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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.. viz. International Marketing vs. patents. This necessarily involves finding out what the buyers want and meeting their needs accordingly. It is different from domestic marketing in as much as the exchange takes place beyond the frontiers.' International marketing can be defined as "marketing carried on across national boundaries". Both in domestic marketing and international marketing success depend upon satisfying the basic requirements of consumers. 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'. Negotiating licensing/ franching arrangements whereby foreign enterprises are granted the right to use the exporting company's know-how's. there may be several variations of these arrangements. assembly or even complete manufacturing through direct investment. processes or trademarks with or without financial investment. thereby involving different markets and consumers who might have different needs. It also means entry into international markets by: Opening a branch/ subsidiary abroad for processing. 1. packaging. Depending upon the degree of firm’s involvement.INTERNATIONAL TRADE UNIT ONE DEFINITION OF INTERNATIONAL MARKETING: Kotler defines marketing as 'human activity directed at satisfying needs and wants through exchange process. . it has a broader connotation in marketing literature. Establishing joint ventures in foreign countries for manufacturing and or marketing and Offering consultancy services and undertaking turnkey projects broad. Scope of International Marketing: Though international marketing is in essence export marketing. Domestic Marketing: There are a number of similarities and differences between international and domestic marketing.
2. 3. Trade Restrictions: Trade restrictions. they may have to face a number of restrictions. Differences in the Marketing infrastructure: The availability of the marketing facilities available in different countries may vary widely. Tariffs and customs duties Quantitative restrictions Exchange controls Local Taxes. If a firm is able to develop goodwill of consumers or customers. The exchange rates between currencies fluctuate every day. 3. Research and development for product development and modification is necessary both for international marketing and domestic marketing. same language and culture where as at international marketing many languages and different cultures.2. 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. S a result. which has not been able to do so. They are as follows: 1. there are some salient features of difference between international marketing and domestic marketing. It is necessary to build goodwill both in the domestic market and international market. In the case of domestic marketing the buyers are aware of the legal systems in their country. Cultural Differences: In domestic marketing there is only one nation. However. an advertisement medium very effective in one market may not be available or may be under developed in another market. 6. . Different Legal Systems: Each country has its own legal system and it differs from country to country. 4. 5. particularly import controls are a very important problem which an international marketer faces. For example. Sovereign Political Entities: Each country has is a sovereign political entity and goods and services had to move across national boundaries. In case of domestic marketing there is only one currency prevailing in the country. 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. its tasks will be simpler than the one. This my fall in any of the following categories.
9. Pre-Export Behaviour: Every firm at some point of time starts as a non-exporter. They grouped as Pre-export behaviour and Motivation to Export. 8. Transport Cost: In International trade. Temperamental decision to export is transient in character and totally unsuitable for export marketing. Stability in Business Environment: In domestic marketing there is relatively stable business environment. 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. 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. which can come only out of basic economic necessity as perceived by the corporate unit. The point to be studied is what made some of these firms get involved in 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. 10. At international marketing multiple environments. TRANSITION FROM DOMESTIC TO INTERNATIONAL MARKET The Decision to enter foreign markets must be based on strong economic factors. The factors. which influence a non-exporting firm's decision to go in for export business. can be classified under the following categories: .7. Success in exporting requires total involvement and determination. 1. many of which are likely instable. transport cost is a major marketing expense where as in domestic trade transport cost influences only to certain extent.
hiring of consultants for carrying out overseas market potential studies etc. (d) Level of Organizational commitment: The decision makers must agree on the level of commitment. 2. the motivation of the firm to get involved in export business will be considerable. and potential export markets. size and growth of the domestic market. the higher level of profits and the growth objectives of the firm. which is internationally marketable.(a) Firm characteristics: Firm characteristics include product characteristics. Export business offers a suitable mechanism for utilizing the unused capacity. Recession in the domestic market often serves as a stimulus to export ventures. and the present and future market prospects in the domestic market are not much encouraging. . Resources will be required for hiring new staff specialized in international marketing. market opportunity and government's stimulation in the form of incentives and assistance. This covers the level of capacity utilization.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.. (b) Perceived External Export Stimuli: This will include fortuitous order. (c) Perceived Internal Export Stimuli: This refer to the management's expectations about the effects of exports on the firm's business. optimum scale of production. This will reduce costs and improve the overall profitability of the firm. Insufficiency of Domestic Demand: The level of domestic demand may be insufficient for utilizing the installed capacity in full. If the firm is manufacturing a product. This is crucial because it will determine whether adequate resources will be made available for embarking on international marketing.
especially those in need of imported inputs. the downward fluctuations in sales in one market. Obtaining imported inputs: Nations have to pay for imports of materials. if the additional capacity is utilized for exports. in order to import. Reducing business risks: When a firm is selling in a number of markets. Governments. technology or processes not available within their national boundaries. They also look at exporting to attain status and prestige. Government regulations restricting imports by way of import licenses. Increased productivity: Increased productivity is necessary for ultimate survival of a firm. In other words. This will lead the firm to increase production and then move to export business. Then the firm may be tempted to export its products abroad. 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. improve its product. . To meet the increased costs of Research and Development. 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. may be compelled to impose export obligations on the firms. etc. They also build up their image in domestic marketing by their export activities. which may be the domestic market. geographic diversification also provides the momentum to growth in as much as a single or few markets will have only limited absortive capacity. Social responsibility: Sometimes businessmen themselves feel a sense of responsibility and contribute towards the national exchequer by increasing their exports. larger markets become a necessity and exports become unavoidable. reduce costs and discover new applications for its product. SPECIAL DIFFICULTIES IN INTERNATIONAL MARKETING There are a number of difficulties in undertaking international business. Technological improvement: Entry to export market may enable a firm to pick up new produce ideas and to add to product line. But there may not be any such restrictions. the firms will have to export. Secondly. therefore.
price.e.Tariff and non tariff barriers. Different legal system regarding import and export of goods. Now let us discuss these factors as follows: Controllable Factors: Control will have to be defined with reference to a company's management. Lack of adequate export financing especially for small scale industries. Different monetary systems like Dollars in USA. Non-availability of latest information about the market conditions. etc. . INTERNATIONAL MARKETING ENVIRONMENT It is necessary to know the concepts of "controllable" and "uncontrollable factors" in international marketing. Economic Unions. The company is in a position to control and design marketing mix elements i. Local taxes like sales taxes on imported goods. Differences in procedures and documentation. product. export to any place by choosing any distribution channels and follow any promotional methods. Lack of export incentives to exporters. Paper work is more in export business. Sterling in UK. Trade barriers . YEN in Japan. Exchange controls. Shipping and freight problems. Differences in market characteristics. Complications of Exporting. competition from exporters from other countries and competition from producers of goods in the importing countries. There are some factors which can be controlled by the management may not be able to haves any control over them. Cultural dimensions of international marketing. Competition from local exporters. Lower mobility of factors of production.
occasion of consumption. the marketing strategies to be employed. the way the business should be organized and governed. Because of cultural differences. could have a social influence of them Management may undergo a social transformation. for example . In short. So familiarity with cultural is necessary for success. business ethics. entrepreneurial nature and attitude. ways of conducting meetings and functions. quantity of consumption. The other social factors which influences the international marketing inclusive of National legal regime Political and Financial system Marketing infrastructure Language. The need for good corporate governance is getting more and more recognition. Etiquettes differ from culture to culture. government-business relations. are all influenced by social structure and the culture of a society. Religion and Climate . expression of appreciation or disapproval. Such uncontrollable factors in international marketing are described here. governance. values associated with consumption. or may even result in social or legal reprisals. table manners etc. the values and norms it should adhere to. the type of products to be manufactured and marketed. method of consumption. methods of showing respect. vary quite widely between cultures. The ways of meeting and greeting people. a promotion strategy that is very effective in one market may utterly fail in another. political philosophies and systems. The tastes and preferences. etc of a product may show wide variations between cultures. legal environment. lab our-management relations. government policies etc.Uncontrollable Factors: There are some factors on which the company can not have any control. purpose of consumption. a number of family owned business groups in India have ushered in professional management. SOCIAL FACTORS: The social/cultural environment of a nation/market may profoundly influence business in different ways and dimensions. The attitude of workers.
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. development of common facilities like infrastructural facilities. A firm may derive competitive advantage from any one or more of the factors such as low costs and price. ORIENTATION: A global orientation on the part of the business firms and suitable globalization strategies are essential for globalization. product differentiation. product quality product. financial market reforms and so on. after sales service.GOVERNMENT SUPPORT: Although unnecessary government interference is a hindrance to globalization. government support can encourage globalization. R and D support. technological superiority. Further Globalization increases capital flows from surplus countries to the needy countries. Free flow of Technology: Globalization helps for the flow of technology from advanced countries to the developing countries. PROS AND CONS OF GLOBALIZATION ADVANTAGES: Free Flow of Capital: Globalization helps for free the flow of capital from one country to the other. 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. RESOURCES: Resources is one of the important factors which often decides the ability of a firm to globalize. Increase in Industrialization: Free flow of capital along with the technology enables the developing countries to boost-up industrialization in their countries. which in turn increases the global investment. Government support may take the form of policy and procedural reforms. It helps the developing countries to implement new technology. It helps the investors to get a fair interest rate or dividend and the global companies to acquire finance at lower cost of capital.
For example. Higher Standards of Living: Further. As such. 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. . globalization reduces prices and thereby enhances consumption and living standards of people in all the countries of the world. The cultural exchange. Balanced Human Development: Increase in industrialization on balanced lines in the globe. which in turn contributes for the balanced human development across the globe. Lower prices with high quality: Indian consumers have already been getting the products of high quality at lower prices. improves the skills of the people of developing countries. Increased industrialization spread up of technology. Cultural exchange and demand for variety of products: Globalization reduces the physical distance among the countries and enables people of different countries to acquire the culture of other countries. in turn makes the people to demand for a variety of products which are being consumed in other countries. demand for American Pizza in India and Masala dosa and Hyderabad Briyani and Indian styled garments in USA and Europe. Further. This in turn leads to the balanced development of all the countries.Spread up Production facilities throughout the Globe: Globalization of production. increased production and consumption level enable the companies to produce and sell the products of high quality t lower prices. technology and locating manufacturing facilities in developing countries. Balanced development of world economies: With the flow of capital. it reduces job opportunities in advanced countries and alternatively creates job opportunities in developing countries. the increased economic development of the country enables the government to provide welfare facilities like hospitals educational institutes etc. the developing countries industrialize their economies. Increase in Employment and Income: Globalization results in shift of manufacturing facilities to the low wage developing countries. leads to spread up manufacturing facilities in all the global countries depending upon the locational various favorable production factors.
competent people. it is viewed that. This results in widening the gap between have and the have-nots. efficiency etc. The domestic business of the developing countries fails to compete with the MNCs on the technology and quality front. establish manufacturing and marketing facilities in developing countries. These companies employ child labor. globalization enables the developing countries to become rich and enforce the labor and environmental regulations. Decline in demand for domestic products: Selling of high quality foreign products at low prices by MNCs reduces the demand for the domestic products. Therefore. while other average people have to strive for even a minimum wage. This in term leads to reduction in employment opportunities particularly in less developed countries. people with innovative skills. DISADVANTAGES: Globalization kills Domestic Business: The MNCs from advanced countries utilize the opportunities created by globalization. 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.Increase in the Welfare and Prosperity: The balanced industrial. get abnormal income. Widening gap between rich and poor: Globalization not only results in decline in income but widens the gap between rich and poor. 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. and ignore workplace safety and health issues. pollute environment. 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. However. Transfer of natural resources: MNCs establish their manufacturing facilities in developing countries exploit their natural resources and sell the products in other . Leads to Unemployment and Underemployment: MNCs produce the products in their home countries or in some other foreign countries and market in developing countries.. the domestic country’s operations are to be reduced.
Whether it can meet the demand in domestic as well as in international market? 3. 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. When a firm thinks of entering into an international market. the firm must have the resources in men. the natural resources of developing countries are transferred to other countries. In such circumstances the firm which concentrating only domestic market will find thread about its survival. and the risks may be minimum. . At the same time if the company is doing international trade they can concentrate for international market to balance the fall in demand in domestic market. Whether it can formulate and implement a policy and regulations pertaining to exports and imports? Even if the opportunities appear favorable. A proper selection of markets would ensure that time and efforts are not wasted. UNIT TWO INTERNATIONAL MARKETING DECISION In developing a foreign operation. 1. Whether it can adapt the product according to the needs of the consumers? 4. No firm has unlimited resources. the marketer has to take four decisions. These are: Marketing Decision Marketing selection decision Market entry decision Marketing Mix Decision Marketing Decision: All the business involves risk. money and materials to capitalize them. the first step is to choose the right place for the initial export venture. One of the risk element is sudden fall in demand. Through these means. 2. MARKET SELECTION DECISION To be successful in initial exports. so that the returns may be quicker and certain. Before taking the marketing decision of entering into international market it should satisfy itself for the following questions.countries.
While selecting initial markets for exports. but if such disputes arise. when a less competitive Arab or African market is available. It would be unwise to sell in the more competitive European market. 4) The company also has discussion with some successful exporters. ECGC. Make certain at the start that your export business is going to be profitable. Do not enter those markets where there are a lot of import restrictions. Enter the export business only when the marketer is sure of its profitability. 5) It can also have discussions with Commodity boards. The concerned export promotion council also publishes such statistics. 3) The company can also visit some Government offices. . 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. names of importers etc. 2) It should examine import statistics of the product in the target markets. Collect the latest data on export surveys and commercial intelligence from India's Commercial Representatives abroad. this will ensure success. The company can look into these statistics and find out where the products are exported. Find a need and fill it. trade associations to find out the policy. settle them amicably. 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 enable the marketer to solve many practical problems. Take guidance from government and non-government institutions. It is advisable to spend some time and money on visiting the overseas market. etc 6) It may also contact our Trade representative located in our Embassies and High commissions abroad. Collect the address of potential customers abroad and start correspondence with them. avoid any trade disputes. libraries.
CRITERIA FOR SELECTION OF MARKET: The marketing firm should have a set of decision criteria for selecting the target markets. in the case f certain products. 8) The company can also send some officers to the target markets to find out the market conditions there. 9) It can take part in trade fairs and exhibitions conducted by ITPO and other agencies. While the complete set will have to take into account the product and marketing characteristics of specific products. Inadequate logistic support can play havoc in the planning of export shipments. social and cultural factors in the target markets.7) It may also contact Foreign Embassies and High Commissions located in India. Further . It is not enough if additional sales come at the cost of the competitions. 11) It must also decide whether it should choose one market or a few markets. including international marketing. It is easier to capture a 5 per cent of a big market than to capture a 25 per cent share of smaller market. special types of logistic infrastructure is necessary. . 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. Higher scales over time become easier when the overall demand is increasing. which will jeopardize any marketing efforts. (iii) Logistics: Dispatching the goods to the right place at the right time is the essence of all marketing. 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. 10) It must also find out economic. (ii)Growth: It is enough that the market is existing but it should also be in the growth stage.
The selection process of the target market will have to take this factor into account. A thorough study will have to be made to determine how the firm's product profile compares with that of the competitive product line. Even if a market is otherwise promising. A good distributor is essential. the incidence of higher transport cost may reduce export competitiveness quite appreciably. For low-valued items. The firm will have to evaluate whether it is in a position to match such competition onslaught. the company should think twice before deciding to enter that market. (vi) Distribution System: The availability of a capable agent or distributor is a very important consideration. unless it is in position to set up its own office there. if no good distributor or agent is available.sales services.(iv) Distance: The transport cost and distance are intimately correlated. THE MARKET ENRTY DECISION: Once the target market has been identified. 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: . (v) Competition: The nature and extent of competition is a very crucial factor to reckon with. the next step relates to the decisions regarding the alternative methods of entry. such as demonstration and post-selling. especially for products requiring pre-selling. such as after.
The advantage of selling in this way is similar to what had been mentioned for exporting through export houses. Merchant exporters are usually well financed and maintain their branches at port towns and in important centers abroad. Merchant exporters or export houses sell and buy on their account and thus assume the risks involved in exporting. It carries less risk. therefore.The indirect way of exporting is almost equivalent to domestic sales. The firm sells its products in its country to another party. It requires less investment and the firm's capital is not tied up. Some other companies regularly send buying teams for the same purpose. and the firm does not have to spend money on market research or on setting up branches abroad. which are willing to buy goods from the Indian manufacturers and sell them abroad. They usually have a system of gathering market information and keep a close watch on market trends. The amount of business that is conducted by such buying operations is substantial. Disadvantages of Indirect Exporting: . The manufacturing firm is free to concentrate on production. It makes possible the utilization of the know-how and experience of middlemen. This method of exportation is useful when the company is small and. who takes the responsibility of actual export. 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. where he will buy and at what price. 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. 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. not in position to start an export department to like after exports sales. A merchant exporter is free to decided what he will buy.
and opts for direct exporting. which offer them the greatest profit. Advantages of Direct Exporting: The manufacturer will have better knowledge of customers' requirements and market conditions. His profits will be more than selling the goods through middlemen. it will have to choose most carefully between one and or the other kind of export sales organization to be created. and he cannot claim or avail of export incentives given on a fairly liberal scale. Direct Exporting may also be undertaken by: Setting up a sales branch or a subsidiary sales organization in a foreign country. Appointing home-based sales representatives. or a supplement to the home organization. may not be aggressive. or suitable agents in that country who would sell it on commission basis without taking any title to it. Export merchants middlemen may not be available for all the markets. the manufacturer cannot be called an exporter. DIRECT EXPORTING: In case the firm decides not to operate through any of the intermediaries described in the earlier paragraphs. The middleman. particularly the agent on commission basis. For practical purposes. He will have direct control over the marketing operations. . existing and potential. with the result that sales may suffer. who would travel abroad and book orders. Export merchants may concentrate on the products. Selecting suitable distributors in a foreign country who would buy his product and sell it there. it may make a modest start. 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. which may be a substitute for.appoint an export manager plus a clerk. If its export plans are ambitious and the prospects of selling in a number of markets are promising. The small manufacturer's products may be ignored. He can enjoy the full returns on exports. Depending upon the firm's export sales turnover.
Licensing mode carries low investment on Licensing agreements reduce the market the part of the licensor. Advantages and Disadvantages of Licensing Advantages Disadvantages Large financial resources needed Managerial ability is essential and more staff is required Increased distribution cost More risk Greater initial outlay before profit begins to flow in. Direct exporting is the only choice for certain products and not alternative to get success. technical information or some facility in return for some fee or royalty. 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. the manufacturer enters into an agreement with a licensee in the foreign country and this gives him the right to use the manufacturing process.sometimes the only possible way as in centrally planned economies. Licensor can investigate the foreign market Costly and tedious litigation may crop up for both licensor and . opportunities licensee. 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. maintain the product quality and promoting the product. a patent design or a trademark. Therefore one party can affect the other through their improper acts.
Franchisor learns more lessons from the Franchising agents reduce the market experiences of the franchisees. customers franchisee. employee training. . The franchisor can exercise more control over the franchise compared to that in licensing. Under franchising. culture. between the effectiveness of the agreement. The licensee may sell the product outside the agreed territory and after the expiry of the contract. for parties misunderstanding despite the Licensing gets the benefits with less There is scope investment on research and development. The franchisor provides the following services to the franchisee: Trade marks Operating system Product reputations Continuous support systems like advertising. Advantages and Disadvantages of Franchising Advantages Disadvantages Franchisor can enter global markets with International franchising may be more low investment and low risks. information It is difficult to control the international regarding the markets. and hurt both the parties and the market.without much effort on his part. FRANCHISING: Franchising is also a form of licensing. Franchisor can get the complicated than domestic marketing. secrets of the licensor. and environment of the host country. reservation service. an independent organization called the franchise operates the business under the name of another company called franchisor. which he opportunities for both the franchisor and could not experience from the home franchisee. License escapes himself from the risk of There is a problem of leakage of the trade product failure. and quality assurance programme etc.
the monarch of all that it contains. promotion. This is the culmination of international marketing. FOREIGN SUBSIDIARIES: The marketer establishes a subsidiary manufacturing unit in a foreign country. Franchisee can early start a business with Both the parties have the responsibilities to low risk as he selects an established and maintain product quality and product proven product and operating system. outsourcing. or both. JOINT VENTURE: A joint venture involves a capital partnership and may be arranged for manufacturing activities. It is international production-cum marketing. Franchise gets the benefit of R & D with There is a problem of leakage of trade low cost.country’s market. This takes place when: The domestic investor buys an interest in a manufacturing unit situated in a foreign country. Franchise escapes from the risk of product failure. He is its exclusive owner and controller. When a company engages in such production in a number of countries. Any investor of a foreign country buys an interest in a manufacturing unit of the domestic investor already existing in that country. B. secrets. Management Contracts: This practice is called the contract of manufacturing or . SPECIAL MODES OF ENTRY: A. Contract Manufacturing: Some companies outsource their part of or entire production and concentrate on marketing operations. or A domestic investor and an investor in a foreign country together start a new venture in that foreign country. it is called multinational company. marketing activities.
C. products. accessibility and competitive factors. 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. Thus the market research is only a part of marketing. affecting those changes are studies vigorously. NEED FOR OVERSEAS MARKET RESEARCH :( Uses) Market research is required to identify which markets should be selected as the target. The main purpose of market research is to know about the consumers and markets of the exporter's products and services. This agreement between these two companies is called the management contract.The companies with low level technology and managerial expertise may seek the assistance of a foreign company. organization. based on the market size. INTERNATIONAL MARKETING RESEARCH MARKET RESEARCH & MARKETING RESEARCH Market research is a complete analysis of the market. size. Then the foreign company may agree to provide technical assistance and managerial expertise. air ports. Turnkey projects: A turnkey project is a contract under which firms agrees to fully design. 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. profitability of different markets. International turnkey projects include nuclear power plants. transport. changes in markets and various factors. . growth. national highways. sales promotion techniques. Marketing research covers all aspects of the marketing activities such s markets. Information regarding the nature. oil refinery. railway lines etc. consumers. social and political. warehousing. such as economic. advertisements. The research is mainly concerned with details regarding consumers. The research is mainly concerned with details regarding consumers. channels of distribution.
taking into account the socio-cultural factors. Research can help to determine the positioning of the product. Identify the sources (primary and secondary) from where such information can be obtained. The uncertainty is mitigated. Desk research and field research. Identify the information requirements to find out a solution to the problem. Identification of suitable products is also dependent upon research. Pricing is crucial for success in international marketing and a blunder can mar all prospects. . Prepare a research brief for field research to collect information on the gaps. It is useful in converting uncertainty into certainty. habits and preferences are changing very fast. Marketing research by providing information on market information on market environment. METHODOLOGY FOR MARKET RESEARCH: Market research in almost all cases is carried out into two phases: viz. Stepwise formulation of a research plan comprising both desk and field research will be as follows: Identify the problem. Research can help prevent the use of inappropriate market entry method. 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. Identify the gaps in information still remaining.. Detailed field research investigations are required to determine the extent of product adaptation required to make the product acceptable in a given market. reduces uncertainty in it and makes the environment known. The research becomes inevitable when the income. fashion. Research also helps in taking appropriate packaging decisions. Collect and analyse the secondary source materials. The needs for research also arise when the sale of the product is showing a downward trend and the reason for the fall could not be established.
Chamber of Commerce . national trade statistics UN. Complaints received from foreign customers etc. The following table shows the agencies which can furnish the required information for desk research. DESK RESEARCH: Desk research is the first phase of the marketing research. Analyse and evaluate the results. 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. 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. Official statistical sources Embassies. Interview the respondents. o From whom the data were collected. Design a questionnaire. External Source of Information: This information can be had from any published documents which may provide data on the problems to be analysed.OECD. and how reliable the methodology might have been and o How consistent the data are with other local or international statistics. and whether thee might any motive for misrepresentation. INFORMATIONS Import statistics Production statistics Tariffs and quotas EXAMPLES OF SOURCES UN. Prepare the sample of respondents. It involves collection of all relevant information from known published and unpublished documentations available within and outside the organization.
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. telephone interviews and stores checks. Identification of agents Credit and payment terms Transport cost Prices Directories. Going directly to the market may cover the gaps in information. There are two specific important steps before field research can be undertaken viz.Currency restrictions Health restrictions Political situation Domestic consumption Banks and Embassies Embassies and chamber of commerce Bank reports. however. FIELD RESEARCH: An analysis of data collected from desk research would reveal the gaps in information that still remain. Field research can be conducted through personal interviews. Generally speaking product specific marketing in formations are not available from secondary (desk) sources. Reports of embassies and Journals Banks Freight forwarders and clearing agencies Previous market survey reports. personal interview is the most dependable if reliable data are to be required. Techniques of Field Research: Interview methods. First the recruitment of interview is difficult and ins some cultures it is impossible to recruit female interviewers at all. the personal interview presents special problems for two main reasons. design and testing of a questionnaire and preparation of a sample of respondents. Questionnaire and Observation method (Refer Research methodology book for further details for the above said techniques) COMPETITIVE INTELLIGENCE: . press reports and IMF year book Official statistics of chamber of commerce and commodity boards. Unfortunately. daily economic newspapers on commodity prices.. in many developing countries.
Modern marketing is very competitive. 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. Predicting the behaviour of one's competitors and outguessing of the competitor will need the services of marketing intelligence. and how are they trying to solve them? Are they involved in litigation? What kind? What relation do they have with government? Do they enjoy incentives or favours? Finance: What is the current financial position of the competitors? What are their investment programmes? What fees and royalties do they use? What are their financial resources and how do they finance expansion? What dividend policies do they pursue? Are they sacrificing long-term advantage for short term gains? Production: What plans do the competitors have? What production technologies are used? How efficient are the plants? What capacity of existing plant is being used? Do they have any labour problems? . Modern business is a many sided game in which rivals and opponents continuously try to formulate strategies to gain advantage over one another. and how good are they? What problems do the face. It is therefore. character and size of competition to be met. necessary for the exporter to obtain competitive intelligence and make a study about competitions for his products. A marketer cannot survive under keen competitions without up to date market information particularly regarding the nature.
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.exporters and importers The description of the product. pricing. The elements or the clauses of an export contract vary depending upon the nature of product being exported. There are. however.What's their source of manpower? What is their manufacturing cost? How's their product quality? Marketing: What marketing channels they have? Their pricing strategy. Their promotional strategies. Quality of the product. 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. 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. say in the USA. some elements that are almost universal in their application. These elements are as follows: Names and addresses of the parties . or on the settlement of disputes. Price per unit. 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. An Indian exporter selling his product to an importer. .
Mode of payment. They are also called the instruments of trade policy. Government announces their trade policies with regard to the following from time to time. Jurisdiction. But in case of global companies. Inspection. Proper law of contract. an understanding of trade policies is more essential. Availability/ non-availability of export and import licenses. Settlement of disputes. Passing of risk. Insurance. Total value. Documentations. They are: Tariffs. INTERNATIONAL TRADE POLICIES TRADE BARRIERS (METHODS OF PROTECTION) Managing any business strategically needs an understanding of the business policies. Subsidies and Import quotas.assuring repairs over a 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. Currency Tax and charges Packing specifications Mode of transport Delivery: Place and schedule Marking and labeling. Passing of property. if any Warranties . . Credit period.
as a result of the protection by tariffs. Further a part of the consumer income is transferred to the exchequer by means of the tariff. This increase in the price of imports is likely to reduce imports and increase the demand for domestic goods. Import duties may also enable domestic industries to absorb higher production costs. domestic industries are able to expand their output. If the import duty causes an increase in the price of domestically produced goods. Revenue Effect: As mentioned above. it amounts to redistribution of income between the consumers and producers in favor of the producers. Income and Employment Effect. Thus. 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. a tariff means increased revenue for the government. An import duty generally has the following effects: Protective effect: An import duty is likely to increase the price of imported goods. It is a duty or tax imposed on internationally traded commodities when they cross the national borders. Redistribution Effect. IMPACT OF TARIFFS Tariff affect on economy in different ways. .
India had quotas of imports of various goods like cars. they may cause an increase in domestic prices. These restrictions are imposed by issuing import licenses to certain firms and individuals to import certain quantity of the goods. Price Effect: As quotas limit the total supply. if the exporter reduces his prices. Competitive Effect: The competitive effect on the tariff is. motor cycles. the tariff importing country is able to get imports to a lower price. in fact. QUOTAS Quota is direct restriction on the quantity of goods which are imported into a country. IMPACT OF QUOTAS Balance of Payment Effect: As quotas enable a country to restrict the aggregate imports within specified limits. 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. This higher spending within the country ay cause an expansion in domestic income and employment. people may be constrained to reduce their consumption of the commodity subject to quotas or some other commodities. Protective Effect: . Import quotas provide the protection to the domestic firms from the foreign countries. quotas are helpful in improving its balance of payments position. Consumption Effect: If quotas lead to an increase in prices. milk etc. Terms of trade effect: In a bid to maintain the precious level of imports to the tariff imposing country. up to 31st march 2001.The tariff may cause a switch over from spending on foreign goods to spending on domestic goods.
A tariff seeks to discourage imports by raising the price of imported articles. 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. Quotas may affect the terms of trade of the country imposing them. the government may obtain some revenue by charging a licence fee. a quota is more effective than the tariff. It however fails to restrict imports when the demand for imports is price inelastic. but the effect of quotas on imports is certain. Redistributive Effect: Quotas also have a redistributive effect if the fall in supply due to important restrictions enables the domestic producers to raise prices. As quotas are administered by means of licences. The reactions or responses to tariffs are not clear and accurately predictable. The effect of quotas on the terms of trade depends upon the elasticity of the foreign offer curves. Tariffs are often regarded as relatively permanent measures and rapidly build powerful . quotas encourage the expansion of domestic industries. more easily imposed and more easily removed instruments of commercial policy than tariffs. When compared to tariffs. Terms of Trade Effect. quotas are much precise and their effects much more certain. The rise in prices will result in the redistribution of income between the producers and consumers in favour of the producers. Revenue Effect: Quotas may also have a revenue effect.By guarding domestic industries against foreign competition to some extent. It has been argued that quotas tend to be more flexible.
quotas tend to promote the concentration of economic power among foreign exporters. Quotas have many characteristics of a more temporary measure. they may enable them to amass fortunes by exploiting the market. Quotas may support inflationary pressures within the country by restricting supply. SUBSIDIES In order to encourage domestic production or to protect the domestic producer from the foreign competitors. government procurement of out put at a higher rate. Quotas offer greater scope for corruption than tariffs. however. The effects of quotas are more rigorous and arbitrary and they tend to distort international trade much more than the tariffs. are designed to deal only with a current problem. equity participation and supply of inputs at lower prices. Such payments are called subsidies. Subsidies are in different forms. suffer from certain effects. Tariffs in some respects are superior to quotas. Quotas tend to restrict competition much more than tariffs by helping importers and exporters to acquire monopoly power. loans and advances at low rate of interest. . and removable as soon as circumstances warrant. If import quotas are allocated only to a few importers. which make them all the more difficult to remove. tax holidays. Quotas. They are: Cash grants. Tariffs also suffer from the same defect.vested interests. That is why GATT condemns quotas and prefers tariffs to quotas for controlling imports. Similarly. government pays to a domestic producers reducing operations cost.
In this case no cash in involved.UNIT III COUNTER TRADE Counter Trade refers to any one of several different arrangements by which goods and services re traded for each other. Under this arrangement. Barter: In the barter agreement. usually an industrial firm. 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. Compensation counter trade: Under compensation arrangement the exporter agrees to accept a part of consideration in cash and the balance in kinds. Basically it is a barter (exchange of one type of goods for another type of goods) or quasi-barter agreement. There are a variety of forms of counter trade. the goods to be produced by the importer with the exporter s' equipment or technology. Buy back arrangement: This type of arrangement sis the most popular arrangement involving a relatively large volume of trade. on either bilateral or multilateral basis. where cash may not involve but there is always a link between the imports and exports transactions.INTERNATIONAL TRADE . For example India exports iron and steel against import of heavy machinery under a contract it is called a counter trade transaction. but the exporter transfers the purchasing commitment to a third party who may be an end user of products or a trading house. equipment or technology to an importer and agrees to accept. Pure barter of this type is rare in now a days. The contract period of buy back . provide plant. We may examine them in detail in detail as in the following paragraphs. FORMS OF COUNTER TRADE: There are a number of forms of counter trade. in full or part considerations. the exporter sells specified goods to the importer in exchange for specified goods. the exporter. In other words imports are paid out of exports in counter trade. In other words barter involves trading goods for goods.
REASONS FOR THE GROWTH OF COUNTER TRADE The reasons to engage in counter trade include those basic to business. In swap transactions differences in quality of the goods being substituted are worked out in swap contract. Counter trade is . the exporter sells the goods. within a specified period. These kinds of transactions are set to occur over a specified period. Switch: This method of counter trade is useful when international currency flow is sluggish or uneven. generally one year. by necessity. it paid to the western firm direct the amount equal to the price of the plant sold to Russia. sell products and gain an edge over competition. 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. considerably longer than that of counter purchase arrangements. Counter purchase arrangement: This type of counter trade arrangement is also common but it is complicated. One country that is a party to a bilateral trade agreement will transfer its imbalance to a third party or nation. 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. Russia had a clearing agreement with Australia which was buying natural gas to Russia. This is ideally suited for commodities such as sugar. Thus in a switch agreement. the amount is paid or accepted through a third country or party. This method of counter trade is useful when international currency flow is sluggish or uneven. One example of switch is western firm that sold a plastic manufacturing plant to the then USSR which had no cash to pay. However.arrangements is. Under this arrangement. Evidence Accounts: Under evidence accounts. chemicals and oils. Swap: In a swap contract two countries agree to trade. 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. products from different locations with a view to save transportation cost. t o enter new markets. Such accounts are monitored by the country's bank of foreign trade that deals in foreign exchange and where the company maintains its accounts.
For every 10 to 20 deals that are talked about. India had long a longer Risks increase as counter trade . In other worlds counter trade permits price discrimination among customers. The developing countries.A counter trade transaction permits concealed discounting in a period of weak markets. etc. .considered a way of overcoming of uncertainty of domestic production plans and. 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. This requires planning and commitment. barter deals. special trading arrangements. . perhaps one gets done. Some other reasons for the growth of counter trade are as follows: . 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. DRAWBACKS OF THE COUNTER TRADE Counter trade transactions are often extremely complex and difficult as compared with straightforward trade. arrangements extend over several years.A counter trade transaction may provide some slight additional certainty in an uncertain world. 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. particularly those maintaining overvalued exchange rates. of achieving bilateral balancing of trade-an important objective of foreign trade policy in the centrally planned East European countries. -Developing countries will have confident to export their products to other countries. at the same time. It is full of risks and uncertainties. creation of overcapacity etc. 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. It is time consuming to conclude the arrangements.
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. . 3. It came into force in January 1948. The rapid and uninterrupted growth in the volume of international trade till 1992 provides a good testimony for the success of the GATT. A Stable basis of trade: The binding of the tariff levels negotiated among the contracting countries provides a stable predictable basis for trade. Binding of tariffs means that these cannot be increased unilaterally. a return tariffs is discouraged by the requirement that any increase be compensated for. This technique is being increasingly applied for importing technology. The aim of this rule is to make the extent of protection clear and to Make competition possible. 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. Trade without discrimination: Trade must be conducted on the basis of nondiscrimination. Exception is.history in the use of buy-back arrangements. Although provision is made for the renegotiation of bound tariffs. Basic Principles of GATT: 1. however. Expectations to this basic rule are allowed only in the case of regional trading arrangements and the developing countries. Protection only through tariff: Protection should be given to domestic industries only through customs tariffs and not through other commercial measures. especially for export-oriented projects. 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. 119 governments which together account for 90 per cent of the world merchandise trade subscribe it to. 2. 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.
8. 7. 2. The eight round (Uruguary Round ) started in 1986 and was concluded in April 1994. Dillon Round) involved further revision of the GATT and the addition of more countries. The sixth round in 1964-67 (Geneva Kennedy Round) was hybrid of earlier product by product approach with across the board tariff reductions. 6. Consultation: A basic principle of GATT is that member-countries should consult one another on trade matters and problems. England) continued accession and tariff reduction negotiations. The agreement consists of four parts: Part I: Main obligations of the contracting parties. The seventh round in 1973-79 (Geneva. The fifth round in 1960-61 (Geneva. The third round in 1951 (Torquay.4. The first round in 1947 (Geneva) saw creation of the GATT. 3. and Part IV: Expansion of trade of developing countries through special concessions. Part III: Conditions for membership and withdrawal. The second round in 1949 (Annecy. 4. The fourth round in 1956 (Geneva) proceeded along the same track as earlier rounds. 5. the tariff rates for thousands of items entering into world trade were reduced or bound against increase. 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. negotiations. Tokya Round) centred on the negotiation of additional tariff cuts and developed a series of agreements governing the use of non-tariff measures. France) involved negotiation with nations that desired GATT membership. Trade Negotiations under GATT: Eight major trade negotiations took place under the GATT auspice as follows: 1. Part II: A code of fait trade practices to guide members in their commercial policies. 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 . As a result of these negotiations.
To administer the trade policy mechanism. Switzerland. 4. it completely replaces its predecessor and has a very different character. A search for a new institutional arrangement. led to the formation of united Nations Committee on Trade and Development in 1946. WEAKNESS OF GATT: The weakness of GATT is that its benefits have mainly gone to the industrialized countries. the success of GATT in promotion and securing liberalisation of much of world trade over 47 years was incontestable. To administer the understandings on Rules on Procedures governing the settlement of disputes. However.40 percent in the immediate second world was years. 3. given its provisional nature and the limited field of action. 1. T is not a simple extension of GATT. Its essential functions are as follows. Many more countries have requested to WTO. The WTO is based in Geneva. Most negotiations and tariff reductions have taken place in respect of manufactured goods. So the trade gap for the developing countries has become more unfavourable. To achieve greater coherence in global economic-policy making in cooperation with World Bank and IMF. WORLD TRADE ORGANISATION Established on January 1. the membership of the WTO stood at 139. 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. 2. especially one which one would tackle the problems of the global trade of developing countries. Under GATT. To provide a forum for negotiations among its members concerning their multilateral trade relations in matters dealt with in the agreements. 5. 76 Governments became members of the WTO on its first day. 1995 WTO is the embodiment of the Uruguary Round results and the successor to GATT. The present membership accounts for more than 90 per cent of world trade. Developing countries were disappointed with Kennedy round and the Tokyo Round. As on 6th November 2000. .
Trade disputes that cannot be solved through bilateral talks are adjudicated under the WTO dispute settlement 'court'. (iv)While GATT was multilateral instrument by the 1980s many new agreements had been added of plurilateral. make up the multilateral trading system . The agreements which constitute the WTO are almost all multilateral and thus involve commitments for the entire membership. They are: Trade without discrimination Predictable and growing access to markets. governments chose to treat it as a permanent commitment. HOW IS THE WTO DIFFERENT FROM THE GATT? (a) The GATT was a set of rules. (iii)The GATT rules applied to trade in merchandise goods. regularly examine the trade regimes of individual members. the WTO covers trade in services and trade related aspects of intellectual property. and therefore selective. together. In addition to goods. The WTO is also a management consultant for world trade. after more than 40 years. (v)The WTO dispute settlement system is faster. The WTO is a permanent institution with its own secretariat. . A number of simple and fundamental principles run throughout all of the instruments which. (vi)The WTO is more global in its membership than the GATT.6. trade related in investment measures and trade related intellectual property rights. To recognize that there is a need for positive efforts to ensure that the developing countries. nature. trade in services. the least developed countries secure a better share of the growth of the international trade. more automatic and thus much less susceptible to blockages than the old GATT system. The WTO commitments are full and permanent. a multilateral agreement with no institutional foundation with only a small associated secretariat. It economists keep a close watch on the pulse of the global economy and provide studies on the main trade issues of the day. WTO is a watchdog of international trade. The mandate of the WTO includes trade in goods. especially. (ii) The GATT was applied on a "Provisional basis" even if.
This does not. Production sector refers the industries that are engaged in production and supply of goods.- Promoting fair competition. CHARACTERISTICS: (a)Those that necessarily require the physical proximity of the provider and the user. Services make up a major share of the invisible account in the Balance of payments of a country. WORLD TRADE IN SERVICES The industrial sector can be classified as production sector and service sector. Service sector refers providing services and exchanging services to the public as well as society. Encouraging development and economic reform. however mean that all services require the physical proximity of the provider and user. The services where physical proximity is essential fall into three categories: . though such physical proximity may be useful. The value of the international trade in services comes to about one fourth of the value of the value of the trade in goods. That is services cannot be sepearated from their providers. whether they are persons or machines. The most important services in international trade include: Transport Travel Communication Media Business services Insurances Engineering and constructions services Banking Financial Services Characteristics and Categories of Services: An important characteristics of services that has far reaching implications for marketing of services is their inseparability. and (b) Those that do not. The growing importance of services is reflected in the international trade also.
For example a patient who wants an open-heart surgery will have to go to a hospital where the required facilities are available. television. For example dry-docking facilities for ships. Similarly a technician may have to go a plant abroad to rectify a problem with the plant. transportation. In this case the provider goes into the place of user and doing services. 1.Mobile user and immosbile provider characterizes the second category. investment regulations. user goes towards the provider. Protective measures include visa requirements. compulsion to use local facilities etc. INSTITUTIONAL INFRASTRUCTURE FOR EXPORT PROMOTION IN INDIA The Government of India has set up a number of institutions whose main functions are to help an exporter in its export efforts.e. 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.DEPARTMENT OF COMMERCE: . In this case either the provider going to the user or the user going to the provider may achieve proximity.-The mobile provider and immobile user categorize the first category. they are generally subject to various types of national restrictions. . For example the technical people of L & T Company in India goes to Srilanka and do the construction work. restrictions on the employment of foreigners. marketing regulations. OBSTACLES OR RESTRICTIONS IN SERVICE SECTOR: Due to the special characteristics and the socio economic and political implications of certain services. I. radio. film and other forms of communications and so on. It is therefore. -The third category consists of of mobile user and mobile provider. Heavily protected r restricted services in different countries include banking and insurance.
Finance. Presidents of FICCI. 3. International Trade Policy Division Foreign Trade Territorial Division Export Products Division Export industries Division Export Service Division Economic Division 2. Export Processing Zones d. Leading industries c. Additional secretaries and a number of other senior officers functioning as Divisional heads. This department is headed by a Secretary and he is assisted in the discharge of duties by a Special Secretary . Director General of commercial Intelligence and Statistics c.The Department of commerce in the Ministry of Commerce and Industry is the Primary Government agency responsible for evolving and directing foreign trade policy and programmes.ATTACHED AND SUBORDINATE OFFICES a. Chairman of ITPO/MD of ECGC Export Promotion Board: under the chairmanship of cabinet Secretary. Secretaries of Commerce and industry. ASSOCHAM and FASSI b. including commercial relations with other countries. Indian Government Commercial Representatives Abroad 3. It has its members as follows: a.ADVISORY BOARDS Board of Trade : The Board of Trade is the highest advisory body under the Department of commerce to deliberate on policy matters.AUTONOMUS BODIES: . Directorate General of Foreign Trade b. The department consisting of the following Divisions concerning with various subjects connected with exports and imports. External Affairs and Textiles d.
handicrafts. processing plants. coir. The department of commerce provides necessary financial assistance in relation to their export promotion work.sea fishing in all its aspects and conservation and management of off-shore and deep-sea fisheries. development. assist manufacturers and exporters to overcome the various constrains and extend to them the full range of services for the development of market overseas. tea. coffee. handlooms. cashew. cotton textiles. electronics and computer software. shellac. gem and jewellery. chemicals. 2. plastics. poweerloom. Registration of fishing vessels. rubber. leather. marketing etc.(I) Export Promotion Councils: There are 20 export promotion councils covering the following products: Apparels. Development of off-shore and deep. These councils advise the Government regarding current developments in the export sector and measures the necessary to facilitate future growth in exports. (III) Marine Products Export Development Authority: The main functions of the Authority are: 1. Sponsor trade delegations and guide newcomers in the export trade.. tobacco and spices. The councils also conduct market surveys. pharmaceuticals and cosmetics. carpet. assist in product development. . In respect of commodities concerned. sports goods and wool and woolens. they act themselves as if they were the Export Promotion Councils. 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. Some of these Boards have opened their branch in foreign countries in order to promote the consumption of the commodities under their jurisdiction. These councils are registered under the companies Act as non-profit making agencies. (II) Commodity Boards: There are 9 Statutory Boards for the following commodities: Handicrafts and Handloom. Silk. synthetic . construction. storage premises and exports with a view to promote a healthy development. The commodity boards del with the entire range of problems of production. silk. Power loom.
post shipment credit guarantee and export production finance guarantee. Organize training. the corporation provides different types of cover which may be divided into the following three broad groups: Standard polices . Arranging for training in different aspects connected with export with special reference to fishing. In addition to the normal risk policies. Establish linkages with trade promotion bodies. (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. the corporation assists the exporters through special schemes such as packing credit guarantee.3. periodicals and other literature having a bearing on trade and commerce. 4. chamber of commerce etc. Rendering financial assistance. Publish papers. This is registered under the Societies Act. processing and marketing. To suit varying needs of exporters. Laying down standards and specifications for marine products for the purpose of export. (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. regulatory bodies. seminars and conferences on matters related to trade and commerce. (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. 5.
As per this act The Government of India has established the Export Inspection Council. 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. ECGC bears the main risks and pays the exporter 90% of his loss on account of commercial risks and Political risks. It extends finance to exporters of capital and manufactured goods. 1982 for the purpose of financing. facilitating and promoting foreign trade of India. Bombay Office of the Jute Commissioner. (IX) Export-Import Bank: The EXIM Bank was established on January 1. In order to ensure the quality of the products exported. Kolkatta. . The EXIM bank concentrates mainly on medium and long term credit for export of goods and services on deferred payment terms. Kolkatta Indian Jute Mill Association. (X) Export Inspection Councils: Quality control and pre shipment inspection is one of the important factors in the export marketing. The bank is the principal financial institution in India for coordinating the work of institutions engaged in financing export and import trade. a legislation entitled "Export (Quality control and Inspection) Act" was enacted by the Indian Parliament in 1963.Financial guarantees Special policies Under its policies intended o protect the exporters against overseas credit risks. (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. exporters of soft wares and consultancy services and overseas joint ventures and construction projects abroad.
Finance for EOU and EPZ Units Software Training Institutes Export marketing finance Export-Product Development Finance: This Indian firms to undertake product development. Finance for consultancy and technology services. facilititating and promoting foreign trade of India. Pre-shipment credit: This enables Indian exporters to buy raw materials and other inputs for fulfilling export contracts involving cycle time exceeding six months. This enables Indian exporters of consultancy and technology services to extend term credit to overseas importers. Finance for deemed exports.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. Business Advisory and Technical assistance . 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. Guarantee Facility: To execute export contracts and import transactions. FUNCTIONS: Lending Programmes to Indian Exporters: Suppliers credit: This enables the exporters to extend credit to overseas importers of eligible Indian goods. Forfeiting: This Indian exporters to convert sale to cash on without recourse basis. The board of directors manages the EXIM BANK with representation from government financial institutions. banks and business community. R & D for exports.
At present more than 500 units are in operation under the EOU scheme. The bank introduced the "cluster of Excellence" programme for up gradation of quality standards and obtaining ISO certification. It also helps companies in preparing bids according to strict condition prescribed by the multilateral agencies. 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.. flexibility of operations and incentives. components and consumable at free of custom duties. raw material. These units have to operate under custom bond and achieve the level of value addition fixed by the Board of Approval. Leasing of capital goods from domestic companies by EPZ\EOU has been permitted. It provides information to potential exporters about projects abroad specially about multilaterally agencies. It also entertains proposals for various facilities under he European Community Investment Partners like feasibility studies for setting up export units. 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. 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.
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. Only project having an investment of Rs. Second hand capital goods may also be imported duty free without any age limit. Encouragement of agro and electronic units by providing higher domestic access. including capital goods required by it for its activities provided they are not prohibited items of imports.1 crore and above in building. Giving credit poses two problems to an exporter: He should have enough money to offer credit to his overseas buyers and . An EOU unit may import without payment of duty for all type of goods. EOU units may import/procure from Domestic Tariff Area without payment of duty. 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. plant and machinery shall be considered for establishment under EOU scheme. In the context of growing competition no exporter can manage without selling goods on credit. The entire production of EOU units shall be exported subject to the following: Rejects may be sold in the domestic tariff area on payment of duties on prior intimation to the customs authorities. Application for setting up of units under EOU scheme may be approved by the units Approvals Committee within 15 days. Scrap/waste arising out of production process or in connection therewith may be sold in the domestic tariff area on payment of duties within the overall ceiling of 50% FOB value of exports. EOU unit shall be positive net foreign exchange earner. 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.
covers the exports against these risks. c) Financial guarantees issued to banks against risks involved in providing credit to exporters.- He should be prepared to take the credit risks. a Government of India undertaking. In some special circumstances specified in the policy. 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. RISKS COVERED UNDER STANDARD POLICIES: Under its policies to protect the exporters against overseas credit risks. The overseas buyer may default. he may go bankrupt. 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. Exporting on credit is not without risk. which may wreck his fortunes. Joint ventures and overseas investment. Line of credit. b) Specific policies designed to protect Indian Firms against the risk of not receiving payments in respect of Export on deferred payment terms Services rendered to foreign parties and Construction work-undertaken abroad. and d) Special schemes viz: Transfer Guarantee. there may be earthquake or typhoon. when non-acceptance is not due to the exporter's actions. Commercial Risk: a. A. The ECGC. The buyer's protracted default to pay c. The ECGC also provides guarantees to the financing banks to enable them to provide adequate finance to the exporters. Political Risk: a. buyer's failure to accept the goods. Restriction on remittance in the buyer's country or any government action which may block or payment to the exporter. Insurance cover for buyer's credit. The insolvency of the buyer b. a war in his country. .
C. b. Cancellation of export license or imposition of new export licensing restrictions in India (under contracts policy) d. 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.Insolvency or default of any agent of the exporter or of the collecting banks: .SMALL EXPORTER'S POLICY . revolution or civil disturbances in the buyer's country c.b. War.Buyer's failure to obtain import or exchange authorization from the appropriate authority: d. New import licensing restrictions or cancellation of a valid import license in the buyer's country: e.Failure of the exporter to fulfill the term of contract or negligence on his part. not normally insured by commercial insurers. does not cover risks of loss due to: a. Any other cause of loss occurring outside India. Commercial disputes. RISKS NOT COVERED ECGC. Additional handling transport or insurance charges due to interruption or diversion of voyage which cannot be recovered from the buyer: and f. B. SPECIFIC POLICIES Contracts for export of capital goods or projects for construction works and for rendering services abroad are insured by ECGC on case to case basis under specific policies.e. And beyond the control of both the exporter and the buyer.g. however. 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.Flucturations in exchange rates (except under Exchange Fluctuation Risk over Schemes)and g. Causes inherent in the nature of goods: c. Loss or damage to goods which can be covered by general insurers: f.
FINANCIAL GUARANTEE TO BANKS Timely and adequate credit facilities. purchasing or packing of goods meant for export against a firm order or letter of credit qualifies for packing Credit Guarantee. in order to encourage small exporters to obtain and operate the policy. Export Performance Guarantee: 6. however. The Export Credit Guarantee Corporation. Export Finance Guarantee 5. To banks. D. 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.25 lakes. be able to obtain such facilities from their bankers for several reasons. Packing Credit Guarantee: 2. EXPORT PRODUCTION FINANCE GUARANTEE .The small exporter's policy is basically the Standard Policy. incorporating certain improvements in terms of cover. 1. Are essential for exporters to realize their full export potential. The premium payable for a small exporter's policy is less than the standard policy. at the pre-shipment as well as post-shipment stage. which undertake to obtain cover for packing credit advances. To meet the varying needs of exporters. Export Finance (Overseas lending ) Guarantee 1. (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. 2. It will be issued to exporters whose anticipated export turnover for the next 12months does not exceed Rs. granted to all its customers on an all India basis. The Corporation has evolved the following types of Guarantees. 3. PACKING CREDIT GUARANTEE Any loan given to an exporter for the manufacture processing. Export Production Finance Guarantee. Exporters my not. Post-shipment Export Credit Guarantee: 4.
100 per month and the cover is 75 percent. Banks having WTPCG are eligible for concessionary premium rate and higher percentage cover. the difference representing incentives receivable. The Premium rate for this Guarantee is 7paise per Rs. 6. Banks having WTPSG are eligible for concessional rate of premium and higher percentage of cover. Premium rate will be 0. If he wins the contract. that the exporter concerned should hold suitable policy of ECGC to cover the overseas Credit risks. EXPORT PERFORMANCE GUARANTEE Exporters are often called upon to execute bonds duly guaranteed by Indian banks at various stages of export business. The extent of cover and the premium rate are the same as packing Credit Guarantee.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. An exporter who desires to quote for a foreign tender may have to furnish a bank guarantee for the bid bond. EXPORT FINANCE GUARANTEE This guarantee covers post-shipment advance granted by banks to exporters against export incentives receivable in the form of duty drawback. etc. 100/-per month The percentage of loss covered under the individual post-shipment Guarantee is 75% 4. It is necessary however.09% per annum for . 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. negotiations or discount of export bills or advances against such bills qualifies for the Guarantee. it can protect itself from the risk of non-payment by the contractor by obtaining Export Finance Guarantee. 3. POST -SHIPMENT EXPORT CREDIT GUARANTEE Post-shipment finance given to exporters by banks through purchase. The Premium rate for this Guarantee is 7 paise per Rs. EXPORT FINANCE (OVERSEAS LENDING) GUARANTEE If a bank financing an overseas project provides a foreign currency loan to the contractor. 5.
. When rupee appreciates the balance of benefits will the just the reverse.08% per annum for 90% cover. Most developing countries have resorted to a number of export promotion measures. 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. export incentive system in India has been made very simple. commission. Claims under the guarantee will also be in Indian rupees. From 1922. However.75% cover and 1. . -Exemption from taxation 50 per cent of royalty. 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. 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. -Concessional rate of customs duty on imports of selected items of machinery for export production under EPCG scheme. 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. fees or any similar payment obtained from the exports of technical know-how and technical services. (ii) Fiscal concession: The different types of fiscal concessions are as follows: In the computation of total income Sec. the budget for the year 20002001 has reduced this exemption by 20% every year to be phased out in five years. Premium is payable in Indian Rupees.A 10 year tax holiday for 100 per cent export oriented units and for units located in Free trade zone/Export processing zones.80. . Under the Libralised Exchange Rate Management System (LERMS) exporters will get benefit when rupee depreciates while importers will lose. There are essentially three major incentives. India has also been providing export assistance for the past about forty years.Exemption from taxation of the profits from over seas projects to the extent of 50 percent.
special import license. (e)Deemed exports. b. (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. It will take some more time . An exporter needs finance for processing or manufacturing or assembling or procuring or packing the goods for export. Export finance starts as soon as the exporter gets an order to export. (d)Insurance of credit risk: The ECGC is willing to cover 90% of the political and commercial risks of export operations. etc EXPORT FINANCE Businessmen. c. refund of terminal excise duty. Preshipment finance is provided to the exporter to meet such requirements. deemed export drawback. The commercial banks which give credit to exporters can also get guarantee from ECGC. which have gone into the production of exported products. In export business also finance plays an important role. (a)Duty Drawback: This is a refund of import duty or excise duty paid on the raw materials and components. 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. e.(iii)Facilities available under the Export-Import Policy for Export: a. After the shipment is made exporter will have to give credit the exporter has to wait till the documents reach the importer and he makes the payment. the Central Government is offering the following facility to exporters. industrialists and others require finance for their day-to-day activities. d. EPCG Scheme Duty Exemption Scheme Export Houses/Trading Houses Export processing Zones 100 % Export oriented units (iv)Other facilities available to exporters: In addition to the above mentioned incentives.
normally finance the post-shipment credit in one the following ways: (i) Negotiating export bills under letter of credit The banks .before the advice of payment is finally. 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. Post shipment credits are given by commercial banks Against the security of approved shipping documents tendered against-letters of credit or otherwise. 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. The banks on the basis of the following give the packing credit. if any. 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. or Personal bond in the case of party's already known to the exporter. COSTS COVERED BY PRE-SHIPMENT FINANCE Pre-shipment finance would normally cover the following costs. 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. communicated to the exporter.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. It is also provided at concessional rate of Interest. 2. 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. 1.
FORFAITING Forfaiting enable an exporter to convert an overseas credit sale into a cash sale through the process of discounting of export receivables. Banks usually charge a commission according to the rates prescribed by the Foreign Exchange Dealer's Association of India. These loans are also provided by commercial banks in collaboration with EXIM Bank of India. They are as . Medium term loans are provided for in the case of durable consumer goods and light capital goods. The period of credit is usually more than 5 years. 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.(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. (iii) Long term: Long term loans are provided in the case of sale of capital goods complete plants and turnkey jobs. 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. Banks enjoy certain benefits for advancing loans to exporters. (i) (ii) Refinance by EXIM Bank of India. (ii) Medium term: Medium term loans are offered for a period beyond 6 months and up to 5 years. The bill of exchange accepted by the importer is surrendered to the forfeiting agency which pays him in cash after deducting a fee. 3. and (iii) An advance against bills under collection. The understanding is that the agency will collect the dues from the importer on expiry of the said period. follows.
India has seven EPZ at different parts of our country. Entitlement for EPZ Units: Each of the zones provides basic infrastructure such as developed land for construction of factory sheds. 4. The objectives of these units are: 1. in the international market. both quality wise and price wise. To earn foreign exchange 2. engineering items. power. EPZ operating units broadly under the product groups of electronics. To generate employment opportunities 3.4. water supply and drainage. Extension of long term export credit has become an accepted export market strategy and therefore. This enables the products of EPZ to be competitive. . are set up with the intension of providing an internationally competitive duty free environment for export production. at low cost. Provision is made for locating banking\post office facilities and offices of clearing agents in the service centers located in each of the zones. plastics and rubber products. garments. Foreign equity up to 100% is permissible in the case of EPZ units Procurement of raw materials. In addition customs clearance is arranged within the zone at no extra charge. FREE TRADE ZONE (EXPORT PROCESSING ZONES) These are also referred to as Export Processing Zones. components and consumables and export of finished products shall be exempt from central levies. roads. To contribute to the overall development of the economy. chemicals and allied products.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. 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. standard design factory buildings. gems and jewellery. provision has been made for the extension of medium and long term credit to finance the sale of Indian capital goods and related services. To facilitate transfer of technology by foreign investment and other means. textiles.
Inspection Agency 12. The negotiating bank 4. INTERNATIONAL TRADE – UNIT FOUR PROCEDURE FOR EXECUTING AN EXPORT ORDER The following the parties and agencies involved in executing an export order: 1. Clearing Agents Procedure for executing an export order: The exporter has to process the export order in the following manner: 1. ECGC 8. The order should specify the mode of payment such as letter of credit. and the terms of conditions as specified in the letter of credit. Directorate General of Foreign Trade 9. Insurance company 6. Bill of Exchange (if D/A or D/P bill) Commercial invoice Bill of lading . Exporter 2. Port Trust 11. Reserve Bank of India 7. Shipping company 5. Customs House 10. 3. Importer. The following documents have to be prepared.The exporter should scrutinize the export order with reference to the terms and conditions of the contract.Exemption from industrial licensing for manufacture of items reserved for SSI sector. document against acceptance or document against payment.
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. 4. 6. After the shipping ill has been passed by the customs. in the case of shed cargo. Marine insurance Packing list Certificate of orgin Export inspection certificate 2. Where the the . Goods should be dispatched to the port of shipment. AR-4 form has to be prepared. 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. the clearing and forwarding agents presents the Port Trust copy of the shipping bill to the respective authorities. Thereafter. 3.Thereafter the works manager sends a dispatch advice to the export department. They will obtain the marine insurance cover for the goods. The clearing and forwarding agent takes delivery of the consignment and arranges its storage in the warehouse. the Dock challan is prepared.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. Export inspection agency should be approached.
As soon as the exporter receives the above documents from the clearing and forwarding agent.The passed Shipping Bill including dock challan will be submitted to the Port Commissioners. the clearing agent collect the mate receipt from the Port Trust Authorities. 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. 7. In response to that the Ship's Export Clerk calls for cargo from shed or boat and after loading prepares the Mate Receipt. After paying all the port dues. date of shipment. copies of customs invoice.Finally the exporter will get the value of the value of export consignment against the above-mentioned documents. export promotion copy of the bill. Customs invoice. no dock challan is prepared. The duplicate copy of the bank certificate is forwarded to the office of the DGFT in the area. A mate receipt is a receipt issued by the commanding office of the ship when the cargo is loaded on the ship and contains information about the name of the vessel. 8. The mate receipt is first handed over to the Port Trust authorities so that the exporter may pay all the port dues. The clearing and forwarding agent forwards the following documents to the exporter: Full set of bill of lading. 9.The original copy of the bank certificate along with attested copies of the commercial invoice are returned to the exporter. Certificate of origin. 12. berth. marks and numbers. he completes the remaining formalities. He will present the following documents to the negotiating bank. 13. 10. the dock charges are indicated in the shipping bill itself and therefore. GR Form. EXPORT PROCEDURE FOR SENDING GOODS An outline of the important steps in exporting the goods is as follows: IEC NUMBER: . description of packages. condition of the cargo at the time of receipt on board the ship etc.ship loads overside. Packing list. original export order. Marine insurance policy and Bank certificate 11.
Every person importing or exporting goods require and Importer-Exporter Code number. including obtaining the certificate of orgin. Exporters are advised to become members of local chamber of commerce. An offer is a proposal in which an exporter submits. the exporter would have to make an offer to the foreign customer. the buyer may place an order with the exporter. becomes an order. Serious and sincere care should. As a starting point of the negotiations. weights or other distinguishing features. time and method of delivery etc. Membership of such bodies will help the exporters in different ways. The exporter should bear in mind that the foreign buyer have a large number of prospective suppliers in a number of countries and thus he is in a very competitive situation. commodity boards and export development authorities for various products. therefore. It may contain full details of the goods required. 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. be exercised in dealings with foreign country customers. may be in the form of a letter. As soon as the exporter receives a business inquiry from party abroad. There are specified Export Promotion Councils . MEMBERSHIP CUM REGISTRATION: Membership of certain bodies will help the exporters in a number of ways. This code number is required to be incorporated in the various export documents submitted to the authorities for purposes of export. CONFIRMATION OF ORDER: Once the negotiations are completed and the terms and conditions are acceptable to the buyer and seller. which is necessary document required for export to certain countries. productivity council or any other trade promotion organization recognized by the Ministry of Commerce. The regional licensing authorities normally allot the IEC number. his quotation and other relevant information. it should be promptly attended to. The offer. sizes. catalogue numbers or grades. The exporter . Members of EPC will receive different kind of assistance and services in respect of the export business. their description.
Needless to say. If there are no such instructions. they are marked and marked properly. EXPORT LICENSE: These exports of some items are banned and of some items controlled by means of licenses. it is necessary to obtain it before finalizing the contract. the exporter should make sure that the item sought to be exported is not one. On the exporter's application or on the application of the freight broker on the exporter's behalf. For the confirmation of the order. The confirmation of the order usually takes the form of a contract. SHIPPING SPACE: As soon as the export order is confirmed. they should be followed accordingly. which falls in the banned list. If the item to be exported requires a license. If the buyer has given instructions about packing and marking. though many items are permitted to be exported freely. the proforma invoice is generally sent in triplicate to the buyer. it should be ensured that the packing and marking are of the standards recommended or specified. FINANCE: If the exporter requires pre-shipment financial assistance. PACKING AND MARKING: Once the goods re ready. and the buyer is asked to return two copies signed by him.should immediately confirm the order by sending this acceptance. he should take the necessary steps to obtain it. The exporter should again send once copy to the importer with the exporter's signature to confirm the acceptance of the order. PRODUCTION/PROCRUMENT OF GOODS: Once the order is confirmed. QUALITY CONTROL AND PRE-SHIPMENT INSPECTION: . 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 shipping company issues sits acceptance if the space applied for is given. he should contract with his suppliers and ensure timely availability of the goods of the buyer's specifications. the exporter should take necessary steps to ensure the timely availability of the goods of the specifications required and execute the export order promptly. If the exporter is not a manufacturer.
They are as follows: Export Inspection Agency AGMARK Authorities Textile committee . the government has granted excise duty exemption for the export products. the exporter (or the clearing and forwarding agent on behalf of the exporter) should present the following documents to the customs authorities. For this purpose.Thereafter get the goods inspected by the inspecting authorities under compulsory quality control and pre-shipment inspection. Any other authorities authorized for this purpose. EXCISE CLEARANCE: the As a matter of policy.for textile goods. the duty is first paid and its refund is claimed. In the case of export under claim for refund of excise duty. CUSTOMS FORMALITIES: Goods may be shipped out of India only after the customs clearance has been obtained. Excisable goods may be exported either under claim for rebate of excise duty or in bond. Shipping Bill Declaration regarding truth of statement made in the shipping bill Invoice GR form Export license (if required) Quality control Original contract Letter of credit (if applicable) Certificate from quality control authorities Marine insurance policy Certificate of orgin Mate receipt or bill of lading Packing list AR-4 Form . Some times with specification the goods are allowed to export without payment of duty on execution of a bond with sufficient surety and security in the prescribed bond.
are sent by air freight. who is the port official. They are as follows: A uniform system of documentation for air cargo. prima-facie. and if. they pass it for export. NEGOTIATION OF DOCUMENTS: After shipping the goods. satisfied. 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. ADVANTAGES: A clearing house. subject to a physical examination by the staff of the customs.. gems and jewellery. finished leather and leather products. A standard system of rate making and inter airline agreements on rates. EXPORT BY AIR AND SEA EXPORTS BY AIR In international trade the use of air-freight is increasing day by day.- Any other documents The customs authorities scrutinize the shipping bill and other requisite documents. So that the importer get ready for his actions. International Air Transport Association was set up in 1945. the exporter will inform the importer about the dispatch of goods and departure of the ship. if any from Government. IATA has made rapid expansion because of three developments for which it has been responsible. Nowa-days all types of products like food. electronic products etc. The shipping bill passed by the exporter department has to presented to the cargo supervisor or the steamship company or the shed manager. readymade garments. 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. the exporter should arrange to obtain payment for the exports by negotiation with the relevant documents through the bank. for permission to bring in the cargo for export. .
quantity. packing . at least for certain categories of merchandise. A satisfying customer. Related surface transport costs are reduced. Low inventory carrying costs Decreased capital costs of goods in transit Less packing lowers cost and reduces chargeable weight. Good service to customers without having any warehouse. Thus the advantage of exports by air may be summarized as follows: 1. Savings in cost 3. Speed of delivery 2. The reasons are as follows. Breakage is neglible. Insurance premium is reduced. Deterioration is avoided. 5. such as the price per unit at a particular location. Greater security and protection during transit. 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. are minimized. The loss due to rough handling and pilferage is reduced to the minimum. total value. there are ten reasons which can make total distribution costs cheaper through the use of air transport. Costs related to administration. Obsolence is eliminated.Basically. ordering etc. 4.
A certificate of orgin from may be obtained from chambers of commerce. CERTIFICATE OF ORGIN: A certificate of orgin. the name and address of the exporter. shipment per bi. identification marks of the package . grade. the name and address of the importer. sources etc. terms of sale. A packing note should include the packing note number. date. 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. The main purpose of a consular invoice is to enable the authorities of the importing country to collect accurate information about the volume. This certificate has also to be produced before clearance of goods and assessment of duty. 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. the order number. while the packing list is a consolidated statement of the contents of a number of cases or packs. A certificate of orgin may be required when goods of a particular type from certain countries are banned. destination. marking numbers. name of the ship etc. quality. . of its imports for purpose of assessing importing duties and also for statistical purposes. bill of lading number and date.specifications. and the contents of the goods is in terms of quantity and weight. case number to which the note relates. Some importing countries insist that the importing country's consul located in the exporter's country should sign the invoice. Apart from the details in the packing note. the date of packing. which specifies the country of the production of the goods. is a certificate. name and address of the importer. value. as the name indicates. bill of lading number. a packing list should also include item wise details. Such invoices are known as consular invoice. for the customs law of the country may require this procedure. and various trade associations that have been authorized by the government.
whether Indian or foreign merchandise to be re-exported. SHIPPING BILL The shipping bill is the main document on the basis of which the customs' permission for export is given.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. flag. The shipping bill contains particulars of the goods exported. real value as defined in the sea customs act. and when the vehicle is brought at the port gate. total number of packages. After paying all the port dues. quantity details about each case. berth. The bill of lading prepared by the shipping agent after the mate receipt has been obtained. date of shipment. The mate receipt is first handed over to the Port Trust authorities so that all the port dues may be paid by the exporter. marks and numbers. CERTIFICATE OF MEASUREMENT . the shipping bill number. such as number and description. the name of the vessel. It also contains details of the packages and the goods. CART TICKET A cart ticket also known as a cart chit. allows it to pass the gate. condition of the cargo at that time of receipt on board the ship. description of packages. vehicle and gate pass. the country of final destination.. the port of destination and the number of the vehicle carrying the cargo. master or agents. The inspector. marks and numbers. etc. The driver of the vehicle carrying cargo should posses the ticket. etc. is prepared by the exporter and includes details of the export in terms of the shipper's name. after satisfying himself that the vehicle is carrying the cargo as mentioned in the document. it should be presented to the gate warden/inspector along with other shipping and port documents. the merchant or the gent may collect the mate receipt from the Port Trust authorities. and contains information about the vessel. the exporter's name and address. the port at which goods are to be discharges. the number of packages. their total weight and value etc.
Each shipping company has its own Bill of lading. also called an air consignment note. the marks and numbers. and. quality and destination of the goods. the name and destination of the vessel. if a Bill of lading is qualified with certain adverse remarks such as 'goods insufficiency packed in accordance with carriage of goods by Sea Act". the number of packages. As each shipping company has its own bill of lading. 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. the amount of freight etc. 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. "one box damaged" etc. the gross eight and net weight. is freely transferable by endorsement and delivery. 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'. is a receipt issued by an airline for the carriage of goods. AIRWAY BILL An airway bill. . each has its own airway bill. as such. The information contained in the Bill of lading includes the date and place of shipment. A Bill of lading acknowledging receipt of the goods apparently in good order and condition and without any qualification is termed as a clean bill of lading. the weight declared by the shipper may be accepted. and (iii) as a contract for the transportation of goods.Freight is charged either on the basis of weight or measurement.. However. it is termed as a claused bill of lading. When it is charged on the basis of weight. The exporter prepares the Bill of lading in the forms obtained from the shipping company or from the agents of the shipping company. the description. the name of the consignor. the invoice number and the date of export. It is also an document of title to the goods.
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. EEC. In-Process Quality Control . jute and jute products. chemicals and allied products. About 1000items under produce group heads of engineering.QUALITY CONTROL AND PRESHIPMENT INSPECTION The Export Inspection council of India was set up by the Government f India in 1963 to provide for sound development of export trade through quality control and preshipment inspection. The Export Inspection Council (EIC) consists of a Chairman appointed by the Central Government. MACHINERY FOR QUALITY CONTROL AND INSPECTION: (i) EXPORT INSPECTION AGENCIES: For carrying out pre-shipment inspection of export of goods. cochin. footwear and footwear components. and To arrange pre-shipment inspection of notified commodities for export. (ii) OTHER AGENCIES: Government has also recognized 21 private inspection agencies and 7 government inspection agencies to supplement the work of quality certification. Consignment-Wise Inspection 2. USA and East European countries. Delhi and Mumbai under the technical and administrative control of the EIC.. cashew. food and agricultural products. chennai. are under the compulsory quality control inspection system. 4 ex-officio members and 15 members nominated by the central government. They are: 1. the Government of India has established five export inspection agencies one each at Calcutta. fish and fishery products etc. 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. SYSTEM OF INSPECTION Three Systems of inspection are in operation at present.
provided that the beneficiary fulfils the stipulated conditions BILL OF EXCHANGE The Negotiable Instruments Act. directing a certain person to pay a certain sum of money only to. Self-certification CONSIGNMENT-WISE INSPECTION: Under consignment-wise inspection. These units are under the supervision by the Export Inspection Agencies through random spot checks. The certifications of inspection in favour of units approved under the scheme are issued by the Export Inspecting Agencies. IN-PROCESS QUALITY CONTROL: This system lays emphasis on the responsibility of the manufacturers and processors in ensuring consistent quality during each stage of production by exercising checks on materials. a certain person or the bearer of the instrument. There are five important parties to a bill of exchange: The Drawer The Drawee The Payee . 1881. 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. components through inspecting process centers. defines the bill of exchange as " an instrument in writing containing an unconditional order. 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. or t the order of.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. under certain conditions and up to certain amounts .
This is a sort of blanket document which shipping documents. LETTER OF HYPOTHECATION A letter of hypothecation is a document signed by the customer conveying to a banker the full ownership of goods at the port of destination in respect of which he has made advances either by loan or by acceptance or negotiation of bills of exchange. the merchandise may be made available to the importer by his bank under an arrangement whereby the importer signs a trust receipt. but the retains ownership of the merchandise until the importer has made full settlement. Insurance of ships is called " Hull Insurance" while cover provided in respect of goods sis termed as cargo insurance. air or land is called Marine Insurance. 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.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. 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. Utmost Good Faith: It is the duty of the proposer to disclose clearly and accurately all material facts related to the risk. . all sums received from the sale of goods must be credited to the bank until such settlement is made. demands from a customer to give him recourse son the bills and control of the documents. Under this arrangement. the importer is allowed to sell the imported goods by acting as an agent of the bank. damage or detention or incur in respect thereof.
if the damage is caused by perils specified in the contract known of policy of the insurance.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. without the intervention of any force started and working actively from a new and independent source. Jettison: Jettison is the throwing of articles over board. lightning. Proximate Cause: Proximate cause means the active efficient cause that sets in motion a train of events. which brings about a result. One is open policy and another one is specific policy. Fire: Fire includes both direct fire damage and also consequential damage as by smoke or stream. Assailing thieves: This refers to a forcible taking rather than clandestine theft or mere pilferage. . usually to lighten the ship in times of emergency. and loss resulting from efforts to extinguish a fire. intentional casting a way of vessel or any breach of trust with dishonest intent. 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. RISKS COVERED: Perils of the Sea: It includes out-of-the ordinary wind and wave action. How to Insure: Under marine insurance the policy will be taken by two ways. wrongful conversion. Whereas in specific policy the insurance will be made by shipment wise. In open policy the insurance will be made for all the shipments made in a period. 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. collision and damage by sea water when caused by perils such as opening of the seams of the vessel by collision. Barratry: Barratry is the willful misconduct of master or crew and would include theft. 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.
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
but retains the title to the goods as also the risk attendant thereto. even though the overseas consignee will have the physical possession of the goods. provided that the beneficiary fulfils the stipulated conditions (Detailed explanation for letter of credit was given separately). The commercial banks that deal in foreign exchange provide a via media by giving the necessary assurances to both the parties. the correspondent bank will submit the bill of exchange to be signed by the importer t indicate his acceptance of the payment obligation. Under this method of payment the exporter agrees to submit documents to his bank along with the bill of exchange. The payment for the goods shipped is made only when the agent ultimately sells the goods to other parties. he may return the goods at any time without any liability and at the seller's expense. 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. The documents include bill of lading. 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. On the due date of payment. If the agent fails to sell the goods.for and importer's unwillingness to part with his money unless he is sure of receiving the goods. The money received is remitted through usual banking channels to be credited to the exporter's account. the exporter's bank will send the documents to its correspondent bank in the importer's country. involve and a marine insurance policy. . SHIPMENT ON CONSIGNMENT BASIS In this case. Under this method there are two types of payments viz: Documents against payment (D/P) and documents against Acceptance (D/A). which will present the documents to the importer and ask him to pay the money for the goods exported. After the importer accepts the bill he will get possession of the documents for taking delivery of the goods. under certain conditions and up to certain amounts. the exporter makes shipment to the overseas consignee/agent. the bank will again present the bill to the importer who then makes the payment. Under D/P bills. In case of D/A bills.
the buyer is assured that the shipment will be made by the date specified in the letter of credit. If the letter of credit is confirmed. it may enable him to obtain more liberal discounts and a lower price from the seller. The Issuer: The issuer. the confirming bank or the notifying bank. provided that the beneficiary fulfils the stipulated conditions. at the request of the issuing bank. The confirming bank undertakes all the obligations of the issuing bank as a primary party to the credit. The paying bank may be the issuing bank. The Beneficiary: The beneficiary is the party in whose favour the credit is issued. The letter of credit is opened at the initiative and request of the buyer. is the bank in the importer's country issuing the letter of credit at the request of the importer. PARTIES TO THE LETTER OF CREDIT: 1. which guarantees the credit at the request of the issuing bank. The confirming Bank: The confirming bank is a bank in the exporter's country. the confirming the bank advises the beneficiary accordingly. 6. 4. also called the opening or issuing bank. 3. The letter of credit offers advantages to both the seller and buyer. that he follows the instructions. 2. the confirming bank is obliged to honour its commitment. and even if the issuing bank fails during the currency of the credit. which. a letter of credit ensures him payment for the goods he sells. that is the beneficiary is the seller or exporter. . or else the credit will expire. Though the buyer has to have the botheration of arranging for the letter of credit. The Notifying Bank: The notifying bank is the bank. under certain conditions and up to certain amounts. provided. of course. The Opener: The opener is the buyer(importer). 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. 5. Further. 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. notifies the beneficiary that the credit has been opened in his favour.
under the cash credit. the beneficiary may go the any bank and present the draft and related documents under the credit. Non-Assignable Credit: As opposed to the assignable credit. therefore. the exporter may draw a sight draft on the bank. After the bank has accepted it. Clean Letter of Credit: This kind of letter of credit may be negotiated against a clean draft. 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. to other banks or to exchange dealers. it becomes the negotiating bank. . the draft becomes a bank acceptance. which cannot be revoked. and if the bank agrees to negotiate the documents. KINDS OF LETTER OF CREDIT 1. and without notice to. the beneficiary may assign his rights to another beneficiary.7. 7. Under this kind of L/C. Irrevocable Credit: An irrevocable L/C is one. 2. the beneficiary. Cash credit. Assignable Credit. Documentary Letter of Credit: Under this. The great advantage of this type of credit. which may be readily discounted or sold by the exporter to the accepting bank. 3. If no paying bank is specified in the credit. which pays or accepts the drafts of the exporter. Acceptance Credit: Under this arrangement. the draft must be accompanied by the documents specified in the letter of credit. the bank merely 'accepts' the drafts drawn by the exporter. 8. the named beneficiary of a non-assignable L/C cannot transfer his rights to another party. As the revocable L/C does not adequately protect the beneficiary on the basis of this type of L/C are not common. 5. amended or modified by the issuing bank without the express consent of all the parties concerned. Revocable credit: The revocable letter of credit may be revoked or cancelled at any time without the consent of. 6. 4. The Negotiating Bank: The negotiating bank is the bank. either within a stated period or before the expiry date of the credit. A clean draft is a draft without any documents attached to it.
The total value of the contract is Rs. 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. opened by a bank on behalf of the beneficiary of an original credit.. 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. It has been decided that the terms of payment will be a confirmed irrevocable letter of credit. On receipt of this advice from the local correspondent bank in India. Chennai has secured a contract for the supply of 200 ceiling fans to a Nigerian importer. in favour of a domestic supplier.9. Under the revolving credit. In this case. the issuing bank and the advising bank incase of unconfirmed credit or the confirming bank in case of confirmed credit. 10. He presents these to the correspondent bank. 12. The step-by-step procedure involved can be discussed by taking an example. The conditions on which such advances may be made are incorporated in the L/C. viz. 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. it becomes a confirmed credit. 00. 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.000. the Rainbow limited. normally four parties are involved. Confirmed Credit: If a bank in the beneficiary country confirms the L/C.2. makes the shipment of he cling fns and gets the shipping documents and other related documents. M/S Rainbow limited. The red clause is an authority to the negotiating bank to make advances to the beneficiary for the purpose of purchasing the relevant merchandise. 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. Back-to-Back Credit: A back-to back credit is essentially a secondary credit. which scrutinizes the . the applicant for the credit (importer). Red Clause Credit: The red clause L/C enables the beneficiary to draw a predetermined value of the L/C as its established. STEPS IN THE OPERATION OF LETTER OF CREDIT: In Letter of credit. the beneficiary of the credit (exporter).
on the banker's credit issuing the letter of credit. viz. The documents are then forwarded to the issuing bank. who do not know him and may rely upon his standing. 2. The steps involved. 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. The issuing bank in turn presents the documents to the importer and debits his account for the corresponding amount. therefore. Purchase without cash: The importer can purchase goods on credit from foreign merchants. If these are in full conformity with the terms of the credit. opening of credit.. SALES CONTRACT BUYER CONFIRMATI SELLER ISSUING OPENING ADVICE ISSUING BANK DOCUMENTS CONFIRMING BANK The straight lines show the flow of the credit. . which reimburses the amount to the correspondent bank. relate to three distinct activities. ADVANTAGES OF LETTER OF CREDIT: 1. The entire scheme of operation can be easily visualized with reference to the Flow chart given below.documents. The dashed lines shows the flow of the documents and the dotted lines show the process of payment. presentation of documents and the process of payment. it will accept the documents and make the payment to the exporter.
which is otherwise not possible. 6. 7. .3. who is able to secure terms of trade from the foreign supplier. Discount facilities: The bills of exchange drawn under the letter of credit are readily discounted with the advising/confirming banker or any other banker. In order to increase the production. 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. the Tea Board runs various development schemes. development and export of some commodities like tea. coffee. New tea unit finance scheme.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. and the goods released. The functions of these boards includes It looks after the production and marketing of tea in India. tobacco spices etc. tea bags and instant tea. Some of them are 1. COMMODITY BOARDS The government of India has established a number of commodity boards to be responsible for the production. Certainty of Payment: Though the importer and the exporter are not known each other. shipping documents are surrendered to him in return for his trust receipt. Better terms of trade: The issuing banker lends the advantage of his own credit to the importer.Special area development scheme etc. Small growers development scheme. 4.Tea plantation finance scheme. Provide financial assistance and grants for tea research institutes Promote research activities on the allied subjects like packaging of tea. Release against trust receipt: When banks are willing to assume credit risk of the importer. because of the firm undertaking given by the opening banker. rubber. These boards are statutory bodies. 5. the letter of credit provides an absolute assurance that the bills of exchange drawn under the letter of credit will be honoured. TEA BOARD: The Tea Boards head office is in Calcutta.
SPICES BOARD: ..- For promotion of tea as beverage the tea board also participates in the generic promotion programme conducted by tea council at U. contact programme was launched in 4 regions covering a total number of 1018 growers. Improving yield and quality of tobacco through control of diseases in tobacco nurseries.K. training programme was conducted. Keeping view the production of quality coffee at estate level. which have potential markets for Indian coffee. 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. balanced fertilization. Improvement of curing and storing facilities by conservation of energy by roof insulation of tobacco barns. Sponsoring delegations abroad and participation in international trade fairs. 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. US. pest and disease control. supply of tarpaulins and supply of coal for curing. Studies on diseases of coffee and their control were carried out. For improving the productivity and quality of coffee. Germany. and Canada and is also member of the International Tea committee. Allowing exports of tobacco to Russia through debt repayment route. Special advertisements on the excellence of the Indian coffee were released in important coffee trade journals and magazines in countries. Improving tobacco grading through establishment of community grading centers.
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. projects and services. Logo Promotion. The spices board has a scheme to promote a "logo mark" as a mark of quality and Indian ness of spices. Replantation of old and diseased plants. They issue Registration cum membership certificate to exporters. quality is a key element. 2. Certificates have been awarded to many manufacturers/processors of spices. 3. Spice House Certificate: The Board has introduced a concept of 'Spice House' and it is awarded only to those exporters who fulfill the prescribed quality standards and have necessary processing infrastructure for production of clean quality process. Logo Promotion: In the exports of spices. They are explained below: Brand Promotion: Under this scheme.The Spices Board has number of schemes of assistance to spice exporters such as Brand promotion. Each council is responsible for the promotion of a particular group of products. 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. Apart from those schemes. 1. grant of Spice House certificate etc. Organizing training programmes for growers for quality improvement and post-harvest techniques. Logo is registered in six countries and would be registered in another 14 countries. The logo mark is awarded to exporters of spices in consumer packs who fulfill certain stipulated conditions of hygiene/processing/packaging and product quality. Providing assistance to marginal growers in non-traditional areas. . There are 20 EPCs and a number of specified agencies/boards which shall be regarded as EPCs under the Export and Import Policy.
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. product development. The Export promotion councils are non-profit organizations registered under the Companies Act or the Societies Registration Act. components and consumable at free of custom duties. To promote interaction between the exporting community and the Government both at the Central and State levels. At present more than 500 units are in operation under the EOU scheme. To organize participation in trade fairs. Some of the modifications done to facilitate the exporting units in the EOUs are as follows: Simplification of customs/excise procedures Automatic approval under certain conditions to proposal for setting up units. raw material. To organize visits of delegations of its members abroad to explore overseas market opportunities. quality and design improvement. as the case may be. 100% EXPORT-ORIENTED UNITS The scheme of 100 EOU's were introduced in 1980 with a view to generating additional production capacity for exports by providing an appropriate policy frame work. To offer professional advice to their members in areas such as technology up gradation. standards and specifications. exports and imports of their members. To build a statistical base and provide data on the exports and imports of the country. as well as other relevant international trade data. exhibition and buyer seller meets in India and abroad..The main role of EPC is to project India's image abroad as a reliable supplier of high quality goods and services. innovation etc. . flexibility of operations and incentives. In order to enable them to operate successfully in the international market such units are allowed to import machinery. These units have to operate under custom bond and achieve the level of value addition fixed by the Board of Approval.
1 crore and above in building. EOU unit shall be positive net foreign exchange earner. An EOU unit may import without payment of duty for all type of goods. plant and machinery shall be considered for establishment under EOU scheme. EOU units may import/procure from Domestic Tariff Area without payment of duty. 1992 the Central Government has notified the Export and Import Policy for the period 2002-2007 which . Only project having an investment of Rs. Second hand capital goods may also be imported duty free without any age limit. including capital goods required by it for its activities provided they are not prohibited items of imports. Encouragement of agro and electronic units by providing higher domestic access. Leasing of capital goods from domestic companies by EPZ\EOU has been permitted. Application for setting up of units under EOU scheme may be approved by the units Approvals Committee within 15 days. 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. OVERVIEW OF EXPORT AND IMPORT POLICY OF INDIA I POLICY AND ITS OBJECTIVES: Under the Foreign Trade (Development and Regulation) Act. 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. 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. 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 following are the salient features of the policy as amended up to 31 st March 2003. intermediates. II GENERAL PROVISIONS REGARDING IMPORTS AND EXPORTS a) Exports and Imports shall be free except in cases where they are regulated by provisions of this policy or any other law. b) Any person without an importer-exporter code number shall make no export or import unless specifically exempted.came into force with effect from 1 st April 2002 and shall remain in force up to 31st March 2007. and to encourage the attainment of internationally accepted standards of quality. This number shall be issued by DGFT. To enhance the technological strength and efficiency of Indian agriculture. e) Export of samples and Free of charge goods shall be governed by the provisions given in the Hand Book. 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. The item wise export and import policy shall be. components. . d) Import of gifts shall be permitted where such goods are otherwise freely importable under this policy. To stimulate sustained economic growth of providing access to essential raw materials. industry and services. published and notified by DGFT. 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. thereby improving their competitive strength while generating new employment opportunities. c) The provisions given in Handbook shall govern import of samples. as specified in ITC. consumables and capital goods required for augmenting production and providing services. 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.
actual user.g) Goods including edible items of value not exceeding Rs. industry and trade associations etc. i) A license shall contain such terms and conditions as may be specified by the licensing authority may include the quantity. on the basis of the competitive merits of proposal received in this regard for marketing studies on country product focus approach basis. should be granted recognition with a view to maximize their export profile. 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.1. seminars. 3.Market Access Initiative: Financial assistance shall be available under this scheme to the Economic Processing Zones.000/. description and value of goods. participation in international trade fairs.in a licensing year. The common service providers in these towns should be entitled for facility under different schemes offered by the Govt.1000 crores or more will be notified as Towns of Export Excellence on the basis of Potential for growth in exports. may be exported as a gift. . industrial parks etc. III PROMOTIONAL MEASURES: 1. Selected towns producing goods of Rs.00.. 2. buyer-seller meet etc. for export promotion. j) Every license shall be valid for the period of validity specified in the license. 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.Central Assistance to States: State governments shall be encouraged to fully participate in encouraging exports from their respective states. 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. which are world class. For this purpose. the value of addition to be achieved if any.Towns of Export Excellence: The industrial cluster towns that export substantial portion of their products.
these units will not be required to maintain average level of exports.Agri Export Zones: The services.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. 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.15 crores during the preceding three licensing years. The units shall be entitled to the benefit of export house status on achieving lower total export/deemed export performance of Rs. which mostly employs artisan and rural people. 5. They are also entitled to duty free imports of specified items upto 3% of FOB value of their exports..Status Certificate: . storage and related R & D etc. the following facilities shall be extended to this sector.4. 7. Packing. Units Agri export zones would be entitled for all the facilities available for exports of goods in terms of provisions of the respective schemes. processing. contributes significantly to this effort. The units shall be eligible for funds from Market Access Imitative scheme. Under EPCG scheme. 6.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. In recognition of the export performance of this sector and to further increase its competitiveness. The cottage and handicraft sector. The Regional Sub-Committee on quality complaints shall investigate quality complaints received from foreign buyers.
9. The remittance. 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. Export Oriented Units shall be eligible for such recognition. benefits and facilities the new Export and Import Policy showed its emphasis through the following schemes: CONCLUSION In short. service providers. Indian firms will have to gear up themselves to survive and to become successful in the emerging borderless world. Fixation of input-output norms on priority.Merchant as well as manufacturer exporters. It also recogninses the need for reasonable stability of the policy. would continue to be received through banking channels.Service Exports: The Service providers shall be entitled for all the facilities mentioned in the policy. 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. 8. Duty Exemption Scheme Duty Remission Scheme Duty Entitlement Pass Book Scheme Export Promotion Capital Goods Scheme . however. Enhancement in normal repatriation period from 180 days to 360 days. by making the duration of the policy 5 years. Exemption from compulsory negotiation of documents through banks. the EXIM policy since 1992 acknowledges that the trade can flourish in a regime of substantial freedom. within 60 days. Alls status certificates shall be valid from 01-04-2002 to 31-03-2007. Duty free import entitlement for status subject to some conditions.Electronic Data Interchange: Applications received electronically shall be cleared within 24 hours. Apart from the above provisions.
The price of US $ is fixed in Indian Rupees. bill brokers. ` The Foreign exchange is bought and sold in foreign exchange markets. 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. 1 US$ = Rs. For example.02 Exchange rate in a free market is determined by the demand and the supply of exchange of a particular country. . The exchange rate can be quoted in two ways namely One unit of foreign money to a number of units of domestic currency. This foreign exchange is the money in one country for money or credit or goods or services in another country.. components of foreign exchange market rate include: the buyers. The exchange rate between Indian Rupees and US $ dollars can also be determined by demand for and supply of Indian Rupees by Americans or in USA. The equilibrium exchange rate is the rate at which demand for foreign exchange and the supply of foreign exchange are equal. This currency which facilitates the payment to complete the transaction is called foreign exchange. buying and selling foreign currency take at a rate which is called exchange rate.FOREIGN EXCHANGE The importing country pays money to the exporting country in return of goods either in its domestic currency or the hard currency.48 or Rs. acceptance houses and Central Bank of the country. the sellers and the intermediaries. Foreign exchange includes foreign currency. cheques and foreign drafts. A certain number of units of foreign currency to one unit of domestic country. Exchange rate is the price paid in the home currency for a unit of foreign currency. The market intermediaries of foreign exchange market include Exchange banks dealing in foreign exchange. 1 = US$ 0. viz. Exchange rate determination: The transactions in the foreign exchange market.
Other types of foreign capital like giving donations etc. Other types of inflow of foreign capital like remittances by the Non-Resident Indians.e. The countries follow fixed exchange rates due to its advantages. But the prices are same in both these methods. 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. India) in its foreign exchange market. The supply of foreign exchange includes: Country’s exports of goods and services to foreign countries. establishment of an industry by Indians in USA. Fixed exchange rates promote long-term investments by various across the globe. . Other payments involved in international transactions like payments of Indian Government to various foreign governments for settlement of their transactions.e. The central bank of country purchases the foreign currency when the exchange rate falls and sells the foreign exchange when the exchange rate increases. the governments used to fix the exchange rate and the central bank to operate it by creating ‘exchange establishment fund’. 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. donations received etc. They are: Fixed exchange rates ensure certainty and confidence and thereby promoters international business. Inflow of foreign capital Payments made by the foreign governments to Indian governments for settling their transactions.The price of Indian Rupee is determined in US dollars. EXCHANGE RATE SYSTEM: Fixed Exchange Rates: Under this system.
Either the government or monetary authorities do not interfere or intervene in the process of exchange rate determination. 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. Maintenance of greater reserves aggravate the problem of international liquidity. Under this system. Long-term foreign capital may not be attracted as the exchange rates are not pegged permanently. In such case. IMF permits occasional changes in the system. the exchange rate system does not work. 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. Fixed exchange rates stabiles international business and avoid foreign exchange risks to a greater extent. Fixed exchange rates system may result in a large scale destabilizing speculation in foreign exchange markets. As such the small but international business oriented countries like UK and Demark prefer fixed exchange rate system. The economic policies and foreign exchange policies of the countries are rarely coordinated. Flexible Exchange Rates: Flexible exchange rates are also called floating or fluctuating exchange rates. most of the world countries at present are not in favour of this system because of the following reasons. if the supply . The system is changed into managed flexibility system. These economies prefer flexible exchange rate system. Fixed exchange rates result in economic stabilization. Due to problems with the fixed exchange rate system. Flexible exchange rates are determined by market forces like demand for and supply of foreign exchange. Despite these advantages. The managed flexibility system needs large foreign exchange reserves to buy or sell foreign exchange in order to manage the exchange rate.
This system does not result in deficit or surplus of foreign exchange. the exchange rate is determined at a low rate and vice versa. This system permits the existence of free trade and convertible currencies on a continuous basis. breed uncertainty and impede international trade and capital movements. The equilibrium exchange rate may fail to give correct signals to correct the balance of payments position. The disadvantages of this system include: Market mechanism may fail to bring about an appropriate exchange rate. Most of the countries in recent times are in favour of flexible exchange rates due to their advantages. It is rather difficult to define flexible exchange rate. Disadvantages: However this system is also not free from the disadvantages. Hence.of foreign exchange is more than that of demand for the same. These frequent changes result in exchange risks. The system helps for the promotion of foreign trade. the exchange rate changes quite frequently. The exchange rate moves automatically and freely. Under flexible exchange rate system. The adjustment of exchange rate under this system is a continuous process. This system also confers more independence on the government regarding their domestic policies. this system provides the same benefit like fixed exchange rate system for long term investments. This system eliminates the expenditure of maintenance of official foreign exchange reserves and operation of the fixed exchange rate system. Under this system a reduction in exchange rates leads to a vicious circle of inflation. . Stability in exchange rate in the long-run is not possible even in fixed exchange rate system. speculation adversely influences fluctuations in supply and demand for foreign exchange. This system is simple to operate. Under flexible rate system.
Narrate the scope of International Marketing. 7. How do controllable and uncontrollable factors affect the environment of international marketing? 6. Discuss the criteria involved in International Marketing in respect of market Selection decision. Explain the concept of Globalization.41303 QUESTION BANK UNIT ONE 1. Define International Marketing.Despite the advantages of fixed exchange rate and the disadvantages of floating exchange rate system. Why more and more Indian manufacturers taking recourse to direct marketing? (Advantages of direct exporting and limitations of indirect marketing) 2. 2. What are the advantages that a firm can derive by going into international? (Ans: motivation for exports and advantages of globalization) 4. . In addition. UNIT TWO 1. INTERNATIONAL TRADE . it is viewed that the flexible rate system is suitable for the globalization process. Why the task of international marketing is is more difficult than that of domestic marketing? (Ans: Difficulties of international marketing) 5. Write a note on Pros and Cons of Globalization. How domestic marketing does differs from international marketing? 3. the convert ability also helps the floating rate system and the globalization of foreign exchange process.
What do you mean by counter trade? Is it advantageous? 2. List out the functions of GATT. Critically examine the contributions by the commercial banks in Export promotional efforts in India. What are the different forms of counter trade? 6. 5. 4. 6.(post shipment credit and pre shipment credit).(export assistance and export promotion measures) 9. How would GATT agreements help in reducing trade barriers? 5. . Write a note on world trade services. 3. Write a explanatory not on trade barriers. Describe briefly the various measures taken by Government of India to help Indian Exporters. Evaluate the institutional and infrastructure facilities available for export promotion in India. Give a critical evaluation of various strategy alternatives for selection and entry in the international marketing. What are the different methods of protection made our government for the sake of domestic merchants? (tariffs. List out the standard clauses of International Sales Contract. UNIT THREE 1. How WTO differ from GATT? 7. What are the various aspects of International Marketing Research. What are its basic principles? 4. List the importance of /uses of/need for international Marketing research. 9.3. What is meant by competitive intelligence? How do firms acquire it? 7. 10. subsidies and quotas) 8. Bring out the impact of Tariffs & Quotas. 8.
Explain the role of FTZ. 13. Present a detailed account of the procedure for export of goods. What are the advantages of export of goods by air? 5. 2. What are the uses of Letter of Credit? Briefly explain the various types of Letter of Credit. What are the machineries available for quality control and inspection? 8. Write short notes on Export by Air Export by sea 4. Describe the stages of processing an export order. Explain how payments are settled in International Trade. 12. 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. 11. UNIT FOUR 1. State the steps involved in the operation of Letter of Credit. Explain the fundamental principles of marine insurance and discuss the extent of coverage available under different forms of marine insurance. 2. 3. 6. 4. Examine the salient features of India’s latest EXIM Policy. Explain the significance of documents used in export trade related to shipment of goods and payment. . Briefly discuss the functions of commodity boards. 7. Discuss the role of EXIM bank in International Trade context. Write a note 100% Export Oriented Units (EOU) and its obligations. UNIT FIVE 1. 3.10.
5. Explain the salient features of the EXIM policy of our country Give suggestions to further improve the competitiveness of Indian 10. 2.Examine the extent to Exports? which the direct Export subsidies have methods exports? 11. How the foreign exchange rate will be determined? 6. 3. Explain the advantages of Regional Economic groupings? 9. Write short note on IMF.Critically .what other prove effective in encouraging more examine the Indias export performance causes for the existing situation and improvement. What are in your opinion reasons for sluggishness in Foreign Trade? various assistance available to Indian Exporters? 7.Assess the impact of recent liberalisation measures on India's International marketing? 13.Describe the could helped the Indian Exporters. Present an overview of India’s latest Export -Import policy. State Indias 6. Discuss the advantages and disadvantages of different exchange rate system.Formulate a stategy to increase exports of India's SSI sector? . What are the major Exports of India? 8. give suggestions to 12.5. Explain the main features of India's foreign trade? 4. Trace the recent trends in Indian foreign trade. INTERNATIONAL TRADE GENERAL QUESTIONS 1.
What other methods encouraging more exports? could prove effective in 21.Write a detailed note on Project exports of India? 18.14.Discuss the Indian context." Quality industry sector.of India to boost Exports? incentives provided by 19.What are the main issues that should be considered while framing the multinational marketing plan. validity of the statement in the 23.Distinguish research'.Briefly describe the recent experience of Non tariff barriers."Quality improvements are essential to boost exports".As a marketing manager .in the context of International Trade? 25.How does International economy? Trade contribute to the countries 17.Formulate a strategy to increase exports of India's small scale 22.Explain Indian the role the validity of the statement in the of export subsidies in promoting exports.Examine the extent to which the direct export subsides have helped the Indian exporters. between 'desk research and field .how problems of your choice. will you go about the finding overseas market for a product of 24. 20.Discuss Indian context? 15.What are the various export Govt. improvements are essential to boost exports". 26.What other methods do you suggest? 16.What do you mean by 'Marketing mix .
what are the duties of the exporter and importer ? do you understand how by it Medical Transcription in service 30.What are the major export items of India ? Who are the major competitiors of these items ?Discuss.Discuss the issue 'standardisation Vs localisation in international marketing. . 29.What ?Briefly exports.What are the different market entry strategies available to MNC to expand their international trade ? 28. outline helps india 31.Under FOBcontract .27.
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