PROCEDURE & DOCUMENTS
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.
Establishing joint ventures in foreign countries for manufacturing and or marketing and Offering consultancy services and undertaking turnkey projects broad. Depending upon the degree of firm’s involvement. It is different from domestic marketing in as much as the exchange takes place beyond the frontiers.INTERNATIONAL TRADE UNIT ONE
DEFINITION OF INTERNATIONAL MARKETING: Kotler defines marketing as 'human activity directed at satisfying needs and wants through exchange process. Scope of International Marketing: Though international marketing is in essence export marketing. International Marketing vs. Negotiating licensing/ franching arrangements whereby foreign enterprises are granted the right to use the exporting company's know-how's. Both in domestic marketing and international marketing success depend upon satisfying the basic requirements of consumers. It also means entry into international markets by: Opening a branch/ subsidiary abroad for processing. thereby involving different markets and consumers who might have different needs. it has a broader connotation in marketing literature. Domestic Marketing: There are a number of similarities and differences between international and domestic marketing.' International marketing can be defined as "marketing carried on across national boundaries". viz. assembly or even complete manufacturing through direct investment. there may be several variations of these arrangements. patents. 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'. wants and behavioral attributes. processes or trademarks with or without financial investment.
.. 1. This necessarily involves finding out what the buyers want and meeting their needs accordingly. packaging.
3. The exchange rates between currencies fluctuate every day. Trade Restrictions: Trade restrictions.
. S a result. It is necessary to build goodwill both in the domestic market and international market. Differences in the Marketing infrastructure: The availability of the marketing facilities available in different countries may vary widely. If a firm is able to develop goodwill of consumers or customers. Cultural Differences: In domestic marketing there is only one nation.2. This my fall in any of the following categories. 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. Research and development for product development and modification is necessary both for international marketing and domestic marketing. Different Legal Systems: Each country has its own legal system and it differs from country to country. which has not been able to do so. For example. particularly import controls are a very important problem which an international marketer faces. Tariffs and customs duties Quantitative restrictions Exchange controls Local Taxes. 2. In the case of domestic marketing the buyers are aware of the legal systems in their country. 6. However. 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. they may have to face a number of restrictions. there are some salient features of difference between international marketing and domestic marketing. Sovereign Political Entities: Each country has is a sovereign political entity and goods and services had to move across national boundaries. same language and culture where as at international marketing many languages and different cultures. 5. They are as follows: 1. 3. its tasks will be simpler than the one. 4. In case of domestic marketing there is only one currency prevailing in the country. an advertisement medium very effective in one market may not be available or may be under developed in another market.
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. Transport Cost: In International trade.
TRANSITION FROM DOMESTIC TO INTERNATIONAL MARKET
The Decision to enter foreign markets must be based on strong economic factors. which influence a non-exporting firm's decision to go in for export business. 1. can be classified under the following categories:
. 9. They grouped as Pre-export behaviour and Motivation to Export.7. which can come only out of basic economic necessity as perceived by the corporate unit. 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. 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. The factors. transport cost is a major marketing expense where as in domestic trade transport cost influences only to certain extent. 10. At international marketing multiple environments. many of which are likely instable. Success in exporting requires total involvement and determination. Stability in Business Environment: In domestic marketing there is relatively stable business environment. Pre-Export Behaviour: Every firm at some point of time starts as a non-exporter. Temperamental decision to export is transient in character and totally unsuitable for export marketing.
the motivation of the firm to get involved in export business will be considerable. hiring of consultants for carrying out overseas market potential studies etc. size and growth of the domestic market. If the firm is manufacturing a product. and the present and future market prospects in the domestic market are not much encouraging. market opportunity and government's stimulation in the form of incentives and assistance. This will reduce costs and improve the overall profitability of the firm. This is crucial because it will determine whether
adequate resources will be made available for embarking on international marketing. (d) Level of Organizational commitment: The decision makers must agree on the level of commitment..
2. the higher level of profits and the growth objectives of the firm. Export business offers a suitable mechanism for utilizing the unused capacity. which is internationally marketable. This covers the level of capacity utilization. optimum scale of production. and potential export markets. Insufficiency of Domestic Demand: The level of domestic demand may be insufficient for utilizing the installed capacity in full. Resources will be required for hiring new staff specialized in international marketing.
. Recession in the domestic market often serves as a stimulus to export ventures. (b) Perceived External Export Stimuli: This will include fortuitous order. (c) Perceived Internal Export Stimuli: This refer to the management's expectations about the effects of exports on the firm's business.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.(a) Firm characteristics: Firm characteristics include product characteristics.
SPECIAL DIFFICULTIES IN INTERNATIONAL MARKETING There are a number of difficulties in undertaking international business. Reducing business risks: When a firm is selling in a number of markets. reduce costs and discover new applications for its product. Increased productivity: Increased productivity is necessary for ultimate survival of a firm. Government regulations restricting imports by way of import licenses. But there may not be any such restrictions. This will lead the firm to increase production and then move to export business. Technological improvement: Entry to export market may enable a firm to pick up new produce ideas and to add to product line.
technology or processes not available within their national boundaries. To meet the increased costs of Research and Development. may be compelled to impose export obligations on the firms. the downward fluctuations in sales in one market. They also look at exporting to attain status and prestige. the firms will have to export. which may be the domestic market. Some of them the special difficulties are as follows: Quantitative restrictions to protect local industries. especially those in need of imported inputs. 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. larger markets become a necessity and exports become unavoidable. Then the firm may be tempted to export its products abroad. in order to import. geographic diversification also provides the momentum to growth in as much as a single or few markets will have only limited absortive capacity. Obtaining imported inputs: Nations have to pay for imports of materials. if the additional capacity is utilized for exports. Social responsibility: Sometimes businessmen themselves feel a sense of
responsibility and contribute towards the national exchequer by increasing their exports. Secondly.
. improve its product. They also build up their image in domestic marketing by their export activities. In other words. etc. may be fully or partly counter balanced by a rise in the sales in other markets. therefore. Governments.
Non-availability of latest information about the market conditions. Now let us discuss these factors as follows: Controllable Factors: Control will have to be defined with reference to a company's management. Different legal system regarding import and export of goods. Lack of export incentives to exporters. The company is in a position to control and design marketing mix elements i. competition from exporters from other countries and competition from producers of goods in the importing countries. There are some factors which can be controlled by the management may not be able to haves any control over them. Sterling in UK. Trade barriers . price. Shipping and freight problems. Competition from local exporters. Paper work is more in export business. Cultural dimensions of international marketing. export to any place by choosing any distribution channels and follow any promotional methods. Differences in market characteristics.
INTERNATIONAL MARKETING ENVIRONMENT
It is necessary to know the concepts of "controllable" and "uncontrollable factors" in international marketing. Lack of adequate export financing especially for small scale industries. Lower mobility of factors of production.
. product. Different monetary systems like Dollars in USA. Economic Unions. Complications of Exporting. Local taxes like sales taxes on imported goods.e.Tariff and non tariff barriers. Differences in procedures and documentation. etc. YEN in Japan. Exchange controls.
The attitude of workers. the values and norms it should adhere to. Such uncontrollable factors in international marketing are described here. expression of appreciation or disapproval. So familiarity with cultural is necessary for success. Etiquettes differ from culture to culture. government policies etc. a promotion strategy that is very effective in one market may utterly fail in another. a number of family owned business groups in India have ushered in professional management. The need for good corporate governance is getting more and more recognition. purpose of consumption. political philosophies and systems. occasion of consumption. the way the business should be organized and governed. lab our-management relations. legal environment. for example . quantity of consumption. The ways of meeting and greeting people. methods of showing respect. are all influenced by social structure and the culture of a society. Religion and Climate
.Uncontrollable Factors: There are some factors on which the company can not have any control. the marketing strategies to be employed. government-business relations. could have a social influence of them Management may undergo a social transformation. values associated with consumption. governance. vary quite widely between cultures. ways of conducting meetings and functions. etc of a product may show wide variations between cultures. entrepreneurial nature and attitude. table manners etc. The other social factors which influences the international marketing inclusive of National legal regime Political and Financial system Marketing infrastructure Language. method of consumption.
SOCIAL FACTORS: The social/cultural environment of a nation/market may profoundly influence business in different ways and dimensions. Because of cultural differences. In short. business ethics. The tastes and preferences. or may even result in social or legal reprisals. the type of products to be manufactured and marketed.
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.
financial market reforms and so on. 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. development of common facilities like infrastructural facilities. R and D support.
RESOURCES: Resources is one of the important factors which often decides the ability of a firm to globalize. Free flow of Technology: Globalization helps for the flow of technology from advanced countries to the developing countries.
.GOVERNMENT SUPPORT: Although unnecessary government interference is a hindrance to globalization. product differentiation. product quality product. technological superiority. after sales service. Resourceful companies may find it easier to thrust ahead in the global market. A firm may derive competitive advantage from any one or more of the factors such as low costs and price. government support can encourage globalization. Increase in Industrialization: Free flow of capital along with the technology enables the developing countries to boost-up industrialization in their countries. COMPETITIVENESS: The competitive advantage of the company is a very important determinant of success in global business. PROS AND CONS OF GLOBALIZATION ADVANTAGES:
Free Flow of Capital: Globalization helps for free the flow of capital from one country to the other. Further Globalization increases capital flows from surplus countries to the needy countries. ORIENTATION: A global orientation on the part of the business firms and suitable globalization strategies are essential for globalization. It helps the developing countries to implement new technology. which in turn increases the global investment. marketing strength etc.
the developing countries industrialize their economies.
. The cultural exchange. Higher Standards of Living: Further. globalization reduces prices and thereby enhances consumption and living standards of people in all the countries of the world. For example. technology and locating manufacturing facilities in developing countries. which in turn contributes for the balanced human development across the globe. it reduces job opportunities in advanced countries and alternatively creates job opportunities in developing countries. 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. Increased industrialization spread up of technology. Further. leads to spread up manufacturing facilities in all the global countries depending upon the locational various favorable production factors. Lower prices with high quality: Indian consumers have already been getting the products of high quality at lower prices. This in turn leads to the balanced development of all the countries. demand for American Pizza in India and Masala dosa and Hyderabad Briyani and Indian styled garments in USA and Europe. increased production and consumption level enable the companies to produce and sell the products of high quality t lower prices. the increased economic development of the country enables the government to provide welfare facilities like hospitals educational institutes etc. Increase in Employment and Income: Globalization results in shift of manufacturing facilities to the low wage developing countries. Balanced development of world economies: With the flow of capital. improves the skills of the people of developing countries.Spread up Production facilities throughout the Globe: Globalization of production. Balanced Human Development: Increase in industrialization on balanced lines in the globe. 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. in turn makes the people to demand for a variety of products which are being consumed in other countries. As such.
get abnormal income. These companies employ child labor.Increase in the Welfare and Prosperity: The balanced industrial. This results in widening the gap between have and the have-nots. competent people.
DISADVANTAGES: Globalization kills Domestic Business: The MNCs from advanced countries utilize the opportunities created by globalization. The domestic business of the developing countries fails to compete with the MNCs on the technology and quality front. This in term leads to reduction in employment opportunities particularly in less developed countries. and ignore
workplace safety and health issues. while other average people have to strive for even a minimum wage. the domestic country’s operations are to be reduced. 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. Decline in demand for domestic products: Selling of high quality foreign products at low prices by MNCs reduces the demand for the domestic products.. it is viewed that. Decline in Income: Unemployment and decline in demand for domestic products of both industrial agricultural goods leads to reduction in income of the people. Leads to Unemployment and Underemployment: MNCs produce the products in their home countries or in some other foreign countries and market in developing countries. This is because. establish manufacturing and marketing facilities in developing countries. Widening gap between rich and poor: Globalization not only results in decline in income but widens the gap between rich and poor. pollute environment. globalization enables the developing countries to become rich and enforce the labor and environmental regulations. However. Therefore. efficiency etc. Transfer of natural resources: MNCs establish their manufacturing facilities in developing countries exploit their natural resources and sell the products in other
. 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. people with innovative skills.
Are there any opportunity open to firm and its product in abroad?. 1. 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. the marketer has to take four decisions. the firm must have the resources in men. A proper selection of markets would ensure that time and efforts are not wasted.
Through these means. These are: Marketing Decision Marketing selection decision Market entry decision Marketing Mix Decision Marketing Decision: All the business involves risk. UNIT TWO INTERNATIONAL MARKETING DECISION In developing a foreign operation. Before taking the marketing decision of entering into international market it should satisfy itself for the following questions. so that the returns may be quicker and certain. the first step is to choose the right place for the initial export venture.
. 2. it should develop a marketing strategy to be used for both domestic and foreign business. and the risks may be minimum. Whether it can formulate and implement a policy and regulations pertaining to exports and imports? Even if the opportunities appear favorable. When a firm thinks of entering into an international market.countries. money and materials to capitalize them. In such circumstances the firm which concentrating only domestic market will find thread about its survival. the natural resources of developing countries are
transferred to other countries. MARKET SELECTION DECISION To be successful in initial exports. One of the risk element is sudden fall in demand. Whether it can meet the demand in domestic as well as in international market? 3. No firm has unlimited resources. Whether it can adapt the product according to the needs of the consumers? 4.
It is advisable to spend some time and money on visiting the overseas market. Collect the latest data on export surveys and commercial intelligence from India's Commercial Representatives abroad. settle them amicably. avoid any trade disputes. Collect the address of potential customers abroad and start correspondence with them. etc 6) It may also contact our Trade representative located in our Embassies and High commissions abroad. this will ensure success.While selecting initial markets for exports. The company can look into these statistics and find out where the products are exported. Enter the export business only when the marketer is sure of its profitability. libraries. trade associations to find out the policy. 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. Make certain at the start that your export business is going to be profitable. 3) The company can also visit some Government offices. Take guidance from government and non-government institutions. names of importers etc. It would be unwise to sell in the more competitive European market. when a less competitive Arab or African market is available. 4) The company also has discussion with some successful exporters. The concerned export promotion council also publishes such statistics. 2) It should examine import statistics of the product in the target markets. Do not enter those markets where there are a lot of import restrictions. 5) It can also have discussions with Commodity boards.
. This will enable the marketer to solve many practical problems. Find a need and fill it. but if such disputes arise.
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.
including international marketing. 8) The company can also send some officers to the target markets to find out the market conditions there. (iii) Logistics: Dispatching the goods to the right place at the right time is the essence of all marketing.
. Inadequate logistic support can play havoc in the planning of export shipments. Higher scales over time become easier when the overall demand is increasing. 10) It must also find out economic. Further . 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. special types of logistic infrastructure is necessary. 9) It can take part in trade fairs and exhibitions conducted by ITPO and other agencies. 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.
CRITERIA FOR SELECTION OF MARKET: The marketing firm should have a set of decision criteria for selecting the target markets. It is not enough if additional sales come at the cost of the competitions. (ii)Growth: It is enough that the market is existing but it should also be in the growth stage. While the complete set will have to take into account the product and marketing characteristics of specific products. which will jeopardize any marketing efforts. 11) It must also decide whether it should choose one market or a few markets. It is easier to capture a 5 per cent of a big market than to capture a 25 per cent share of smaller market. in the case f certain products. social and cultural factors in the target markets.7) It may also contact Foreign Embassies and High Commissions located in India.
The selection process of the target market will have to take this factor into account. (vi) Distribution System: The availability of a capable agent or distributor is a very important consideration.(iv) Distance: The transport cost and distance are intimately correlated. such as after.
THE MARKET ENRTY DECISION: Once the target market has been identified. A thorough study will have to be made to determine how the firm's product profile compares with that of the competitive product line. (v) Competition: The nature and extent of competition is a very crucial factor to reckon with. Even if a market is otherwise promising. 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:
. For low-valued items. especially for products requiring pre-selling. if no good distributor or agent is available. the incidence of higher transport cost may reduce export competitiveness quite appreciably. the company should think twice before deciding to enter that market. unless it is in position to set up its own office there. The firm will have to evaluate whether it is in a position to match such competition onslaught. such as demonstration and post-selling.sales services. A good distributor is essential. the next step relates to the decisions regarding the alternative methods of entry.
where he will buy and at what price. 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. therefore. This method of exportation is useful when the company is small and.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. Merchant exporters are usually well financed and maintain their branches at port towns and in important centers abroad. Merchant exporters or export houses sell and buy on their account and thus assume the risks involved in exporting. Disadvantages of Indirect Exporting:
. The firm sells its products in its country to another party. It makes possible the utilization of the know-how and experience of middlemen. It requires less investment and the firm's capital is not tied up. It carries less risk. The manufacturing firm is free to concentrate on production. not in position to start an export department to like after exports sales. 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. who takes the responsibility of actual export. The amount of business that is conducted by such buying operations is substantial. A merchant exporter is free to decided what he will buy. They usually have a system of gathering market information and keep a close watch on market trends. Some other companies regularly send buying teams for the same purpose. and the firm does not have to spend money on market research or on setting up branches 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. which are willing to buy goods from the Indian manufacturers and sell them abroad.
DIRECT EXPORTING: In case the firm decides not to operate through any of the intermediaries described in the earlier paragraphs. He can enjoy the full returns on exports. who would travel abroad and book orders. Selecting suitable distributors in a foreign country who would buy his product and sell it there. or a supplement to the home organization. The small manufacturer's products may be ignored. it may make a modest start. may not be aggressive. He will have direct control over the marketing operations. which may be a substitute for. which offer them the greatest profit. or suitable agents in that country who would sell it on commission basis without taking any title to it. Indirect exporting provides little control over the operations of middlemen. Depending upon the firm's export sales turnover. it may create/set up a separate export department or even a separate export company. Direct Exporting may also be undertaken by: Setting up a sales branch or a subsidiary sales organization in a foreign country. For practical purposes. Export merchants may concentrate on the products. If its export plans are ambitious and the prospects of selling in a number of markets are promising. His profits will be more than selling the goods through middlemen. it will have to choose most carefully between one and or the other kind of export sales organization to be created. Advantages of Direct Exporting: The manufacturer will have better knowledge of customers' requirements and market conditions. with the result that sales may suffer.
. particularly the agent on commission basis. Appointing home-based sales representatives. the manufacturer cannot be called an exporter.appoint an export manager plus a clerk. Export merchants middlemen may not be available for all the markets. The middleman. and he cannot claim or avail of export incentives given on a fairly liberal scale. and opts for direct exporting. existing and potential.
Therefore one party can affect the other through their improper acts. the manufacturer enters into an agreement with a licensee in the foreign country and this gives him the right to use the manufacturing process. a patent design or a trademark. and avoids all distribution costs. 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. maintain the product quality and promoting the product. 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. It is clearly a method that involves little expense. opportunities licensee. technical information or some facility in return for some fee or royalty. 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. It is often the quickest way of entering overseas markets .
Direct exporting is the only choice for certain products and not alternative to get success.
Licensing mode carries low investment on Licensing agreements reduce the market the part of the licensor. Licensing mode carries low financial risk Both the parties have the responsibilities to to the licensor.
an independent organization called the franchise operates the business under the name of another company called franchisor.
and hurt both the parties and the market. culture. which he opportunities for both the franchisor and could not experience from the home franchisee. secrets of the licensor.without much effort on his part. Advantages and Disadvantages of Franchising Advantages Disadvantages
Franchisor can enter global markets with International franchising may be more low investment and low risks. for parties misunderstanding despite the
Licensing gets the benefits with less There is scope investment on research and development. Franchisor learns more lessons from the Franchising agents reduce the market experiences of the franchisees. customers franchisee. The franchisor provides the following services to the franchisee: Trade marks Operating system Product reputations Continuous support systems like advertising.
FRANCHISING: Franchising is also a form of licensing. Under franchising. information It is difficult to control the international
regarding the markets. between the
effectiveness of the agreement. employee training. 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. and environment of the host country.
. reservation service. License escapes himself from the risk of There is a problem of leakage of the trade product failure. and quality assurance programme etc. The franchisor can exercise more control over the franchise compared to that in licensing.
When a company engages in such production in a number of countries.
FOREIGN SUBSIDIARIES: The marketer establishes a subsidiary manufacturing unit in a foreign country. outsourcing. or both. secrets. Contract Manufacturing: Some companies outsource their part of or entire production and concentrate on marketing operations. promotion.
Franchise gets the benefit of R & D with There is a problem of leakage of trade low cost. It is international production-cum marketing. the monarch of all that it contains. marketing activities. B. 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. This takes place when: The domestic investor buys an interest in a manufacturing unit situated in a foreign country. it is called multinational company. Any investor of a foreign country buys an interest in a manufacturing unit of the domestic investor already existing in that country. Management Contracts: This practice is called the contract of manufacturing or
. This is the culmination of international marketing.
JOINT VENTURE: A joint venture involves a capital partnership and may be arranged for manufacturing activities. He is its exclusive owner and controller. or A domestic investor and an investor in a foreign country together start a new venture in that foreign country.country’s market. SPECIAL MODES OF ENTRY: A. Franchise escapes from the risk of product failure.
transport. Marketing research covers all aspects of the marketing activities such s markets. oil refinery. changes in markets and various factors.
INTERNATIONAL MARKETING RESEARCH
MARKET RESEARCH & MARKETING RESEARCH Market research is a complete analysis of the market. profitability of different markets. railway lines etc. International turnkey projects include nuclear power plants. sales promotion techniques.The companies with low level technology and managerial expertise may seek the assistance of a foreign company. advertisements. C. The research is mainly concerned with details regarding consumers. such as economic. channels of distribution. air ports. Then the foreign company may agree to provide technical assistance and managerial expertise. The research is mainly concerned with details regarding consumers. accessibility and competitive factors. Thus the market research is only a part of marketing. 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. social and political. consumers. products. national highways. Information regarding the nature. warehousing.
. The main purpose of market research is to know about the consumers and markets of the exporter's products and services.
NEED FOR OVERSEAS MARKET RESEARCH :( Uses) Market research is required to identify which markets should be selected as the target. This agreement between these two companies is called the management contract. Turnkey projects: A turnkey project is a contract under which firms agrees to fully design. organization. affecting those changes are studies vigorously. size. 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. growth. based on the market size.
It is useful in converting uncertainty into certainty. Identify the gaps in information still remaining. Desk research and field research. Promotional campaigns should be decided only when proper research has been carried out regarding their acceptability in a given environment. Identify the information requirements to find out a solution to the problem. Considerable amount of data collection and analysis are required to arrive at pricing decisions. Research can help to determine the positioning of the product. Pricing is crucial for success in international marketing and a blunder can mar all prospects. Identify the sources (primary and secondary) from where such information can be obtained. Collect and analyse the secondary source materials. 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. The uncertainty is mitigated. Stepwise formulation of a research plan comprising both desk and field research will be as follows: Identify the problem.
The research becomes inevitable when the income.
Research can help prevent the use of inappropriate market entry method. Prepare a research brief for field research to collect information on the gaps. Marketing research by providing information on market information on market environment. reduces uncertainty in it and makes the environment known. Research also helps in taking appropriate packaging decisions. Detailed field research investigations are required to determine the extent of product adaptation required to make the product acceptable in a given market.
METHODOLOGY FOR MARKET RESEARCH: Market research in almost all cases is carried out into two phases: viz.
Identification of suitable products is also dependent upon research. taking into account the socio-cultural factors.
. habits and preferences are changing very fast.
External Source of Information: This information can be had from any published documents which may provide data on the problems to be analysed. 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. Complaints received from foreign customers etc. Prepare the sample of respondents. Analyse and evaluate the results. and whether thee might any motive for misrepresentation. Design a questionnaire.OECD. and how reliable the methodology might have been and o How consistent the data are with other local or international statistics. Official statistical sources Embassies. national trade statistics UN. 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. Chamber of Commerce
. o From whom the data were collected. INFORMATIONS Import statistics Production statistics Tariffs and quotas EXAMPLES OF SOURCES UN. It involves collection of all relevant information from known published and unpublished documentations available within and outside the organization. Interview the respondents. DESK RESEARCH: Desk research is the first phase of the marketing research. The following table shows the agencies which can furnish the required information for desk research.
Field research can be conducted through personal interviews.. Reports of embassies and Journals Banks Freight forwarders and clearing agencies Previous market survey reports. personal interview is the most dependable if reliable data are to be required. in many developing countries. Going directly to the market may cover the gaps in information. however. daily economic newspapers on commodity prices. 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.
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. Of the three methods. the personal interview presents special problems for two main reasons. There are two specific important steps before field research can be undertaken viz. Techniques of Field Research: Interview methods. Generally speaking product specific marketing in
formations are not available from secondary (desk) sources.
FIELD RESEARCH: An analysis of data collected from desk research would reveal the gaps in information that still remain. Questionnaire and Observation method (Refer Research methodology book for further details for the above said techniques)
. design and testing of a questionnaire and preparation of a sample of respondents. company catalogues. Unfortunately.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.
Modern business is a many sided game in which rivals and opponents continuously try to formulate strategies to gain advantage over one another. and how good are they? What problems do the face. Predicting the behaviour of one's competitors and outguessing of the competitor will need the services of marketing intelligence.Modern marketing is very competitive. A marketer cannot survive under keen competitions without up to date market information particularly regarding the nature. character and size of competition to be met. 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. necessary for the exporter to obtain competitive intelligence and make a study about competitions for his products. 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?
. It is therefore.
. 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. or on the settlement of disputes. Quality of the product. if any arising out of the contract. The elements or the clauses of an export contract vary depending upon the nature of product being exported. These elements are as follows: Names and addresses of the parties . 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. say in the USA. 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. There are. some elements that are almost universal in their application. An Indian exporter selling his product to an importer.exporters and importers The description of the product. Price per unit. pricing.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. Their promotional strategies. 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. however.
Subsidies and Import quotas. Credit period. if any Warranties . Documentations.
. Passing of property. They are: Tariffs. Currency Tax and charges Packing specifications Mode of transport Delivery: Place and schedule Marking and labeling. They are also called the instruments of trade policy. Availability/ non-availability of export and import licenses. Passing of risk. Jurisdiction.
INTERNATIONAL TRADE POLICIES TRADE BARRIERS (METHODS OF PROTECTION) Managing any business strategically needs an understanding of the business policies. Settlement of disputes. Mode of payment. Insurance.
Total value. 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.assuring repairs over a period. an understanding of trade policies is more essential. Government announces their trade policies with regard to the following from time to time. But in case of global companies. Proper law of contract. Inspection.
it amounts to redistribution of income between the consumers and producers in favor of the producers. a tariff means increased revenue for the government. 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. Revenue Effect: As mentioned above. Income and Employment Effect.
. Import duties may also enable domestic industries to absorb higher production costs. domestic industries are able to expand their output.TARIFFS Tariff refers to the tax imposed on imports. Thus.
IMPACT OF TARIFFS Tariff affect on economy in different ways. Further a part of the consumer income is transferred to the exchequer by means of the tariff. An import duty generally has the following effects: Protective effect: An import duty is likely to increase the price of imported goods. as a result of the protection by tariffs. Redistribution Effect. If the import duty causes an increase in the price of domestically produced goods. This increase in the price of imports is likely to reduce imports and increase the demand for domestic goods. Consumption Effect: The increase in prices resulting from the levy of import duty usually reduces the consumption capacity of the people. It is a duty or tax imposed on internationally traded commodities when they cross the national borders.
they may cause an increase in domestic prices. milk etc. motor cycles. India had quotas of imports of various goods like cars. These restrictions are imposed by issuing import licenses to certain firms and individuals to import certain quantity of the goods.
IMPACT OF QUOTAS Balance of Payment Effect: As quotas enable a country to restrict the aggregate imports within specified limits. people may be constrained to reduce their consumption of the commodity subject to quotas or some other commodities. Price Effect: As quotas limit the total supply. Terms of trade effect: In a bid to maintain the precious level of imports to the tariff imposing country. quotas are helpful in improving its balance of payments position.The tariff may cause a switch over from spending on foreign goods to spending on domestic goods. up to 31st march 2001. in fact. Protective Effect:
. the tariff importing country is able to get imports to a lower price. if the exporter reduces his prices.
Competitive Effect: The competitive effect on the tariff is. 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. Consumption Effect: If quotas lead to an increase in prices. This higher spending within the country ay cause an expansion in domestic income and employment. Import quotas provide the protection to the domestic firms from the foreign countries. QUOTAS Quota is direct restriction on the quantity of goods which are imported into a country.
A tariff seeks to discourage imports by raising the price of imported articles. The rise in prices will result in the redistribution of income between the producers and consumers in favour of the producers. Terms of Trade Effect. The effect of quotas on the terms of trade depends upon the elasticity of the foreign offer curves.
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. a quota is more effective than the tariff. Tariffs are often regarded as relatively permanent measures and rapidly build powerful
. As quotas are administered by means of licences. more easily imposed and more easily removed instruments of commercial policy than tariffs.
It has been argued that quotas tend to be more flexible. quotas are much precise and their effects much more certain.By guarding domestic industries against foreign competition to some extent. the government may obtain some revenue by charging a licence fee. The reactions or responses to tariffs are not clear and accurately
predictable. quotas encourage the expansion of domestic industries. Quotas may affect the terms of trade of the country imposing them. but the effect of quotas on imports is certain. Redistributive Effect: Quotas also have a redistributive effect if the fall in supply due to important restrictions enables the domestic producers to raise prices.
When compared to tariffs. It however fails to restrict imports when the demand for imports is price inelastic. Revenue Effect: Quotas may also have a revenue effect.
government procurement of out put at a higher rate. Subsidies are in different forms. they may enable them to amass fortunes by exploiting the market. Quotas offer greater scope for corruption than tariffs.
. Such payments are called subsidies. If import quotas are allocated only to a few importers. The effects of quotas are more rigorous and arbitrary and they tend to distort international trade much more than the tariffs.
Quotas. which make them all the more difficult to remove. suffer from certain effects.vested interests. Tariffs in some respects are superior to quotas. Quotas may support inflationary pressures within the country by restricting supply. quotas tend to promote the concentration of economic power among foreign exporters. are designed to deal only with a current problem. equity participation and supply of inputs at lower prices. That is why GATT condemns quotas and prefers tariffs to quotas for controlling imports. They are: Cash grants.
SUBSIDIES In order to encourage domestic production or to protect the domestic producer from the foreign competitors. loans and advances at low rate of interest. Quotas have many characteristics of a more temporary measure. government pays to a domestic producers reducing operations cost. tax holidays. however. and removable as soon as circumstances warrant. Quotas tend to restrict competition much more than tariffs by helping importers and exporters to acquire monopoly power. Tariffs also suffer from the same defect. Similarly.
where cash may not involve but there is always a link between the imports and exports transactions. the goods to be produced by the importer with the exporter s' equipment or technology. For example India exports iron and steel against import of heavy machinery under a contract it is called a counter trade transaction. but the exporter transfers the purchasing commitment to a third party who may be an end user of products or a trading house. equipment or technology to an importer and agrees to accept. FORMS OF COUNTER TRADE: There are a number of forms of counter trade. the exporter sells specified goods to the importer in exchange for specified goods. in full or part considerations. We may examine them in detail in detail as in the following paragraphs. usually an industrial firm.INTERNATIONAL TRADE . Barter: In the barter agreement. There are a variety of forms of counter trade. Under this arrangement. In this case no cash in involved. In other words barter involves trading goods for goods. Basically it is a barter (exchange of one type of goods for another type of goods) or quasi-barter agreement.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. the exporter. The contract period of buy back
. Pure barter of this type is rare in now a days. In other words imports are paid out of exports in counter trade. on either bilateral or multilateral basis. 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. provide plant. Buy back arrangement: This type of arrangement sis the most popular arrangement involving a relatively large volume of trade.
the exporter sells the goods. by necessity. Counter purchase arrangement: This type of counter trade arrangement is also common but it is complicated. products from different locations with a view to save transportation cost. t o enter new markets. within a specified period. it paid to the western firm direct the amount equal to the price of the plant sold to Russia. This method of counter trade is useful when international currency flow is
sluggish or uneven. the amount is paid or accepted through a third country or party. Evidence Accounts: Under evidence accounts. considerably longer than that of counter purchase arrangements. sell products and gain an edge over competition. Thus in a switch agreement. One example of switch is western firm that sold a plastic manufacturing plant to the then USSR which had no cash to pay. 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 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. These kinds of transactions are set to occur over a specified period. Swap: In a swap contract two countries agree to trade. Under this arrangement. This is ideally suited for commodities such as sugar. Russia had a clearing agreement with Australia which was buying natural gas to Russia. Such accounts are monitored by the country's bank of foreign trade that deals in foreign exchange and where the company maintains its accounts. REASONS FOR THE GROWTH OF COUNTER TRADE The reasons to engage in counter trade include those basic to business. In swap transactions differences in quality of the goods being substituted are worked out in swap contract. However. chemicals and oils. generally one year. Counter trade is
. 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.arrangements is. Switch: This method of counter trade is useful when international currency flow is sluggish or uneven. One country that is a party to a bilateral trade agreement will transfer its imbalance to a third party or nation.
of achieving bilateral balancing of trade-an important objective of foreign trade policy in the centrally planned East European countries. . shortage of foreign exchange and the desire to stimulate foreign technology inflows motivated East
European countries to enter into counter trade arrangements. particularly those maintaining overvalued exchange rates.The desire to conceal from the domestic public the fact that the sale is being made below its costs. perhaps one gets done. special trading arrangements. Some other reasons for the growth of counter trade are as follows: . . at the same time.considered a way of overcoming of uncertainty of domestic production plans and. have resorted to counter trade for the reasons such as balance of payments difficulties. For every 10 to 20 deals that are talked about. etc. creation of overcapacity etc. -Developing countries will have confident to export their products to other countries.A counter trade transaction may provide some slight additional certainty in an uncertain world. India had long a longer Risks increase as counter trade
. In other worlds counter trade permits price discrimination among customers. It is time consuming to conclude the arrangements. This requires planning and commitment.A counter trade transaction permits concealed discounting in a period of weak markets. arrangements extend over several years. It is full of risks and uncertainties.
DRAWBACKS OF THE COUNTER TRADE Counter trade transactions are often extremely complex and difficult as compared with straightforward trade. 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. This motive for counter trade is important for many developing countries and also for a number of communist countries. The developing 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. barter deals.
The aim of this rule is to make the extent of protection clear and to Make competition possible.
. It came into force in January 1948.history in the use of buy-back arrangements. Protection only through tariff: Protection should be given to domestic
industries only through customs tariffs and not through other commercial measures. 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. The rapid and uninterrupted growth in the volume of international trade till 1992 provides a good testimony for the success of the GATT. 3. however. 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.
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. Although provision is made for the renegotiation of bound tariffs. Trade without discrimination: Trade must be conducted on the basis of nondiscrimination. Exception is. Expectations to this basic rule are allowed only in the case of regional trading arrangements and the developing countries. 119
governments which together account for 90 per cent of the world merchandise trade subscribe it to. Binding of tariffs means that these cannot be increased unilaterally. Basic Principles of GATT: 1. 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. A Stable basis of trade: The binding of the tariff levels negotiated among the contracting countries provides a stable predictable basis for trade. especially for export-oriented projects. 2. a return tariffs is discouraged by the requirement that any increase be compensated for. This technique is being increasingly applied for importing technology.
6. and Part IV: Expansion of trade of developing countries through special concessions.4. 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. Consultation:
A basic principle of GATT is that member-countries should
consult one another on trade matters and problems. The agreement consists of four parts: Part I: Main obligations of the contracting parties. 8. Trade Negotiations under GATT: Eight major trade negotiations took place under the GATT auspice as follows: 1. The first round in 1947 (Geneva) saw creation of the GATT. 2. The second round in 1949 (Annecy. negotiations. 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. The fourth round in 1956 (Geneva) proceeded along the same track as earlier rounds. As a result of these negotiations. England) continued accession and tariff reduction negotiations. 5. The sixth round in 1964-67 (Geneva Kennedy Round) was hybrid of earlier product by product approach with across the board tariff reductions. Part II: A code of fait trade practices to guide members in their commercial policies. The fifth round in 1960-61 (Geneva. the tariff rates for thousands of items entering into world trade were reduced or bound against increase. Part III: Conditions for membership and withdrawal. The third round in 1951 (Torquay. 3. France) involved negotiation with nations that desired GATT membership. 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
. Dillon Round) involved further revision of the GATT and the addition of more countries. 4. The seventh round in 1973-79 (Geneva. 7.
especially one which one would tackle the problems of the global trade of developing countries. The present membership accounts for more than 90 per cent of world trade. Most negotiations and tariff reductions have taken place in respect of manufactured goods. Switzerland. To provide a forum for negotiations among its members concerning their multilateral trade relations in matters dealt with in the agreements. 2. the success of GATT in promotion and securing liberalisation of much of world trade over 47 years was incontestable. Many more countries have requested to WTO. So the trade gap for the developing countries has become more unfavourable.
WORLD TRADE ORGANISATION Established on January 1. 4.40 percent in the immediate second world was years. it completely replaces its predecessor and has a very different character. A search for a new institutional arrangement. led to the formation of united Nations Committee on Trade and Development in 1946. The WTO is based in Geneva. 5. Its essential functions are as follows. 3. T is not a simple extension of GATT. the
membership of the WTO stood at 139. To administer the trade policy mechanism. To administer the understandings on Rules on Procedures governing the settlement of disputes. 1995 WTO is the embodiment of the Uruguary Round results and the successor to GATT. 1.
Developing countries were
disappointed with Kennedy round and the Tokyo Round. To achieve greater coherence in global economic-policy making in cooperation with World Bank and IMF. However. Under GATT. 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.
. 76 Governments became members of the WTO on its first day. As on 6th November 2000. WEAKNESS OF GATT: The weakness of GATT is that its benefits have mainly gone to the industrialized countries. given its provisional nature and the limited field of action.
a multilateral agreement with no institutional foundation with only a small associated secretariat. (iii)The GATT rules applied to trade in merchandise goods. WTO is a watchdog of international trade. and therefore selective. nature. A number of simple and fundamental principles run throughout all of the instruments which. the least developed countries secure a better share of the growth of the international trade. (iv)While GATT was multilateral instrument by the 1980s many new agreements had been added of plurilateral. The WTO is a permanent institution with its own secretariat. trade related in investment measures and trade related intellectual property rights. make up the multilateral trading system . In addition to goods. together. The WTO commitments are full and permanent. especially. the WTO covers trade in services and trade related aspects of intellectual property.6. HOW IS THE WTO DIFFERENT FROM THE GATT? (a) The GATT was a set of rules. (vi)The WTO is more global in its membership than the GATT. (v)The WTO dispute settlement system is faster. The WTO is also a management consultant for world trade. The agreements which constitute the WTO are almost all multilateral and thus involve
commitments for the entire membership. They are: Trade without discrimination Predictable and growing access to markets. It economists keep a close watch on the pulse of the global economy and provide studies on the main trade issues of the day. governments chose to treat it as a permanent commitment. (ii) The GATT was applied on a "Provisional basis" even if.
. regularly examine the trade regimes of individual members. The mandate of the WTO includes trade in goods. Trade disputes that cannot be solved through bilateral talks are adjudicated under the WTO dispute settlement 'court'. To recognize that there is a need for positive efforts to ensure that the developing countries. after more than 40 years. more automatic and thus much less susceptible to blockages than the old GATT system. trade in services.
CHARACTERISTICS: (a)Those that necessarily require the physical proximity of the provider and the user. however mean that all services require the physical proximity of the provider and user. Services make up a major share of the invisible account in the Balance of payments of a country. Production sector refers the industries that are engaged in production and supply of goods. This does not. Service sector refers providing services and exchanging services to the public as well as society. whether they are persons or machines. though such physical proximity may be useful. The services where physical proximity is essential fall into three categories:
. That is services cannot be sepearated from their providers. The growing importance of services is reflected in the international trade also. 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. and (b) Those that do not.
WORLD TRADE IN SERVICES The industrial sector can be classified as production sector and service sector.-
Promoting fair competition. The value of the international trade in services comes to about one fourth of the value of the value of the trade in goods. Encouraging development and economic reform.
Heavily protected r restricted services in different countries include banking and insurance.-The mobile provider and immobile user categorize the first category. It is therefore. investment regulations. radio. For example dry-docking facilities for ships. Similarly a technician may have to go a plant abroad to rectify a problem with the plant. For example the technical people of L & T Company in India goes to Srilanka and do the construction work.
marketing regulations. In this case either the provider going to the user or the user going to the provider may achieve proximity.DEPARTMENT OF COMMERCE:
. I.Mobile user and immosbile provider characterizes the second category. restrictions on the employment of foreigners.
1. In this case the provider goes into the place of user and doing services.
OBSTACLES OR RESTRICTIONS IN SERVICE SECTOR: Due to the special characteristics and the socio economic and political implications of certain services. For example a patient who wants an open-heart surgery will have to go to a hospital where the required facilities are available. -The third category consists of of mobile user and mobile provider. transportation.e. 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. Protective measures include visa requirements.
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. . they are generally subject to various types of national restrictions. film and other forms of communications and so on. user goes towards the provider. television.
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.ATTACHED AND SUBORDINATE OFFICES a. Indian Government Commercial Representatives Abroad
3. International Trade Policy Division Foreign Trade Territorial Division Export Products Division Export industries Division Export Service Division Economic Division
2. Presidents of FICCI.AUTONOMUS BODIES:
3. Finance. 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 . Export Processing Zones d. Chairman of ITPO/MD of ECGC Export Promotion Board: under the chairmanship of cabinet Secretary. ASSOCHAM and FASSI b. Directorate General of Foreign Trade b. Leading industries c. The department consisting of the following Divisions concerning with various subjects connected with exports and imports. Secretaries of Commerce and industry. Additional secretaries and a number of other senior officers functioning as Divisional heads.ADVISORY BOARDS Board of Trade : The Board of Trade is the highest advisory body under the Department of commerce to deliberate on policy matters. It has its members as follows: a. including commercial relations with other countries. External Affairs and Textiles d.
coffee. tea. assist in product development. (III) Marine Products Export Development Authority: The main functions of the Authority are: 1. These councils advise the Government regarding current developments in the export sector and measures the necessary to facilitate future growth in exports. assist manufacturers and exporters to overcome the various constrains and extend to them the full range of services for the development of market overseas. electronics and computer software.
. gem and jewellery. they act themselves as if they were the Export Promotion Councils. pharmaceuticals and cosmetics.sea fishing in all its aspects and conservation and management of off-shore and deep-sea fisheries. handicrafts. tobacco and spices. marketing etc. Silk. Development of off-shore and deep. Sponsor trade delegations and guide newcomers in the export trade. These councils are registered under the companies Act as non-profit making agencies. coir. In respect of commodities concerned. cotton textiles. development. synthetic .(I) Export Promotion Councils: There are 20 export promotion councils covering the following products: Apparels. silk. The councils also conduct market surveys. sports goods and wool and woolens. storage premises and exports with a view to promote a healthy development. poweerloom. The
commodity boards del with the entire range of problems of production. Power loom. The department of commerce provides necessary financial assistance in
relation to their export promotion work. construction. cashew. carpet. 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. leather. 2. rubber.. 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. processing plants. Registration of fishing vessels. handlooms. plastics. chemicals. shellac.
(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. periodicals and other literature having a bearing on trade and commerce. (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. Rendering financial assistance. chamber of commerce etc. To suit varying needs of exporters. Arranging for training in different aspects connected with export with special reference to fishing. Publish papers. 5. In addition to the normal risk policies. Laying down standards and specifications for marine products for the purpose of export. seminars and conferences on matters related to trade and commerce. processing and marketing. (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. regulatory bodies. the corporation assists the exporters through special schemes such as packing credit guarantee. post shipment credit guarantee and export production finance guarantee. This is registered under the Societies Act.3. Organize training. the corporation provides different types of cover which may be divided into the following three broad groups: Standard polices
. 4. Establish linkages with trade promotion bodies.
Kolkatta Indian Jute Mill Association. a legislation entitled "Export (Quality control and Inspection) Act" was enacted by the Indian Parliament in 1963. Kolkatta.
. As per this act The Government of India has established the Export Inspection Council. (X) Export Inspection Councils: Quality control and pre shipment inspection is one of the important factors in the export marketing. 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. It extends finance to exporters of capital and manufactured goods.Financial guarantees Special policies Under its policies intended o protect the exporters against overseas credit risks. exporters of soft wares and consultancy services and overseas joint ventures and construction projects abroad. The bank is the principal financial institution in India for coordinating the work of institutions engaged in financing export and import trade. 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. (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 EXIM bank concentrates mainly on medium and long term credit for export of goods and services on deferred payment terms. Bombay Office of the Jute Commissioner. facilitating and promoting foreign trade of India. 1982 for the purpose of financing. In order to ensure the quality of the products exported.
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. Forfeiting: This Indian exporters to convert sale to cash on without recourse basis. This enables Indian exporters of consultancy and technology services to extend term credit to overseas importers. 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. R & D for exports. The board of directors manages the EXIM BANK with representation from government financial institutions. Guarantee Facility: To execute export contracts and import transactions. banks and business community. Finance for consultancy and technology services. facilititating and promoting foreign trade of India. Finance for EOU and EPZ Units Software Training Institutes Export marketing finance Export-Product Development Finance: This Indian firms to undertake product development. Finance for deemed exports. Pre-shipment credit: This enables Indian exporters to buy raw materials and other inputs for fulfilling export contracts involving cycle time exceeding six months. FUNCTIONS: Lending Programmes to Indian Exporters: Suppliers credit: This enables the exporters to extend credit to overseas importers of eligible Indian goods. Business Advisory and Technical assistance
These units have to operate under custom bond and achieve the level of value addition fixed by the Board of Approval. At present more than 500 units are in operation under the EOU scheme.
. It also helps companies in preparing bids according to strict condition prescribed by the multilateral agencies. It also entertains proposals for various facilities under he European Community Investment Partners like feasibility studies for setting up export units. In order to enable them to operate successfully in the international market such units are allowed to import machinery..
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. It provides information to potential exporters about projects abroad specially about multilaterally agencies. The bank introduced the "cluster of Excellence" programme for up gradation of quality standards and obtaining ISO certification. raw material. components and consumable at free of custom duties. 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. Cooperation arrangement with African Management Services. flexibility of operations and incentives. Leasing of capital goods from domestic companies by EPZ\EOU has been permitted.
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.
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.
Encouragement of agro and electronic units by providing higher domestic access.
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. 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.1 crore and above in building. Application for setting up of units under EOU scheme may be approved by the units Approvals Committee within 15 days. 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. EOU units may import/procure from Domestic Tariff Area without payment of duty. Second hand capital goods may also be imported duty free without any age limit. plant and machinery shall be considered for establishment under EOU scheme. including capital goods required by it for its activities provided they are not prohibited items of imports. An EOU unit may import without payment of duty for all type of goods. In the context of growing competition no exporter can manage without selling goods on credit. 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. Giving credit poses two problems to an exporter: He should have enough money to offer credit to his overseas buyers and
Only project having an investment of Rs.
The insolvency of the buyer b. Joint ventures and overseas investment. In some special circumstances specified in the policy. buyer's failure to accept the goods. which may wreck his fortunes. Restriction on remittance in the buyer's country or any government action which may block or payment to the exporter. a Government of India undertaking. and d) Special schemes viz: Transfer Guarantee. 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. RISKS COVERED UNDER STANDARD POLICIES: Under its policies to protect the exporters against overseas credit risks. a war in his country.
Exporting on credit is not without risk.
c) Financial guarantees issued to banks against risks involved in providing credit to exporters. The overseas buyer may default. 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. 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. The ECGC also provides guarantees to the financing banks to enable them to provide adequate finance to the exporters. Political Risk: a. Commercial Risk: a. when non-acceptance is not due to the exporter's actions. he may go bankrupt.-
He should be prepared to take the credit risks. there may be earthquake or typhoon.
. A. The ECGC. covers the exports against these risks. The buyer's protracted default to pay c. Line of credit.
Flucturations in exchange rates (except under Exchange Fluctuation Risk over Schemes)and g. Loss or damage to goods which can be covered by general insurers: f.SMALL EXPORTER'S POLICY
. Additional handling transport or insurance charges due to interruption or diversion of voyage which cannot be recovered from the buyer: and f.Failure of the exporter to fulfill the term of contract or negligence on his part. not normally insured by commercial insurers.e. revolution or civil disturbances in the buyer's country c. 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. War.Buyer's failure to obtain import or exchange authorization from the appropriate authority: d. New import licensing restrictions or cancellation of a valid import license in the buyer's country: e. RISKS NOT COVERED ECGC. Causes inherent in the nature of goods: c. Any other cause of loss occurring outside India. 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.g.
B. Commercial disputes.b. 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. And beyond the control of both the exporter and the buyer. however.Insolvency or default of any agent of the exporter or of the collecting banks: . does not cover risks of loss due to: a. C. Cancellation of export license or imposition of new export licensing restrictions in India (under contracts policy) d. b.
Post-shipment Export Credit Guarantee: 4. 3. D. EXPORT PRODUCTION FINANCE GUARANTEE
. FINANCIAL GUARANTEE TO BANKS Timely and adequate credit facilities. 1. Export Performance Guarantee: 6. Are essential for exporters to realize their full export potential.25 lakes. It will be issued to exporters whose anticipated export turnover for the next 12months does not exceed Rs. 2. To banks.The small exporter's policy is basically the Standard Policy. be able to obtain such facilities from their bankers for several reasons. Exporters my not. To meet the varying needs of exporters. 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. at the pre-shipment as well as post-shipment stage. in order to encourage small exporters to obtain and operate the policy. Packing Credit Guarantee: 2. which undertake to obtain cover for packing credit advances. incorporating certain improvements in terms of cover. Export Finance Guarantee 5. The Export Credit Guarantee Corporation. purchasing or packing of goods meant for export against a firm order or letter of credit qualifies for packing Credit Guarantee. however. Export Production Finance Guarantee. PACKING CREDIT GUARANTEE Any loan given to an exporter for the manufacture processing. The premium payable for a small exporter's policy is less than the standard policy. granted to all its customers on an all India basis. Export Finance (Overseas lending ) Guarantee 1. The Corporation has evolved the following types of Guarantees. (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.
The Premium rate for this Guarantee is 7 paise per Rs. EXPORT FINANCE (OVERSEAS LENDING) GUARANTEE If a bank financing an overseas project provides a foreign currency loan to the contractor.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. 5. etc. Premium rate will be 0. EXPORT FINANCE GUARANTEE This guarantee covers post-shipment advance granted by banks to exporters against export incentives receivable in the form of duty drawback. If he wins the contract. that the exporter concerned should hold suitable policy of ECGC to cover the overseas Credit risks. POST -SHIPMENT EXPORT CREDIT GUARANTEE Post-shipment finance given to exporters by banks through purchase. 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 Premium rate for this Guarantee is 7paise per Rs. EXPORT PERFORMANCE GUARANTEE Exporters are often called upon to execute bonds duly guaranteed by Indian banks at various stages of export business. It is necessary however. 6. 100 per month and the cover is 75 percent. the difference representing incentives receivable. Banks having WTPSG are eligible for concessional rate of premium and higher percentage of cover. 100/-per month The percentage of loss covered under the individual post-shipment Guarantee is 75%
4.09% per annum for
. 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. negotiations or discount of export bills or advances against such bills qualifies for the Guarantee. Banks having WTPCG are eligible for concessionary premium rate and higher percentage cover. 3. An exporter who desires to quote for a foreign tender may have to furnish a bank guarantee for the bid bond.
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. Claims under the guarantee will also be in Indian rupees.A 10 year tax holiday for 100 per cent export oriented units and for units located in Free trade zone/Export processing zones. HHC of the Income Tax Act allows a deduction of the whole of the profit derived from the export of goods or merchandise. (ii) Fiscal concession: The different types of fiscal concessions are as follows: In the computation of total income Sec. available to exporters. export incentive system in India has been made very simple. . From 1922. -Concessional rate of customs duty on imports of selected items of machinery for export production under EPCG scheme. Under the Libralised Exchange Rate Management System (LERMS) exporters will get benefit when rupee depreciates while importers will lose. commission. Most developing countries have resorted to a number of export promotion measures. Premium is payable in Indian Rupees. There are essentially three major incentives.
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.
.75% cover and 1. . 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. However. When rupee appreciates the balance of benefits will the just the reverse.08% per annum for 90% cover. 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.80.Exemption from taxation of the profits from over seas projects to the extent of 50 percent. India has also been providing export assistance for the past about forty years. -Exemption from taxation 50 per cent of royalty.
d. 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. 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. special import license. Preshipment finance is provided to the exporter to meet such requirements. refund of terminal excise duty. industrialists and others require finance for their day-to-day activities. Export finance starts as soon as the exporter gets an order to export.(iii)Facilities available under the Export-Import Policy for Export: a. e. c. (e)Deemed exports. (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. 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. deemed export drawback. which have gone into the production of exported products. (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. the Central Government is offering the following facility to exporters. In export business also finance plays an important role. The commercial banks which give credit to exporters can also get guarantee from ECGC. etc EXPORT FINANCE Businessmen. An exporter needs finance for processing or manufacturing or assembling or procuring or packing the goods for export. It will take some more time
normally finance the post-shipment credit in one the following ways: (i) Negotiating export bills under letter of credit The banks
. communicated to the exporter.before the advice of payment is finally. Post shipment credits are given by commercial banks Against the security of approved shipping documents tendered against-letters of credit or otherwise. 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. 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. if any.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. 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. The banks on the basis of the following give the packing credit. 1. 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. 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. or Personal bond in the case of party's already known to the exporter. It is also provided at concessional rate of Interest.
Guarantees provided by ECGC where a substantial part of the risk is covered by the ECGC. (ii) Medium term: Medium term loans are offered for a period beyond 6 months and up to 5 years. The bill of exchange accepted by the importer is surrendered to the forfeiting agency which pays him in cash after deducting a fee. (i) (ii) Refinance by EXIM Bank of India.(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. They are as
An advance against bills under collection. These loans are also provided by commercial banks in collaboration with EXIM Bank of India. The period of credit is usually more than 5 years. The understanding is that the agency will collect the dues from the importer on expiry of the said period. Medium term loans are provided for in the case of durable consumer goods and light capital goods. 3. FORFAITING Forfaiting enable an exporter to convert an overseas credit sale into a cash sale through the process of discounting of export receivables. follows.
Banks usually charge a commission according to the rates prescribed by the Foreign Exchange Dealer's Association of India. The rate of interest on post-shipment credit is also charged at concessional rate. (iii) Long term: Long term loans are provided in the case of sale of capital goods complete plants and turnkey jobs. 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. Banks enjoy certain benefits for advancing loans to exporters.
The objectives of these units are: 1.
FREE TRADE ZONE (EXPORT PROCESSING ZONES) These are also referred to as Export Processing Zones.4. Provision is made for locating banking\post office facilities and offices of clearing agents in the service centers located in each of the zones. roads. in the international market. at low cost. components and consumables and export of finished products shall be exempt from central levies.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. textiles. standard design factory buildings. To generate employment opportunities 3.
. provision has been made for the extension of medium and long term credit to finance the sale of Indian capital goods and related services. EPZ operating units broadly under the product groups of electronics. To contribute to the overall development of the economy. India has seven EPZ at different parts of our country. gems and jewellery. engineering items. both quality wise and price wise. plastics and rubber products. 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. 4. power. chemicals and allied products. Foreign equity up to 100% is permissible in the case of EPZ units Procurement of raw materials. are set up with the intension of providing an internationally competitive duty free environment for export production. Extension of long term export credit has become an accepted export market strategy and therefore. To facilitate transfer of technology by foreign investment and other means. This enables the products of EPZ to be competitive. Entitlement for EPZ Units: Each of the zones provides basic infrastructure such as developed land for construction of factory sheds. garments. In addition customs clearance is arranged within the zone at no extra charge. water supply and drainage. To earn foreign exchange 2.
The negotiating bank 4. Exporter 2. Directorate General of Foreign Trade 9. Shipping company 5. 3. Bill of Exchange (if D/A or D/P bill) Commercial invoice Bill of lading
. Port Trust 11. ECGC 8. Reserve Bank of India 7. Insurance company 6.
INTERNATIONAL TRADE – UNIT FOUR
PROCEDURE FOR EXECUTING AN EXPORT ORDER The following the parties and agencies involved in executing an export order: 1. Importer. Customs House 10. The following documents have to be prepared. The order should specify the mode of payment such as letter of credit. document against acceptance or document against payment.Exemption from industrial licensing for manufacture of items reserved for SSI sector. Clearing Agents
Procedure for executing an export order: The exporter has to process the export order in the following manner: 1. and the terms of conditions as specified in the letter of credit. Inspection Agency 12.The exporter should scrutinize the export order with reference to the terms and conditions of the contract.
After the shipping ill has been passed by the customs. in the case of shed cargo. Goods should be dispatched to the port of shipment. 4. AR-4 form has to be prepared. the Dock challan is prepared. the clearing and forwarding agents presents the Port Trust copy of the shipping bill to the respective authorities.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. Export inspection agency should be approached. Where the the
. 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.Thereafter the works manager sends a dispatch advice to the export department. 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. The clearing and forwarding agent takes delivery of the consignment and arranges its storage in the warehouse. 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. 6. Thereafter. They will obtain the marine insurance cover for the goods. 3.
13. 8. 10. marks and numbers. 9. the clearing agent collect the mate receipt from the Port Trust Authorities.Finally the exporter will get the value of the value of export consignment against the above-mentioned documents.
EXPORT PROCEDURE FOR SENDING GOODS
An outline of the important steps in exporting the goods is as follows: IEC NUMBER:
.The original copy of the bank certificate along with attested copies of the commercial invoice are returned to the exporter. The duplicate copy of the bank certificate is forwarded to the office of the DGFT in the area. 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. he completes the remaining formalities. description of packages. The clearing and forwarding agent forwards the following documents to the exporter: Full set of bill of lading. Packing list. copies of customs invoice. 12.ship loads overside. original export order. He will present the following documents to the negotiating bank. the dock charges are indicated in the shipping bill itself and therefore. Marine insurance policy and Bank certificate 11. berth. Certificate of origin. condition of the cargo at the time of receipt on board the ship etc. Customs invoice. 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. 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. 7. GR Form. As soon as the exporter receives the above documents from the clearing and forwarding agent.The passed Shipping Bill including dock challan will be submitted to the Port Commissioners. The mate receipt is first handed over to the Port Trust authorities so that the exporter may pay all the port dues. date of shipment. export promotion copy of the bill. After paying all the port dues.
sizes. INQUIRY AND OFFER: An inquiry is a request from a perspective importer to be informed of the terms and conditions of sale. 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. The exporter
. The offer. It may contain full details of the goods required. Serious and sincere care should. The regional licensing authorities normally allot the IEC number. An offer is a proposal in which an exporter submits. when accepted by the foreign buyer. Membership of such bodies will help the exporters in different ways. becomes an order. Exporters are advised to become members of local chamber of commerce. their description. There are specified Export Promotion Councils . his quotation and other relevant information. which is necessary document required for export to certain countries. commodity boards and export development authorities for various products. time and method of delivery etc. As soon as the exporter receives a business inquiry from party abroad. the exporter would have to make an offer to the foreign customer. productivity council or any other trade promotion organization recognized by the Ministry of Commerce. be exercised in dealings with foreign country customers. As a starting point of the negotiations.Every person importing or exporting goods require and Importer-Exporter Code number. This code number is required to be incorporated in the various export documents submitted to the authorities for purposes of export. catalogue numbers or grades. therefore. Members of EPC will receive different kind of assistance and services in respect of the export business. may be in the form of a letter. weights or other distinguishing features. it should be promptly attended to. the buyer may place an order with the exporter. MEMBERSHIP CUM REGISTRATION: Membership of certain bodies will help the exporters in a number of ways. CONFIRMATION OF ORDER: Once the negotiations are completed and the terms and conditions are acceptable to the buyer and seller. including obtaining the certificate of orgin.
The exporter should again send once copy to the importer with the exporter's signature to confirm the acceptance of the order. SHIPPING SPACE: As soon as the export order is confirmed. If the buyer has given instructions about packing and marking. If there are no such instructions. though many items are permitted to be exported freely. they should be followed accordingly. it is necessary to obtain it before finalizing the contract. If the exporter is not a manufacturer.should immediately confirm the order by sending this acceptance. EXPORT LICENSE: These exports of some items are banned and of some items controlled by means of licenses. the exporter should take necessary steps to ensure the timely availability of the goods of the specifications required and execute the export order promptly. PACKING AND MARKING: Once the goods re ready. FINANCE: If the exporter requires pre-shipment financial assistance. and the buyer is asked to return two copies signed by him. which falls in the banned list. he should contract with his suppliers and ensure timely availability of the goods of the buyer's specifications. 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. For the confirmation of the order. the shipping company issues sits acceptance if the space applied for is given. the proforma invoice is generally sent in triplicate to the buyer. they are marked and marked properly. If the item to be exported requires a license. Needless to say. the exporter should make sure that the item sought to be exported is not one. 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. QUALITY CONTROL AND PRE-SHIPMENT INSPECTION:
. PRODUCTION/PROCRUMENT OF GOODS: Once the order is confirmed. The confirmation of the order usually takes the form of a contract. it should be ensured that the packing and marking are of the standards recommended or specified.
Thereafter get the goods inspected by the inspecting authorities under compulsory quality control and pre-shipment inspection. the exporter (or the clearing and forwarding agent on behalf of the exporter) should present the following documents to the customs authorities. CUSTOMS FORMALITIES: Goods may be shipped out of India only after the customs clearance has been obtained. Excisable goods may be exported either under claim for rebate of excise duty or in bond. In the case of export under claim for refund of excise duty. the duty is first paid and its refund is claimed. 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
. 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. Any other authorities authorized for this purpose. EXCISE CLEARANCE:
As a matter of policy. the government has granted excise duty exemption for the export products.for textile goods. For this purpose. They are as follows: Export Inspection Agency AGMARK Authorities Textile committee .
So that the importer get ready for his actions. The shipping bill passed by the exporter department has to presented to the cargo supervisor or the steamship company or the shed manager. and if. electronic products etc. Nowa-days all types of products like food.
EXPORT BY AIR AND SEA EXPORTS BY AIR In international trade the use of air-freight is increasing day by day. NEGOTIATION OF DOCUMENTS: After shipping the goods. readymade garments. the exporter should arrange to obtain payment for the exports by negotiation with the relevant documents through the bank. 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. who is the port official. They are as follows: A uniform system of documentation for air cargo. the exporter will inform the importer about the dispatch of goods and departure of the ship. gems and jewellery. if any from Government. ADVANTAGES: A clearing house. are sent by air freight. prima-facie.-
Any other documents
The customs authorities scrutinize the shipping bill and other requisite documents. for permission to bring in the cargo for export. finished leather and leather products. A standard system of rate making and inter airline agreements on rates.. 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. satisfied. IATA has made rapid expansion because of three developments for which it has been responsible. International Air Transport Association was set up in 1945. subject to a physical examination by the staff of the customs. they pass it for export.
The reasons are as follows. quantity. 4. total value. Low inventory carrying costs Decreased capital costs of goods in transit Less packing lowers cost and reduces chargeable weight.
Thus the advantage of exports by air may be summarized as follows: 1. Breakage is neglible. Greater security and protection during transit. such as the price per unit at a particular location. at least for certain categories of merchandise. Speed of delivery 2. A satisfying customer. The loss due to rough handling and pilferage is reduced to the minimum. Good service to customers without having any warehouse. there are ten reasons which can make total distribution costs cheaper through the use of air transport. Savings in cost 3. packing
.Basically. ordering etc. Related surface transport costs are reduced. are minimized. Deterioration is avoided. Insurance premium is reduced. Costs related to administration. Obsolence is eliminated. 5.
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
DOCUMENTS RELATED TO GOODS INVOICE: An invoice is the seller's bill for merchandise and contains particulars of goods.
shipment per bi. is a certificate. A packing note should include the packing note number. while the packing list is a consolidated statement of the contents of a number of cases or packs. grade. Some importing countries insist that the importing country's consul located in the exporter's country should sign the invoice. for the customs law of the country may require this procedure. and various trade associations that have been authorized by the government. of its imports for purpose of assessing importing duties and also for statistical purposes. and the contents of the goods is in terms of quantity and weight. destination. the order number. This certificate has also to be produced before clearance of goods and assessment of duty. A certificate of orgin from may be obtained from chambers of commerce. 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. case number to which the note relates. terms of sale. which specifies the country of the production of the goods. identification marks of the package . as the name indicates. name and address of the importer. the name and address of the exporter. name of the ship etc. 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 packing list should also include item wise details. date. Such invoices are known as consular invoice. The main purpose of a consular invoice is to enable the authorities of the importing country to collect accurate information about the volume. value. CERTIFICATE OF ORGIN: A certificate of orgin.specifications. bill of lading number. bill of lading number and date. the date of packing. export promotion councils.
. marking numbers. sources etc. quality. the name and address of the importer. 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.
the number of packages. is prepared by the exporter and includes details of the export in terms of the shipper's name.. SHIPPING BILL The shipping bill is the main document on the basis of which the customs' permission for export is given. real value as defined in the sea customs act. berth. The inspector. allows it to pass the gate. The bill of lading prepared by the shipping agent after the mate receipt has been obtained. master or agents. marks and numbers. It also contains details of the packages and the goods. After paying all the port dues. CERTIFICATE OF MEASUREMENT
. description of packages. their total weight and value etc. and contains information about the vessel. flag. the merchant or the gent may collect the mate receipt from the Port Trust authorities. CART TICKET A cart ticket also known as a cart chit. condition of the cargo at that time of receipt on board the ship. The shipping bill contains particulars of the goods exported. the country of final destination. the shipping bill number. and when the vehicle is brought at the port gate. marks and numbers. it should be presented to the gate warden/inspector along with other shipping and port documents. after satisfying himself that the vehicle is carrying the cargo as mentioned in the document. etc. the port at which goods are to be discharges. the exporter's name and address. vehicle and gate pass. total number of packages.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. the port of destination and the number of the vehicle carrying the cargo. quantity details about each case. The driver of the vehicle carrying cargo should posses the ticket. the name of the vessel. date of shipment. whether Indian or foreign merchandise to be re-exported. such as number and description. The mate receipt is first handed over to the Port Trust authorities so that all the port dues may be paid by the exporter. etc.
as such. "one box damaged" etc. The exporter prepares the Bill of lading in the forms obtained from the shipping company or from the agents of the shipping company. the weight declared by the shipper may be accepted. When it is charged on the basis of weight. The information contained in the Bill of lading includes the date and place of shipment. the marks and numbers. is freely transferable by endorsement and delivery. Each shipping company has its own Bill of lading.. the amount of freight etc. As each shipping company has its own bill of lading. and (iii) as a contract for the transportation of goods. It is also an document of title to the goods. and. each has its own airway bill. 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'. the name of the consignor. it is termed as a claused bill of lading. quality and destination of the 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 invoice number and the date of export. the name and destination of the vessel. the description. AIRWAY BILL An airway bill.Freight is charged either on the basis of weight or measurement. However. is a receipt issued by an airline for the carriage of goods. 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 number of packages. the gross eight and net weight. 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. 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. also called an air consignment note.
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. fish and fishery products etc. food and agricultural products. are under the compulsory quality control inspection system. They are: 1. chennai. SYSTEM OF INSPECTION Three Systems of inspection are in operation at present. footwear and footwear components. the Government of India has established five export inspection agencies one each at Calcutta. chemicals and allied products. 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. cochin. 4 ex-officio members and 15 members nominated by the central government. In-Process Quality Control
. Delhi and Mumbai under the technical and administrative control of the EIC. jute and jute products. Consignment-Wise Inspection 2.
MACHINERY FOR QUALITY CONTROL AND INSPECTION: (i) EXPORT INSPECTION AGENCIES: For carrying out pre-shipment inspection of export of goods. USA and East European countries. cashew..
About 1000items under produce group heads of engineering.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. The Export Inspection Council (EIC) consists of a Chairman appointed by the Central Government. (ii) OTHER AGENCIES: Government has also recognized 21 private inspection agencies and 7 government inspection agencies to supplement the work of quality certification. EEC. and
To arrange pre-shipment inspection of notified commodities for export.
or t the order of. 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. a certain person or the bearer of the instrument. directing a certain person to pay a certain sum of money only to.
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. 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. components through inspecting process centers. Self-certification CONSIGNMENT-WISE INSPECTION: Under consignment-wise inspection. signed by the maker. 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. 1881. provided that the beneficiary fulfils the stipulated conditions BILL OF EXCHANGE The Negotiable Instruments Act. The certifications of inspection in favour of units approved under the scheme are issued by the Export Inspecting Agencies. under certain conditions and up to certain amounts . There are five important parties to a bill of exchange: The Drawer The Drawee The Payee
. These units are under the supervision by the Export Inspection Agencies through random spot checks.3. defines the bill of exchange as " an instrument in writing containing an unconditional order.
Insurance of ships is called " Hull Insurance" while cover provided in respect of goods sis termed as cargo insurance. air or land is called Marine Insurance. the merchandise may be made available to the importer by his bank under an arrangement whereby the importer signs a trust receipt. damage or detention or incur in respect thereof.
. the importer is allowed to sell the imported goods by acting as an agent of the bank. 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. This is a sort of blanket document which shipping documents.
Insurance granted to cover loss or damage to ships or goods in transit either by sea. 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 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. but the retains ownership of the merchandise until the importer has made full settlement. Utmost Good Faith: It is the duty of the proposer to disclose clearly and accurately all material facts related to the risk. all sums received from the sale of goods must be credited to the bank until such settlement is made. 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. demands from a customer to give him recourse son the bills and control of the documents. Under this arrangement.
RISKS COVERED: Perils of the Sea: It includes out-of-the ordinary wind and wave action. Whereas in specific policy the insurance will be made by shipment wise. without the intervention of any force started and working actively from a new and independent source. lightning. 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. collision and damage by sea water when caused by perils such as opening of the seams of the vessel by collision. intentional casting a way of vessel or any breach of trust with dishonest intent. wrongful conversion. usually to lighten the ship in times of emergency.
.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. 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. Barratry: Barratry is the willful misconduct of master or crew and would include theft. How to Insure: Under marine insurance the policy will be taken by two ways. In open policy the insurance will be made for all the shipments made in a period. which brings about a result. Assailing thieves: This refers to a forcible taking rather than clandestine theft or mere pilferage. 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. Fire: Fire includes both direct fire damage and also consequential damage as by smoke or stream. and loss resulting from efforts to extinguish a fire. Proximate Cause: Proximate cause means the active efficient cause that sets in motion a train of events. One is open policy and another one is specific policy. Jettison: Jettison is the throwing of articles over board. if the damage is caused by perils specified in the contract known of policy of the insurance.
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 bank will again present the bill to the importer who then makes the payment. The documents include bill of lading. provided that the beneficiary fulfils the stipulated conditions (Detailed explanation for letter of credit was given separately). Under D/P bills. even though the overseas consignee will have the physical possession of the goods. The commercial banks that deal in foreign exchange provide a via media by giving the necessary assurances to both the parties. but retains the title to the goods as also the risk attendant thereto. the correspondent bank will submit the bill of exchange to be signed by the importer t indicate his acceptance of the payment obligation. SHIPMENT ON CONSIGNMENT BASIS In this case. In case of D/A bills. which will present the documents to the importer and ask him to pay the money for the goods exported. he may return the goods at any time without any liability and at the seller's expense. under certain conditions and up to certain amounts. On the due date of payment. Under this method there are two types of payments viz: Documents against payment (D/P) and documents against Acceptance (D/A). 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. Under this method of payment the exporter agrees to submit documents to his bank along with the bill of exchange.for and importer's unwillingness to part with his money unless he is sure of receiving the goods. The money received is remitted through usual banking channels to be credited to the exporter's account. The payment for the goods shipped is made only when the agent ultimately sells the goods to other parties. involve and a marine insurance policy. the exporter makes shipment to the overseas consignee/agent. the exporter's bank will send the documents to its correspondent bank in the importer's country. After the importer accepts the bill he will get possession of the documents for taking delivery of the goods. 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.
. If the agent fails to sell the goods.
3. is the bank in the importer's country issuing the letter of credit at the request of the importer. provided that the beneficiary fulfils the stipulated conditions. the confirming the bank advises the beneficiary accordingly. 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. provided. a letter of credit ensures him payment for the goods he sells. The paying bank may be the issuing bank. As far as the seller is concerned. which guarantees the credit at the request of the issuing bank. The Beneficiary: The beneficiary is the party in whose favour the credit is issued. 4. the confirming bank or the notifying bank. that is the beneficiary is the seller or exporter. 5. Though the buyer has to have the botheration of arranging for the letter of credit.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. The Notifying Bank: The notifying bank is the bank. also called the opening or issuing bank. under certain conditions and up to certain amounts. it may enable him to obtain more liberal discounts and a lower price from the seller. If the letter of credit is confirmed. notifies the beneficiary that the credit has been opened in his favour. The letter of credit offers advantages to both the seller and buyer. the buyer is assured that the shipment will be made by the date specified in the letter of credit. Further. the confirming bank is obliged to honour its commitment. at the request of the issuing bank. The Opener: The opener is the buyer(importer). PARTIES TO THE LETTER OF CREDIT: 1. and even if the issuing bank fails during the currency of the credit. The confirming Bank: The confirming bank is a bank in the exporter's country. The confirming bank undertakes all the obligations of the issuing bank as a primary party to the credit. 2. that he follows the instructions. or else the credit will expire. of course. which. 6. The Issuer: The issuer.
. The letter of credit is opened at the initiative and request of the buyer.
which may be readily discounted or sold by the exporter to the accepting bank. 7. 2. the bank merely 'accepts' the drafts drawn by the exporter. the beneficiary. Non-Assignable Credit: As opposed to the assignable credit. which cannot be revoked.
. Clean Letter of Credit: This kind of letter of credit may be negotiated against a clean draft. it becomes the negotiating bank. therefore. Documentary Letter of Credit: Under this.
KINDS OF LETTER OF CREDIT 1.7. the draft must be accompanied by the documents specified in the letter of credit. Cash credit. the named beneficiary of a non-assignable L/C cannot transfer his rights to another party. Irrevocable Credit: An irrevocable L/C is one. After the bank has accepted it. the beneficiary may go the any bank and present the draft and related documents under the credit. If no paying bank is specified in the credit. Revocable credit: The revocable letter of credit may be revoked or cancelled at any time without the consent of. under the cash credit. 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. The great advantage of this type of credit. the beneficiary may assign his rights to another beneficiary. 4. 3. and without notice to. either within a stated period or before the expiry date of the credit. A clean draft is a draft without any documents attached to it. to other banks or to exchange dealers. the exporter may draw a sight draft on the bank. and if the bank agrees to negotiate the documents. which pays or accepts the drafts of the exporter. 8. Assignable Credit. The Negotiating Bank: The negotiating bank is the bank. amended or modified by the issuing bank without the express consent of all the parties concerned. 5. Acceptance Credit: Under this arrangement. Under this kind of L/C. the draft becomes a bank acceptance. As the revocable L/C does not adequately protect the beneficiary on the basis of this type of L/C are not common. 6.
The conditions on which such advances may be made are incorporated in the L/C. STEPS IN THE OPERATION OF LETTER OF CREDIT: In Letter of credit. Red Clause Credit: The red clause L/C enables the beneficiary to draw a predetermined value of the L/C as its established. In this case. 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. 11. opened by a bank on behalf of the beneficiary of an original credit. M/S Rainbow limited.. the applicant for the credit (importer). 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 total value of the contract is Rs. in favour of a domestic supplier.000. which scrutinizes the
. makes the shipment of he cling fns and gets the shipping documents and other related documents. He presents these to the correspondent bank. 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. the issuing bank and the advising bank incase of unconfirmed credit or the confirming bank in case of confirmed credit. 10. Back-to-Back Credit: A back-to back credit is essentially a secondary credit.9. Chennai has secured a contract for the supply of 200 ceiling fans to a Nigerian importer. The red clause is an authority to the negotiating bank to make advances to the beneficiary for the purpose of purchasing the relevant merchandise. viz. 00. It has been decided that the terms of payment will be a confirmed irrevocable letter of credit. the Rainbow limited. On receipt of this advice from the local correspondent bank in India. 12. Under the revolving credit. it becomes a confirmed credit. The step-by-step procedure involved can be discussed by taking an example. 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. 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. normally four parties are involved.2. the beneficiary of the credit (exporter).
The entire scheme of operation can be easily visualized with reference to the Flow chart given below. The dashed lines shows the flow of the documents and the dotted lines show the process of payment. 2. opening of credit. The documents are then forwarded to the issuing bank. which reimburses the amount to the correspondent bank.documents. 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. it will accept the documents and make the payment to the exporter. on the banker's credit issuing the letter of credit.
. relate to three distinct activities. If these are in full conformity with the terms of the credit. The issuing bank in turn presents the documents to the importer and debits his account for the corresponding amount. Purchase without cash: The importer can purchase goods on credit from foreign merchants. The steps involved.. presentation of documents and the process of payment.
SALES CONTRACT BUYER
OPENING ADVICE ISSUING BANK DOCUMENTS
The straight lines show the flow of the credit. therefore. viz.
ADVANTAGES OF LETTER OF CREDIT: 1. who do not know him and may rely upon his standing.
Better terms of trade: The issuing banker lends the advantage of his own credit to the importer. and the goods released. 7. Some of them are 1. The functions of these boards includes It looks after the production and marketing of tea in India. Provide financial assistance and grants for tea research institutes Promote research activities on the allied subjects like packaging of tea. Discount facilities: The bills of exchange drawn under the letter of credit are readily discounted with the advising/confirming banker or any other banker. 5. coffee. 4. the letter of credit provides an absolute assurance that the bills of exchange drawn under the letter of credit will be honoured. New tea unit finance scheme. In order to increase the production.Special area development scheme etc. development and export of some commodities like tea. the Tea Board runs various development schemes. tobacco spices etc.Tea plantation finance scheme.
. because of the firm undertaking given by the opening banker. These boards are statutory bodies. shipping documents are surrendered to him in return for his trust receipt. tea bags and instant tea. TEA BOARD: The Tea Boards head office is in Calcutta. who is able to secure terms of trade from the foreign supplier. COMMODITY BOARDS The government of India has established a number of commodity boards to be responsible for the production. which is otherwise not possible. Release against trust receipt: When banks are willing to assume credit risk of the importer.3. 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.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. Certainty of Payment: Though the importer and the exporter are not known each other. Small growers development scheme. 6. rubber.
Keeping view the production of quality coffee at estate level. Improvement of curing and storing facilities by conservation of energy by roof insulation of tobacco barns. 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. Allowing exports of tobacco to Russia through debt repayment route. and Canada and is also member of the International Tea committee. Improving tobacco grading through establishment of community grading centers. Special advertisements on the excellence of the Indian coffee were released in important coffee trade journals and magazines in countries. For improving the productivity and quality of coffee.-
For promotion of tea as beverage the tea board also participates in the generic promotion programme conducted by tea council at U. Studies on diseases of coffee and their control were carried out. SPICES BOARD:
. US. Germany.. supply of tarpaulins and supply of coal for curing. pest and disease control. Improving yield and quality of tobacco through control of diseases in tobacco nurseries. Sponsoring delegations abroad and participation in international trade fairs. balanced fertilization. which have potential markets for Indian coffee. contact programme was launched in 4 regions covering a total number of 1018 growers.
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. training programme was conducted.K.
spices board has been supplementing activities of Ministry of Agriculture with a number of schemes that include: 1. projects and services. 1. Production and supply of quality material and rooted cutting. 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. Logo Promotion: In the exports of spices. Providing assistance to marginal growers in non-traditional areas. The spices board has a scheme to promote a "logo mark" as a mark of quality and Indian ness of spices. 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. Logo is registered in six countries and would be registered in another 14 countries. 2. Replantation of old and diseased plants. 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.
EXPORT PROMOTION COUNCILS The basic objective of Export Promotion Councils is to promote and develop the exports of the country. Each council is responsible for the promotion of a particular group of products. They issue Registration cum membership certificate to exporters. Certificates have been awarded to many manufacturers/processors of spices. grant of Spice House certificate etc.The Spices Board has number of schemes of assistance to spice exporters such as Brand promotion. quality is a key element. They are explained below: Brand Promotion: Under this scheme. Organizing training programmes for growers for quality improvement and post-harvest techniques. Apart from those schemes. There are 20 EPCs and a number of specified agencies/boards which shall be regarded as EPCs under the Export and Import Policy.
In order to enable them to operate successfully in the international market such units are allowed to import machinery.. To organize visits of delegations of its members abroad to explore overseas market opportunities. 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. The Export promotion councils are non-profit organizations registered under the Companies Act or the Societies Registration Act. To offer professional advice to their members in areas such as technology up gradation.
. exports and imports of their members. These units have to operate under custom bond and achieve the level of value addition fixed by the Board of Approval. components and consumable at free of custom duties. To organize participation in trade fairs. product development.The main role of EPC is to project India's image abroad as a reliable supplier of high quality goods and services. as the case may be.
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. raw material. innovation etc. flexibility of operations and incentives. quality and design improvement. To build a statistical base and provide data on the exports and imports of the country. At present more than 500 units are in operation under the EOU scheme. standards and specifications. as well as other relevant international trade data. 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. To promote interaction between the exporting community and the Government both at the Central and State levels. exhibition and buyer seller meets in India and abroad.
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. plant and machinery shall be considered for establishment under EOU scheme.
Encouragement of agro and electronic units by providing higher domestic access. Second hand capital goods may also be imported duty free without any age limit. 1992 the Central Government has notified the Export and Import Policy for the period 2002-2007 which
.1 crore and above in building.
OVERVIEW OF EXPORT AND IMPORT POLICY OF INDIA I POLICY AND ITS OBJECTIVES: Under the Foreign Trade (Development and Regulation) Act. EOU unit shall be positive net foreign exchange earner. An EOU unit may import without payment of duty for all type of goods. EOU units may import/procure from Domestic Tariff Area without payment of duty. Application for setting up of units under EOU scheme may be approved by the units Approvals Committee within 15 days.
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.
Only project having an investment of Rs. 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.
Leasing of capital goods from domestic companies by EPZ\EOU has been permitted. including capital goods required by it for its activities provided they are not prohibited items of imports.
The item wise export and import policy shall be. To enhance the technological strength and efficiency of Indian agriculture. as specified in ITC.
. components. thereby improving their competitive strength while generating new employment opportunities. intermediates. 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. To stimulate sustained economic growth of providing access to essential raw materials. 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. The following are the salient features of the policy as amended up to 31 st March 2003.came into force with effect from 1 st April 2002 and shall remain in force up to 31st March 2007. and to encourage the attainment of internationally accepted standards of quality. b) Any person without an importer-exporter code number shall make no export or import unless specifically exempted. industry and services. 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. 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. This number shall be issued by DGFT. consumables and capital goods required for augmenting production and providing services. e) Export of samples and Free of charge goods shall be governed by the provisions given in the Hand Book. published and notified by DGFT. c) The provisions given in Handbook shall govern import of samples. d) Import of gifts shall be permitted where such goods are otherwise freely importable under this policy.
00. i) A license shall contain such terms and conditions as may be specified by the licensing authority may include the quantity. 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. Selected towns producing goods of Rs.Market Access Initiative: Financial assistance shall be available under this scheme to the Economic Processing Zones. 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. participation in international trade fairs. actual user. buyer-seller meet etc. description and value of goods. For this purpose. which are world class.Towns of Export Excellence: The industrial cluster towns that export substantial portion of their products.1000 crores or more will be notified as Towns of Export Excellence on the basis of Potential for growth in exports. for export promotion.g) Goods including edible items of value not exceeding Rs. industrial parks etc. 3.
III PROMOTIONAL MEASURES: 1. 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.
.in a licensing year. j) Every license shall be valid for the period of validity specified in the license. should be granted recognition with a view to maximize their export profile.Central Assistance to States: State governments shall be encouraged to fully participate in encouraging exports from their respective states. seminars. may be exported as a gift. on the basis of the competitive merits of proposal received in this regard for marketing studies on country product focus approach basis.000/.1.. the value of addition to be achieved if any. 2. industry and trade associations etc. The common service providers in these towns should be entitled for facility under different schemes offered by the Govt.
Packing. The cottage and handicraft sector.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. which mostly employs artisan and rural people. The units shall be entitled to the benefit of export house status on achieving lower total export/deemed export performance of Rs. 5. processing. Units Agri export zones would be entitled for all the facilities available for exports of goods in terms of provisions of the respective schemes. In recognition of the export performance of this sector and to further increase its competitiveness. Under EPCG scheme.. They are also entitled to duty free imports of specified items upto 3% of FOB value of their exports. these units will not be required to maintain average level of exports. The units shall be eligible for funds from Market Access Imitative scheme.Agri Export Zones: The services. contributes significantly to this effort. The Regional Sub-Committee on quality complaints shall investigate quality complaints received from foreign buyers.Status Certificate:
. 6.4.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. storage and related R & D etc. 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 following facilities shall be extended to this sector.15 crores during the preceding three licensing years.
Merchant as well as manufacturer exporters. Indian firms will have to gear up themselves to survive and to become successful in the emerging borderless world. It also recogninses the need for reasonable stability of the policy.
Alls status certificates shall be valid from 01-04-2002 to 31-03-2007. Duty free import entitlement for status subject to some conditions. by making the duration of the policy 5 years. however.Electronic Data Interchange: Applications received electronically shall be cleared within 24 hours. benefits and facilities the new Export and Import Policy showed its emphasis through the following schemes: CONCLUSION In short. would continue to be received through banking channels. Fixation of input-output norms on priority.Service Exports: The Service providers shall be entitled for all the facilities mentioned in the policy. 8. Exemption from compulsory negotiation of documents through banks. Export Oriented Units shall be eligible for such recognition. Duty Exemption Scheme Duty Remission Scheme Duty Entitlement Pass Book Scheme Export Promotion Capital Goods Scheme
. 9. within 60 days. service providers. 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. the EXIM policy since 1992 acknowledges that the trade can flourish in a regime of substantial freedom. Apart from the above provisions. 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.
48 or Rs.FOREIGN EXCHANGE
The importing country pays money to the exporting country in return of goods either in its domestic currency or the hard currency. buying and selling foreign currency take at a rate which is called exchange rate. bill brokers. viz. For example.
components of foreign exchange market rate include: the buyers.02 Exchange rate in a free market is determined by the demand and the supply of exchange of a particular country. acceptance houses and Central Bank of the country. The exchange rate can be quoted in two ways namely One unit of foreign money to a number of units of domestic currency. The equilibrium exchange rate is the rate at which demand for foreign exchange and the supply of foreign exchange are equal. ` The
Foreign exchange is bought and sold in foreign exchange markets. 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. 1 = US$ 0. 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. The market intermediaries of foreign exchange market include Exchange banks dealing in foreign exchange.
. A certain number of units of foreign currency to one unit of domestic country. This currency which facilitates the payment to complete the transaction is called foreign exchange. the sellers and the intermediaries. The price of US $ is fixed in Indian Rupees. Foreign exchange includes foreign currency.. Exchange rate is the price paid in the home currency for a unit of foreign currency. Exchange rate determination: The transactions in the foreign exchange market. cheques and foreign drafts. 1 US$ = Rs. This foreign exchange is the money in one country for money or credit or goods or services in another country.
The supply of foreign exchange includes: Country’s exports of goods and services to foreign countries.e. 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. 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. But the prices are same in both these methods. Inflow of foreign capital Payments made by the foreign governments to Indian governments for settling their transactions. Other payments involved in international transactions like payments of Indian Government to various foreign governments for settlement of their transactions. India) in its foreign exchange market. The central bank of country purchases the foreign currency when the exchange rate falls and sells the foreign exchange when the exchange rate increases.e.
.The price of Indian Rupee is determined in US dollars. Other types of inflow of foreign capital like remittances by the Non-Resident Indians. establishment of an industry by Indians in USA. They are: Fixed exchange rates ensure certainty and confidence and thereby promoters international business. Other types of foreign capital like giving donations etc. Fixed exchange rates promote long-term investments by various across the globe. The countries follow fixed exchange rates due to its advantages. the governments used to fix the exchange rate and the central bank to operate it by creating ‘exchange establishment fund’. EXCHANGE RATE SYSTEM: Fixed Exchange Rates: Under this system. donations received etc.
Under this system. Most of the economies in recent years are liberalized and globalize. Due to problems with the fixed exchange rate system. if the supply
. In such case. 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. The managed flexibility system needs large foreign exchange reserves to buy or sell foreign exchange in order to manage the exchange rate. As such the small but international business oriented countries like UK and Demark prefer fixed exchange rate system. Flexible exchange rates are determined by market forces like demand for and supply of foreign exchange. 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. Fixed exchange rates result in economic stabilization. most of the world countries at present are not in favour of this system because of the following reasons.
Flexible Exchange Rates: Flexible exchange rates are also called floating or fluctuating exchange rates. The economic policies and foreign exchange policies of the countries are rarely coordinated. IMF permits occasional changes in the system. Despite these advantages. Fixed exchange rates stabiles international business and avoid foreign exchange risks to a greater extent. The system is changed into managed flexibility system. Maintenance of greater reserves aggravate the problem of international liquidity. These economies prefer flexible exchange rate system. Fixed
exchange rates system may result in a large scale destabilizing speculation in foreign exchange markets. the exchange rate system does not work. Either the government or monetary authorities do not interfere or intervene in the process of exchange rate determination.
breed uncertainty and impede international trade and capital movements. This system does not result in deficit or surplus of foreign exchange. The system helps for the promotion of foreign trade. This system eliminates the expenditure of maintenance of official foreign exchange reserves and operation of the fixed exchange rate system. This system also confers more independence on the government regarding their domestic policies. This system is simple to operate. Stability in exchange rate in the long-run is not possible even in fixed exchange rate system. Most of the countries in recent times are in favour of flexible exchange rates due to their advantages.of foreign exchange is more than that of demand for the same. Under flexible rate system. the exchange rate is determined at a low rate and vice versa. This system permits the existence of free trade and convertible currencies on a continuous basis. The adjustment of exchange rate under this system is a continuous process. These frequent changes result in exchange risks. The exchange rate moves automatically and freely.
. Disadvantages: However this system is also not free from the disadvantages. this system provides the same benefit like fixed exchange rate system for long term investments. Under flexible exchange rate system. the exchange rate changes quite frequently. It is rather difficult to define flexible exchange rate. The equilibrium exchange rate may fail to give correct signals to correct the balance of payments position. speculation adversely influences fluctuations in supply and demand for foreign exchange. The disadvantages of this system include: Market mechanism may fail to bring about an appropriate exchange rate. Hence. Under this system a reduction in exchange rates leads to a vicious circle of inflation.
What are the advantages that a firm can derive by going into international? (Ans: motivation for exports and advantages of globalization) 4. How do controllable and uncontrollable factors affect the environment of international marketing? 6. How domestic marketing does differs from international marketing? 3. Discuss the criteria involved in International Marketing in respect of market Selection decision. In addition. Define International Marketing.Despite the advantages of fixed exchange rate and the disadvantages of floating exchange rate system. 2. it is viewed that the flexible rate system is suitable for the globalization process. the convert ability also helps the floating rate system and the globalization of foreign exchange process.
INTERNATIONAL TRADE .41303 QUESTION BANK
UNIT ONE 1. Narrate the scope of International Marketing. Explain the concept of Globalization. UNIT TWO 1. Why more and more Indian manufacturers taking recourse to direct marketing? (Advantages of direct exporting and limitations of indirect marketing) 2.
. Write a note on Pros and Cons of Globalization. 7. Why the task of international marketing is is more difficult than that of domestic marketing? (Ans: Difficulties of international marketing) 5.
(export assistance and export promotion measures) 9. 6. subsidies and quotas) 8. UNIT THREE 1. List out the standard clauses of International Sales Contract.
. Give a critical evaluation of various strategy alternatives for selection and entry in the international marketing. Write a note on world trade services. Describe briefly the various measures taken by Government of India to help Indian Exporters.(post shipment credit and pre shipment credit). What are the various aspects of International Marketing Research. What are the different methods of protection made our government for the sake of domestic merchants? (tariffs. What are the different forms of counter trade? 6. 9. Evaluate the institutional and infrastructure facilities available for export promotion in India. 5. 10. 4. Write a explanatory not on trade barriers. Critically examine the contributions by the commercial banks in Export promotional efforts in India. List out the functions of GATT. How WTO differ from GATT? 7. 8. What do you mean by counter trade? Is it advantageous? 2. Bring out the impact of Tariffs & Quotas. 3. What are its basic principles? 4.3. What is meant by competitive intelligence? How do firms acquire it? 7. List the importance of /uses of/need for international Marketing research. How would GATT agreements help in reducing trade barriers? 5.
Present a detailed account of the procedure for export of goods. Explain the significance of documents used in export trade related to shipment of goods and payment. 12. Write short notes on Export by Air Export by sea 4. 3. 13. UNIT FOUR 1. What are the uses of Letter of Credit? Briefly explain the various types of Letter of Credit. What are the machineries available for quality control and inspection? 8. Write a note 100% Export Oriented Units (EOU) and its obligations. Make a critical appraisal of working of the Export Credit and Guarantee Corporation. 3. 2. 2. Examine the salient features of India’s latest EXIM Policy. 4. 7. Discuss the role of EXIM bank in International Trade context. 11. Explain the fundamental principles of marine insurance and discuss the extent of coverage available under different forms of marine insurance. UNIT FIVE 1. Explain how payments are settled in International Trade. Explain the role of FTZ. 6. What are the risks that are covered under marine insurance? Explain the procedure and documents used when the loss occur 9.10.
. State the steps involved in the operation of Letter of Credit. Describe the stages of processing an export order. What are the advantages of export of goods by air? 5. Briefly discuss the functions of commodity boards.
What are the major Exports of India? 8.what other prove effective in encouraging more
causes for the existing situation and improvement. Explain the main features of India's foreign trade? 4. 3.Formulate a stategy to increase exports of India's SSI sector?
. Discuss the advantages and disadvantages of different exchange rate system. Explain the advantages of Regional Economic groupings? 9.Assess the impact of recent liberalisation measures on India's International marketing?
13. How the foreign exchange rate will be determined? 6.Describe the could
helped the Indian Exporters. Explain the salient features of the EXIM policy of our country Give suggestions to further improve the
competitiveness of Indian 10.5.
INTERNATIONAL TRADE GENERAL QUESTIONS 1.Critically . State Indias 6. Trace the recent trends in Indian foreign trade. 5.
give suggestions to
12. What are in your opinion reasons for sluggishness in
Foreign Trade? various assistance available to Indian
Exporters? 7. Present an overview of India’s latest Export -Import policy. 2.Examine the extent to
Exports? which the direct Export
subsidies have methods exports? 11. Write short note on IMF.
in the context of International Trade? 25.Formulate a strategy to increase exports of India's small scale 22.As a marketing manager .14.
20.Explain Indian the role
the validity of the statement in the
exports.how problems of your choice.Discuss the Indian context. 26."Quality
validity of the statement in the
23.What other methods do you suggest?
16.Examine the extent to which the direct export subsides have helped the Indian exporters.Discuss Indian context? 15.How
17.Briefly describe the recent experience of Non tariff barriers." Quality industry sector.Write a detailed note on Project exports of India? 18.What are the various export Govt.Distinguish research'.What do you mean by 'Marketing mix .What other methods encouraging more exports?
could prove effective in
21. between 'desk research and field
.What are the main issues that should be considered while framing the multinational marketing plan.
will you go about the
finding overseas market for a product of
24. improvements are essential to boost
exports".of India to boost Exports? incentives provided by
Discuss the issue 'standardisation Vs localisation in international marketing.
.27.What are the major export items of India ? Who are the major competitiors of these items ?Discuss.What ?Briefly exports.What
available to MNC to
expand their international trade ?
29.Under FOBcontract .what are the duties of the exporter and importer ? do you understand how by it Medical Transcription in service