INTRODUCTION

MARKETING DECISION

EXPORT PROMOTION

PROCEDURE & DOCUMENTS

EXPORTS PAYMENTS

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

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

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

can be classified under the following categories: . Pre-Export Behaviour: Every firm at some point of time starts as a non-exporter. transport cost is a major marketing expense where as in domestic trade transport cost influences only to certain extent. 8. which influence a non-exporting firm's decision to go in for export business. Success in exporting requires total involvement and determination. many of which are likely instable. Stability in Business Environment: In domestic marketing there is relatively stable business environment. The factors. At international marketing multiple environments. 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.7. They grouped as Pre-export behaviour and Motivation to Export. 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. TRANSITION FROM DOMESTIC TO INTERNATIONAL MARKET The Decision to enter foreign markets must be based on strong economic factors. Transport Cost: In International trade. 9. 10. 1. 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. which can come only out of basic economic necessity as perceived by the corporate unit. Temperamental decision to export is transient in character and totally unsuitable for export marketing. The point to be studied is what made some of these firms get involved in export business.

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

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

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

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

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.

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

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

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

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

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

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

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

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

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

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. 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. Therefore one party can affect the other through their improper acts. technical information or some facility in return for some fee or royalty. a patent design or a trademark. It is often the quickest way of entering overseas markets . Licensing mode carries low investment on Licensing agreements reduce the market the part of the licensor. Direct exporting is the only choice for certain products and not alternative to get success. It is clearly a method that involves little expense. and avoids all distribution costs. Licensing mode carries low financial risk Both the parties have the responsibilities to to the licensor. opportunities licensee.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 . maintain the product quality and promoting the product.

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

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

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

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

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

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

It is therefore. 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.Modern marketing is very competitive. Predicting the behaviour of one's competitors and outguessing of the competitor will need the services of marketing intelligence. 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 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? . character and size of competition to be met. and how good are they? What problems do the face. 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.

Quality of the product. These elements are as follows:     Names and addresses of the parties . Their promotional strategies. if any arising out of the contract. . There are. some elements that are almost universal in their application.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. An Indian exporter selling his product to an importer. 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. or on the settlement of disputes. however. 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. The elements or the clauses of an export contract vary depending upon the nature of product being exported. pricing.exporters and importers The description of the product. 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. 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.

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

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

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

Quotas may affect the terms of trade of the country imposing them. Tariffs are often regarded as relatively permanent measures and rapidly build powerful . quotas are much precise and their effects much more certain. TARIFFS Vs QUOTAS The differences between tariffs and quotas will be clear by the following way of comparison: Let us first examine the superiority of quotas to tariffs:  As a protective measure. A tariff seeks to discourage imports by raising the price of imported articles. Revenue Effect: Quotas may also have a revenue effect. Terms of Trade Effect. 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. a quota is more effective than the tariff.  When compared to tariffs. The rise in prices will result in the redistribution of income between the producers and consumers in favour of the producers. but the effect of quotas on imports is certain. more easily imposed and more easily removed instruments of commercial policy than tariffs. quotas encourage the expansion of domestic industries. As quotas are administered by means of licences. Redistributive Effect: Quotas also have a redistributive effect if the fall in supply due to important restrictions enables the domestic producers to raise prices. the government may obtain some revenue by charging a licence fee.  It has been argued that quotas tend to be more flexible. It however fails to restrict imports when the demand for imports is price inelastic.By guarding domestic industries against foreign competition to some extent.

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

The contract period of buy back . Compensation counter trade: Under compensation arrangement the exporter agrees to accept a part of consideration in cash and the balance in kinds. on either bilateral or multilateral basis. 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. There are a variety of forms of counter trade. equipment or technology to an importer and agrees to accept. For example India exports iron and steel against import of heavy machinery under a contract it is called a counter trade transaction. the exporter sells specified goods to the importer in exchange for specified goods. the exporter. the goods to be produced by the importer with the exporter s' equipment or technology. Barter: In the barter agreement. Pure barter of this type is rare in now a days. Basically it is a barter (exchange of one type of goods for another type of goods) or quasi-barter agreement. Under this arrangement. where cash may not involve but there is always a link between the imports and exports transactions.INTERNATIONAL TRADE . but the exporter transfers the purchasing commitment to a third party who may be an end user of products or a trading house. provide plant. 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. usually an industrial firm. In other words barter involves trading goods for goods. in full or part considerations. We may examine them in detail in detail as in the following paragraphs. In other words imports are paid out of exports in counter trade. Buy back arrangement: This type of arrangement sis the most popular arrangement involving a relatively large volume of trade. FORMS OF COUNTER TRADE: There are a number of forms of counter trade.

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

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

Exception is. however. 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. A Stable basis of trade: The binding of the tariff levels negotiated among the contracting countries provides a stable predictable basis for trade. 3.history in the use of buy-back arrangements. It came into force in January 1948. 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. Binding of tariffs means that these cannot be increased unilaterally. especially for export-oriented projects. GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) The General Agreement on Tariff and Trade is a multilateral treaty that lays down agreed rules for conducting international trade. Basic Principles of GATT: 1. a return tariffs is discouraged by the requirement that any increase be compensated for. Protection only through tariff: Protection should be given to domestic industries only through customs tariffs and not through other commercial measures. This technique is being increasingly applied for importing technology. The rapid and uninterrupted growth in the volume of international trade till 1992 provides a good testimony for the success of the GATT. 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. 2. . Although provision is made for the renegotiation of bound tariffs. Expectations to this basic rule are allowed only in the case of regional trading arrangements and the developing countries. Trade without discrimination: Trade must be conducted on the basis of nondiscrimination. 119 governments which together account for 90 per cent of the world merchandise trade subscribe it to. The aim of this rule is to make the extent of protection clear and to Make competition possible.

As a result of these negotiations. Part III: Conditions for membership and withdrawal. 4.4. Dillon Round) involved further revision of the GATT and the addition of more countries. The fifth round in 1960-61 (Geneva. 5. The third round in 1951 (Torquay. The eight round (Uruguary Round ) started in 1986 and was concluded in April 1994. The sixth round in 1964-67 (Geneva Kennedy Round) was hybrid of earlier product by product approach with across the board tariff reductions. The fourth round in 1956 (Geneva) proceeded along the same track as earlier rounds. 7. France) involved negotiation with nations that desired GATT membership. Tokya Round) centred on the negotiation of additional tariff cuts and developed a series of agreements governing the use of non-tariff measures. Part II: A code of fait trade practices to guide members in their commercial policies. The agreement consists of four parts: Part I: Main obligations of the contracting parties. negotiations. 6. the tariff rates for thousands of items entering into world trade were reduced or bound against increase. and Part IV: Expansion of trade of developing countries through special concessions. The first round in 1947 (Geneva) saw creation of the GATT. 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 . England) continued accession and tariff reduction negotiations. Trade Negotiations under GATT: Eight major trade negotiations took place under the GATT auspice as follows: 1. Consultation: A basic principle of GATT is that member-countries should consult one another on trade matters and problems. 3. They can call on GATT for a fair settlement of cases in which they feel that their rights under the GATT are being withheld or compromised by other members. The second round in 1949 (Annecy. 2. The seventh round in 1973-79 (Geneva. 8.

Developing countries were disappointed with Kennedy round and the Tokyo Round. Many more countries have requested to WTO. led to the formation of united Nations Committee on Trade and Development in 1946. 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. 1995 WTO is the embodiment of the Uruguary Round results and the successor to GATT. 4. especially one which one would tackle the problems of the global trade of developing countries. As on 6th November 2000. Switzerland. So the trade gap for the developing countries has become more unfavourable. To administer the trade policy mechanism. 3. To achieve greater coherence in global economic-policy making in cooperation with World Bank and IMF. The WTO is based in Geneva. the success of GATT in promotion and securing liberalisation of much of world trade over 47 years was incontestable. . Its essential functions are as follows. given its provisional nature and the limited field of action. the membership of the WTO stood at 139. WORLD TRADE ORGANISATION Established on January 1. A search for a new institutional arrangement. 5. To provide a forum for negotiations among its members concerning their multilateral trade relations in matters dealt with in the agreements. Most negotiations and tariff reductions have taken place in respect of manufactured goods. 2. The present membership accounts for more than 90 per cent of world trade. 1. it completely replaces its predecessor and has a very different character. T is not a simple extension of GATT. Under GATT. However. To administer the understandings on Rules on Procedures governing the settlement of disputes.40 percent in the immediate second world was years. WEAKNESS OF GATT: The weakness of GATT is that its benefits have mainly gone to the industrialized countries. 76 Governments became members of the WTO on its first day.

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

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

Heavily protected r restricted services in different countries include banking and insurance. 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.e. compulsion to use local facilities etc. 1. It is therefore.-The mobile provider and immobile user categorize the first category. . Similarly a technician may have to go a plant abroad to rectify a problem with the plant.Mobile user and immosbile provider characterizes the second category. investment regulations. Protective measures include visa requirements. television. In this case the provider goes into the place of user and doing services. film and other forms of communications and so on. radio. transportation. For example the technical people of L & T Company in India goes to Srilanka and do the construction work. I. they are generally subject to various types of national restrictions. For example a patient who wants an open-heart surgery will have to go to a hospital where the required facilities are available. restrictions on the employment of foreigners. In this case either the provider going to the user or the user going to the provider may achieve proximity.DEPARTMENT OF COMMERCE: . 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. For example dry-docking facilities for ships. OBSTACLES OR RESTRICTIONS IN SERVICE SECTOR: Due to the special characteristics and the socio economic and political implications of certain services. -The third category consists of of mobile user and mobile provider. marketing regulations. user goes towards the provider.

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

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

(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. post shipment credit guarantee and export production finance guarantee. periodicals and other literature having a bearing on trade and commerce. In addition to the normal risk policies. To suit varying needs of exporters. Publish papers. chamber of commerce etc. seminars and conferences on matters related to trade and commerce. Establish linkages with trade promotion bodies. 5. This is registered under the Societies Act. regulatory bodies. processing and marketing. Laying down standards and specifications for marine products for the purpose of export. Rendering financial assistance. Organize training. (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. Arranging for training in different aspects connected with export with special reference to fishing. 4.3. (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. the corporation provides different types of cover which may be divided into the following three broad groups: Standard polices .

In order to ensure the quality of the products exported. Kolkatta. 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. The EXIM bank concentrates mainly on medium and long term credit for export of goods and services on deferred payment terms. It extends finance to exporters of capital and manufactured goods. (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. 1982 for the purpose of financing.Financial guarantees Special policies Under its policies intended o protect the exporters against overseas credit risks. (IX) Export-Import Bank: The EXIM Bank was established on January 1. facilitating and promoting foreign trade of India. . (X) Export Inspection Councils: Quality control and pre shipment inspection is one of the important factors in the export marketing. Kolkatta Indian Jute Mill Association. As per this act The Government of India has established the Export Inspection Council. Bombay Office of the Jute Commissioner. 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. exporters of soft wares and consultancy services and overseas joint ventures and construction projects abroad.

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

 Cooperation arrangement with African Management Services. 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. 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. flexibility of operations and incentives. 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.  It provides information to potential exporters about projects abroad specially about multilaterally agencies. . 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. Leasing of capital goods from domestic companies by EPZ\EOU has been permitted. 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. components and consumable at free of custom duties.  It also entertains proposals for various facilities under he European Community Investment Partners like feasibility studies for setting up export units. raw material.

  Second hand capital goods may also be imported duty free without any age limit. Application for setting up of units under EOU scheme may be approved by the units Approvals Committee within 15 days. The entire production of EOU units shall be exported subject to the following:  Rejects may be sold in the domestic tariff area on payment of duties on prior intimation to the customs authorities. plant and machinery shall be considered for establishment under EOU scheme. 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.  EOU units may import/procure from Domestic Tariff Area without payment of duty. including capital goods required by it for its activities provided they are not prohibited items of imports. Giving credit poses two problems to an exporter: He should have enough money to offer credit to his overseas buyers and . EOU unit shall be positive net foreign exchange earner.1 crore and above in building.  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. In the context of growing competition no exporter can manage without selling goods on credit.  An EOU unit may import without payment of duty for all type of goods. 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.  By products may also be sold in the domestic tariff are subject to achievement of positive net foreign exchange on payment of applicable duties within the overall entitlement. Only project having an investment of Rs. Encouragement of agro and electronic units by providing higher domestic access.

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

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. Any other cause of loss occurring outside India. Loss or damage to goods which can be covered by general insurers: f. C. including quality disputes raised by the buyer unless the exporter obtains a decree from a competent court of law in buyer's country in his favour.Buyer's failure to obtain import or exchange authorization from the appropriate authority: d.SMALL EXPORTER'S POLICY .Insolvency or default of any agent of the exporter or of the collecting banks: . War. B.Flucturations in exchange rates (except under Exchange Fluctuation Risk over Schemes)and g. And beyond the control of both the exporter and the buyer. Commercial disputes. revolution or civil disturbances in the buyer's country c. however. 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. RISKS NOT COVERED ECGC. does not cover risks of loss due to: a.b. b. Cancellation of export license or imposition of new export licensing restrictions in India (under contracts policy) 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. Additional handling transport or insurance charges due to interruption or diversion of voyage which cannot be recovered from the buyer: and f. Causes inherent in the nature of goods: c.g. not normally insured by commercial insurers.

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

POST -SHIPMENT EXPORT CREDIT GUARANTEE Post-shipment finance given to exporters by banks through purchase. EXPORT PERFORMANCE GUARANTEE Exporters are often called upon to execute bonds duly guaranteed by Indian banks at various stages of export business.09% per annum for .The purpose of this Guarantee is to enable banks to sanction advances at the pre-shipment stage to the full extent of cost of production when it exceeds the FOB value of the contract/order. The Premium rate for this Guarantee is 7 paise per Rs. EXPORT FINANCE GUARANTEE This guarantee covers post-shipment advance granted by banks to exporters against export incentives receivable in the form of duty drawback. It is necessary however. Banks having WTPSG are eligible for concessional rate of premium and higher percentage of cover. 3. the difference representing incentives receivable. 100 per month and the cover is 75 percent. The extent of cover and the premium rate are the same as packing Credit Guarantee. 5. If he wins the contract. it can protect itself from the risk of non-payment by the contractor by obtaining Export Finance Guarantee. An exporter who desires to quote for a foreign tender may have to furnish a bank guarantee for the bid bond. Banks having WTPCG are eligible for concessionary premium rate and higher percentage cover. etc. 100/-per month The percentage of loss covered under the individual post-shipment Guarantee is 75% 4. negotiations or discount of export bills or advances against such bills qualifies for the Guarantee. EXPORT FINANCE (OVERSEAS LENDING) GUARANTEE If a bank financing an overseas project provides a foreign currency loan to the contractor. The Premium rate for this Guarantee is 7paise per Rs. Premium rate will be 0. 6. that the exporter concerned should hold suitable policy of ECGC to cover the overseas Credit risks. he may have to furnish bank guarantees to foreign buyers to ensure due performance or against advance payment or in lieu of retention money or to a foreign bank in case he has to raise overseas finance for his contract.

A 10 year tax holiday for 100 per cent export oriented units and for units located in Free trade zone/Export processing zones. the budget for the year 20002001 has reduced this exemption by 20% every year to be phased out in five years. . (ii) Fiscal concession: The different types of fiscal concessions are as follows: In the computation of total income Sec. 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. 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. There are essentially three major incentives. India has also been providing export assistance for the past about forty years. export incentive system in India has been made very simple. Claims under the guarantee will also be in Indian rupees. -Concessional rate of customs duty on imports of selected items of machinery for export production under EPCG scheme.Exemption from taxation of the profits from over seas projects to the extent of 50 percent. available to exporters.08% per annum for 90% cover. Most developing countries have resorted to a number of export promotion measures. fees or any similar payment obtained from the exports of technical know-how and technical services. . 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. Premium is payable in Indian Rupees.80. commission. -Exemption from taxation 50 per cent of royalty. . From 1922. HHC of the Income Tax Act allows a deduction of the whole of the profit derived from the export of goods or merchandise. However. When rupee appreciates the balance of benefits will the just the reverse. Under the Libralised Exchange Rate Management System (LERMS) exporters will get benefit when rupee depreciates while importers will lose.75% cover and 1.

(a)Duty Drawback: This is a refund of import duty or excise duty paid on the raw materials and components. refund of terminal excise duty. which have gone into the production of exported products.(iii)Facilities available under the Export-Import Policy for Export: a. 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. In export business also finance plays an important role. An exporter needs finance for processing or manufacturing or assembling or procuring or packing the goods for export. (d)Insurance of credit risk: The ECGC is willing to cover 90% of the political and commercial risks of export operations. special import license. 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. industrialists and others require finance for their day-to-day activities. It will take some more time . etc EXPORT FINANCE Businessmen. Export finance starts as soon as the exporter gets an order to export. b. 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. the Central Government is offering the following facility to exporters. (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. Preshipment finance is provided to the exporter to meet such requirements. (e)Deemed exports. The commercial banks which give credit to exporters can also get guarantee from ECGC. e. deemed export drawback. c.

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. 1. 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. 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. if any.POST SHIPMENT CREDIT Post-shipment finance is required by the exporters to bridge the gap between the time of shipment of goods and the actual payment for the goods exported. PRE-SHIPMENT CREDIT OR PACKING CREDIT Export packing credit is a loan or any other credit given by a bank to an exporter for financing (a) procuring raw materials and components to manufacture the product or (b) processing or assembling or packing the goods for export. The banks on the basis of the following give the packing credit. 2.before the advice of payment is finally. normally finance the post-shipment credit in one the following ways: (i) Negotiating export bills under letter of credit The banks . communicated to the exporter. 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. 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. It is also provided at concessional rate of Interest. or Personal bond in the case of party's already known to the exporter.

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

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

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

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

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

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

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

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. the duty is first paid and its refund is claimed. the government has granted excise duty exemption for the export products. CUSTOMS FORMALITIES: Goods may be shipped out of India only after the customs clearance has been obtained.for textile goods.  Any other authorities authorized for this purpose. the exporter (or the clearing and forwarding agent on behalf of the exporter) should present the following documents to the customs authorities.Thereafter get the goods inspected by the inspecting authorities under compulsory quality control and pre-shipment inspection. Excisable goods may be exported either under claim for rebate of excise duty or in bond. In the case of export under claim for refund of excise duty. EXCISE CLEARANCE: the As a matter of policy. For this purpose. They are as follows:  Export Inspection Agency  AGMARK Authorities  Textile committee .

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

Thus the advantage of exports by air may be summarized as follows: 1. Speed of delivery 2. packing . Related surface transport costs are reduced. Deterioration is avoided. The reasons are as follows. 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. Breakage is neglible. total value. are minimized.Basically. Greater security and protection during transit. there are ten reasons which can make total distribution costs cheaper through the use of air transport. Good service to customers without having any warehouse. A satisfying customer. Savings in cost 3. quantity.           Low inventory carrying costs Decreased capital costs of goods in transit Less packing lowers cost and reduces chargeable weight. Obsolence is eliminated. Insurance premium is reduced. at least for certain categories of merchandise. Costs related to administration. 4. such as the price per unit at a particular location. ordering etc. The loss due to rough handling and pilferage is reduced to the minimum. 5.

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

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

the invoice number and the date of export. quality and destination of the goods. the name of the consignor. each has its own airway bill. "one box damaged" etc. the amount of freight etc.Freight is charged either on the basis of weight or measurement. As each shipping company has its own bill of lading. AIRWAY BILL An airway bill. the weight declared by the shipper may be accepted. is freely transferable by endorsement and delivery. the number of packages. the description. the marks and numbers. 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. also called an air consignment note. However.. BILL OF LADING The Bill of lading is a document where in the shipping company gives its official receipts of the goods shipped in its vessel and at the same time contracts to carry them to the port of destination. The exporter prepares the Bill of lading in the forms obtained from the shipping company or from the agents of the shipping company. the gross eight and net weight. . it is termed as a claused bill of lading. Each shipping company has its own Bill of lading. and. It is also an document of title to the goods. the name and destination of the vessel. and (iii) as a contract for the transportation of goods. When it is charged on the basis of weight. as such. The information contained in the Bill of lading includes the date and place of shipment. 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'. 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. 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". is a receipt issued by an airline for the carriage of goods.

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

The certifications of inspection in favour of units approved under the scheme are issued by the Export Inspecting Agencies. directing a certain person to pay a certain sum of money only to. 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. 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. These units are under the supervision by the Export Inspection Agencies through random spot checks. under certain conditions and up to certain amounts . provided that the beneficiary fulfils the stipulated conditions BILL OF EXCHANGE The Negotiable Instruments Act. signed by the maker. There are five important parties to a bill of exchange: The Drawer The Drawee The Payee . 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. 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. Self-certification CONSIGNMENT-WISE INSPECTION: Under consignment-wise inspection. 1881. or t the order of.3. a certain person or the bearer of the instrument. components through inspecting process centers.

air or land is called Marine Insurance. MARINE INSURANCE Insurance granted to cover loss or damage to ships or goods in transit either by sea. Utmost Good Faith: It is the duty of the proposer to disclose clearly and accurately all material facts related to the risk. damage or detention or incur in respect thereof. Under this arrangement. demands from a customer to give him recourse son the bills and control of the documents. BANK CERTIFICATE OF PAYMENT It is a certificate issued by the negotiating bank of the exporter certifying that the bill covering particular consignments has been negotiated and that the proceeds received in accordance with exchange control regulation in the approved manner. This is a sort of blanket document which shipping documents. 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. Insurance of ships is called " Hull Insurance" while cover provided in respect of goods sis termed as cargo insurance. all sums received from the sale of goods must be credited to the bank until such settlement is made. the importer is allowed to sell the imported goods by acting as an agent of the bank. but the retains ownership of the merchandise until the importer has made full settlement. the merchandise may be made available to the importer by his bank under an arrangement whereby the importer signs a trust receipt.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. 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. .

Jettison: Jettison is the throwing of articles over board. 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. Proximate Cause: Proximate cause means the active efficient cause that sets in motion a train of events. 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. Whereas in specific policy the insurance will be made by shipment wise. Assailing thieves: This refers to a forcible taking rather than clandestine theft or mere pilferage. usually to lighten the ship in times of emergency. 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. . without the intervention of any force started and working actively from a new and independent source. if the damage is caused by perils specified in the contract known of policy of the insurance. How to Insure: Under marine insurance the policy will be taken by two ways. lightning. and loss resulting from efforts to extinguish a fire. collision and damage by sea water when caused by perils such as opening of the seams of the vessel by collision. intentional casting a way of vessel or any breach of trust with dishonest intent. Fire: Fire includes both direct fire damage and also consequential damage as by smoke or stream. which brings about a result. One is open policy and another one is specific policy.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. RISKS COVERED: Perils of the Sea: It includes out-of-the ordinary wind and wave action. wrongful conversion. Barratry: Barratry is the willful misconduct of master or crew and would include theft.

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

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

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

INTERNATIONAL TRADE - UNIT FIVE

EXPORT TERMS OF PAYMENT AND LETTERS OF CREDIT

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

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

the exporter makes shipment to the overseas consignee/agent. On the due date of payment. After the importer accepts the bill he will get possession of the documents for taking delivery of the goods. provided that the beneficiary fulfils the stipulated conditions (Detailed explanation for letter of credit was given separately). involve and a marine insurance policy. the bank will again present the bill to the importer who then makes the payment. 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 correspondent bank will submit the bill of exchange to be signed by the importer t indicate his acceptance of the payment obligation. The money received is remitted through usual banking channels to be credited to the exporter's account. but retains the title to the goods as also the risk attendant thereto. The commercial banks that deal in foreign exchange provide a via media by giving the necessary assurances to both the parties. Under this method there are two types of payments viz: Documents against payment (D/P) and documents against Acceptance (D/A). under certain conditions and up to certain amounts. Under D/P bills. which will present the documents to the importer and ask him to pay the money for the goods exported. The documents include bill of lading. Under this method of payment the exporter agrees to submit documents to his bank along with the bill of exchange. .for and importer's unwillingness to part with his money unless he is sure of receiving the goods. 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. If the agent fails to sell the goods. the exporter's bank will send the documents to its correspondent bank in the importer's country. even though the overseas consignee will have the physical possession of the goods. SHIPMENT ON CONSIGNMENT BASIS In this case. In case of D/A bills.

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

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

In this case. in favour of a domestic supplier. which scrutinizes the . normally four parties are involved. On receipt of this advice from the local correspondent bank in India. Revolving Credit: A revolving credit is designed to obviate the need for establishing new credit for each shipment when the transactions are more or less continuous. 11. Confirmed Credit: If a bank in the beneficiary country confirms the L/C. makes the shipment of he cling fns and gets the shipping documents and other related documents. It has been decided that the terms of payment will be a confirmed irrevocable letter of credit. Red Clause Credit: The red clause L/C enables the beneficiary to draw a predetermined value of the L/C as its established. the Rainbow limited. opened by a bank on behalf of the beneficiary of an original credit. The total value of the contract is Rs.2. the issuing bank and the advising bank incase of unconfirmed credit or the confirming bank in case of confirmed credit.9. 10. the beneficiary of the credit (exporter). the applicant for the credit (importer). STEPS IN THE OPERATION OF LETTER OF CREDIT: In Letter of credit. 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. it becomes a confirmed credit. 12. viz. 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. He presents these to the correspondent bank. Back-to-Back Credit: A back-to back credit is essentially a secondary credit. The red clause is an authority to the negotiating bank to make advances to the beneficiary for the purpose of purchasing the relevant merchandise. Under the revolving credit. 00.000. Chennai has secured a contract for the supply of 200 ceiling fans to a Nigerian importer. M/S Rainbow limited.. The conditions on which such advances may be made are incorporated in the L/C. The step-by-step procedure involved can be discussed by taking an example. The original credit backs another credit and facilitates the purchase of the goods from a local supplier by the beneficiary of the original L/C. provision may be made for making available the credit again as soon as the importer reimburses the issuing bank with the drafts already negotiated by the paying bank.

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

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

Improvement of curing and storing facilities by conservation of energy by roof insulation of tobacco barns.. balanced fertilization. For improving the productivity and quality of coffee. which have potential markets for Indian coffee.K. 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. Allowing exports of tobacco to Russia through debt repayment route. Improving yield and quality of tobacco through control of diseases in tobacco nurseries. Sponsoring delegations abroad and participation in international trade fairs. pest and disease control. Improving tobacco grading through establishment of community grading centers. SPICES BOARD: . Keeping view the production of quality coffee at estate level.- For promotion of tea as beverage the tea board also participates in the generic promotion programme conducted by tea council at U. Studies on diseases of coffee and their control were carried out. contact programme was launched in 4 regions covering a total number of 1018 growers. supply of tarpaulins and supply of coal for curing. Special advertisements on the excellence of the Indian coffee were released in important coffee trade journals and magazines in countries. training programme was conducted. 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. US. and Canada and is also member of the International Tea committee. Germany.

2. 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. Certificates have been awarded to many manufacturers/processors of spices. 1. Organizing training programmes for growers for quality improvement and post-harvest techniques. Apart from those schemes. The spices board has a scheme to promote a "logo mark" as a mark of quality and Indian ness of spices. projects and services. Replantation of old and diseased plants. They issue Registration cum membership certificate to exporters. EXPORT PROMOTION COUNCILS The basic objective of Export Promotion Councils is to promote and develop the exports of the country. 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. grant of Spice House certificate etc. Production and supply of quality material and rooted cutting. Each council is responsible for the promotion of a particular group of products.The Spices Board has number of schemes of assistance to spice exporters such as Brand promotion. . Logo is registered in six countries and would be registered in another 14 countries. 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. quality is a key element. 3. They are explained below: Brand Promotion: Under this scheme. The logo mark is awarded to exporters of spices in consumer packs who fulfill certain stipulated conditions of hygiene/processing/packaging and product quality. Logo Promotion: In the exports of spices. Logo Promotion.

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

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

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

the value of addition to be achieved if any. may be exported as a gift.in a licensing year. actual user. buyer-seller meet etc. participation in international trade fairs.000/. 3. For this purpose. 2.1000 crores or more will be notified as Towns of Export Excellence on the basis of Potential for growth in exports.g) Goods including edible items of value not exceeding Rs. 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. should be granted recognition with a view to maximize their export profile.Towns of Export Excellence: The industrial cluster towns that export substantial portion of their products. which are world class. . industry and trade associations etc. on the basis of the competitive merits of proposal received in this regard for marketing studies on country product focus approach basis. j) Every license shall be valid for the period of validity specified in the license. The common service providers in these towns should be entitled for facility under different schemes offered by the Govt. III PROMOTIONAL MEASURES: 1. Selected towns producing goods of Rs.1. description and value of goods. industrial parks etc. seminars. 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.Market Access Initiative: Financial assistance shall be available under this scheme to the Economic Processing Zones. The states shall utilize this amount for developing complementary and critical infrastructure such as rods connecting production centers and creation of new state level economic processing zones. for export promotion.00.. i) A license shall contain such terms and conditions as may be specified by the licensing authority may include the quantity.Central Assistance to States: State governments shall be encouraged to fully participate in encouraging exports from their respective states.

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

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

The market intermediaries of foreign exchange market include Exchange banks dealing in foreign exchange. The equilibrium exchange rate is the rate at which demand for foreign exchange and the supply of foreign exchange are equal. .48 or Rs. acceptance houses and Central Bank of the country.  The exchange rate between Indian Rupees and US $ dollars can also be determined by demand for and supply of Indian Rupees by Americans or in USA. The exchange rate can be quoted in two ways namely  One unit of foreign money to a number of units of domestic currency.  A certain number of units of foreign currency to one unit of domestic country. components of foreign exchange market rate include: the buyers. Exchange rate is the price paid in the home currency for a unit of foreign currency. the sellers and the intermediaries.. Foreign exchange includes foreign currency. cheques and foreign drafts. For example. viz. 1 US$ = Rs. Equilibrium exchange rate can be determined by two methods:  The Exchange rate between US dollars and Indian Rupees can be determined by demand for and supply of US dollars in India or by Indians. ` The Foreign exchange is bought and sold in foreign exchange markets. This foreign exchange is the money in one country for money or credit or goods or services in another country. Exchange rate determination: The transactions in the foreign exchange market.FOREIGN EXCHANGE The importing country pays money to the exporting country in return of goods either in its domestic currency or the hard currency. The price of US $ is fixed in Indian Rupees. 1 = US$ 0.02 Exchange rate in a free market is determined by the demand and the supply of exchange of a particular country. This currency which facilitates the payment to complete the transaction is called foreign exchange. bill brokers. buying and selling foreign currency take at a rate which is called exchange rate.

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

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

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

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

. What are the different methods of protection made our government for the sake of domestic merchants? (tariffs. UNIT THREE 1. List the importance of /uses of/need for international Marketing research. Critically examine the contributions by the commercial banks in Export promotional efforts in India. How WTO differ from GATT? 7. 5. 4. How would GATT agreements help in reducing trade barriers? 5. 3.3. 10. Bring out the impact of Tariffs & Quotas. 9.(export assistance and export promotion measures) 9. List out the standard clauses of International Sales Contract. 8. Evaluate the institutional and infrastructure facilities available for export promotion in India. 6. Describe briefly the various measures taken by Government of India to help Indian Exporters. What are the various aspects of International Marketing Research.(post shipment credit and pre shipment credit). List out the functions of GATT. What is meant by competitive intelligence? How do firms acquire it? 7. subsidies and quotas) 8. Give a critical evaluation of various strategy alternatives for selection and entry in the international marketing. What are its basic principles? 4. What do you mean by counter trade? Is it advantageous? 2. Write a note on world trade services. What are the different forms of counter trade? 6. Write a explanatory not on trade barriers.

Explain how payments are settled in International Trade. 11.10. What are the advantages of export of goods by air? 5. Explain the significance of documents used in export trade related to shipment of goods and payment. Discuss the role of EXIM bank in International Trade context. 4. Briefly discuss the functions of commodity boards. 3. 3. Present a detailed account of the procedure for export of goods. State the steps involved in the operation of Letter of Credit. 7. What are the risks that are covered under marine insurance? Explain the procedure and documents used when the loss occur 9. 6. UNIT FIVE 1. What are the machineries available for quality control and inspection? 8. 12. . Describe the stages of processing an export order. Make a critical appraisal of working of the Export Credit and Guarantee Corporation. Examine the salient features of India’s latest EXIM Policy. Write short notes on Export by Air Export by sea 4. Write a note 100% Export Oriented Units (EOU) and its obligations. Explain the role of FTZ. 2. 2. What are the uses of Letter of Credit? Briefly explain the various types of Letter of Credit. Explain the fundamental principles of marine insurance and discuss the extent of coverage available under different forms of marine insurance. 13. UNIT FOUR 1.

Examine the extent to Exports? which the direct Export subsidies have methods exports? 11. INTERNATIONAL TRADE GENERAL QUESTIONS 1. give suggestions to 12. How the foreign exchange rate will be determined? 6.Describe the could helped the Indian Exporters.5.Assess the impact of recent liberalisation measures on India's International marketing? 13. What are the major Exports of India? 8.Formulate a stategy to increase exports of India's SSI sector? . Explain the main features of India's foreign trade? 4. Write short note on IMF.Critically . What are in your opinion reasons for sluggishness in Foreign Trade? various assistance available to Indian Exporters? 7. Discuss the advantages and disadvantages of different exchange rate system. 2. State Indias 6. 5.what other prove effective in encouraging more examine the Indias export performance causes for the existing situation and improvement. Present an overview of India’s latest Export -Import policy. Trace the recent trends in Indian foreign trade. Explain the salient features of the EXIM policy of our country Give suggestions to further improve the competitiveness of Indian 10. Explain the advantages of Regional Economic groupings? 9. 3.

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

What are the different market entry strategies available to MNC to expand their international trade ? 28. .What ?Briefly exports. 29. outline helps india 31.27.Under FOBcontract .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.

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