate receipt is first handed over to the Port Trust authorities so that the exporter may pay all the port dues. The duplicate copy of the bank certificate is forwarded to the office of the DGFT in the area. export promotion copy of the bill.  GR Form. condition of the cargo at the time of receipt on board the ship etc. original export order. Marine insurance policy and Bank certificate 11. copies of customs invoice. date of shipment. He will present the following documents to the negotiating bank. 8. 13. A mate receipt is a receipt issued by the commanding office of the ship when the cargo is loaded on the ship and contains information about the name of the vessel. EXPORT PROCEDURE FOR SENDING GOODS An outline of the important steps in exporting the goods is as follows: IEC NUMBER: . The clearing and forwarding agent forwards the following documents to the exporter: Full set of bill of lading. 9.

commodity boards and export development authorities for various products. The offer. productivity council or any other trade promotion organization recognized by the Ministry of Commerce. catalogue numbers or grades. may be in the form of a letter. As a starting point of the negotiations. sizes. becomes an order. It may contain full details of the goods required. MEMBERSHIP CUM REGISTRATION: Membership of certain bodies will help the exporters in a number of ways. The exporter should bear in mind that the foreign buyer have a large number of prospective suppliers in a number of countries and thus he is in a very competitive situation. therefore. which is necessary document required for export to certain countries. time and method of delivery etc. Exporters are advised to become members of local chamber of commerce. Members of EPC will receive different kind of assistance and services in respect of the export business. when accepted by the foreign buyer. be exercised in dealings with foreign country customers. their description. This code number is required to be incorporated in the various export documents submitted to the authorities for purposes of export. Membership of such bodies will help the exporters in different ways. it should be promptly attended to.Every person importing or exporting goods require and Importer-Exporter Code number. An offer is a proposal in which an exporter submits. the exporter would have to make an offer to the foreign customer. The regional licensing authorities normally allot the IEC number. weights or other distinguishing features. INQUIRY AND OFFER: An inquiry is a request from a perspective importer to be informed of the terms and conditions of sale. Serious and sincere care should. his quotation and other relevant information. The exporter . the buyer may place an order with the exporter. CONFIRMATION OF ORDER: Once the negotiations are completed and the terms and conditions are acceptable to the buyer and seller. As soon as the exporter receives a business inquiry from party abroad. including obtaining the certificate of orgin. There are specified Export Promotion Councils .

The exporter should again send once copy to the importer with the exporter's signature to confirm the acceptance of the order. it is necessary to obtain it before finalizing the contract. If the item to be exported requires a license. If the exporter is not a manufacturer. PACKING AND MARKING: Once the goods re ready. it should be ensured that the packing and marking are of the standards recommended or specified. and the buyer is asked to return two copies signed by him. he should contract with his suppliers and ensure timely availability of the goods of the buyer's specifications. SHIPPING SPACE: As soon as the export order is confirmed. For the confirmation of the order. the exporter should contract the shipping companies which have sailings for the port to which goods have be sent and book the required shipping space. FINANCE: If the exporter requires pre-shipment financial assistance.should immediately confirm the order by sending this acceptance. the exporter should take necessary steps to ensure the timely availability of the goods of the specifications required and execute the export order promptly. EXPORT LICENSE: These exports of some items are banned and of some items controlled by means of licenses. the shipping company issues sits acceptance if the space applied for is given. which falls in the banned list. QUALITY CONTROL AND PRE-SHIPMENT INSPECTION: . If the buyer has given instructions about packing and marking. the exporter should make sure that the item sought to be exported is not one. the proforma invoice is generally sent in triplicate to the buyer. though many items are permitted to be exported freely. he should take the necessary steps to obtain it. On the exporter's application or on the application of the freight broker on the exporter's behalf. If there are no such instructions. they should be followed accordingly. The confirmation of the order usually takes the form of a contract. PRODUCTION/PROCRUMENT OF GOODS: Once the order is confirmed. Needless to say. they are marked and marked properly.

Shipping Bill Declaration regarding truth of statement made in the shipping bill Invoice GR form Export license (if required) Quality control Original contract Letter of credit (if applicable) Certificate from quality control authorities Marine insurance policy Certificate of orgin Mate receipt or bill of lading Packing list AR-4 Form .  Any other authorities authorized for this purpose. EXCISE CLEARANCE: the As a matter of policy. the exporter (or the clearing and forwarding agent on behalf of the exporter) should present the following documents to the customs authorities. Some times with specification the goods are allowed to export without payment of duty on execution of a bond with sufficient surety and security in the prescribed bond. They are as follows:  Export Inspection Agency  AGMARK Authorities  Textile committee . the government has granted excise duty exemption for the export products. CUSTOMS FORMALITIES: Goods may be shipped out of India only after the customs clearance has been obtained. the duty is first paid and its refund is claimed. Excisable goods may be exported either under claim for rebate of excise duty or in bond. For this purpose.for textile goods.Thereafter get the goods inspected by the inspecting authorities under compulsory quality control and pre-shipment inspection. In the case of export under claim for refund of excise duty.

subject to a physical examination by the staff of the customs. if any from Government. and if. they pass it for export. APPLYING FOR REFUND (if any) Then appropriate steps to be taken by way of applying to get the Duty Draw bank from customs and other assistance. International Air Transport Association was set up in 1945. for permission to bring in the cargo for export. IATA has made rapid expansion because of three developments for which it has been responsible. The shipping bill passed by the exporter department has to presented to the cargo supervisor or the steamship company or the shed manager. electronic products etc. are sent by air freight. who is the port official. They are as follows: A uniform system of documentation for air cargo. prima-facie. A standard system of rate making and inter airline agreements on rates. ADVANTAGES: A clearing house. EXPORT BY AIR AND SEA EXPORTS BY AIR In international trade the use of air-freight is increasing day by day. satisfied. Nowa-days all types of products like food. SEND THE SHIPPING ADVICE TO THE IMPORTER: Once all the said above process are over and as and when goods are loaded into cargo or ship. . NEGOTIATION OF DOCUMENTS: After shipping the goods. the exporter will inform the importer about the dispatch of goods and departure of the ship. the exporter should arrange to obtain payment for the exports by negotiation with the relevant documents through the bank..- Any other documents The customs authorities scrutinize the shipping bill and other requisite documents. So that the importer get ready for his actions. gems and jewellery. finished leather and leather products. readymade garments.

Related surface transport costs are reduced. quantity. total value. Costs related to administration. The reasons are as follows. A satisfying customer. Thus the advantage of exports by air may be summarized as follows: 1. ordering etc. are minimized. Breakage is neglible. EXPORT BY SEA If the goods are sent by sea the exporter has to obtain/submit the following documents: Bill of Lading Marine Insurance Policy EXPORT DOCUMENTS DOCUMENTS RELATED TO GOODS INVOICE: An invoice is the seller's bill for merchandise and contains particulars of goods.           Low inventory carrying costs Decreased capital costs of goods in transit Less packing lowers cost and reduces chargeable weight. at least for certain categories of merchandise. The loss due to rough handling and pilferage is reduced to the minimum. Greater security and protection during transit. Obsolence is eliminated. such as the price per unit at a particular location. packing . Savings in cost 3.Basically. 5. Insurance premium is reduced. there are ten reasons which can make total distribution costs cheaper through the use of air transport. Speed of delivery 2. 4. Good service to customers without having any warehouse. Deterioration is avoided.

name and address of the importer. of its imports for purpose of assessing importing duties and also for statistical purposes. name of the ship etc. marking numbers. Some importing countries insist that the importing country's consul located in the exporter's country should sign the invoice. identification marks of the package . grade. PACKING NOTE AND LIST: The difference between packing note and a packing list is that the packing note refers to the particular of the contents of an individual pack. A certificate of orgin may be required when goods of a particular type from certain countries are banned. Apart from the details in the packing note. and various trade associations that have been authorized by the government. This certificate is a necessity where a country offers a preferential tariff to India and the former is to ensure that only goods of Indian Orgin benefit from such concession. bill of lading number. for the customs law of the country may require this procedure. export promotion councils. value. terms of sale. destination. Such invoices are known as consular invoice. This certificate has also to be produced before clearance of goods and assessment of duty. the name and address of the importer. the order number. the date of packing. which specifies the country of the production of the goods. .specifications. case number to which the note relates. while the packing list is a consolidated statement of the contents of a number of cases or packs. the name and address of the exporter. and the contents of the goods is in terms of quantity and weight. is a certificate. A packing note should include the packing note number. sources etc. CERTIFICATE OF ORGIN: A certificate of orgin. A certificate of orgin from may be obtained from chambers of commerce. date. The main purpose of a consular invoice is to enable the authorities of the importing country to collect accurate information about the volume. bill of lading number and date. as the name indicates. shipment per bi. a packing list should also include item wise details. quality.

flag. master or agents. such as number and description. allows it to pass the gate. the name of the vessel. etc. The driver of the vehicle carrying cargo should posses the ticket. the port at which goods are to be discharges. vehicle and gate pass. The shipping bill contains particulars of the goods exported. The mate receipt is first handed over to the Port Trust authorities so that all the port dues may be paid by the exporter. it should be presented to the gate warden/inspector along with other shipping and port documents.. the number of packages. total number of packages. The inspector. It also contains details of the packages and the goods. marks and numbers. etc. whether Indian or foreign merchandise to be re-exported. the exporter's name and address. the country of final destination. their total weight and value etc. SHIPPING BILL The shipping bill is the main document on the basis of which the customs' permission for export is given. quantity details about each case. the shipping bill number. after satisfying himself that the vehicle is carrying the cargo as mentioned in the document. the port of destination and the number of the vehicle carrying the cargo.DOCUMENTS RELATED TO SHIPMENT MATE RECEIPT A mate receipt is a receipt issued by the commanding office of the ship when the cargo is loaded on the ship. and when the vehicle is brought at the port gate. condition of the cargo at that time of receipt on board the ship. After paying all the port dues. marks and numbers. description of packages. is prepared by the exporter and includes details of the export in terms of the shipper's name. real value as defined in the sea customs act. the merchant or the gent may collect the mate receipt from the Port Trust authorities. and contains information about the vessel. date of shipment. berth. CERTIFICATE OF MEASUREMENT . CART TICKET A cart ticket also known as a cart chit. The bill of lading prepared by the shipping agent after the mate receipt has been obtained.

a certificate of measurement from the Indian chamber of commerce or other approved organization may be obtained by the shipper and given to the shipping company for calculation of the necessary freight. if a Bill of lading is qualified with certain adverse remarks such as 'goods insufficiency packed in accordance with carriage of goods by Sea Act".. the marks and numbers. also called an air consignment note. the name and destination of the vessel. each has its own airway bill. It is also an document of title to the goods. the weight declared by the shipper may be accepted. the number of packages. The exporter prepares the Bill of lading in the forms obtained from the shipping company or from the agents of the shipping company. and (iii) as a contract for the transportation of goods. The information contained in the Bill of lading includes the date and place of shipment. BILL OF LADING The Bill of lading is a document where in the shipping company gives its official receipts of the goods shipped in its vessel and at the same time contracts to carry them to the port of destination. as such. the name of the consignor. the invoice number and the date of export. . "one box damaged" etc. A Bill of lading serves three main purposes: I) As a document of title to the goods' (ii) as a receipt from the shipping company'. AIRWAY BILL An airway bill. When it is charged on the basis of weight. As each shipping company has its own bill of lading.Freight is charged either on the basis of weight or measurement. quality and destination of the goods. is a receipt issued by an airline for the carriage of goods. A Bill of lading acknowledging receipt of the goods apparently in good order and condition and without any qualification is termed as a clean bill of lading. the gross eight and net weight. and. it is termed as a claused bill of lading. is freely transferable by endorsement and delivery. the description. the amount of freight etc. Each shipping company has its own Bill of lading. However.

chemicals and allied products. MACHINERY FOR QUALITY CONTROL AND INSPECTION: (i) EXPORT INSPECTION AGENCIES: For carrying out pre-shipment inspection of export of goods. (ii) OTHER AGENCIES: Government has also recognized 21 private inspection agencies and 7 government inspection agencies to supplement the work of quality certification. are under the compulsory quality control inspection system.. The main functions of EIC as assigned are:  To advise the central government regarding measures for enforcement of quality control and inspection in relation to commodities intended for export and to draw up programmes therefore. Consignment-Wise Inspection 2. Delhi and Mumbai under the technical and administrative control of the EIC. jute and jute products. The Export Inspection Council (EIC) consists of a Chairman appointed by the Central Government. cashew. and  To arrange pre-shipment inspection of notified commodities for export. footwear and footwear components. The Export inspection agencies have also been authorized by the Government of India to issue certificates of orgin under the Generalised system of preferences for export to Japan. In-Process Quality Control . food and agricultural products. the Government of India has established five export inspection agencies one each at Calcutta. About 1000items under produce group heads of engineering. fish and fishery products etc. 4 ex-officio members and 15 members nominated by the central government. cochin. They are: 1. SYSTEM OF INSPECTION Three Systems of inspection are in operation at present. chennai. EEC. USA and East European countries.QUALITY CONTROL AND PRESHIPMENT INSPECTION The Export Inspection council of India was set up by the Government f India in 1963 to provide for sound development of export trade through quality control and preshipment inspection.

3. directing a certain person to pay a certain sum of money only to. There are five important parties to a bill of exchange: The Drawer The Drawee The Payee . under certain conditions and up to certain amounts . These units are under the supervision by the Export Inspection Agencies through random spot checks. IN-PROCESS QUALITY CONTROL: This system lays emphasis on the responsibility of the manufacturers and processors in ensuring consistent quality during each stage of production by exercising checks on materials. The certifications of inspection in favour of units approved under the scheme are issued by the Export Inspecting Agencies. defines the bill of exchange as " an instrument in writing containing an unconditional order. signed by the maker. Self-certification CONSIGNMENT-WISE INSPECTION: Under consignment-wise inspection. SELF-CERTIFICATION: Under this system the manufacturing units fulfilling the norms prescribed are authorized by the central government to issue certificates of inspection under the Act by themselves for their products. each export consignment is inspected and tested by the recognized inspection agencies by selecting consignments on the basis of statistical sampling plan to satisfy conformity of the products with the prescribed standards. DOCEMENTS RELATED TO PAYMENTS LETTER OF CREDIT A letter of credit is a document containing the guarantee of a bank to honour drafts drawn on it by an exporter. or t the order of. a certain person or the bearer of the instrument. components through inspecting process centers. 1881. provided that the beneficiary fulfils the stipulated conditions BILL OF EXCHANGE The Negotiable Instruments Act.

BANK CERTIFICATE OF PAYMENT It is a certificate issued by the negotiating bank of the exporter certifying that the bill covering particular consignments has been negotiated and that the proceeds received in accordance with exchange control regulation in the approved manner. but the retains ownership of the merchandise until the importer has made full settlement. . LETTER OF HYPOTHECATION A letter of hypothecation is a document signed by the customer conveying to a banker the full ownership of goods at the port of destination in respect of which he has made advances either by loan or by acceptance or negotiation of bills of exchange. the importer is allowed to sell the imported goods by acting as an agent of the bank. Under this arrangement. Insurance of ships is called " Hull Insurance" while cover provided in respect of goods sis termed as cargo insurance.The Endorser The Endorsee TRUST RECEIPT If the importer is unable to take possession of the documents by making the payment on the D/P bill following the arrival of the goods. Utmost Good Faith: It is the duty of the proposer to disclose clearly and accurately all material facts related to the risk. MARINE INSURANCE Insurance granted to cover loss or damage to ships or goods in transit either by sea. the merchandise may be made available to the importer by his bank under an arrangement whereby the importer signs a trust receipt. air or land is called Marine Insurance. This is a sort of blanket document which shipping documents. damage or detention or incur in respect thereof. all sums received from the sale of goods must be credited to the bank until such settlement is made. demands from a customer to give him recourse son the bills and control of the documents. The fundamental principles of marine insurance are explained below:: Insurance Interest: A person has an insurable interest in a thing if he will be benefited by its safety or due arrival or be prejudicial by its loss.

if the damage is caused by perils specified in the contract known of policy of the insurance. wrongful conversion. without the intervention of any force started and working actively from a new and independent source. which brings about a result. to protect and indemnity the shipper or the owner of the goods against loss or damage or expense in connection with the goods at the risk. Barratry: Barratry is the willful misconduct of master or crew and would include theft. . Fire: Fire includes both direct fire damage and also consequential damage as by smoke or stream. collision and damage by sea water when caused by perils such as opening of the seams of the vessel by collision. Contribution: If there are more than one insurer it is desirable not only to ensure that the insured does not receive more than indemnity but that any loss is fairly spread between all the insurers involved. Subrogation: The insurer upon payment of loss is entitled to the benefits of any rights against third parties that may be held by the assured himself. One is open policy and another one is specific policy. Assailing thieves: This refers to a forcible taking rather than clandestine theft or mere pilferage. How to Insure: Under marine insurance the policy will be taken by two ways. intentional casting a way of vessel or any breach of trust with dishonest intent.Indemnity: Marine insurance is a contract of indemnity whereby the underwriter or assurer or the insurance company agrees for a stated consideration known as premium. Jettison: Jettison is the throwing of articles over board. RISKS COVERED: Perils of the Sea: It includes out-of-the ordinary wind and wave action. and loss resulting from efforts to extinguish a fire. Whereas in specific policy the insurance will be made by shipment wise. In open policy the insurance will be made for all the shipments made in a period. usually to lighten the ship in times of emergency. lightning. Proximate Cause: Proximate cause means the active efficient cause that sets in motion a train of events.

All other perils: This clause does not mean all the perils that be fall a shipment, but sea perils of the sort listed in the clause. RISKS NOT COVERED: Marine insurance does not cover the losses or damages expected to occur in the following cases: Under Normal Conditions: Because of the nature of goods themselves their inherent vice such as breakage of fragile glasses packaged inadequately. Damage caused by original packing is excluded no matter when the damage itself may occur. Leakages or hook losses on goods packed in bags, solidification of palm and coconut oil unless heated storage is provided. Delay: This means that loss of market and loss, damage or deterioration arising out of delay in transit are not covered. Ordinary unavoidable Trade Losses: These losses such as shrinkage and evaporation in bulk shipment are also not covered unless specially insured. Wars, Strikes and Commotions: Such as these perils are commonly excluded unless endorsed. Dangerous Drugs Clause: The dangerous drugs clause stipulates that losses connected with the shipment of optimum and other dangerous drugs will not be paid for unless certain specified conditions are met. IMPLIED CONDITIONS: In a contract of marine insurance the following conditions are implied: i. that the assured will exercise utmost good faith in disclosing the actual facts. ii. That the generally accepted usages of trade applicable to the insured subject-matter are followed; and iii. That the assured shall not contribute to the loss through willful fault or negligence. HOW MUCH TO INSURE FOR? In a marine insurance the polices are normally 'valued'. That is insurance is done at the agreed value, i.e. Cost of the price of the cargo plus freight and all charges plus an allowance for normal expected profit. Normally, the expected profit is calculated at 10%

of CIF value, but this figure may be increased upon the consignee's specific request.In the case of total loss, the agreed price is paid and in the case of partial loss, a percentage of the total insured value is recoverable. HOW TO MAKE A CLAIM WHEN LOSS ARISES: Duties of Assured: Before making a claim the assured must perform certain duties. They are:The assured must make reasonable effort to minimize the loss. o He must immediately inform the nearest agent of his underwriter, arrange for a survey of the damage and supply the necessary commercial documents. o He must make timely written claim upon the carrier for the loss or damage within a reasonable time with the necessary documents. The following documents are usually sent with the claim application.  Original and duplicate copies of the marine insurance policy or the certificate.    Ocean bill of lading Original shippers invoice Packing list, weight certificate or other evidence of the nature and conditions of the goods at the time of shipment.   Survey report of the underwriter's re[representative . Claim bill: This sets out the actual claim giving the details of the loss or damage of the cargo. TOTAL LOSS: A total loss may be actual or constructive. An actual total loss may occur when the goods are destroyed or when they arrive so damaged as to cease to be a thing of the description insured. A constructive total loss occurs when the expenses of recovering or repairing the goods would exceed their value after the expenditure has been incurred. PARTIAL LOSS: If loss is less than total it is called average in insurance term. Average may be particular or general. PARTIAL: There are two types of particular average losses.i.e. Total loss of a part of the goods and goods arrived in a damaged condition. That means when a part of the

total consignment is completely lost, the insured value of such goods shall be calculated proportionately. condition. The second type is that the part goods are arrived with damaged

INTERNATIONAL TRADE - UNIT FIVE

EXPORT TERMS OF PAYMENT AND LETTERS OF CREDIT

The exporter has to receive payment for the goods he supplied to the importer. How it is to be paid can be decided by the exporter and importer before the shipment is made. Generally there are five methods of export payment and they are explained below:

PAYMENT IN ADVANCE: This type of payment is most uncommon. However, if thee is heavy demand for the goods and the goods are tailor-made for the customer, the exporter may get payment in advance. Under this method, the exporter receives a bank or a bank advice either on confirmation of the order or at any time before shipment. This is the most advantageous form of payment as the exporter does not have any risk but, as we have already observed, it is not very common. OPEN ACCOUNT: Under this method, the exporter sends the documents directly to the importer with a covering letter asking for the invoice value to be remitted to him. In this case the exporter does not draw any bill of exchange. Hence, there is no evidence of the obligation to pay. Though this method is simple and less expensive the exporter carries the burden of finance and it also involves real risk for the exporter. The exporter may accept this method of payment if there is keen competition and there is a long and established relationship between and the importer. DOCUMENTARY BILLS: This method of payment finances a large proportion of overseas trade. These bills act as a bridge between the exporter's willingness to part with his money unless he is paid

the exporter makes shipment to the overseas consignee/agent. In case of D/A bills. On the due date of payment. If the agent fails to sell the goods. . the exporter's bank will send the documents to its correspondent bank in the importer's country. LETTRS OF CREDIT A letter of credit is a document containing the guarantee of a bank to honour drafts drawn on it by an exporter.for and importer's unwillingness to part with his money unless he is sure of receiving the goods. Under this method of payment the exporter agrees to submit documents to his bank along with the bill of exchange. After the importer accepts the bill he will get possession of the documents for taking delivery of the goods. provided that the beneficiary fulfils the stipulated conditions (Detailed explanation for letter of credit was given separately). The payment for the goods shipped is made only when the agent ultimately sells the goods to other parties. the bank will again present the bill to the importer who then makes the payment. The commercial banks that deal in foreign exchange provide a via media by giving the necessary assurances to both the parties. Under D/P bills. The documents include bill of lading. but retains the title to the goods as also the risk attendant thereto. SHIPMENT ON CONSIGNMENT BASIS In this case. The money received is remitted through usual banking channels to be credited to the exporter's account. involve and a marine insurance policy. the correspondent bank will submit the bill of exchange to be signed by the importer t indicate his acceptance of the payment obligation. even though the overseas consignee will have the physical possession of the goods. On payment of the bill of exchange the bank will deliver the documents to the importer so that he can take possession of the goods. he may return the goods at any time without any liability and at the seller's expense. Under this method there are two types of payments viz: Documents against payment (D/P) and documents against Acceptance (D/A). under certain conditions and up to certain amounts. which will present the documents to the importer and ask him to pay the money for the goods exported.

under certain conditions and up to certain amounts. 5. of course. The Paying Bank: The paying bank is the bank on which the draft or bill of the exchange is to be drawn under the commercial credit. is the bank in the importer's country issuing the letter of credit at the request of the importer. If the letter of credit is confirmed. The letter of credit is opened at the initiative and request of the buyer. which. 3. 6. at the request of the issuing bank. The Beneficiary: The beneficiary is the party in whose favour the credit is issued. that he follows the instructions. The paying bank may be the issuing bank. notifies the beneficiary that the credit has been opened in his favour.LETTER OF CREDIT A letter of credit is a document containing the guarantee of a bank to honour drafts drawn on it by an exporter. which guarantees the credit at the request of the issuing bank. The confirming bank undertakes all the obligations of the issuing bank as a primary party to the credit. provided that the beneficiary fulfils the stipulated conditions. the confirming bank is obliged to honour its commitment. The Issuer: The issuer. the buyer is assured that the shipment will be made by the date specified in the letter of credit. 2. also called the opening or issuing bank. provided. Though the buyer has to have the botheration of arranging for the letter of credit. . PARTIES TO THE LETTER OF CREDIT: 1. a letter of credit ensures him payment for the goods he sells. it may enable him to obtain more liberal discounts and a lower price from the seller. and even if the issuing bank fails during the currency of the credit. The Opener: The opener is the buyer(importer). that is the beneficiary is the seller or exporter. The Notifying Bank: The notifying bank is the bank. the confirming bank or the notifying bank. the confirming the bank advises the beneficiary accordingly. or else the credit will expire. 4. As far as the seller is concerned. Further. The confirming Bank: The confirming bank is a bank in the exporter's country. The letter of credit offers advantages to both the seller and buyer.

4. Clean Letter of Credit: This kind of letter of credit may be negotiated against a clean draft. and without notice to. . the named beneficiary of a non-assignable L/C cannot transfer his rights to another party. Under this kind of L/C. Revocable credit: The revocable letter of credit may be revoked or cancelled at any time without the consent of. If no paying bank is specified in the credit. which pays or accepts the drafts of the exporter.7. and if the bank agrees to negotiate the documents. After the bank has accepted it. either within a stated period or before the expiry date of the credit. Cash credit. the draft becomes a bank acceptance. 8. Documentary Letter of Credit: Under this. it becomes the negotiating bank. therefore. 6. The great advantage of this type of credit. As the revocable L/C does not adequately protect the beneficiary on the basis of this type of L/C are not common. Irrevocable Credit: An irrevocable L/C is one. amended or modified by the issuing bank without the express consent of all the parties concerned. the draft must be accompanied by the documents specified in the letter of credit. the beneficiary may assign his rights to another beneficiary. A clean draft is a draft without any documents attached to it. is that the beneficiary will receive cash for his draft as soon as the goods are ready for shipment and the relevant documents in proper order are represented to the bank. 2. 5. the bank merely 'accepts' the drafts drawn by the exporter. Assignable Credit. KINDS OF LETTER OF CREDIT 1. to other banks or to exchange dealers. under the cash credit. which cannot be revoked. the beneficiary may go the any bank and present the draft and related documents under the credit. the beneficiary. 7. 3. which may be readily discounted or sold by the exporter to the accepting bank. Acceptance Credit: Under this arrangement. the exporter may draw a sight draft on the bank. Non-Assignable Credit: As opposed to the assignable credit. The Negotiating Bank: The negotiating bank is the bank.

9. M/S Rainbow limited. Revolving Credit: A revolving credit is designed to obviate the need for establishing new credit for each shipment when the transactions are more or less continuous. Chennai has secured a contract for the supply of 200 ceiling fans to a Nigerian importer. STEPS IN THE OPERATION OF LETTER OF CREDIT: In Letter of credit.. which scrutinizes the . opened by a bank on behalf of the beneficiary of an original credit. it becomes a confirmed credit. viz.000. He presents these to the correspondent bank. On receipt of this advice from the local correspondent bank in India. the issuing bank and the advising bank incase of unconfirmed credit or the confirming bank in case of confirmed credit. The total value of the contract is Rs. The red clause is an authority to the negotiating bank to make advances to the beneficiary for the purpose of purchasing the relevant merchandise. The conditions on which such advances may be made are incorporated in the L/C. 11. the Rainbow limited. In this case. normally four parties are involved. makes the shipment of he cling fns and gets the shipping documents and other related documents. the beneficiary of the credit (exporter). 10. Under the revolving credit. 12. the applicant for the credit (importer). The original credit backs another credit and facilitates the purchase of the goods from a local supplier by the beneficiary of the original L/C. provision may be made for making available the credit again as soon as the importer reimburses the issuing bank with the drafts already negotiated by the paying bank. Confirmed Credit: If a bank in the beneficiary country confirms the L/C. the bank issuing the L/C sends it through its branch or correspondent bank located in the beneficiary's country with the request to add its confirmation to the credit. The step-by-step procedure involved can be discussed by taking an example. It has been decided that the terms of payment will be a confirmed irrevocable letter of credit. in favour of a domestic supplier. Back-to-Back Credit: A back-to back credit is essentially a secondary credit. Red Clause Credit: The red clause L/C enables the beneficiary to draw a predetermined value of the L/C as its established. 00. Once the contract is duly signed the Nigerian bank then sends instructions to its correspondent bank to the credit and the advice the Rainbow limited accordingly.2.

The documents are then forwarded to the issuing bank. viz. SALES CONTRACT BUYER CONFIRMATI SELLER ISSUING OPENING ADVICE ISSUING BANK DOCUMENTS CONFIRMING BANK The straight lines show the flow of the credit. presentation of documents and the process of payment. on the banker's credit issuing the letter of credit. The issuing bank in turn presents the documents to the importer and debits his account for the corresponding amount. who do not know him and may rely upon his standing. ADVANTAGES OF LETTER OF CREDIT: 1. Payment after satisfying conditions: The importer is assured in case of documentary letter of credit that the exporter cannot obtain any benefit under the letter of credit without actually shipping the merchandise and handing over the documents to the bank. therefore. The dashed lines shows the flow of the documents and the dotted lines show the process of payment. which reimburses the amount to the correspondent bank. . If these are in full conformity with the terms of the credit.documents. The entire scheme of operation can be easily visualized with reference to the Flow chart given below. The steps involved. it will accept the documents and make the payment to the exporter. opening of credit. Purchase without cash: The importer can purchase goods on credit from foreign merchants. relate to three distinct activities. 2..

tobacco spices etc. 4. the letter of credit provides an absolute assurance that the bills of exchange drawn under the letter of credit will be honoured. . Small growers development scheme. Certainty of Payment: Though the importer and the exporter are not known each other. rubber. development and export of some commodities like tea. Some of them are 1. Better terms of trade: The issuing banker lends the advantage of his own credit to the importer. These boards are statutory bodies. 7. The functions of these boards includes It looks after the production and marketing of tea in India. coffee. The export promotion activities are undertaken to popularize Indian tea and consumer level with special promotion programme to promote India teas in value added for like packet tea. 6. 5.Tea plantation finance scheme. New tea unit finance scheme. who is able to secure terms of trade from the foreign supplier. and the goods released. shipping documents are surrendered to him in return for his trust receipt. COMMODITY BOARDS The government of India has established a number of commodity boards to be responsible for the production. Provide financial assistance and grants for tea research institutes Promote research activities on the allied subjects like packaging of tea. In order to increase the production.Special area development scheme etc.3. Release against trust receipt: When banks are willing to assume credit risk of the importer. tea bags and instant tea.Credit facilities: The exporter can secure loans from his bank to buy or manufacture the goods to be supplied on the strength of the letter of credit. TEA BOARD: The Tea Boards head office is in Calcutta. Discount facilities: The bills of exchange drawn under the letter of credit are readily discounted with the advising/confirming banker or any other banker. because of the firm undertaking given by the opening banker. which is otherwise not possible. the Tea Board runs various development schemes.

balanced fertilization. Germany. Improving tobacco grading through establishment of community grading centers. which have potential markets for Indian coffee. contact programme was launched in 4 regions covering a total number of 1018 growers. and Canada and is also member of the International Tea committee. Special advertisements on the excellence of the Indian coffee were released in important coffee trade journals and magazines in countries. supply of tarpaulins and supply of coal for curing. Allowing exports of tobacco to Russia through debt repayment route. training programme was conducted. Sponsoring delegations abroad and participation in international trade fairs. Improvement of curing and storing facilities by conservation of energy by roof insulation of tobacco barns..K. TOBACCO BOARD:The following are the functions rendered by tobacco board to promote export of tobacco: Allowing exports to countries facing foreign exchange crunch on long term credit terms. pest and disease control. Improving yield and quality of tobacco through control of diseases in tobacco nurseries. COFFEE BOARD: The functions of coffee board includes The coffee board participates in selected international exhibitions and trade fairs for highlighting the high quality and excellent flavour of Indian coffee for the awareness of importers and roasters from different countries. For improving the productivity and quality of coffee. Keeping view the production of quality coffee at estate level.- For promotion of tea as beverage the tea board also participates in the generic promotion programme conducted by tea council at U. SPICES BOARD: . Studies on diseases of coffee and their control were carried out. US.

The Spices Board has number of schemes of assistance to spice exporters such as Brand promotion. EXPORT PROMOTION COUNCILS The basic objective of Export Promotion Councils is to promote and develop the exports of the country. projects and services. The logo mark is awarded to exporters of spices in consumer packs who fulfill certain stipulated conditions of hygiene/processing/packaging and product quality. Logo Promotion. Replantation of old and diseased plants. Production and supply of quality material and rooted cutting. spices board has been supplementing activities of Ministry of Agriculture with a number of schemes that include: 1. Logo is registered in six countries and would be registered in another 14 countries. Each council is responsible for the promotion of a particular group of products. Certificates have been awarded to many manufacturers/processors of spices. Logo Promotion: In the exports of spices. quality is a key element. 1. Organizing training programmes for growers for quality improvement and post-harvest techniques. 3. . They issue Registration cum membership certificate to exporters. Spice House Certificate: The Board has introduced a concept of 'Spice House' and it is awarded only to those exporters who fulfill the prescribed quality standards and have necessary processing infrastructure for production of clean quality process. There are 20 EPCs and a number of specified agencies/boards which shall be regarded as EPCs under the Export and Import Policy. Apart from those schemes. Providing assistance to marginal growers in non-traditional areas. grant of Spice House certificate etc. They are explained below: Brand Promotion: Under this scheme. interest free long-term loans up to a maximum of 50% of the promotion cost for a period of three years are provided to the exporters of spices in consumer packs for promoting their individual brands in overseas markets. The spices board has a scheme to promote a "logo mark" as a mark of quality and Indian ness of spices. 2.

Some of the modifications done to facilitate the exporting units in the EOUs are as follows:   Simplification of customs/excise procedures Automatic approval under certain conditions to proposal for setting up units. as the case may be.  To build a statistical base and provide data on the exports and imports of the country.  To promote interaction between the exporting community and the Government both at the Central and State levels. components and consumable at free of custom duties. product development.The main role of EPC is to project India's image abroad as a reliable supplier of high quality goods and services. The Export promotion councils are non-profit organizations registered under the Companies Act or the Societies Registration Act. as well as other relevant international trade data. quality and design improvement. innovation etc. exhibition and buyer seller meets in India and abroad. These units have to operate under custom bond and achieve the level of value addition fixed by the Board of Approval. standards and specifications.  To offer professional advice to their members in areas such as technology up gradation.. flexibility of operations and incentives. raw material. The major functions of the EPCs are as under:  To provide commercially useful information and assistance to their members in developing and increasing their exports. exports and imports of their members. In order to enable them to operate successfully in the international market such units are allowed to import machinery. .  To organize participation in trade fairs. At present more than 500 units are in operation under the EOU scheme.  To organize visits of delegations of its members abroad to explore overseas market opportunities. 100% EXPORT-ORIENTED UNITS The scheme of 100 EOU's were introduced in 1980 with a view to generating additional production capacity for exports by providing an appropriate policy frame work.

OVERVIEW OF EXPORT AND IMPORT POLICY OF INDIA I POLICY AND ITS OBJECTIVES: Under the Foreign Trade (Development and Regulation) Act. The entire production of EOU units shall be exported subject to the following:  Rejects may be sold in the domestic tariff area on payment of duties on prior intimation to the customs authorities. Leasing of capital goods from domestic companies by EPZ\EOU has been permitted. 1992 the Central Government has notified the Export and Import Policy for the period 2002-2007 which . including capital goods required by it for its activities provided they are not prohibited items of imports.  EOU units may import/procure from Domestic Tariff Area without payment of duty. The following privileges are enjoyed by the Export Oriented Units:  An EOU unit may export all goods and services except the items prohibited by the exim policy.  By products may also be sold in the domestic tariff are subject to achievement of positive net foreign exchange on payment of applicable duties within the overall entitlement.  Scrap/waste arising out of production process or in connection therewith may be sold in the domestic tariff area on payment of duties within the overall ceiling of 50% FOB value of exports.   Second hand capital goods may also be imported duty free without any age limit. EOU unit shall be positive net foreign exchange earner. Application for setting up of units under EOU scheme may be approved by the units Approvals Committee within 15 days.  Encouragement of agro and electronic units by providing higher domestic access.1 crore and above in building.  An EOU unit may import without payment of duty for all type of goods. plant and machinery shall be considered for establishment under EOU scheme. Only project having an investment of Rs.

 To provide consumers with good quality goods and services at internationally competitive prices while at the same time creating a level playing field for the domestic producers. II GENERAL PROVISIONS REGARDING IMPORTS AND EXPORTS a) Exports and Imports shall be free except in cases where they are regulated by provisions of this policy or any other law. intermediates. and to encourage the attainment of internationally accepted standards of quality. as specified in ITC. f) All export contracts currency and invoices shall be denominated in freely convertible currency or Indian Rupees but the export proceeds shall be realized in freely convertible currency. e) Export of samples and Free of charge goods shall be governed by the provisions given in the Hand Book. b) Any person without an importer-exporter code number shall make no export or import unless specifically exempted. industry and services. The item wise export and import policy shall be. published and notified by DGFT.  To stimulate sustained economic growth of providing access to essential raw materials. This number shall be issued by DGFT. components. .  To enhance the technological strength and efficiency of Indian agriculture.came into force with effect from 1 st April 2002 and shall remain in force up to 31st March 2007. The principles objectives of this policy are:  To facilitate sustained growth in exports to attain a share of at least 1% of global merchandise trade. d) Import of gifts shall be permitted where such goods are otherwise freely importable under this policy. c) The provisions given in Handbook shall govern import of samples. thereby improving their competitive strength while generating new employment opportunities. consumables and capital goods required for augmenting production and providing services. The following are the salient features of the policy as amended up to 31 st March 2003.

buyer-seller meet etc. actual user. on the basis of the competitive merits of proposal received in this regard for marketing studies on country product focus approach basis. industry and trade associations etc. industrial parks etc.00. may be exported as a gift. which are world class. For this purpose. The states shall utilize this amount for developing complementary and critical infrastructure such as rods connecting production centers and creation of new state level economic processing zones. description and value of goods. The common service providers in these towns should be entitled for facility under different schemes offered by the Govt. Selected towns producing goods of Rs. should be granted recognition with a view to maximize their export profile.Towns of Export Excellence: The industrial cluster towns that export substantial portion of their products. 2. i) A license shall contain such terms and conditions as may be specified by the licensing authority may include the quantity. the value of addition to be achieved if any.Central Assistance to States: State governments shall be encouraged to fully participate in encouraging exports from their respective states. j) Every license shall be valid for the period of validity specified in the license. 3.Market Access Initiative: Financial assistance shall be available under this scheme to the Economic Processing Zones. seminars.1. III PROMOTIONAL MEASURES: 1. . for export promotion.. suitable provisions shall be made in the Annual Plan of the Department of commerce for allocation of funds to the states on the twin criteria of gross exports and the rate of growth of exports from different states.1000 crores or more will be notified as Towns of Export Excellence on the basis of Potential for growth in exports.in a licensing year.000/.g) Goods including edible items of value not exceeding Rs. participation in international trade fairs. h) Goods imported may be exported in the same or substantially the same form without a license/certificate/permission provided that the item to be imported or exported is not mentioned as restricted for Import or Export in the ITC.

storage and related R & D etc.Agri Export Zones: The services.  They are also entitled to duty free imports of specified items upto 3% of FOB value of their exports. Packing. the following facilities shall be extended to this sector. Units Agri export zones would be entitled for all the facilities available for exports of goods in terms of provisions of the respective schemes. processing. contributes significantly to this effort.Brand Promotion and Quality: The central government will extend support and assistance to trade and industry to launch a nationwide programme on quality awareness and to promote the concept of total quality management. 7. Under EPCG scheme. 6. rendered to Agri Export Zones which would be managed and coordinated by state government would include provision of pre/post harvest treatment and operations plant protection.   The units shall be eligible for funds from Market Access Imitative scheme.Special Focus on Cottage and Handicraft sector: The small-scale sector along with the cottage and Handicraft sector has been contributing to more than half of the total exports of the country. 5. In recognition of the export performance of this sector and to further increase its competitiveness. which mostly employs artisan and rural people. The Regional Sub-Committee on quality complaints shall investigate quality complaints received from foreign buyers.  The units shall be entitled to the benefit of export house status on achieving lower total export/deemed export performance of Rs. these units will not be required to maintain average level of exports.4.Status Certificate: .15 crores during the preceding three licensing years.. The cottage and handicraft sector.

Service Exports: The Service providers shall be entitled for all the facilities mentioned in the policy. the EXIM policy since 1992 acknowledges that the trade can flourish in a regime of substantial freedom. 8. It also recogninses the need for reasonable stability of the policy. within 60 days. The implication of the new policy is that survival of a firm will depend on its competitiveness in the globalising environment and the competitive firms will have plentiful opportunities. The remittance.   Enhancement in normal repatriation period from 180 days to 360 days. service providers. benefits and facilities the new Export and Import Policy showed its emphasis through the following schemes:     CONCLUSION In short. Indian firms will have to gear up themselves to survive and to become successful in the emerging borderless world.   Fixation of input-output norms on priority. 9. Alls status certificates shall be valid from 01-04-2002 to 31-03-2007. Duty Exemption Scheme Duty Remission Scheme Duty Entitlement Pass Book Scheme Export Promotion Capital Goods Scheme . Duty free import entitlement for status subject to some conditions. Exemption from compulsory negotiation of documents through banks.Electronic Data Interchange: Applications received electronically shall be cleared within 24 hours. The status holders shall be eligible for the following new\special facilities:  License/certificate/Permissions and customs clearances for both imports and exports on self-declaration basis. however. would continue to be received through banking channels. by making the duration of the policy 5 years. Apart from the above provisions. Export Oriented Units shall be eligible for such recognition.Merchant as well as manufacturer exporters.

The equilibrium exchange rate is the rate at which demand for foreign exchange and the supply of foreign exchange are equal.. Foreign exchange includes foreign currency. This currency which facilitates the payment to complete the transaction is called foreign exchange. Equilibrium exchange rate can be determined by two methods:  The Exchange rate between US dollars and Indian Rupees can be determined by demand for and supply of US dollars in India or by Indians. Exchange rate determination: The transactions in the foreign exchange market. acceptance houses and Central Bank of the country. For example. viz. the sellers and the intermediaries. ` The Foreign exchange is bought and sold in foreign exchange markets. Exchange rate is the price paid in the home currency for a unit of foreign currency.48 or Rs.  The exchange rate between Indian Rupees and US $ dollars can also be determined by demand for and supply of Indian Rupees by Americans or in USA. The exchange rate can be quoted in two ways namely  One unit of foreign money to a number of units of domestic currency. The market intermediaries of foreign exchange market include Exchange banks dealing in foreign exchange. bill brokers.FOREIGN EXCHANGE The importing country pays money to the exporting country in return of goods either in its domestic currency or the hard currency. cheques and foreign drafts.02 Exchange rate in a free market is determined by the demand and the supply of exchange of a particular country. 1 = US$ 0. components of foreign exchange market rate include: the buyers. The price of US $ is fixed in Indian Rupees. . 1 US$ = Rs.  A certain number of units of foreign currency to one unit of domestic country. buying and selling foreign currency take at a rate which is called exchange rate. This foreign exchange is the money in one country for money or credit or goods or services in another country.

The countries follow fixed exchange rates due to its advantages. Demand for Foreign Exchange: The demand for foreign exchange is determined by the country’s  Import of goods and services  Investment in foreign countries i. establishment of an industry by Indians in USA.  Other payments involved in international transactions like payments of Indian Government to various foreign governments for settlement of their transactions. the governments used to fix the exchange rate and the central bank to operate it by creating ‘exchange establishment fund’.  Other types of inflow of foreign capital like remittances by the Non-Resident Indians.  Inflow of foreign capital  Payments made by the foreign governments to Indian governments for settling their transactions. They are:  Fixed exchange rates ensure certainty and confidence and thereby promoters international business. But the prices are same in both these methods.e. . donations received etc. The supply of foreign exchange includes:  Country’s exports of goods and services to foreign countries.The price of Indian Rupee is determined in US dollars. India) in its foreign exchange market.  Fixed exchange rates promote long-term investments by various across the globe.  Other types of foreign capital like giving donations etc.e. The central bank of country purchases the foreign currency when the exchange rate falls and sells the foreign exchange when the exchange rate increases. EXCHANGE RATE SYSTEM: Fixed Exchange Rates: Under this system. Supply of Foreign Exchange: Supply of Foreign Exchange of a particular country indicates the availability of foreign currency of a particular country to the country concerned (i.

The managed flexibility system needs large foreign exchange reserves to buy or sell foreign exchange in order to manage the exchange rate.  Due to problems with the fixed exchange rate system.  Most of the economies in recent years are liberalized and globalize. The system is changed into managed flexibility system. As such the small but international business oriented countries like UK and Demark prefer fixed exchange rate system. Flexible Exchange Rates: Flexible exchange rates are also called floating or fluctuating exchange rates. most of the world countries at present are not in favour of this system because of the following reasons. In such case.  The economic policies and foreign exchange policies of the countries are rarely coordinated. Under this system. Either the government or monetary authorities do not interfere or intervene in the process of exchange rate determination.  Long-term foreign capital may not be attracted as the exchange rates are not pegged permanently. Most of the world currency like US dollar areas and sterling pound areas prefer fixed exchange rates. if the supply . Despite these advantages.  Fixed exchange rates stabiles international business and avoid foreign exchange risks to a greater extent. the exchange rate system does not work.  Fixed exchange rates result in economic stabilization.  Deficit of balance of payments of most of the countries increases under fixed exchange rate system as the elasticities in international markets are too low for exchange rate exchanges. IMF permits occasional changes in the system. Fixed exchange rates system may result in a large scale destabilizing speculation in foreign exchange markets. These economies prefer flexible exchange rate system. Maintenance of greater reserves aggravate the problem of international liquidity. Flexible exchange rates are determined by market forces like demand for and supply of foreign exchange.

 This system eliminates the expenditure of maintenance of official foreign exchange reserves and operation of the fixed exchange rate system. These frequent changes result in exchange risks.  Under flexible rate system. This system does not result in deficit or surplus of foreign exchange. The equilibrium exchange rate may fail to give correct signals to correct the balance of payments position.  This system permits the existence of free trade and convertible currencies on a continuous basis.  The system helps for the promotion of foreign trade. the exchange rate is determined at a low rate and vice versa. .   It is rather difficult to define flexible exchange rate.  Under this system a reduction in exchange rates leads to a vicious circle of inflation. the exchange rate changes quite frequently.  Stability in exchange rate in the long-run is not possible even in fixed exchange rate system. Disadvantages: However this system is also not free from the disadvantages. breed uncertainty and impede international trade and capital movements. Most of the countries in recent times are in favour of flexible exchange rates due to their advantages. this system provides the same benefit like fixed exchange rate system for long term investments.  This system is simple to operate.  The adjustment of exchange rate under this system is a continuous process. The disadvantages of this system include:  Market mechanism may fail to bring about an appropriate exchange rate. The exchange rate moves automatically and freely.of foreign exchange is more than that of demand for the same. Under flexible exchange rate system.  This system also confers more independence on the government regarding their domestic policies. Hence. speculation adversely influences fluctuations in supply and demand for foreign exchange.

Why the task of international marketing is is more difficult than that of domestic marketing? (Ans: Difficulties of international marketing) 5.Despite the advantages of fixed exchange rate and the disadvantages of floating exchange rate system. Why more and more Indian manufacturers taking recourse to direct marketing? (Advantages of direct exporting and limitations of indirect marketing) 2. Explain the concept of Globalization.41303 QUESTION BANK UNIT ONE 1. . How do controllable and uncontrollable factors affect the environment of international marketing? 6. In addition. Discuss the criteria involved in International Marketing in respect of market Selection decision. Define International Marketing. UNIT TWO 1. 2. Write a note on Pros and Cons of Globalization. the convert ability also helps the floating rate system and the globalization of foreign exchange process. How domestic marketing does differs from international marketing? 3. INTERNATIONAL TRADE . Narrate the scope of International Marketing. What are the advantages that a firm can derive by going into international? (Ans: motivation for exports and advantages of globalization) 4. it is viewed that the flexible rate system is suitable for the globalization process. 7.

4.3. 6. What are the different methods of protection made our government for the sake of domestic merchants? (tariffs. How would GATT agreements help in reducing trade barriers? 5. List out the functions of GATT. Describe briefly the various measures taken by Government of India to help Indian Exporters. 8. Critically examine the contributions by the commercial banks in Export promotional efforts in India. subsidies and quotas) 8. How WTO differ from GATT? 7. What is meant by competitive intelligence? How do firms acquire it? 7. Write a note on world trade services. Give a critical evaluation of various strategy alternatives for selection and entry in the international marketing. What are the various aspects of International Marketing Research. What are the different forms of counter trade? 6. List the importance of /uses of/need for international Marketing research. Bring out the impact of Tariffs & Quotas. 3. . Evaluate the institutional and infrastructure facilities available for export promotion in India. What are its basic principles? 4.(post shipment credit and pre shipment credit). 10. 9. 5. UNIT THREE 1. List out the standard clauses of International Sales Contract.(export assistance and export promotion measures) 9. Write a explanatory not on trade barriers. What do you mean by counter trade? Is it advantageous? 2.

4. 12. .10. What are the advantages of export of goods by air? 5. 3. Write a note 100% Export Oriented Units (EOU) and its obligations. 3. Make a critical appraisal of working of the Export Credit and Guarantee Corporation. 7. What are the risks that are covered under marine insurance? Explain the procedure and documents used when the loss occur 9. UNIT FIVE 1. Explain the role of FTZ. Examine the salient features of India’s latest EXIM Policy. Present a detailed account of the procedure for export of goods. What are the machineries available for quality control and inspection? 8. 6. 13. What are the uses of Letter of Credit? Briefly explain the various types of Letter of Credit. 11. 2. Describe the stages of processing an export order. 2. Explain how payments are settled in International Trade. Write short notes on Export by Air Export by sea 4. UNIT FOUR 1. Briefly discuss the functions of commodity boards. Explain the significance of documents used in export trade related to shipment of goods and payment. Discuss the role of EXIM bank in International Trade context. Explain the fundamental principles of marine insurance and discuss the extent of coverage available under different forms of marine insurance. State the steps involved in the operation of Letter of Credit.

Assess the impact of recent liberalisation measures on India's International marketing? 13. 2.5.Critically . Trace the recent trends in Indian foreign trade. How the foreign exchange rate will be determined? 6. What are in your opinion reasons for sluggishness in Foreign Trade? various assistance available to Indian Exporters? 7. Write short note on IMF. give suggestions to 12. Explain the advantages of Regional Economic groupings? 9.Formulate a stategy to increase exports of India's SSI sector? .Examine the extent to Exports? which the direct Export subsidies have methods exports? 11. INTERNATIONAL TRADE GENERAL QUESTIONS 1.Describe the could helped the Indian Exporters. What are the major Exports of India? 8.what other prove effective in encouraging more examine the Indias export performance causes for the existing situation and improvement. Explain the salient features of the EXIM policy of our country Give suggestions to further improve the competitiveness of Indian 10. 5. State Indias 6. Explain the main features of India's foreign trade? 4. 3. Present an overview of India’s latest Export -Import policy. Discuss the advantages and disadvantages of different exchange rate system.

between 'desk research and field .Examine the extent to which the direct export subsides have helped the Indian exporters.Write a detailed note on Project exports of India? 18. 20.Discuss the Indian context.What do you mean by 'Marketing mix .Formulate a strategy to increase exports of India's small scale 22."Quality improvements are essential to boost exports".What are the various export Govt.What other methods encouraging more exports? could prove effective in 21.in the context of International Trade? 25. 26.What are the main issues that should be considered while framing the multinational marketing plan.14." Quality industry sector.Distinguish research'. validity of the statement in the 23.Explain Indian the role the validity of the statement in the of export subsidies in promoting exports.How does International economy? Trade contribute to the countries 17.Briefly describe the recent experience of Non tariff barriers.Discuss Indian context? 15. improvements are essential to boost exports".of India to boost Exports? incentives provided by 19.What other methods do you suggest? 16.As a marketing manager .how problems of your choice. will you go about the finding overseas market for a product of 24.

What ?Briefly exports.27.Discuss the issue 'standardisation Vs localisation in international marketing. .what are the duties of the exporter and importer ? do you understand how by it Medical Transcription in service 30. outline helps india 31.What are the different market entry strategies available to MNC to expand their international trade ? 28. 29.What are the major export items of India ? Who are the major competitiors of these items ?Discuss.Under FOBcontract .

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