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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.
wants and behavioral attributes. It also means entry into international markets by: Opening a branch/ subsidiary abroad for processing. it has a broader connotation in marketing literature.' International marketing can be defined as "marketing carried on across national boundaries". patents. viz. Scope of International Marketing: Though international marketing is in essence export marketing. Establishing joint ventures in foreign countries for manufacturing and or marketing and Offering consultancy services and undertaking turnkey projects broad. 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'. . thereby involving different markets and consumers who might have different needs. International Marketing vs. Negotiating licensing/ franching arrangements whereby foreign enterprises are granted the right to use the exporting company's know-how's. This necessarily involves finding out what the buyers want and meeting their needs accordingly. Both in domestic marketing and international marketing success depend upon satisfying the basic requirements of consumers. assembly or even complete manufacturing through direct investment. 1. Depending upon the degree of firm’s involvement.. Domestic Marketing: There are a number of similarities and differences between international and domestic marketing. packaging.INTERNATIONAL TRADE UNIT ONE DEFINITION OF INTERNATIONAL MARKETING: Kotler defines marketing as 'human activity directed at satisfying needs and wants through exchange process. It is different from domestic marketing in as much as the exchange takes place beyond the frontiers. there may be several variations of these arrangements. processes or trademarks with or without financial investment.
S a result. Sovereign Political Entities: Each country has is a sovereign political entity and goods and services had to move across national boundaries. they may have to face a number of restrictions. particularly import controls are a very important problem which an international marketer faces. 6. there are some salient features of difference between international marketing and domestic marketing. They are as follows: 1. 5. In the case of domestic marketing the buyers are aware of the legal systems in their country. 4. an advertisement medium very effective in one market may not be available or may be under developed in another market. Research and development for product development and modification is necessary both for international marketing and domestic marketing. Tariffs and customs duties Quantitative restrictions Exchange controls Local Taxes. This my fall in any of the following categories. 3. Trade Restrictions: Trade restrictions. which has not been able to do so. . 3. However. Different Legal Systems: Each country has its own legal system and it differs from country to country. 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. In case of domestic marketing there is only one currency prevailing in the country. Cultural Differences: In domestic marketing there is only one nation. Differences in the Marketing infrastructure: The availability of the marketing facilities available in different countries may vary widely. For example. The exchange rates between currencies fluctuate every day. If a firm is able to develop goodwill of consumers or customers. 2. its tasks will be simpler than the one. 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. same language and culture where as at international marketing many languages and different cultures.2. It is necessary to build goodwill both in the domestic market and international market.
TRANSITION FROM DOMESTIC TO INTERNATIONAL MARKET The Decision to enter foreign markets must be based on strong economic factors. Transport Cost: In International trade. transport cost is a major marketing expense where as in domestic trade transport cost influences only to certain extent. The factors. The point to be studied is what made some of these firms get involved in export business. Success in exporting requires total involvement and determination.7. They grouped as Pre-export behaviour and Motivation to Export. can be classified under the following categories: . 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. Temperamental decision to export is transient in character and totally unsuitable for export marketing. 10. Pre-Export Behaviour: Every firm at some point of time starts as a non-exporter. which can come only out of basic economic necessity as perceived by the corporate unit. 8. 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. At international marketing multiple environments. Stability in Business Environment: In domestic marketing there is relatively stable business environment. 9. 1. which influence a non-exporting firm's decision to go in for export business. 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. many of which are likely instable.
. (d) Level of Organizational commitment: The decision makers must agree on the level of commitment. the higher level of profits and the growth objectives of the firm. hiring of consultants for carrying out overseas market potential studies etc. (b) Perceived External Export Stimuli: This will include fortuitous order. optimum scale of production. Recession in the domestic market often serves as a stimulus to export ventures. This will reduce costs and improve the overall profitability of the firm. This covers the level of capacity utilization. Export business offers a suitable mechanism for utilizing the unused capacity. 2.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. and potential export markets. the motivation of the firm to get involved in export business will be considerable. size and growth of the domestic market. market opportunity and government's stimulation in the form of incentives and assistance. and the present and future market prospects in the domestic market are not much encouraging. Insufficiency of Domestic Demand: The level of domestic demand may be insufficient for utilizing the installed capacity in full. This is crucial because it will determine whether adequate resources will be made available for embarking on international marketing. Resources will be required for hiring new staff specialized in international marketing. (c) Perceived Internal Export Stimuli: This refer to the management's expectations about the effects of exports on the firm's business. which is internationally marketable. If the firm is manufacturing a product. .
Governments. therefore. 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. geographic diversification also provides the momentum to growth in as much as a single or few markets will have only limited absortive capacity. larger markets become a necessity and exports become unavoidable. may be compelled to impose export obligations on the firms. In other words. They also look at exporting to attain status and prestige. Technological improvement: Entry to export market may enable a firm to pick up new produce ideas and to add to product line. if the additional capacity is utilized for exports. Government regulations restricting imports by way of import licenses. especially those in need of imported inputs. may be fully or partly counter balanced by a rise in the sales in other markets. Some of them the special difficulties are as follows: Quantitative restrictions to protect local industries. They also build up their image in domestic marketing by their export activities. etc. improve its product. . the downward fluctuations in sales in one market. Then the firm may be tempted to export its products abroad. reduce costs and discover new applications for its product. Increased productivity: Increased productivity is necessary for ultimate survival of a firm. in order to import. 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. Secondly. which may be the domestic market. technology or processes not available within their national boundaries. Obtaining imported inputs: Nations have to pay for imports of materials. Social responsibility: Sometimes businessmen themselves feel a sense of responsibility and contribute towards the national exchequer by increasing their exports. To meet the increased costs of Research and Development. the firms will have to export. This will lead the firm to increase production and then move to export business. But there may not be any such restrictions.
The company is in a position to control and design marketing mix elements i. YEN in Japan. There are some factors which can be controlled by the management may not be able to haves any control over them. Different legal system regarding import and export of goods. price. Complications of Exporting. INTERNATIONAL MARKETING ENVIRONMENT It is necessary to know the concepts of "controllable" and "uncontrollable factors" in international marketing. Paper work is more in export business. Differences in market characteristics. Lack of adequate export financing especially for small scale industries. Different monetary systems like Dollars in USA. product. etc. export to any place by choosing any distribution channels and follow any promotional methods. competition from exporters from other countries and competition from producers of goods in the importing countries. Now let us discuss these factors as follows: Controllable Factors: Control will have to be defined with reference to a company's management. Exchange controls. Cultural dimensions of international marketing. Lack of export incentives to exporters. Shipping and freight problems. Competition from local exporters.Tariff and non tariff barriers. Differences in procedures and documentation. . Non-availability of latest information about the market conditions. Lower mobility of factors of production.e. Sterling in UK. Trade barriers . Economic Unions. Local taxes like sales taxes on imported goods.
a number of family owned business groups in India have ushered in professional management. method of consumption. values associated with consumption. The ways of meeting and greeting people. could have a social influence of them Management may undergo a social transformation. Because of cultural differences. Such uncontrollable factors in international marketing are described here. occasion of consumption. entrepreneurial nature and attitude. business ethics. government policies etc. lab our-management relations. So familiarity with cultural is necessary for success. expression of appreciation or disapproval. government-business relations. a promotion strategy that is very effective in one market may utterly fail in another. Religion and Climate . purpose of consumption. the way the business should be organized and governed. quantity of consumption. legal environment. political philosophies and systems. Etiquettes differ from culture to culture. ways of conducting meetings and functions. methods of showing respect. are all influenced by social structure and the culture of a society.Uncontrollable Factors: There are some factors on which the company can not have any control. The need for good corporate governance is getting more and more recognition. vary quite widely between cultures. The other social factors which influences the international marketing inclusive of National legal regime Political and Financial system Marketing infrastructure Language. In short. SOCIAL FACTORS: The social/cultural environment of a nation/market may profoundly influence business in different ways and dimensions. etc of a product may show wide variations between cultures. the type of products to be manufactured and marketed. table manners etc. or may even result in social or legal reprisals. the values and norms it should adhere to. The attitude of workers. The tastes and preferences. governance. for example . the marketing strategies to be employed.
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.
. marketing strength etc. which in turn increases the global investment. A firm may derive competitive advantage from any one or more of the factors such as low costs and price. It helps the investors to get a fair interest rate or dividend and the global companies to acquire finance at lower cost of capital. Free flow of Technology: Globalization helps for the flow of technology from advanced countries to the developing countries. financial market reforms and so on. development of common facilities like infrastructural facilities. Resourceful companies may find it easier to thrust ahead in the global market. COMPETITIVENESS: The competitive advantage of the company is a very important determinant of success in global business. Government support may take the form of policy and procedural reforms. RESOURCES: Resources is one of the important factors which often decides the ability of a firm to globalize. after sales service. It helps the developing countries to implement new technology. government support can encourage globalization. PROS AND CONS OF GLOBALIZATION ADVANTAGES: Free Flow of Capital: Globalization helps for free the flow of capital from one country to the other.GOVERNMENT SUPPORT: Although unnecessary government interference is a hindrance to globalization. product differentiation. product quality product. Increase in Industrialization: Free flow of capital along with the technology enables the developing countries to boost-up industrialization in their countries. ORIENTATION: A global orientation on the part of the business firms and suitable globalization strategies are essential for globalization. Further Globalization increases capital flows from surplus countries to the needy countries. technological superiority. R and D support.
Increase in Employment and Income: Globalization results in shift of manufacturing facilities to the low wage developing countries. globalization reduces prices and thereby enhances consumption and living standards of people in all the countries of the world. the developing countries industrialize their economies. demand for American Pizza in India and Masala dosa and Hyderabad Briyani and Indian styled garments in USA and Europe. For example. As such. leads to spread up manufacturing facilities in all the global countries depending upon the locational various favorable production factors. the increased economic development of the country enables the government to provide welfare facilities like hospitals educational institutes etc. improves the skills of the people of developing countries. Further. it reduces job opportunities in advanced countries and alternatively creates job opportunities in developing countries. 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. Higher Standards of Living: Further. . which in turn contributes for the balanced human development across the globe. The cultural exchange. technology and locating manufacturing facilities in developing countries. This in turn leads to the balanced development of all the countries. Balanced development of world economies: With the flow of capital. Increased industrialization spread up of technology. increased production and consumption level enable the companies to produce and sell the products of high quality t lower prices. 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.Spread up Production facilities throughout the Globe: Globalization of production. Lower prices with high quality: Indian consumers have already been getting the products of high quality at lower prices. in turn makes the people to demand for a variety of products which are being consumed in other countries. Balanced Human Development: Increase in industrialization on balanced lines in the globe.
These companies employ child labor. 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. people with innovative skills. get abnormal income. DISADVANTAGES: Globalization kills Domestic Business: The MNCs from advanced countries utilize the opportunities created by globalization. competent people. globalization enables the developing countries to become rich and enforce the labor and environmental regulations. This in term leads to reduction in employment opportunities particularly in less developed countries. This results in widening the gap between have and the have-nots. pollute environment. However. Decline in demand for domestic products: Selling of high quality foreign products at low prices by MNCs reduces the demand for the domestic products.. establish manufacturing and marketing facilities in developing countries. Therefore. efficiency etc. 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. This is because. Decline in Income: Unemployment and decline in demand for domestic products of both industrial agricultural goods leads to reduction in income of the people. the domestic country’s operations are to be reduced. while other average people have to strive for even a minimum wage. The domestic business of the developing countries fails to compete with the MNCs on the technology and quality front. Widening gap between rich and poor: Globalization not only results in decline in income but widens the gap between rich and poor. Transfer of natural resources: MNCs establish their manufacturing facilities in developing countries exploit their natural resources and sell the products in other . it is viewed that. Leads to Unemployment and Underemployment: MNCs produce the products in their home countries or in some other foreign countries and market in developing countries.Increase in the Welfare and Prosperity: The balanced industrial. and ignore workplace safety and health issues.
Whether it can adapt the product according to the needs of the consumers? 4. 2. No firm has unlimited resources. the firm must have the resources in men. 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. When a firm thinks of entering into an international market. One of the risk element is sudden fall in demand. the marketer has to take four decisions. Whether it can meet the demand in domestic as well as in international market? 3. UNIT TWO INTERNATIONAL MARKETING DECISION In developing a foreign operation.countries. Through these means. MARKET SELECTION DECISION To be successful in initial exports. and the risks may be minimum. 1. Whether it can formulate and implement a policy and regulations pertaining to exports and imports? Even if the opportunities appear favorable. the first step is to choose the right place for the initial export venture. A proper selection of markets would ensure that time and efforts are not wasted. Are there any opportunity open to firm and its product in abroad?. it should develop a marketing strategy to be used for both domestic and foreign business. 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. money and materials to capitalize them. In such circumstances the firm which concentrating only domestic market will find thread about its survival. These are: Marketing Decision Marketing selection decision Market entry decision Marketing Mix Decision Marketing Decision: All the business involves risk. the natural resources of developing countries are transferred to other countries. .
Do not enter those markets where there are a lot of import restrictions. ECGC. It would be unwise to sell in the more competitive European market. The concerned export promotion council also publishes such statistics. settle them amicably. . 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. 2) It should examine import statistics of the product in the target markets.While selecting initial markets for exports. Collect the address of potential customers abroad and start correspondence with them. 4) The company also has discussion with some successful exporters. Find a need and fill it. 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. this will ensure success. names of importers etc. Collect the latest data on export surveys and commercial intelligence from India's Commercial Representatives abroad. when a less competitive Arab or African market is available. This will enable the marketer to solve many practical problems. avoid any trade disputes. but if such disputes arise. Enter the export business only when the marketer is sure of its profitability. etc 6) It may also contact our Trade representative located in our Embassies and High commissions abroad. Take guidance from government and non-government institutions. It is advisable to spend some time and money on visiting the overseas market. libraries. Make certain at the start that your export business is going to be profitable. The company can look into these statistics and find out where the products are exported. 5) It can also have discussions with Commodity boards. 3) The company can also visit some Government offices.
special types of logistic infrastructure is necessary. in the case f certain products. which will jeopardize any marketing efforts. 11) It must also decide whether it should choose one market or a few markets.7) It may also contact Foreign Embassies and High Commissions located in India. It is easier to capture a 5 per cent of a big market than to capture a 25 per cent share of smaller market. . 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. Inadequate logistic support can play havoc in the planning of export shipments. It is not enough if additional sales come at the cost of the competitions. Further . CRITERIA FOR SELECTION OF MARKET: The marketing firm should have a set of decision criteria for selecting the target markets. 10) It must also find out economic. social and cultural factors in the target markets. (iii) Logistics: Dispatching the goods to the right place at the right time is the essence of all marketing. While the complete set will have to take into account the product and marketing characteristics of specific products. including international marketing. Higher scales over time become easier when the overall demand is increasing. (ii)Growth: It is enough that the market is existing but it should also be in the growth stage. 9) It can take part in trade fairs and exhibitions conducted by ITPO and other agencies. 8) The company can also send some officers to the target markets to find out the market conditions there. 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.
(vi) Distribution System: The availability of a capable agent or distributor is a very important consideration. A thorough study will have to be made to determine how the firm's product profile compares with that of the competitive product line. such as demonstration and post-selling. Even if a market is otherwise promising. such as after. unless it is in position to set up its own office there. if no good distributor or agent is available. A good distributor is essential. The various methods of market entry open to firm in a given country are: Indirect exporting Direct Exporting Licensing Franchising Joint Venture Foreign subsidiaries Special Modes INDIRECT EXPORTING: . the next step relates to the decisions regarding the alternative methods of entry. especially for products requiring pre-selling.(iv) Distance: The transport cost and distance are intimately correlated. the company should think twice before deciding to enter that market. For low-valued items. The firm will have to evaluate whether it is in a position to match such competition onslaught. The selection process of the target market will have to take this factor into account.sales services. (v) Competition: The nature and extent of competition is a very crucial factor to reckon with. THE MARKET ENRTY DECISION: Once the target market has been identified. the incidence of higher transport cost may reduce export competitiveness quite appreciably.
Merchant exporters or export houses sell and buy on their account and thus assume the risks involved in exporting. The advantage of selling in this way is similar to what had been mentioned for exporting through export houses. 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. which are willing to buy goods from the Indian manufacturers and sell them abroad. and the firm does not have to spend money on market research or on setting up branches abroad. The firm sells its products in its country to another party. 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. The amount of business that is conducted by such buying operations is substantial. They usually have a system of gathering market information and keep a close watch on market trends. where he will buy and at what price. Some other companies regularly send buying teams for the same purpose. who takes the responsibility of actual export. It carries less risk. It requires less investment and the firm's capital is not tied up.The indirect way of exporting is almost equivalent to domestic sales. Advantages of Indirect Exporting: It involves little time or effort because the merchant exporter takes care of all the difficulties involved and assumes all the sales and credit risks. Merchant exporters are usually well financed and maintain their branches at port towns and in important centers abroad. not in position to start an export department to like after exports sales. A merchant exporter is free to decided what he will buy. therefore. The manufacturing firm is free to concentrate on production. Disadvantages of Indirect Exporting: . This method of exportation is useful when the company is small and. It makes possible the utilization of the know-how and experience of middlemen.
DIRECT EXPORTING: In case the firm decides not to operate through any of the intermediaries described in the earlier paragraphs. which offer them the greatest profit. particularly the agent on commission basis. Export merchants may concentrate on the products. Depending upon the firm's export sales turnover. He can enjoy the full returns on exports. Direct Exporting may also be undertaken by: Setting up a sales branch or a subsidiary sales organization in a foreign country. . 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. Export merchants middlemen may not be available for all the markets. the manufacturer cannot be called an exporter. The small manufacturer's products may be ignored. who would travel abroad and book orders. The middleman.appoint an export manager plus a clerk. Appointing home-based sales representatives. with the result that sales may suffer. He will have direct control over the marketing operations. or a supplement to the home organization. may not be aggressive. If its export plans are ambitious and the prospects of selling in a number of markets are promising. and opts for direct exporting. which may be a substitute for. it may make a modest start. For practical purposes. or suitable agents in that country who would sell it on commission basis without taking any title to it. existing and potential. and he cannot claim or avail of export incentives given on a fairly liberal scale. it may create/set up a separate export department or even a separate export company. Indirect exporting provides little control over the operations of middlemen. Selecting suitable distributors in a foreign country who would buy his product and sell it there. His profits will be more than selling the goods through middlemen.
sometimes the only possible way as in centrally planned economies. opportunities licensee. Licensor can investigate the foreign market Costly and tedious litigation may crop up for both licensor and . It is often the quickest way of entering overseas markets . Licensing mode carries low financial risk Both the parties have the responsibilities to to the licensor. and avoids all distribution costs. It is clearly a method that involves little expense. 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. a patent design or a trademark. technical information or some facility in return for some fee or royalty. Therefore one party can affect the other through their improper acts. Direct exporting is the only choice for certain products and not alternative to get success. 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. Licensing mode carries low investment on Licensing agreements reduce the market the part of the licensor. the manufacturer enters into an agreement with a licensee in the foreign country and this gives him the right to use the manufacturing process. maintain the product quality and promoting the product.
and quality assurance programme etc. Under franchising. an independent organization called the franchise operates the business under the name of another company called franchisor. customers franchisee. The franchisor can exercise more control over the franchise compared to that in licensing. License escapes himself from the risk of There is a problem of leakage of the trade product failure. The licensee may sell the product outside the agreed territory and after the expiry of the contract. Franchisor learns more lessons from the Franchising agents reduce the market experiences of the franchisees. . reservation service. information It is difficult to control the international regarding the markets. Advantages and Disadvantages of Franchising Advantages Disadvantages Franchisor can enter global markets with International franchising may be more low investment and low risks. between the effectiveness of the agreement. and hurt both the parties and the market. Franchisor can get the complicated than domestic marketing. FRANCHISING: Franchising is also a form of licensing. which he opportunities for both the franchisor and could not experience from the home franchisee. and environment of the host country. culture. The franchisor provides the following services to the franchisee: Trade marks Operating system Product reputations Continuous support systems like advertising. for parties misunderstanding despite the Licensing gets the benefits with less There is scope investment on research and development. employee training. secrets of the licensor.without much effort on his part.
or A domestic investor and an investor in a foreign country together start a new venture in that foreign country. This takes place when: The domestic investor buys an interest in a manufacturing unit situated in a foreign country. This is the culmination of international marketing. It is international production-cum marketing. Franchise gets the benefit of R & D with There is a problem of leakage of trade low cost. Contract Manufacturing: Some companies outsource their part of or entire production and concentrate on marketing operations. Any investor of a foreign country buys an interest in a manufacturing unit of the domestic investor already existing in that country. secrets.country’s market. B. marketing activities. 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. FOREIGN SUBSIDIARIES: The marketer establishes a subsidiary manufacturing unit in a foreign country. When a company engages in such production in a number of countries. Franchise escapes from the risk of product failure. the monarch of all that it contains. SPECIAL MODES OF ENTRY: A. promotion. it is called multinational company. outsourcing. Management Contracts: This practice is called the contract of manufacturing or . He is its exclusive owner and controller. or both. JOINT VENTURE: A joint venture involves a capital partnership and may be arranged for manufacturing activities.
Information regarding the nature. INTERNATIONAL MARKETING RESEARCH MARKET RESEARCH & MARKETING RESEARCH Market research is a complete analysis of the market. products. national highways. C. based on the market size. The research is mainly concerned with details regarding consumers.The companies with low level technology and managerial expertise may seek the assistance of a foreign company. 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. sales promotion techniques. growth. organization. . Turnkey projects: A turnkey project is a contract under which firms agrees to fully design. warehousing. such as economic. NEED FOR OVERSEAS MARKET RESEARCH :( Uses) Market research is required to identify which markets should be selected as the target. Then the foreign company may agree to provide technical assistance and managerial expertise. profitability of different markets. consumers. size. This agreement between these two companies is called the management contract. 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. affecting those changes are studies vigorously. International turnkey projects include nuclear power plants. advertisements. transport. social and political. The main purpose of market research is to know about the consumers and markets of the exporter's products and services. railway lines etc. The research is mainly concerned with details regarding consumers. accessibility and competitive factors. air ports. Marketing research covers all aspects of the marketing activities such s markets. channels of distribution. oil refinery. Thus the market research is only a part of marketing. changes in markets and various factors.
reduces uncertainty in it and makes the environment known. Desk research and field research. Considerable amount of data collection and analysis are required to arrive at pricing decisions. Promotional campaigns should be decided only when proper research has been carried out regarding their acceptability in a given environment. Research can help prevent the use of inappropriate market entry method. 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. habits and preferences are changing very fast. Research also helps in taking appropriate packaging decisions. Pricing is crucial for success in international marketing and a blunder can mar all prospects. The uncertainty is mitigated. Identify the sources (primary and secondary) from where such information can be obtained. taking into account the socio-cultural factors. Marketing research by providing information on market information on market environment. Identify the gaps in information still remaining. 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. fashion. Collect and analyse the secondary source materials. Stepwise formulation of a research plan comprising both desk and field research will be as follows: Identify the problem. It is useful in converting uncertainty into certainty. Prepare a research brief for field research to collect information on the gaps. Research can help to determine the positioning of the product.. Detailed field research investigations are required to determine the extent of product adaptation required to make the product acceptable in a given market. . The research becomes inevitable when the income. Identify the information requirements to find out a solution to the problem.
INFORMATIONS Import statistics Production statistics Tariffs and quotas EXAMPLES OF SOURCES UN. o From whom the data were collected. Prepare the sample of respondents. Official statistical sources Embassies. Interview the respondents. 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 . 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. The following table shows the agencies which can furnish the required information for desk research. and how reliable the methodology might have been and o How consistent the data are with other local or international statistics. Analyse and evaluate the results. and whether thee might any motive for misrepresentation. national trade statistics UN. Complaints received from foreign customers etc. Design a questionnaire. It involves collection of all relevant information from known published and unpublished documentations available within and outside the organization. DESK RESEARCH: Desk research is the first phase of the marketing research.OECD.
Of the three methods. In order to secure the best possible return on the limited time that can be spent on export market research. company catalogues. 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. First the recruitment of interview is difficult and ins some cultures it is impossible to recruit female interviewers at all. Reports of embassies and Journals Banks Freight forwarders and clearing agencies Previous market survey reports. daily economic newspapers on commodity prices. FIELD RESEARCH: An analysis of data collected from desk research would reveal the gaps in information that still remain.Currency restrictions Health restrictions Political situation Domestic consumption Banks and Embassies Embassies and chamber of commerce Bank reports. the personal interview presents special problems for two main reasons. Generally speaking product specific marketing in formations are not available from secondary (desk) sources. press reports and IMF year book Official statistics of chamber of commerce and commodity boards. design and testing of a questionnaire and preparation of a sample of respondents. Identification of agents Credit and payment terms Transport cost Prices Directories.. There are two specific important steps before field research can be undertaken viz. Techniques of Field Research: Interview methods. telephone interviews and stores checks. Questionnaire and Observation method (Refer Research methodology book for further details for the above said techniques) COMPETITIVE INTELLIGENCE: . however. Field research can be conducted through personal interviews. Unfortunately.
It is therefore. 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? .Modern marketing is very competitive. Predicting the behaviour of one's competitors and outguessing of the competitor will need the services of marketing intelligence. and how good are they? What problems do the face. Modern business is a many sided game in which rivals and opponents continuously try to formulate strategies to gain advantage over one another. A marketer cannot survive under keen competitions without up to date market information particularly regarding the nature. Regarding that the trader should have answer for the following questions about his competitors: Basic Factors: What are the competitive products are sold in that particular country? Who are the competitors? What facilities do they have and where are they located? Who are their local officers. character and size of competition to be met.
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. if any arising out of the contract. however. An Indian exporter selling his product to an importer. Quality of the product. The elements or the clauses of an export contract vary depending upon the nature of product being exported. . say in the USA. 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. or on the settlement of disputes. 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. pricing. The function of a sales contract is to set forth in writing what one party agrees to do for the other and what each may expect of the other. Price per unit. Their promotional strategies. These elements are as follows: Names and addresses of the parties .exporters and importers The description of the product. some elements that are almost universal in their application. There are.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.
Passing of property. . Inspection. Documentations. if any Warranties . Settlement of disputes. Proper law of contract. INTERNATIONAL TRADE POLICIES TRADE BARRIERS (METHODS OF PROTECTION) Managing any business strategically needs an understanding of the business policies. Mode of payment.assuring repairs over a period. Subsidies and Import quotas. But in case of global companies. Jurisdiction. Government announces their trade policies with regard to the following from time to time. They are also called the instruments of trade policy. an understanding of trade policies is more essential. They are: Tariffs. Availability/ non-availability of export and import licenses. Currency Tax and charges Packing specifications Mode of transport Delivery: Place and schedule Marking and labeling. Insurance. Passing of risk. Total value. Credit period. 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.
If the import duty causes an increase in the price of domestically produced goods. IMPACT OF TARIFFS Tariff affect on economy in different ways. Consumption Effect: The increase in prices resulting from the levy of import duty usually reduces the consumption capacity of the people.TARIFFS Tariff refers to the tax imposed on imports. 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. This increase in the price of imports is likely to reduce imports and increase the demand for domestic goods. Income and Employment Effect. as a result of the protection by tariffs. Thus. Revenue Effect: As mentioned above. 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. Import duties may also enable domestic industries to absorb higher production costs. it amounts to redistribution of income between the consumers and producers in favor of the producers. . domestic industries are able to expand their output. a tariff means increased revenue for the government. It is a duty or tax imposed on internationally traded commodities when they cross the national borders. Redistribution Effect.
people may be constrained to reduce their consumption of the commodity subject to quotas or some other commodities. milk etc.The tariff may cause a switch over from spending on foreign goods to spending on domestic goods. Consumption Effect: If quotas lead to an increase in prices. India had quotas of imports of various goods like cars. quotas are helpful in improving its balance of payments position. motor cycles. Competitive Effect: The competitive effect on the tariff is. the tariff importing country is able to get imports to a lower price. These restrictions are imposed by issuing import licenses to certain firms and individuals to import certain quantity of the goods. 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. Import quotas provide the protection to the domestic firms from the foreign countries. IMPACT OF QUOTAS Balance of Payment Effect: As quotas enable a country to restrict the aggregate imports within specified limits. Terms of trade effect: In a bid to maintain the precious level of imports to the tariff imposing country. This higher spending within the country ay cause an expansion in domestic income and employment. Price Effect: As quotas limit the total supply. up to 31st march 2001. Protective Effect: . they may cause an increase in domestic prices. if the exporter reduces his prices. in fact. QUOTAS Quota is direct restriction on the quantity of goods which are imported into a country.
the government may obtain some revenue by charging a licence fee. quotas are much precise and their effects much more certain. more easily imposed and more easily removed instruments of commercial policy than tariffs. quotas encourage the expansion of domestic industries. The effect of quotas on the terms of trade depends upon the elasticity of the foreign offer curves. Quotas may affect the terms of trade of the country imposing them. The reactions or responses to tariffs are not clear and accurately predictable. Revenue Effect: Quotas may also have a revenue effect. It however fails to restrict imports when the demand for imports is price inelastic. but the effect of quotas on imports is certain. The rise in prices will result in the redistribution of income between the producers and consumers in favour of the producers. Tariffs are often regarded as relatively permanent measures and rapidly build powerful . When compared to tariffs. A tariff seeks to discourage imports by raising the price of imported articles. a quota is more effective than the tariff. As quotas are administered by means of licences. 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. Terms of Trade Effect. It has been argued that quotas tend to be more flexible.By guarding domestic industries against foreign competition to some extent. Redistributive Effect: Quotas also have a redistributive effect if the fall in supply due to important restrictions enables the domestic producers to raise prices.
Similarly. Such payments are called subsidies. government pays to a domestic producers reducing operations cost. Tariffs in some respects are superior to quotas.vested interests. quotas tend to promote the concentration of economic power among foreign exporters. suffer from certain effects. Quotas. which make them all the more difficult to remove. They are: Cash grants. equity participation and supply of inputs at lower prices. tax holidays. The effects of quotas are more rigorous and arbitrary and they tend to distort international trade much more than the tariffs. and removable as soon as circumstances warrant. Quotas offer greater scope for corruption than tariffs. are designed to deal only with a current problem. Quotas tend to restrict competition much more than tariffs by helping importers and exporters to acquire monopoly power. 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. That is why GATT condemns quotas and prefers tariffs to quotas for controlling imports. Tariffs also suffer from the same defect. If import quotas are allocated only to a few importers. Quotas have many characteristics of a more temporary measure. however. they may enable them to amass fortunes by exploiting the market. . Subsidies are in different forms. government procurement of out put at a higher rate. Quotas may support inflationary pressures within the country by restricting supply.
on either bilateral or multilateral basis. but the exporter transfers the purchasing commitment to a third party who may be an end user of products or a trading house. the goods to be produced by the importer with the exporter s' equipment or technology. provide plant. In other words imports are paid out of exports in counter trade. the exporter. 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. Barter: In the 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. equipment or technology to an importer and agrees to accept. Under this arrangement. We may examine them in detail in detail as in the following paragraphs. in full or part considerations. the exporter sells specified goods to the importer in exchange for specified goods. There are a variety of forms of counter trade. Pure barter of this type is rare in now a days. In this case no cash in involved. FORMS OF COUNTER TRADE: There are a number of forms of counter trade. Compensation counter trade: Under compensation arrangement the exporter agrees to accept a part of consideration in cash and the balance in kinds. where cash may not involve but there is always a link between the imports and exports transactions. In other words barter involves trading goods for goods. For example India exports iron and steel against import of heavy machinery under a contract it is called a counter trade transaction. The contract period of buy back .INTERNATIONAL TRADE . usually an industrial firm. Buy back arrangement: This type of arrangement sis the most popular arrangement involving a relatively large volume of trade. Basically it is a barter (exchange of one type of goods for another type of goods) or quasi-barter agreement.
Such accounts are monitored by the country's bank of foreign trade that deals in foreign exchange and where the company maintains its accounts. considerably longer than that of counter purchase arrangements. One example of switch is western firm that sold a plastic manufacturing plant to the then USSR which had no cash to pay. the amount is paid or accepted through a third country or party. Under this arrangement. generally one year. In swap transactions differences in quality of the goods being substituted are worked out in swap contract. chemicals and oils. products from different locations with a view to save transportation cost. t o enter new markets. Thus in a switch agreement. This method of counter trade is useful when international currency flow is sluggish or uneven. 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. it paid to the western firm direct the amount equal to the price of the plant sold to Russia. by necessity. One country that is a party to a bilateral trade agreement will transfer its imbalance to a third party or nation. REASONS FOR THE GROWTH OF COUNTER TRADE The reasons to engage in counter trade include those basic to business. Switch: This method of counter trade is useful when international currency flow is sluggish or uneven. Russia had a clearing agreement with Australia which was buying natural gas to Russia. sell products and gain an edge over competition. within a specified period. the exporter sells the goods. However. Counter trade is .arrangements is. Evidence Accounts: Under evidence accounts. 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. This is ideally suited for commodities such as sugar. Swap: In a swap contract two countries agree to trade. These kinds of transactions are set to occur over a specified period. the company sells its products or services to a local foreign trade organization and purchases goods and services of its requirements form another local foreign trade organization of the equal amount. Counter purchase arrangement: This type of counter trade arrangement is also common but it is complicated.
In other worlds counter trade permits price discrimination among customers. It is full of risks and uncertainties. It is time consuming to conclude the arrangements. perhaps one gets done. . of achieving bilateral balancing of trade-an important objective of foreign trade policy in the centrally planned East European countries.considered a way of overcoming of uncertainty of domestic production plans and. shortage of foreign exchange and the desire to stimulate foreign technology inflows motivated East European countries to enter into counter trade arrangements. have resorted to counter trade for the reasons such as balance of payments difficulties. at the same time. This requires planning and commitment. -Developing countries will have confident to export their products to other countries. 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. DRAWBACKS OF THE COUNTER TRADE Counter trade transactions are often extremely complex and difficult as compared with straightforward trade. India had long a longer Risks increase as counter trade . barter deals. This motive for counter trade is important for many developing countries and also for a number of communist countries.The desire to conceal from the domestic public the fact that the sale is being made below its costs. 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. particularly those maintaining overvalued exchange rates.A counter trade transaction permits concealed discounting in a period of weak markets. creation of overcapacity etc. Some other reasons for the growth of counter trade are as follows: . special trading arrangements.A counter trade transaction may provide some slight additional certainty in an uncertain world. . For every 10 to 20 deals that are talked about. arrangements extend over several years. etc.
. Basic Principles of GATT: 1. 119 governments which together account for 90 per cent of the world merchandise trade subscribe it to. Protection only through tariff: Protection should be given to domestic industries only through customs tariffs and not through other commercial measures. This technique is being increasingly applied for importing technology. Expectations to this basic rule are allowed only in the case of regional trading arrangements and the developing countries. 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. Although provision is made for the renegotiation of bound tariffs. 3. Exception is. a return tariffs is discouraged by the requirement that any increase be compensated for. 2. Binding of tariffs means that these cannot be increased unilaterally. however. The rapid and uninterrupted growth in the volume of international trade till 1992 provides a good testimony for the success of the GATT. 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. It came into force in January 1948. especially for export-oriented projects. 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.history in the use of buy-back arrangements. Trade without discrimination: Trade must be conducted on the basis of nondiscrimination. Its basic aim is to liberalize trade and for the last 45 years it has been concerned with negotiating the reduction of trade barriers and with international trade relations. A Stable basis of trade: The binding of the tariff levels negotiated among the contracting countries provides a stable predictable basis for trade. The aim of this rule is to make the extent of protection clear and to Make competition possible.
England) continued accession and tariff reduction negotiations. The sixth round in 1964-67 (Geneva Kennedy Round) was hybrid of earlier product by product approach with across the board tariff reductions. The fifth round in 1960-61 (Geneva. Part III: Conditions for membership and withdrawal. Dillon Round) involved further revision of the GATT and the addition of more countries. The fourth round in 1956 (Geneva) proceeded along the same track as earlier rounds. 4. Consultation: A basic principle of GATT is that member-countries should consult one another on trade matters and problems. Tokya Round) centred on the negotiation of additional tariff cuts and developed a series of agreements governing the use of non-tariff measures. As a result of these negotiations. 2. 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. The third round in 1951 (Torquay. The second round in 1949 (Annecy. 8. Part II: A code of fait trade practices to guide members in their commercial policies. The seventh round in 1973-79 (Geneva.4. negotiations. 5. 7. 6. the tariff rates for thousands of items entering into world trade were reduced or bound against increase. and Part IV: Expansion of trade of developing countries through special concessions. The eight round (Uruguary Round ) started in 1986 and was concluded in April 1994. 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. 3. The average level of tariffs on manufactured goods in industrial countries was bout 3 per cent now as compared to about The principal emphasis was on tariff . France) involved negotiation with nations that desired GATT membership. The agreement consists of four parts: Part I: Main obligations of the contracting parties.
Its essential functions are as follows. especially one which one would tackle the problems of the global trade of developing countries. T is not a simple extension of GATT. 5. Many more countries have requested to WTO. To administer the trade policy mechanism.40 percent in the immediate second world was years. The present membership accounts for more than 90 per cent of world trade. To provide a forum for negotiations among its members concerning their multilateral trade relations in matters dealt with in the agreements. To achieve greater coherence in global economic-policy making in cooperation with World Bank and IMF. As on 6th November 2000. 1. led to the formation of united Nations Committee on Trade and Development in 1946. the success of GATT in promotion and securing liberalisation of much of world trade over 47 years was incontestable. WEAKNESS OF GATT: The weakness of GATT is that its benefits have mainly gone to the industrialized countries. Switzerland. 1995 WTO is the embodiment of the Uruguary Round results and the successor to GATT. Most negotiations and tariff reductions have taken place in respect of manufactured goods. it completely replaces its predecessor and has a very different character. the membership of the WTO stood at 139. 76 Governments became members of the WTO on its first day. The WTO is based in Geneva. To administer the understandings on Rules on Procedures governing the settlement of disputes. WORLD TRADE ORGANISATION Established on January 1. 2. A search for a new institutional arrangement. However. given its provisional nature and the limited field of action. Developing countries were disappointed with Kennedy round and the Tokyo Round. 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. Under GATT. 4. So the trade gap for the developing countries has become more unfavourable. . 3.
a multilateral agreement with no institutional foundation with only a small associated secretariat. . (v)The WTO dispute settlement system is faster. especially. Trade disputes that cannot be solved through bilateral talks are adjudicated under the WTO dispute settlement 'court'. regularly examine the trade regimes of individual members. make up the multilateral trading system . WTO is a watchdog of international trade. They are: Trade without discrimination Predictable and growing access to markets. the least developed countries secure a better share of the growth of the international trade. The mandate of the WTO includes trade in goods. (iv)While GATT was multilateral instrument by the 1980s many new agreements had been added of plurilateral.6. and therefore selective. more automatic and thus much less susceptible to blockages than the old GATT system. To recognize that there is a need for positive efforts to ensure that the developing countries. the WTO covers trade in services and trade related aspects of intellectual property. trade related in investment measures and trade related intellectual property rights. (ii) The GATT was applied on a "Provisional basis" even if. nature. A number of simple and fundamental principles run throughout all of the instruments which. together. trade in services. It economists keep a close watch on the pulse of the global economy and provide studies on the main trade issues of the day. HOW IS THE WTO DIFFERENT FROM THE GATT? (a) The GATT was a set of rules. governments chose to treat it as a permanent commitment. (vi)The WTO is more global in its membership than the GATT. after more than 40 years. The WTO is also a management consultant for world trade. The WTO is a permanent institution with its own secretariat. The agreements which constitute the WTO are almost all multilateral and thus involve commitments for the entire membership. In addition to goods. The WTO commitments are full and permanent. (iii)The GATT rules applied to trade in merchandise goods.
however mean that all services require the physical proximity of the provider and user. This does not. The value of the international trade in services comes to about one fourth of the value of the value of the trade in goods. though such physical proximity may be useful. 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. Services make up a major share of the invisible account in the Balance of payments of a country. CHARACTERISTICS: (a)Those that necessarily require the physical proximity of the provider and the user. The services where physical proximity is essential fall into three categories: . and (b) Those that do not. Encouraging development and economic reform. That is services cannot be sepearated from their providers. Service sector refers providing services and exchanging services to the public as well as society. The growing importance of services is reflected in the international trade also. whether they are persons or machines. WORLD TRADE IN SERVICES The industrial sector can be classified as production sector and service sector.- Promoting fair competition. Production sector refers the industries that are engaged in production and supply of goods.
. I. film and other forms of communications and so on. In this case either the provider going to the user or the user going to the provider may achieve proximity. 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. user goes towards the provider. For example a patient who wants an open-heart surgery will have to go to a hospital where the required facilities are available. marketing regulations. television. they are generally subject to various types of national restrictions. restrictions on the employment of foreigners. radio. For example dry-docking facilities for ships. 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.Mobile user and immosbile provider characterizes the second category. compulsion to use local facilities etc. Heavily protected r restricted services in different countries include banking and insurance. It is therefore. For example the technical people of L & T Company in India goes to Srilanka and do the construction work. transportation.e. -The third category consists of of mobile user and mobile provider. Protective measures include visa requirements. OBSTACLES OR RESTRICTIONS IN SERVICE SECTOR: Due to the special characteristics and the socio economic and political implications of certain services.DEPARTMENT OF COMMERCE: .-The mobile provider and immobile user categorize the first category. Similarly a technician may have to go a plant abroad to rectify a problem with the plant. investment regulations. 1. In this case the provider goes into the place of user and doing services.
International Trade Policy Division Foreign Trade Territorial Division Export Products Division Export industries Division Export Service Division Economic Division 2. External Affairs and Textiles d. Indian Government Commercial Representatives Abroad 3. Leading industries c. ASSOCHAM and FASSI b.AUTONOMUS BODIES: . The department consisting of the following Divisions concerning with various subjects connected with exports and imports. Presidents of FICCI. Director General of commercial Intelligence and Statistics c. Chairman of ITPO/MD of ECGC Export Promotion Board: under the chairmanship of cabinet Secretary. 3. It has its members as follows: a.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. This department is headed by a Secretary and he is assisted in the discharge of duties by a Special Secretary .ADVISORY BOARDS Board of Trade : The Board of Trade is the highest advisory body under the Department of commerce to deliberate on policy matters. Additional secretaries and a number of other senior officers functioning as Divisional heads. Export Processing Zones d. Secretaries of Commerce and industry. Directorate General of Foreign Trade b.ATTACHED AND SUBORDINATE OFFICES a. Finance. including commercial relations with other countries.
pharmaceuticals and cosmetics. coffee. poweerloom. synthetic . 2. construction. gem and jewellery. tobacco and spices. storage premises and exports with a view to promote a healthy development. The councils also conduct market surveys. Development of off-shore and deep. Some of these Boards have opened their branch in foreign countries in order to promote the consumption of the commodities under their jurisdiction. plastics. cashew. handlooms. 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. sports goods and wool and woolens.sea fishing in all its aspects and conservation and management of off-shore and deep-sea fisheries. tea. Silk. Power loom. processing plants. These councils are registered under the companies Act as non-profit making agencies. .(I) Export Promotion Councils: There are 20 export promotion councils covering the following products: Apparels. Sponsor trade delegations and guide newcomers in the export trade. chemicals. (III) Marine Products Export Development Authority: The main functions of the Authority are: 1. coir. handicrafts. The commodity boards del with the entire range of problems of production. shellac. leather. In respect of commodities concerned. Registration of fishing vessels. development. they act themselves as if they were the Export Promotion Councils. cotton textiles. The department of commerce provides necessary financial assistance in relation to their export promotion work. rubber.. silk. marketing etc. carpet. 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. (II) Commodity Boards: There are 9 Statutory Boards for the following commodities: Handicrafts and Handloom. assist in product development. These councils advise the Government regarding current developments in the export sector and measures the necessary to facilitate future growth in exports.
In addition to the normal risk policies.3. seminars and conferences on matters related to trade and commerce. This is registered under the Societies Act. chamber of commerce etc. (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. Establish linkages with trade promotion bodies. (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. Organize training. Laying down standards and specifications for marine products for the purpose of export. 5. (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. Arranging for training in different aspects connected with export with special reference to fishing. the corporation provides different types of cover which may be divided into the following three broad groups: Standard polices . the corporation assists the exporters through special schemes such as packing credit guarantee. processing and marketing. 4. regulatory bodies. Rendering financial assistance. To suit varying needs of exporters. periodicals and other literature having a bearing on trade and commerce. post shipment credit guarantee and export production finance guarantee. Publish papers.
(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.Financial guarantees Special policies Under its policies intended o protect the exporters against overseas credit risks. a legislation entitled "Export (Quality control and Inspection) Act" was enacted by the Indian Parliament in 1963. 1982 for the purpose of financing. Bombay Office of the Jute Commissioner. Kolkatta. facilitating and promoting foreign trade of India. Kolkatta Indian Jute Mill Association. In order to ensure the quality of the products exported. It extends finance to exporters of capital and manufactured goods. The bank is the principal financial institution in India for coordinating the work of institutions engaged in financing export and import trade. (X) Export Inspection Councils: Quality control and pre shipment inspection is one of the important factors in the export marketing. As per this act The Government of India has established the Export Inspection Council. ECGC bears the main risks and pays the exporter 90% of his loss on account of commercial risks and Political risks. . The functions of this council are generally to advise the central government regarding the measures for the enforcement of quality control and inspection in relation to commodities intended for export and draw up a programme therefore. exporters of soft wares and consultancy services and overseas joint ventures and construction projects abroad. (IX) Export-Import Bank: The EXIM Bank was established on January 1. The EXIM bank concentrates mainly on medium and long term credit for export of goods and services on deferred payment terms.
The board of directors manages the EXIM BANK with representation from government financial institutions. Finance for consultancy and technology services. Finance for EOU and EPZ Units Software Training Institutes Export marketing finance Export-Product Development Finance: This Indian firms to undertake product development. R & D for exports. 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. Finance for deemed exports. facilititating and promoting foreign trade of India. 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 . Pre-shipment credit: This enables Indian exporters to buy raw materials and other inputs for fulfilling export contracts involving cycle time exceeding six months.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. banks and business community. Forfeiting: This Indian exporters to convert sale to cash on without recourse basis. Guarantee Facility: To execute export contracts and import transactions.
Leasing of capital goods from domestic companies by EPZ\EOU has been permitted. 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. It also entertains proposals for various facilities under he European Community Investment Partners like feasibility studies for setting up export units. components and consumable at free of custom duties. At present more than 500 units are in operation under the EOU scheme. flexibility of operations and incentives. It provides information to potential exporters about projects abroad specially about multilaterally agencies. raw material. .. 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. 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 also helps companies in preparing bids according to strict condition prescribed by the multilateral agencies. The bank introduced the "cluster of Excellence" programme for up gradation of quality standards and obtaining ISO certification. In order to enable them to operate successfully in the international market such units are allowed to import machinery. Cooperation arrangement with African Management Services. These units have to operate under custom bond and achieve the level of value addition fixed by the Board of Approval.
Encouragement of agro and electronic units by providing higher domestic access. In the context of growing competition no exporter can manage without selling goods on credit. Second hand capital goods may also be imported duty free without any age limit. 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. including capital goods required by it for its activities provided they are not prohibited items of imports. Giving credit poses two problems to an exporter: He should have enough money to offer credit to his overseas buyers and . 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. 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.1 crore and above in building. EOU units may import/procure from Domestic Tariff Area without payment of duty. The following privileges are enjoyed by the Export Oriented Units: An EOU unit may export all goods and services except the items prohibited by the exim policy. Application for setting up of units under EOU scheme may be approved by the units Approvals Committee within 15 days. plant and machinery shall be considered for establishment under EOU scheme. An EOU unit may import without payment of duty for all type of goods. 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.
The buyer's protracted default to pay c. The overseas buyer may default. Exporting on credit is not without risk. Political Risk: a. Insurance cover for buyer's credit. buyer's failure to accept the goods. when non-acceptance is not due to the exporter's actions. a Government of India undertaking. and d) Special schemes viz: Transfer Guarantee. Joint ventures and overseas investment. In some special circumstances specified in the policy. c) Financial guarantees issued to banks against risks involved in providing credit to exporters. covers the exports against these risks. RISKS COVERED UNDER STANDARD POLICIES: Under its policies to protect the exporters against overseas credit risks. . which may wreck his fortunes. 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. 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. The insolvency of the buyer b. there may be earthquake or typhoon. 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. he may go bankrupt.- He should be prepared to take the credit risks. a war in his country. The ECGC also provides guarantees to the financing banks to enable them to provide adequate finance to the exporters. Restriction on remittance in the buyer's country or any government action which may block or payment to the exporter. The ECGC. Commercial Risk: a. A. Line of credit.
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.Failure of the exporter to fulfill the term of contract or negligence on his part. Cancellation of export license or imposition of new export licensing restrictions in India (under contracts policy) d.e. New import licensing restrictions or cancellation of a valid import license in the buyer's country: e. revolution or civil disturbances in the buyer's country c. however. Commercial disputes.Buyer's failure to obtain import or exchange authorization from the appropriate authority: d. Causes inherent in the nature of goods: c. Loss or damage to goods which can be covered by general insurers: f.Insolvency or default of any agent of the exporter or of the collecting banks: .Flucturations in exchange rates (except under Exchange Fluctuation Risk over Schemes)and g. b.g. War.SMALL EXPORTER'S POLICY . not normally insured by commercial insurers. C.b. Additional handling transport or insurance charges due to interruption or diversion of voyage which cannot be recovered from the buyer: and f. And beyond the control of both the exporter and the buyer. 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. does not cover risks of loss due to: a. B. 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. Any other cause of loss occurring outside India. RISKS NOT COVERED ECGC.
The Corporation has evolved the following types of Guarantees. at the pre-shipment as well as post-shipment stage. (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. 3. EXPORT PRODUCTION FINANCE GUARANTEE . granted to all its customers on an all India basis. Export Finance Guarantee 5. To banks. D. which undertake to obtain cover for packing credit advances. in order to encourage small exporters to obtain and operate the policy. Are essential for exporters to realize their full export potential. The Export Credit Guarantee Corporation. incorporating certain improvements in terms of cover.25 lakes. It will be issued to exporters whose anticipated export turnover for the next 12months does not exceed Rs. 1. however. PACKING CREDIT GUARANTEE Any loan given to an exporter for the manufacture processing. Export Finance (Overseas lending ) Guarantee 1. The premium payable for a small exporter's policy is less than the standard policy. Exporters my not. Export Performance Guarantee: 6. To meet the varying needs of exporters.The small exporter's policy is basically the Standard Policy. Export Production Finance Guarantee. be able to obtain such facilities from their bankers for several reasons. Post-shipment Export Credit Guarantee: 4. FINANCIAL GUARANTEE TO BANKS Timely and adequate credit facilities. 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. Packing Credit Guarantee: 2. purchasing or packing of goods meant for export against a firm order or letter of credit qualifies for packing Credit Guarantee. 2.
it can protect itself from the risk of non-payment by the contractor by obtaining Export Finance Guarantee. The Premium rate for this Guarantee is 7paise per Rs.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. POST -SHIPMENT EXPORT CREDIT GUARANTEE Post-shipment finance given to exporters by banks through purchase. 100/-per month The percentage of loss covered under the individual post-shipment Guarantee is 75% 4. The extent of cover and the premium rate are the same as packing Credit Guarantee. 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 7 paise per Rs. 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. negotiations or discount of export bills or advances against such bills qualifies for the Guarantee.09% per annum for . EXPORT FINANCE (OVERSEAS LENDING) GUARANTEE If a bank financing an overseas project provides a foreign currency loan to the contractor. Banks having WTPSG are eligible for concessional rate of premium and higher percentage of cover. the difference representing incentives receivable. An exporter who desires to quote for a foreign tender may have to furnish a bank guarantee for the bid bond. etc. 3. 6. If he wins the contract. EXPORT PERFORMANCE GUARANTEE Exporters are often called upon to execute bonds duly guaranteed by Indian banks at various stages of export business. Banks having WTPCG are eligible for concessionary premium rate and higher percentage cover. 5. It is necessary however. that the exporter concerned should hold suitable policy of ECGC to cover the overseas Credit risks. 100 per month and the cover is 75 percent.
There are essentially three major incentives. When rupee appreciates the balance of benefits will the just the reverse. India has also been providing export assistance for the past about forty years. . . From 1922. Premium is payable in Indian Rupees. available to exporters. HHC of the Income Tax Act allows a deduction of the whole of the profit derived from the export of goods or merchandise. Most developing countries have resorted to a number of export promotion measures. However.08% per annum for 90% cover. export incentive system in India has been made very simple. Claims under the guarantee will also be in Indian rupees. 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. 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. Under the Libralised Exchange Rate Management System (LERMS) exporters will get benefit when rupee depreciates while importers will lose. (ii) Fiscal concession: The different types of fiscal concessions are as follows: In the computation of total income Sec. 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.A 10 year tax holiday for 100 per cent export oriented units and for units located in Free trade zone/Export processing zones. -Exemption from taxation 50 per cent of royalty.Exemption from taxation of the profits from over seas projects to the extent of 50 percent.80. commission. -Concessional rate of customs duty on imports of selected items of machinery for export production under EPCG scheme. . 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.
(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. Export finance starts as soon as the exporter gets an order to export. etc EXPORT FINANCE Businessmen. deemed export drawback. The commercial banks which give credit to exporters can also get guarantee from ECGC. An exporter needs finance for processing or manufacturing or assembling or procuring or packing the goods for export. 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. In export business also finance plays an important role. special import license. (e)Deemed exports. (a)Duty Drawback: This is a refund of import duty or excise duty paid on the raw materials and components. d. 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. 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. e. It will take some more time . which have gone into the production of exported products. refund of terminal excise duty. (d)Insurance of credit risk: The ECGC is willing to cover 90% of the political and commercial risks of export operations. c.(iii)Facilities available under the Export-Import Policy for Export: a. the Central Government is offering the following facility to exporters. industrialists and others require finance for their day-to-day activities. Preshipment finance is provided to the exporter to meet such requirements.
before the advice of payment is finally.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. The banks on the basis of the following give the packing credit. or Personal bond in the case of party's already known to the exporter. normally finance the post-shipment credit in one the following ways: (i) Negotiating export bills under letter of credit The banks . COSTS COVERED BY PRE-SHIPMENT FINANCE Pre-shipment finance would normally cover the following costs. if any. 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. 1. It is also provided at concessional rate of Interest. communicated to the exporter. 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. 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. 2. 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. 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.
The period of credit is usually more than 5 years. Banks enjoy certain benefits for advancing loans to exporters. and (iii) An advance against bills under collection. These loans are also provided by commercial banks in collaboration with EXIM Bank of India. (i) (ii) Refinance by EXIM Bank of India. The understanding is that the agency will collect the dues from the importer on expiry of the said period. follows. (iii) Long term: Long term loans are provided in the case of sale of capital goods complete plants and turnkey jobs. The bill of exchange accepted by the importer is surrendered to the forfeiting agency which pays him in cash after deducting a fee. 3.(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. Banks usually charge a commission according to the rates prescribed by the Foreign Exchange Dealer's Association of India. 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. Medium term loans are provided for in the case of durable consumer goods and light capital goods. FORFAITING Forfaiting enable an exporter to convert an overseas credit sale into a cash sale through the process of discounting of export receivables. They are as . Guarantees provided by ECGC where a substantial part of the risk is covered by the ECGC. The rate of interest on post-shipment credit is also charged at concessional rate. (ii) Medium term: Medium term loans are offered for a period beyond 6 months and up to 5 years.
roads. components and consumables and export of finished products shall be exempt from central levies. standard design factory buildings. both quality wise and price wise. garments. power. The objectives of these units are: 1.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. plastics and rubber products. Foreign equity up to 100% is permissible in the case of EPZ units Procurement of raw materials. in the international market. are set up with the intension of providing an internationally competitive duty free environment for export production. 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. Provision is made for locating banking\post office facilities and offices of clearing agents in the service centers located in each of the zones. Entitlement for EPZ Units: Each of the zones provides basic infrastructure such as developed land for construction of factory sheds. FREE TRADE ZONE (EXPORT PROCESSING ZONES) These are also referred to as Export Processing Zones. EPZ operating units broadly under the product groups of electronics. Extension of long term export credit has become an accepted export market strategy and therefore. To generate employment opportunities 3. To earn foreign exchange 2. at low cost. gems and jewellery. In addition customs clearance is arranged within the zone at no extra charge. To contribute to the overall development of the economy. To facilitate transfer of technology by foreign investment and other means. engineering items.4. chemicals and allied products. textiles. provision has been made for the extension of medium and long term credit to finance the sale of Indian capital goods and related services. . This enables the products of EPZ to be competitive. water supply and drainage. India has seven EPZ at different parts of our country. 4.
Exporter 2. Port Trust 11. The negotiating bank 4. document against acceptance or document against payment. and the terms of conditions as specified in the letter of credit. Clearing Agents Procedure for executing an export order: The exporter has to process the export order in the following manner: 1. Customs House 10. ECGC 8. INTERNATIONAL TRADE – UNIT FOUR PROCEDURE FOR EXECUTING AN EXPORT ORDER The following the parties and agencies involved in executing an export order: 1. Bill of Exchange (if D/A or D/P bill) Commercial invoice Bill of lading . The following documents have to be prepared. Insurance company 6.Exemption from industrial licensing for manufacture of items reserved for SSI sector. 3. Importer. The order should specify the mode of payment such as letter of credit. Directorate General of Foreign Trade 9. Shipping company 5. Inspection Agency 12.The exporter should scrutinize the export order with reference to the terms and conditions of the contract. Reserve Bank of India 7.
Marine insurance Packing list Certificate of orgin Export inspection certificate 2. They will obtain the marine insurance cover for the goods.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. Where the the . 3. After the shipping ill has been passed by the customs. The clearing and forwarding agent takes delivery of the consignment and arranges its storage in the warehouse.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. 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 he prepares requisite copies of shipping bill and submits them to the Export Department of the Customs house along with necessary documents mentioned above. Goods should be dispatched to the port of shipment. 6.Thereafter the works manager sends a dispatch advice to the export department. the clearing and forwarding agents presents the Port Trust copy of the shipping bill to the respective authorities. the Dock challan is prepared. in the case of shed cargo. 4. Export inspection agency should be approached. AR-4 form has to be prepared. Thereafter.
In response to that the Ship's Export Clerk calls for cargo from shed or boat and after loading prepares the Mate Receipt. export promotion copy of the bill.Finally the exporter will get the value of the value of export consignment against the above-mentioned documents. 9. After paying all the port dues. 13. no dock challan is prepared. 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. Marine insurance policy and Bank certificate 11.The original copy of the bank certificate along with attested copies of the commercial invoice are returned to the exporter. Certificate of origin.ship loads overside. He will present the following documents to the negotiating bank. berth. GR Form. 8. The clearing and forwarding agent forwards the following documents to the exporter: Full set of bill of lading. 12. condition of the cargo at the time of receipt on board the ship etc. The mate receipt is first handed over to the Port Trust authorities so that the exporter may pay all the port dues. description of packages. he completes the remaining formalities. Packing list. As soon as the exporter receives the above documents from the clearing and forwarding agent. EXPORT PROCEDURE FOR SENDING GOODS An outline of the important steps in exporting the goods is as follows: IEC NUMBER: . 7. the dock charges are indicated in the shipping bill itself and therefore. date of shipment. 10. The duplicate copy of the bank certificate is forwarded to the office of the DGFT in the area. the clearing agent collect the mate receipt from the Port Trust Authorities.The passed Shipping Bill including dock challan will be submitted to the Port Commissioners. copies of customs invoice. 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. Customs invoice. marks and numbers. original export order.
Exporters are advised to become members of local chamber of commerce. catalogue numbers or grades. his quotation and other relevant information. it should be promptly attended to. The exporter . commodity boards and export development authorities for various products. weights or other distinguishing features. MEMBERSHIP CUM REGISTRATION: Membership of certain bodies will help the exporters in a number of ways. may be in the form of a letter. 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. when accepted by the foreign buyer. INQUIRY AND OFFER: An inquiry is a request from a perspective importer to be informed of the terms and conditions of sale. Membership of such bodies will help the exporters in different ways.Every person importing or exporting goods require and Importer-Exporter Code number. As soon as the exporter receives a business inquiry from party abroad. The regional licensing authorities normally allot the IEC number. It may contain full details of the goods required. becomes an order. As a starting point of the negotiations. This code number is required to be incorporated in the various export documents submitted to the authorities for purposes of export. which is necessary document required for export to certain countries. An offer is a proposal in which an exporter submits. CONFIRMATION OF ORDER: Once the negotiations are completed and the terms and conditions are acceptable to the buyer and seller. Members of EPC will receive different kind of assistance and services in respect of the export business. their description. time and method of delivery etc. sizes. The offer. the exporter would have to make an offer to the foreign customer. therefore. be exercised in dealings with foreign country customers. productivity council or any other trade promotion organization recognized by the Ministry of Commerce. Serious and sincere care should. the buyer may place an order with the exporter. including obtaining the certificate of orgin. There are specified Export Promotion Councils .
should immediately confirm the order by sending this acceptance. For the confirmation of the order. If there are no such instructions. it should be ensured that the packing and marking are of the standards recommended or specified. PACKING AND MARKING: Once the goods re ready. the exporter should make sure that the item sought to be exported is not one. If the buyer has given instructions about packing and marking. PRODUCTION/PROCRUMENT OF GOODS: Once the order is confirmed. he should take the necessary steps to obtain it. he should contract with his suppliers and ensure timely availability of the goods of the buyer's specifications. FINANCE: If the exporter requires pre-shipment financial assistance. Needless to say. If the item to be exported requires a license. The exporter should again send once copy to the importer with the exporter's signature to confirm the acceptance of the order. QUALITY CONTROL AND PRE-SHIPMENT INSPECTION: . The confirmation of the order usually takes the form of a contract. they should be followed accordingly. SHIPPING SPACE: As soon as the export order is confirmed. If the exporter is not a manufacturer. which falls in the banned list. 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. the exporter should take necessary steps to ensure the timely availability of the goods of the specifications required and execute the export order promptly. the proforma invoice is generally sent in triplicate to the buyer. the shipping company issues sits acceptance if the space applied for is given. though many items are permitted to be exported freely. it is necessary to obtain it before finalizing the contract. they are marked and marked properly. On the exporter's application or on the application of the freight broker on the exporter's behalf. and the buyer is asked to return two copies signed by him. EXPORT LICENSE: These exports of some items are banned and of some items controlled by means of licenses.
Any other authorities authorized for this purpose. 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. the duty is first paid and its refund is claimed.Thereafter get the goods inspected by the inspecting authorities under compulsory quality control and pre-shipment inspection. EXCISE CLEARANCE: the As a matter of policy. They are as follows: Export Inspection Agency AGMARK Authorities Textile committee . the exporter (or the clearing and forwarding agent on behalf of the exporter) should present the following documents to the customs authorities. the government has granted excise duty exemption for the export products. Excisable goods may be exported either under claim for rebate of excise duty or in bond.for textile goods. For this purpose. CUSTOMS FORMALITIES: Goods may be shipped out of India only after the customs clearance has been obtained. 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 . In the case of export under claim for refund of excise duty.
the exporter will inform the importer about the dispatch of goods and departure of the ship. who is the port official. A standard system of rate making and inter airline agreements on rates. They are as follows: A uniform system of documentation for air cargo.. NEGOTIATION OF DOCUMENTS: After shipping the goods. 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. for permission to bring in the cargo for export. EXPORT BY AIR AND SEA EXPORTS BY AIR In international trade the use of air-freight is increasing day by day. The shipping bill passed by the exporter department has to presented to the cargo supervisor or the steamship company or the shed manager.- Any other documents The customs authorities scrutinize the shipping bill and other requisite documents. satisfied. 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. readymade garments. ADVANTAGES: A clearing house. IATA has made rapid expansion because of three developments for which it has been responsible. So that the importer get ready for his actions. if any from Government. finished leather and leather products. they pass it for export. electronic products etc. Nowa-days all types of products like food. are sent by air freight. prima-facie. International Air Transport Association was set up in 1945. gems and jewellery. the exporter should arrange to obtain payment for the exports by negotiation with the relevant documents through the bank. subject to a physical examination by the staff of the customs. . and if.
Speed of delivery 2. Savings in cost 3. packing . Obsolence is eliminated. such as the price per unit at a particular location. A satisfying customer. 5. Costs related to administration. The loss due to rough handling and pilferage is reduced to the minimum.Basically. quantity. at least for certain categories of merchandise. are minimized. Related surface transport costs are reduced. EXPORT BY SEA If the goods are sent by sea the exporter has to obtain/submit the following documents: Bill of Lading Marine Insurance Policy EXPORT DOCUMENTS DOCUMENTS RELATED TO GOODS INVOICE: An invoice is the seller's bill for merchandise and contains particulars of goods. ordering etc. Breakage is neglible. Insurance premium is reduced. Deterioration is avoided. The reasons are as follows. Greater security and protection during transit. Thus the advantage of exports by air may be summarized as follows: 1. there are ten reasons which can make total distribution costs cheaper through the use of air transport. Good service to customers without having any warehouse. 4. total value. Low inventory carrying costs Decreased capital costs of goods in transit Less packing lowers cost and reduces chargeable weight.
A certificate of orgin from may be obtained from chambers of commerce. name and address of the importer. bill of lading number. Such invoices are known as consular invoice. the name and address of the exporter. Apart from the details in the packing note. quality. This certificate has also to be produced before clearance of goods and assessment of duty. terms of sale. Some importing countries insist that the importing country's consul located in the exporter's country should sign the invoice. identification marks of the package . 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. and the contents of the goods is in terms of quantity and weight. which specifies the country of the production of the goods. bill of lading number and date. the date of packing. is a certificate. case number to which the note relates. 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.specifications. while the packing list is a consolidated statement of the contents of a number of cases or packs. grade. . export promotion councils. 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. and various trade associations that have been authorized by the government. The main purpose of a consular invoice is to enable the authorities of the importing country to collect accurate information about the volume. as the name indicates. a packing list should also include item wise details. destination. CERTIFICATE OF ORGIN: A certificate of orgin. value. sources etc. marking numbers. the order number. of its imports for purpose of assessing importing duties and also for statistical purposes. shipment per bi. date. A packing note should include the packing note number. for the customs law of the country may require this procedure. name of the ship etc.
and when the vehicle is brought at the port gate. after satisfying himself that the vehicle is carrying the cargo as mentioned in the document. After paying all the port dues. SHIPPING BILL The shipping bill is the main document on the basis of which the customs' permission for export is given. such as number and description. the port of destination and the number of the vehicle carrying the cargo. the number of packages. berth. the country of final destination. The mate receipt is first handed over to the Port Trust authorities so that all the port dues may be paid by the exporter. master or agents. whether Indian or foreign merchandise to be re-exported. the merchant or the gent may collect the mate receipt from the Port Trust authorities. The bill of lading prepared by the shipping agent after the mate receipt has been obtained. The shipping bill contains particulars of the goods exported. it should be presented to the gate warden/inspector along with other shipping and port documents. the port at which goods are to be discharges. their total weight and value etc. marks and numbers. CERTIFICATE OF MEASUREMENT . is prepared by the exporter and includes details of the export in terms of the shipper's name. description 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. date of shipment.. flag. etc. condition of the cargo at that time of receipt on board the ship. the exporter's name and address. vehicle and gate pass. The driver of the vehicle carrying cargo should posses the ticket. total number of packages. etc. the shipping bill number. It also contains details of the packages and the goods. CART TICKET A cart ticket also known as a cart chit. and contains information about the vessel. marks and numbers. allows it to pass the gate. The inspector. quantity details about each case. the name of the vessel. real value as defined in the sea customs act.
the number of packages. the invoice number and the date of export. The exporter prepares the Bill of lading in the forms obtained from the shipping company or from the agents of the shipping company. Each shipping company has its own Bill of lading. 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".Freight is charged either on the basis of weight or measurement. 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. the description. the weight declared by the shipper may be accepted. 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 information contained in the Bill of lading includes the date and place of shipment. However. It is also an document of title to the goods. 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. 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. it is termed as a claused bill of lading. AIRWAY BILL An airway bill. "one box damaged" etc. and. the marks and numbers. the name and destination of the vessel. and (iii) as a contract for the transportation of goods. as such. the amount of freight etc. also called an air consignment note. . is freely transferable by endorsement and delivery. the gross eight and net weight. each has its own airway bill. As each shipping company has its own bill of lading. is a receipt issued by an airline for the carriage of goods. When it is charged on the basis of weight.. the name of the consignor.
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. jute and jute products. footwear and footwear components. USA and East European countries. are under the compulsory quality control inspection system. food and agricultural products. cochin. In-Process Quality Control . 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. and To arrange pre-shipment inspection of notified commodities for export. EEC. The Export Inspection Council (EIC) consists of a Chairman appointed by the Central Government. fish and fishery products etc. 4 ex-officio members and 15 members nominated by the central government. They are: 1. 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. MACHINERY FOR QUALITY CONTROL AND INSPECTION: (i) EXPORT INSPECTION AGENCIES: For carrying out pre-shipment inspection of export of goods. chennai. (ii) OTHER AGENCIES: Government has also recognized 21 private inspection agencies and 7 government inspection agencies to supplement the work of quality certification. the Government of India has established five export inspection agencies one each at Calcutta. Delhi and Mumbai under the technical and administrative control of the EIC. SYSTEM OF INSPECTION Three Systems of inspection are in operation at present. Consignment-Wise Inspection 2.. chemicals and allied products.
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.3. 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. signed by the maker. 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. a certain person or the bearer of the instrument. There are five important parties to a bill of exchange: The Drawer The Drawee The Payee . Self-certification CONSIGNMENT-WISE INSPECTION: Under consignment-wise inspection. components through inspecting process centers. The certifications of inspection in favour of units approved under the scheme are issued by the Export Inspecting Agencies. 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. defines the bill of exchange as " an instrument in writing containing an unconditional order. provided that the beneficiary fulfils the stipulated conditions BILL OF EXCHANGE The Negotiable Instruments Act. 1881. under certain conditions and up to certain amounts . directing a certain person to pay a certain sum of money only to. or t the order of. These units are under the supervision by the Export Inspection Agencies through random spot checks.
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. all sums received from the sale of goods must be credited to the bank until such settlement is made. 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. Insurance of ships is called " Hull Insurance" while cover provided in respect of goods sis termed as cargo insurance. the merchandise may be made available to the importer by his bank under an arrangement whereby the importer signs a trust receipt. air or land is called Marine Insurance. demands from a customer to give him recourse son the bills and control of the documents. This is a sort of blanket document which shipping documents. damage or detention or incur in respect thereof. 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. but the retains ownership of the merchandise until the importer has made full settlement.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. MARINE INSURANCE Insurance granted to cover loss or damage to ships or goods in transit either by sea. . Utmost Good Faith: It is the duty of the proposer to disclose clearly and accurately all material facts related to the risk. Under this arrangement. the importer is allowed to sell the imported goods by acting as an agent of the bank.
Whereas in specific policy the insurance will be made by shipment wise. Barratry: Barratry is the willful misconduct of master or crew and would include theft. 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. One is open policy and another one is specific policy. Jettison: Jettison is the throwing of articles over board. collision and damage by sea water when caused by perils such as opening of the seams of the vessel by collision. lightning. without the intervention of any force started and working actively from a new and independent source. usually to lighten the ship in times of emergency. which brings about a result. to protect and indemnity the shipper or the owner of the goods against loss or damage or expense in connection with the goods at the risk. if the damage is caused by perils specified in the contract known of policy of the insurance. Proximate Cause: Proximate cause means the active efficient cause that sets in motion a train of events. wrongful conversion. and loss resulting from efforts to extinguish a fire. In open policy the insurance will be made for all the shipments made in a period. RISKS COVERED: Perils of the Sea: It includes out-of-the ordinary wind and wave action. Assailing thieves: This refers to a forcible taking rather than clandestine theft or mere pilferage. Fire: Fire includes both direct fire damage and also consequential damage as by smoke or stream. 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. .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. intentional casting a way of vessel or any breach of trust with dishonest intent. How to Insure: Under marine insurance the policy will be taken by two ways.
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
SHIPMENT ON CONSIGNMENT BASIS In this case. even though the overseas consignee will have the physical possession of the goods. the bank will again present the bill to the importer who then makes the payment. . 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. provided that the beneficiary fulfils the stipulated conditions (Detailed explanation for letter of credit was given separately). If the agent fails to sell the goods. On the due date of payment. but retains the title to the goods as also the risk attendant thereto. Under D/P bills. under certain conditions and up to certain amounts. The money received is remitted through usual banking channels to be credited to the exporter's account. the exporter makes shipment to the overseas consignee/agent. 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. After the importer accepts the bill he will get possession of the documents for taking delivery of the goods. The commercial banks that deal in foreign exchange provide a via media by giving the necessary assurances to both the parties. Under this method there are two types of payments viz: Documents against payment (D/P) and documents against Acceptance (D/A).for and importer's unwillingness to part with his money unless he is sure of receiving the goods. involve and a marine insurance policy. The payment for the goods shipped is made only when the agent ultimately sells the goods to other parties. the exporter's bank will send the documents to its correspondent bank in the importer's country. In case of D/A bills. The documents include bill of lading. the correspondent bank will submit the bill of exchange to be signed by the importer t indicate his acceptance of the payment obligation. 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 this method of payment the exporter agrees to submit documents to his bank along with the bill of exchange.
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. The confirming Bank: The confirming bank is a bank in the exporter's country. the confirming the bank advises the beneficiary accordingly. is the bank in the importer's country issuing the letter of credit at the request of the importer. 2. The letter of credit offers advantages to both the seller and buyer. The Notifying Bank: The notifying bank is the bank. The Opener: The opener is the buyer(importer). of course. The letter of credit is opened at the initiative and request of the buyer. The confirming bank undertakes all the obligations of the issuing bank as a primary party to the credit. that is the beneficiary is the seller or exporter. The paying bank may be the issuing bank. the buyer is assured that the shipment will be made by the date specified in the letter of credit. it may enable him to obtain more liberal discounts and a lower price from the seller. under certain conditions and up to certain amounts. Further. or else the credit will expire. 3. 5. 4. and even if the issuing bank fails during the currency of the credit. As far as the seller is concerned.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. notifies the beneficiary that the credit has been opened in his favour. which guarantees the credit at the request of the issuing bank. 6. that he follows the instructions. the confirming bank or the notifying bank. The Beneficiary: The beneficiary is the party in whose favour the credit is issued. also called the opening or issuing bank. at the request of the issuing bank. If the letter of credit is confirmed. which. . The Issuer: The issuer. Though the buyer has to have the botheration of arranging for the letter of credit. provided. PARTIES TO THE LETTER OF CREDIT: 1. provided that the beneficiary fulfils the stipulated conditions. the confirming bank is obliged to honour its commitment. a letter of credit ensures him payment for the goods he sells.
the draft becomes a bank acceptance. the bank merely 'accepts' the drafts drawn by the exporter. After the bank has accepted it. 8. Assignable Credit. which pays or accepts the drafts of the exporter. 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 exporter may draw a sight draft on the bank. Under this kind of L/C. The great advantage of this type of credit. Clean Letter of Credit: This kind of letter of credit may be negotiated against a clean draft. it becomes the negotiating bank. 4. Revocable credit: The revocable letter of credit may be revoked or cancelled at any time without the consent of.7. the beneficiary may go the any bank and present the draft and related documents under the credit. A clean draft is a draft without any documents attached to it. Non-Assignable Credit: As opposed to the assignable credit. 2. As the revocable L/C does not adequately protect the beneficiary on the basis of this type of L/C are not common. the beneficiary may assign his rights to another beneficiary. Irrevocable Credit: An irrevocable L/C is one. amended or modified by the issuing bank without the express consent of all the parties concerned. which cannot be revoked. under the cash credit. Acceptance Credit: Under this arrangement. 5. If no paying bank is specified in the credit. and without notice to. the named beneficiary of a non-assignable L/C cannot transfer his rights to another party. therefore. Documentary Letter of Credit: Under this. . KINDS OF LETTER OF CREDIT 1. 7. 3. The Negotiating Bank: The negotiating bank is the bank. which may be readily discounted or sold by the exporter to the accepting bank. either within a stated period or before the expiry date of the credit. Cash credit. the beneficiary. and if the bank agrees to negotiate the documents. the draft must be accompanied by the documents specified in the letter of credit. 6. to other banks or to exchange dealers.
the applicant for the credit (importer). Confirmed Credit: If a bank in the beneficiary country confirms the L/C. 11. 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. makes the shipment of he cling fns and gets the shipping documents and other related documents. The step-by-step procedure involved can be discussed by taking an example. On receipt of this advice from the local correspondent bank in India. in favour of a domestic supplier. Chennai has secured a contract for the supply of 200 ceiling fans to a Nigerian importer. 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. In this case. STEPS IN THE OPERATION OF LETTER OF CREDIT: In Letter of credit. 10. Back-to-Back Credit: A back-to back credit is essentially a secondary credit. M/S Rainbow limited. which scrutinizes the . 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 beneficiary of the credit (exporter). normally four parties are involved. The total value of the contract is Rs. it becomes a confirmed credit.9. The conditions on which such advances may be made are incorporated in the L/C. 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. Under the revolving credit. viz. the issuing bank and the advising bank incase of unconfirmed credit or the confirming bank in case of confirmed credit. the Rainbow limited.2. The red clause is an authority to the negotiating bank to make advances to the beneficiary for the purpose of purchasing the relevant merchandise. It has been decided that the terms of payment will be a confirmed irrevocable letter of credit. 00. He presents these to the correspondent bank. opened by a bank on behalf of the beneficiary of an original credit. 12.. 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.000. Red Clause Credit: The red clause L/C enables the beneficiary to draw a predetermined value of the L/C as its established.
which reimburses the amount to the correspondent bank. relate to three distinct activities. Payment after satisfying conditions: The importer is assured in case of documentary letter of credit that the exporter cannot obtain any benefit under the letter of credit without actually shipping the merchandise and handing over the documents to the bank. therefore. SALES CONTRACT BUYER CONFIRMATI SELLER ISSUING OPENING ADVICE ISSUING BANK DOCUMENTS CONFIRMING BANK The straight lines show the flow of the credit. The entire scheme of operation can be easily visualized with reference to the Flow chart given below. The documents are then forwarded to the issuing bank. The dashed lines shows the flow of the documents and the dotted lines show the process of payment. viz.documents. opening of credit. If these are in full conformity with the terms of the credit. 2. The steps involved. The issuing bank in turn presents the documents to the importer and debits his account for the corresponding amount. .. presentation of documents and the process of payment. on the banker's credit issuing the letter of credit. Purchase without cash: The importer can purchase goods on credit from foreign merchants. who do not know him and may rely upon his standing. ADVANTAGES OF LETTER OF CREDIT: 1. it will accept the documents and make the payment to the exporter.
tobacco spices etc. Certainty of Payment: Though the importer and the exporter are not known each other. The export promotion activities are undertaken to popularize Indian tea and consumer level with special promotion programme to promote India teas in value added for like packet tea. 6. who is able to secure terms of trade from the foreign supplier. The functions of these boards includes It looks after the production and marketing of tea in India. rubber. and the goods released. In order to increase the production. 7. Small growers development scheme. tea bags and instant tea. COMMODITY BOARDS The government of India has established a number of commodity boards to be responsible for the production. 5. TEA BOARD: The Tea Boards head office is in Calcutta.Tea plantation finance scheme.Special area development scheme etc. coffee. Better terms of trade: The issuing banker lends the advantage of his own credit to the importer. These boards are statutory bodies.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. the Tea Board runs various development schemes. development and export of some commodities like 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. Provide financial assistance and grants for tea research institutes Promote research activities on the allied subjects like packaging of tea. because of the firm undertaking given by the opening banker. New tea unit finance scheme.3. which is otherwise not possible. the letter of credit provides an absolute assurance that the bills of exchange drawn under the letter of credit will be honoured. . shipping documents are surrendered to him in return for his trust receipt. Some of them are 1. Release against trust receipt: When banks are willing to assume credit risk of the importer. 4.
which have potential markets for Indian coffee. Sponsoring delegations abroad and participation in international trade fairs.. Improving tobacco grading through establishment of community grading centers. 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. supply of tarpaulins and supply of coal for curing. 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. SPICES BOARD: . and Canada and is also member of the International Tea committee. training programme was conducted. Improvement of curing and storing facilities by conservation of energy by roof insulation of tobacco barns. US. contact programme was launched in 4 regions covering a total number of 1018 growers.K. Germany. Keeping view the production of quality coffee at estate level. Improving yield and quality of tobacco through control of diseases in tobacco nurseries. Studies on diseases of coffee and their control were carried out. Allowing exports of tobacco to Russia through debt repayment route.- For promotion of tea as beverage the tea board also participates in the generic promotion programme conducted by tea council at U. pest and disease control. Special advertisements on the excellence of the Indian coffee were released in important coffee trade journals and magazines in countries. balanced fertilization. For improving the productivity and quality of coffee.
Each council is responsible for the promotion of a particular group of products. projects and services. . Apart from those schemes. The spices board has a scheme to promote a "logo mark" as a mark of quality and Indian ness of spices.The Spices Board has number of schemes of assistance to spice exporters such as Brand promotion. 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. They are explained below: Brand Promotion: Under this scheme. grant of Spice House certificate etc. 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. spices board has been supplementing activities of Ministry of Agriculture with a number of schemes that include: 1. Providing assistance to marginal growers in non-traditional areas. quality is a key element. 2. Logo Promotion: In the exports of spices. Certificates have been awarded to many manufacturers/processors of spices. 1. Production and supply of quality material and rooted cutting. EXPORT PROMOTION COUNCILS The basic objective of Export Promotion Councils is to promote and develop the exports of the country. 3. Logo Promotion. Organizing training programmes for growers for quality improvement and post-harvest techniques. 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. They issue Registration cum membership certificate to exporters. Logo is registered in six countries and would be registered in another 14 countries. There are 20 EPCs and a number of specified agencies/boards which shall be regarded as EPCs under the Export and Import Policy.
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. To organize participation in trade fairs. as well as other relevant international trade data. These units have to operate under custom bond and achieve the level of value addition fixed by the Board of Approval. The Export promotion councils are non-profit organizations registered under the Companies Act or the Societies Registration Act. innovation etc. 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. components and consumable at free of custom duties.The main role of EPC is to project India's image abroad as a reliable supplier of high quality goods and services. exports and imports of their members. At present more than 500 units are in operation under the EOU scheme. . To offer professional advice to their members in areas such as technology up gradation. exhibition and buyer seller meets in India and abroad. flexibility of operations and incentives. To build a statistical base and provide data on the exports and imports of the country. standards and specifications. product development. To organize visits of delegations of its members abroad to explore overseas market opportunities. raw material. In order to enable them to operate successfully in the international market such units are allowed to import machinery. as the case may be. quality and design improvement. To promote interaction between the exporting community and the Government both at the Central and State levels.. 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.
EOU units may import/procure from Domestic Tariff Area without payment of duty. Only project having an investment of Rs. Second hand capital goods may also be imported duty free without any age limit. 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. Application for setting up of units under EOU scheme may be approved by the units Approvals Committee within 15 days. EOU unit shall be positive net foreign exchange earner.1 crore and above in building. 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. 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. An EOU unit may import without payment of duty for all type of goods. Leasing of capital goods from domestic companies by EPZ\EOU has been permitted. Encouragement of agro and electronic units by providing higher domestic access. 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. OVERVIEW OF EXPORT AND IMPORT POLICY OF INDIA I POLICY AND ITS OBJECTIVES: Under the Foreign Trade (Development and Regulation) Act. 1992 the Central Government has notified the Export and Import Policy for the period 2002-2007 which . 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.
The following are the salient features of the policy as amended up to 31 st March 2003. 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. To stimulate sustained economic growth of providing access to essential raw materials. industry and services. e) Export of samples and Free of charge goods shall be governed by the provisions given in the Hand Book. thereby improving their competitive strength while generating new employment opportunities. c) The provisions given in Handbook shall govern import of samples. This number shall be issued by DGFT. and to encourage the attainment of internationally accepted standards of quality. intermediates. The item wise export and import policy shall be. b) Any person without an importer-exporter code number shall make no export or import unless specifically exempted. 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.came into force with effect from 1 st April 2002 and shall remain in force up to 31st March 2007. as specified in ITC. components. The principles objectives of this policy are: To facilitate sustained growth in exports to attain a share of at least 1% of global merchandise trade. d) Import of gifts shall be permitted where such goods are otherwise freely importable under this policy. consumables and capital goods required for augmenting production and providing services. To enhance the technological strength and efficiency of Indian agriculture. published and notified by DGFT. .
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. i) A license shall contain such terms and conditions as may be specified by the licensing authority may include the quantity. seminars. The common service providers in these towns should be entitled for facility under different schemes offered by the Govt. 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.Central Assistance to States: State governments shall be encouraged to fully participate in encouraging exports from their respective states. actual user.in a licensing year.00. buyer-seller meet etc. the value of addition to be achieved if any. 2.1. should be granted recognition with a view to maximize their export profile. For this purpose. may be exported as a gift. industry and trade associations etc. Selected towns producing goods of Rs. which are world class.Market Access Initiative: Financial assistance shall be available under this scheme to the Economic Processing Zones.Towns of Export Excellence: The industrial cluster towns that export substantial portion of their products. 3. j) Every license shall be valid for the period of validity specified in the license. III PROMOTIONAL MEASURES: 1. . industrial parks etc.g) Goods including edible items of value not exceeding Rs. on the basis of the competitive merits of proposal received in this regard for marketing studies on country product focus approach basis.000/. 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.. for export promotion.1000 crores or more will be notified as Towns of Export Excellence on the basis of Potential for growth in exports. description and value of goods. participation in international trade fairs.
Status Certificate: . storage and related R & D etc. The cottage and handicraft sector. Units Agri export zones would be entitled for all the facilities available for exports of goods in terms of provisions of the respective schemes.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. In recognition of the export performance of this sector and to further increase its competitiveness. Packing. The units shall be eligible for funds from Market Access Imitative scheme.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. 6.. 5. Under EPCG scheme. 7. these units will not be required to maintain average level of exports. which mostly employs artisan and rural people.4. The units shall be entitled to the benefit of export house status on achieving lower total export/deemed export performance of Rs. The Regional Sub-Committee on quality complaints shall investigate quality complaints received from foreign buyers. They are also entitled to duty free imports of specified items upto 3% of FOB value of their exports. the following facilities shall be extended to this sector.15 crores during the preceding three licensing years.Agri Export Zones: The services. 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. processing. contributes significantly to this effort.
Duty Exemption Scheme Duty Remission Scheme Duty Entitlement Pass Book Scheme Export Promotion Capital Goods Scheme . benefits and facilities the new Export and Import Policy showed its emphasis through the following schemes: CONCLUSION In short. Indian firms will have to gear up themselves to survive and to become successful in the emerging borderless world. however. Duty free import entitlement for status subject to some conditions. service providers. would continue to be received through banking channels. Alls status certificates shall be valid from 01-04-2002 to 31-03-2007. 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. Apart from the above provisions. Fixation of input-output norms on priority. 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. 9. Export Oriented Units shall be eligible for such recognition. the EXIM policy since 1992 acknowledges that the trade can flourish in a regime of substantial freedom. Enhancement in normal repatriation period from 180 days to 360 days.Merchant as well as manufacturer exporters.Electronic Data Interchange: Applications received electronically shall be cleared within 24 hours. The remittance. It also recogninses the need for reasonable stability of the policy. Exemption from compulsory negotiation of documents through banks. by making the duration of the policy 5 years.Service Exports: The Service providers shall be entitled for all the facilities mentioned in the policy. 8. within 60 days.
1 = US$ 0. bill brokers. Foreign exchange includes foreign currency. cheques and foreign drafts. The equilibrium exchange rate is the rate at which demand for foreign exchange and the supply of foreign exchange are equal. viz.FOREIGN EXCHANGE The importing country pays money to the exporting country in return of goods either in its domestic currency or the hard currency. 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. components of foreign exchange market rate include: the buyers. For example.02 Exchange rate in a free market is determined by the demand and the supply of exchange of a particular country.48 or Rs. . A certain number of units of foreign currency to one unit of domestic country. 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 Foreign exchange is bought and sold in foreign exchange markets. Exchange rate is the price paid in the home currency for a unit of foreign currency. The price of US $ is fixed in Indian Rupees. buying and selling foreign currency take at a rate which is called exchange rate. Exchange rate determination: The transactions in the foreign exchange market.. The market intermediaries of foreign exchange market include Exchange banks dealing in foreign exchange. the sellers and the intermediaries. This foreign exchange is the money in one country for money or credit or goods or services in another country. 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$ = Rs. This currency which facilitates the payment to complete the transaction is called foreign exchange.
The central bank of country purchases the foreign currency when the exchange rate falls and sells the foreign exchange when the exchange rate increases. 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. The countries follow fixed exchange rates due to its advantages. Other payments involved in international transactions like payments of Indian Government to various foreign governments for settlement of their transactions. donations received etc. The supply of foreign exchange includes: Country’s exports of goods and services to foreign countries. the governments used to fix the exchange rate and the central bank to operate it by creating ‘exchange establishment fund’.e. EXCHANGE RATE SYSTEM: Fixed Exchange Rates: Under this system. But the prices are same in both these methods. India) in its foreign exchange market. establishment of an industry by Indians in USA. .The price of Indian Rupee is determined in US dollars. 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. They are: Fixed exchange rates ensure certainty and confidence and thereby promoters international business. Other types of inflow of foreign capital like remittances by the Non-Resident Indians. Fixed exchange rates promote long-term investments by various across the globe.e. Other types of foreign capital like giving donations etc. Inflow of foreign capital Payments made by the foreign governments to Indian governments for settling their transactions.
Due to problems with the fixed exchange rate system. Fixed exchange rates stabiles international business and avoid foreign exchange risks to a greater extent. most of the world countries at present are not in favour of this system because of the following reasons. Maintenance of greater reserves aggravate the problem of international liquidity. Fixed exchange rates system may result in a large scale destabilizing speculation in foreign exchange markets. The economic policies and foreign exchange policies of the countries are rarely coordinated. Long-term foreign capital may not be attracted as the exchange rates are not pegged permanently. if the supply . 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. the exchange rate system does not work. Under this system. Most of the economies in recent years are liberalized and globalize. Most of the world currency like US dollar areas and sterling pound areas prefer fixed exchange rates. IMF permits occasional changes in the system. Fixed exchange rates result in economic stabilization. Despite these advantages. In such case. 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: Flexible exchange rates are also called floating or fluctuating exchange rates. These economies prefer flexible exchange rate system. Either the government or monetary authorities do not interfere or intervene in the process of exchange rate determination. Flexible exchange rates are determined by market forces like demand for and supply of foreign exchange. The system is changed into managed flexibility system.
This system eliminates the expenditure of maintenance of official foreign exchange reserves and operation of the fixed exchange rate system. Under flexible rate system. Disadvantages: However this system is also not free from the disadvantages. breed uncertainty and impede international trade and capital movements. Stability in exchange rate in the long-run is not possible even in fixed exchange rate system. The equilibrium exchange rate may fail to give correct signals to correct the balance of payments position. This system permits the existence of free trade and convertible currencies on a continuous basis. this system provides the same benefit like fixed exchange rate system for long term investments. These frequent changes result in exchange risks. The system helps for the promotion of foreign trade. Under this system a reduction in exchange rates leads to a vicious circle of inflation. the exchange rate is determined at a low rate and vice versa. . This system also confers more independence on the government regarding their domestic policies. The disadvantages of this system include: Market mechanism may fail to bring about an appropriate exchange rate. The exchange rate moves automatically and freely. Under flexible exchange rate system. the exchange rate changes quite frequently. Hence. speculation adversely influences fluctuations in supply and demand for foreign exchange.of foreign exchange is more than that of demand for the same. It is rather difficult to define flexible exchange rate. This system does not result in deficit or surplus of foreign exchange. Most of the countries in recent times are in favour of flexible exchange rates due to their advantages. The adjustment of exchange rate under this system is a continuous process. This system is simple to operate.
Discuss the criteria involved in International Marketing in respect of market Selection decision. Why more and more Indian manufacturers taking recourse to direct marketing? (Advantages of direct exporting and limitations of indirect marketing) 2. . Explain the concept of Globalization. Why the task of international marketing is is more difficult than that of domestic marketing? (Ans: Difficulties of international marketing) 5. What are the advantages that a firm can derive by going into international? (Ans: motivation for exports and advantages of globalization) 4. Define International Marketing. UNIT TWO 1. How domestic marketing does differs from international marketing? 3.Despite the advantages of fixed exchange rate and the disadvantages of floating exchange rate system. How do controllable and uncontrollable factors affect the environment of international marketing? 6. 7. In addition. INTERNATIONAL TRADE .41303 QUESTION BANK UNIT ONE 1. the convert ability also helps the floating rate system and the globalization of foreign exchange process. Narrate the scope of International Marketing. Write a note on Pros and Cons of Globalization. it is viewed that the flexible rate system is suitable for the globalization process. 2.
How would GATT agreements help in reducing trade barriers? 5. 5. Write a explanatory not on trade barriers. . 6. 10. subsidies and quotas) 8.3. List out the functions of GATT. What are its basic principles? 4. How WTO differ from GATT? 7. List out the standard clauses of International Sales Contract.(post shipment credit and pre shipment credit). Give a critical evaluation of various strategy alternatives for selection and entry in the international marketing. What is meant by competitive intelligence? How do firms acquire it? 7. Evaluate the institutional and infrastructure facilities available for export promotion in India. Write a note on world trade services. 8. What are the different methods of protection made our government for the sake of domestic merchants? (tariffs. UNIT THREE 1. Bring out the impact of Tariffs & Quotas. List the importance of /uses of/need for international Marketing research. What are the different forms of counter trade? 6. Describe briefly the various measures taken by Government of India to help Indian Exporters. 4. 9. Critically examine the contributions by the commercial banks in Export promotional efforts in India.(export assistance and export promotion measures) 9. What are the various aspects of International Marketing Research. 3. What do you mean by counter trade? Is it advantageous? 2.
Describe the stages of processing an export order. What are the risks that are covered under marine insurance? Explain the procedure and documents used when the loss occur 9. Make a critical appraisal of working of the Export Credit and Guarantee Corporation. UNIT FOUR 1. Write a note 100% Export Oriented Units (EOU) and its obligations. What are the machineries available for quality control and inspection? 8. Write short notes on Export by Air Export by sea 4. State the steps involved in the operation of Letter of Credit. 7. Discuss the role of EXIM bank in International Trade context. Explain the fundamental principles of marine insurance and discuss the extent of coverage available under different forms of marine insurance. 12. 3. Explain the significance of documents used in export trade related to shipment of goods and payment. 4. 6. Explain how payments are settled in International Trade. Explain the role of FTZ.10. 11. Examine the salient features of India’s latest EXIM Policy. Present a detailed account of the procedure for export of goods. 13. Briefly discuss the functions of commodity boards. What are the uses of Letter of Credit? Briefly explain the various types of Letter of Credit. . What are the advantages of export of goods by air? 5. 2. 2. UNIT FIVE 1. 3.
Critically .Examine the extent to Exports? which the direct Export subsidies have methods exports? 11. How the foreign exchange rate will be determined? 6. Explain the main features of India's foreign trade? 4. Discuss the advantages and disadvantages of different exchange rate system. State Indias 6. Trace the recent trends in Indian foreign trade.Assess the impact of recent liberalisation measures on India's International marketing? 13. 5. Present an overview of India’s latest Export -Import policy. INTERNATIONAL TRADE GENERAL QUESTIONS 1. give suggestions to 12. What are the major Exports of India? 8.5.Describe the could helped the Indian Exporters. Explain the advantages of Regional Economic groupings? 9. Write short note on IMF.what other prove effective in encouraging more examine the Indias export performance causes for the existing situation and improvement.Formulate a stategy to increase exports of India's SSI sector? . Explain the salient features of the EXIM policy of our country Give suggestions to further improve the competitiveness of Indian 10. What are in your opinion reasons for sluggishness in Foreign Trade? various assistance available to Indian Exporters? 7. 2. 3.
in the context of International Trade? 25.What other methods do you suggest? 16.Write a detailed note on Project exports of India? 18.What are the various export Govt.How does International economy? Trade contribute to the countries 17.As a marketing manager .Briefly describe the recent experience of Non tariff barriers.Formulate a strategy to increase exports of India's small scale 22. 26.What are the main issues that should be considered while framing the multinational marketing plan. improvements are essential to boost exports".how problems of your choice.What other methods encouraging more exports? could prove effective in 21."Quality improvements are essential to boost exports".Distinguish research'.of India to boost Exports? incentives provided by 19. validity of the statement in the 23.Explain Indian the role the validity of the statement in the of export subsidies in promoting exports.Discuss Indian context? 15.Examine the extent to which the direct export subsides have helped the Indian exporters.What do you mean by 'Marketing mix ." Quality industry sector. 20. between 'desk research and field .14. will you go about the finding overseas market for a product of 24.Discuss the Indian context.
27. . 29.Discuss the issue 'standardisation Vs localisation in international marketing.what are the duties of the exporter and importer ? do you understand how by it Medical Transcription in service 30.What ?Briefly exports.Under FOBcontract . outline helps india 31.What are the different market entry strategies available to MNC to expand their international trade ? 28.What are the major export items of India ? Who are the major competitiors of these items ?Discuss.
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