aT bd BBA Sixth ‘Semester (IBM) RCU: 1.1.67 Modes of Entering into International Business All the activities and functions performed by organisations looking to internationalise and tap overseas markets together constitute international business. Even a common man contributes to international business in some or the other way. An organisation may enter into the international market through various modes which are explained below: 1) Direct and Indirect Exporting: When products or services are manufactured in home country but are marketed and sold in foreign countries, it is called export. This is of two types namely direct and indirect. Direct export is when an organisation itself produces and selis the products directly to end-consumers. On the other hand, indirect export involves intermediaries who act as a link between the producer and the end-consumer. Exporting is the most elementary mode to enter overseas markets. 2) Licensing: Also known as technical collaboration, licensing is providing access to the technology, expertise; plans, strategies, etc., to a licensee in the foreign country in exchange of fees or royalty. ‘The organisation opting for licensing does not need to put in capital in the foreign market nor does it need to interact with end-customers located in the foreign markets. 3) Franchising: Franchising involves two parties namely franchiser and franchisee. Franchiser in the parent organisation which allows the franchisee to commence business under certain fixed guidelines. Two forms of franchising exist, ie., direct and indirect. The franchiser formulates policies and monitors the operations of the franchisee from the home country in direct franchising. In case of indirect franchising, a sub-franchiser is appointed which monito: the franchisee from the host country itself. ‘ 4) Contract Manufacturing: Under contract manufacturing, one organisation enters into a contract with another organisation to manufacture its product or parts. The other organisation (client) in this way does not have to arrange for production infrastructure, workforce, taw materials, etc., and can focus entirely on sales and marketing of products. A local producer can be brought into agreement for a firm looking to sell its products in overseas market. Many of the world’s.‘leading organisations carry on their manufacturing processes through third party manufacturers in countries having low cost of labour. The advantages include less capital investment and ease of exit in case of product failure. akIntemational Business and Trade (Module 1) 5) 6) 8) LL Advanta: Following points hi; 4) 2) ; . 4 . 4 suggests, turnkey project is Turnkey Projects: As the name Project is whe licensor builds a completely new plant or produrtion ing, Ma which is fully operational, and hands over the key to the Nivenge. Soon after the licensee receives the keys of the fully functions plant, it can start using it. Joint Ventures: In order to build and sustain Compettiyg | advantage, two or more than two organisations combine thei resources and know-how to form a new organisation called the Joint venture. This type of ownership is basically held in a fore; ‘ company. When an organisation considers that it woul be profitable to acquire ownership in a new organisation for expanding market opportunities, it opts for joint venture. Mergers & Acquisitions: When an organisation acquires another, it is called the acquiring organisation while the smaller Organisation being acquired is the target organisation. This does not result in birth of a new form. Another form is amalgamation of two organisations which lose their identity to come together as one new organisation. For example, Maruti Motors operating in India and Suzuki based in Japan amalgamated to form a new company called Maruti Suzuki (India) Limited. Strategic Alliance: Strategic alliance occurs when two or more organisations enter into a contract or come together to fulfil a specific function and achieve mutually set objectives in the market. These organisations do not merge and remain anonymous. Having been proven as an effective mean to tackle weakness and enhance strengths, strategic alliances have become popular recently. Few objectives for which Strategic alliances are set up are market expansion, enhancement of capital, access to latest technology, etc. ges of International Business ighlight the advantages of international business: ving: According to the comparative cost » nations which enjoy easy ~availabi lity of labour, raw materials, natural resources, elo etc., have the ability to manufacture qualitative products at much lower Costs. As a result, consumers from various nations can Purchase increased quantities of these Products with same money. When the purchasing power of people Tises and they buy quality Products, their standard of living rises. When a country gets involved I gets access to consumption of a wid? | ‘urns Out to be beneficial for social as well | less, Tange of products, This tww e ‘BRA Sih Sem BM RU econamie wellteing of is peopl. More foreign companics sat Selig ie products in that county which increases the consumption level Afer the economic Hteraiston,nareroue frsigh companies casoe to India to the people started enjoying now products which Further ased the socio-economic level ofthe oun ts The sizeof the market expands when an ‘rgarisnion taps the overseas. market ‘This lao. reduces the ‘epeniency upon a single makes demand, The orgensation needs ‘ott worry abou the needs and wants of only one matt st ican ‘expand into new markets globally. Most of the MNCs bave ‘panded thelr mackets through inemationanation, Some of the ‘examples are Susu, Pepsico, Phils, ee i Wea an orion is rnning soccesfly in intermionl mPa, it hat the leverage Of tmoving swsaisa/scoomy Which is developing rapidly from an eonomy ‘wher cooditions are recessionary. Ths is posible because different counties have distinct business cycles and international business Delp fons in diminishing the effets of busioess cycles, 9 When organisations sre spread into several counties, introaconal business as az 2 cushion aginst the politcal ind opeational uncertainties. If an rgenisation is distorted in its home country or the domestic marke, it omly feels 4 partial ‘Impact because it is doing well in foreign marke OGRE vo aot roduetion is reduced asa result of large sale production in several markes. The. oegaisation ‘achieves economies of scale slong with qualitative ouiput and techni Helps tn Exploring By opting for imeratonalison,organistions can explore sad target potential ‘marke which ave been uexploted since Jone. They ean aso sll their prodaets at premium in these untapped markets vnlike the domesie markets, 5) Help as wl) as Challenges Domestc Onganlsations to Evolve: business assists as well as challenges the domestic livers. The domestic orgenistions are benefited by the know how, expertise, advanced technology te, of MNCs when they opt {or snalyanates. Hor example, Heeo’ Hoss, Maruti Su2v Kawasaki Basi ete. On the other hand, by giving tough competion and posing teat to the domestic players, MNCs help them to develop and evolve. For example, wisn Samsung state selling its mobile ghones in Indian market, domes producers sch 1 Mieromax took up the challenge tnd nue Saran ‘marke hae In faian markets “M4 | 9) ‘Product Specialisation and Division of Labour: inematicnatisatoa ‘nips an organisation to explit ts area of product pecianaton sat ‘xpnd into new markers. For example lia species in pests texte. “Also, divison of lou taker place in oversar martes, slowing te workers to concent on smal sks invidolly, All the above factors iacading innovation division of labour, product specialisation, Increased consumpiion levels, high productively sist ia evelopment. of global economy. Many counties ike UAE, Singapore, Japan, Indi, ete, have’ been benefited by Jntematonalisation 1) Eificient and Maximum Uniisation sources avalable worldwide are utlised to the optimum in istration business. Resources are uansported from counties which we etemely ich in eaain resources to cous were these resources sxe scare. Supply of personel fom India, cleesonic goods fom ‘apan and consume: goods fom UK. area few examples 12) Cultural: Development and. Cohesiveness: Apart trom the ‘monetary and expansion advantages of international busines, here se advantages of calural nature as well Positive cultural tuts of ‘countries worldwide ae being shared among themselves. Hence, iotemational business leads to cultural tegration and teansormatign, » ts Interationlisstion or international business is the common tread that binds the wordvide mations, cultures, soietes, communis, tnd economies together. Io interoational business axons develop thei ade onthe basis of mutual help and understanding 1.1.8. Disndvantages/Problems of International Business | Following are the problems faced by interetonal buss 1) High Coste Seting up infrastructure, reriig, spe technology, trvel overheads, et, in foreign nse len ramewert Legh ae ‘just hemes EEBUA Sint Semester BNO RCW ‘Since the balance of payments statement ie drawn up in terms of debits and credits based on a system of double-entry book-keeping, if all, cenities are made correctly, the total debits must equal total ered ‘This is because two aspects (debits and credits) of each transaction recorded are equal in amount and appear on the opposite sides of the balance of payments account. In the accounting, sense, balance of [payments of 3 country must always balance. In other words, debit or payment side of the balance of payments accounts of a country represents the total of all the uses made out of the total foreign exchange acquired by « country during the given period, while the credit or the receipt side represents the sources from which this foreign exchange was acquired by this country in the same period, ‘The sides as such necessarily balance. 2.1.4. Components of BOP ‘The accounting contents or componeats of balance of payments ae: ‘Components of BOP Copia Aceon ‘Otte ems in te Balan of Paymens 1) Current Account: Generally current account is sub-ivided into three types, viz. () the merchandise trade balance, (i) the services balance and (i) the balance on unilateral transfers. Only “curent” aia is recorded under this category and there is no place for fture planning. The additional amount presents the money acquired and the areas stands for the expenses incurred, Following are the three ‘ype snes account: 5) Merchandise: The merchandise trade balance represents aocount stability between the imported and exported concrete objects lke vehicles, PC, equipment, ec. Ii favourable (additonal) in case the export exceeds impors. Is unfavorable (saree) incase the impor is more than exports. Merchandise account of imports and exports is the greatest element to represent the international transactions in mos of the nations. ii) Invisibles: ‘The second type of current account includes the secvices in form of shipping, inlerest paymenis, tourism, dividends, insurance charge and expenses on security, These services are at times also known as invisible trade Sonn om the pte str sma Te Se al dase fen feel cc pel Space ech of government transfers, Steen nations a ei ae also pars 7 Pe capt Acoma? cpl su te «santo Sn it rent en 8 mofo renege ae tle i ene doing SuSE iene, sates coms hc emcees te tee cena wel eat aay SR Se Co a ics be eis Sold Cah wd SOLOS pee ten Sig err eas eo Fa mrt us pe ute er Sipe Sele nly Uke ess races talgn nies can ee of aly Se ae rR Nps vis he rain eine Res t,o ne as ar recur oc ye ition ante eee ee as am ey ciency te Enel sa, Sab pat a niet Meets va ae Soh fc Sa Cs ene a ec Spots eda von ue notice 5D Portfolio Investment: Portfotio investments stand for buying snd selling of internatonal monetary resoures lite bos and ‘stocks which are free from the factors like shifting tbe administration, Both domestic and international invexos actually lock for sumptuous gains, security and cash flow through their invested amount. In the past few years there has been an explosion in investment in the internation) masks parscularly due to the fact thatthe investor ses the i ft" by branching out towards the intemational market. Usa, tbe ives have contemplated te fact tat ey cee factor by spreading towards the global markt sted oiii) 3) 4) [BBA Sinth Semester (BM) Re relying on the domestic market. Moreover, some internation ‘markets are also expected to bring the advantage of heavy gai to the investors Capital Flows: The third type of capital account isthe capil flows. Tt stands for the investment which would be fruit within a year. Deposits in accounts, short-term securities, sho term loans, investment in the stock market, etc., are the part it. These types of claims are highly susceptible to aséoci changes in the interest rates in associated counties and ug ‘expected variation in the rte of exchenge. For example, in cay} the interest rate in Indie booms without bringing about change in other related variables, the investors would like yf make the best of it by investing or depositing in India; this i ‘tum would bring about heavy cash flow in India. However, i case the hike in interest rate also brings about an associat down fall in the value of Indian eurrency, investors might sl investing here. ‘Official Reserve Account: Official reserves refer to government} resourees. It stands for buying and selling through the central eeognised bank (for example, India’s central bank is “The Reser ‘Bank of India, RBT), In case of arrears or excess inthe balance o payments, there is 2 necessity to bring about the associa wariations in the official reserve. For example, if the country experiencing sbonage of BOP, the central bank has to compenss for it by giving the official resources, like SDRs, foreign exchangl cor gold; it might also borrow from the global central banks. On th ther hend, in case there is excess of BOP in the country, the cent bank: can Keep the surplus amount forthe future use or can paybae the international deb Other items in the BOP Balance of Payments): The other it in the BOP are the things which could not be incorporated ia any the above types. In order to maintain the balance in BOP, they included init. Following are the different types of residual things: i) Brrors and Omissions: In tis calfgory, the errors in record the data may happen tthe time of accounting, ‘The reaso behind these flaws could be depicting the sample instead of t exact data of the dealings (for example, the average export rice is presented, rather than giving an exact record of each ay crery guint), raudulence such a reporting lesser amount fi Gvoiding the levied taxes, illegal transactions outside Country, and to 07 econo BOP. FOREX Mathet & Exchange Control Module 2) ii) Official Reserve Transactions: Except this cag remaining types are known as “autonomous ra Sactions' as a cad out without the dese to bang aoa e nye effect on the BOP or rate of exchange. On the ether hg government or the national central bank canis out he teansactions with some panicular global financial aime hence, keeps these transactions under close scrutiny in dang study how they woul influence BOP andthe rate of exehane ‘Consequently, these transactions are not independent, nd, The foremost under this type is the variations in the nave official reserved resources. A country keeps these resources slobal currencies, or securities for international cumencis, end Special Drawing Rights (SDR) alongwith the IME. Tae SDR scheme permits a country to take the benefits of internation exchange equivalent to its reserves alongwith IMF. It is quite essential that the variation in the deposits of the county be revealed in the total worth of the BOP items. These resources are cut down to spend on the expenses in the, internation) ‘market. These cutting down of the funds are reflected as credits in BOP (as selling them would bring flow of funds in the nation). The excess of these funds are reflected as debit as they ‘are procuring resources. 21.5. Significance of BOP » ‘BOP date may be important for any of the following reasons Panieenant he BOP predicts the business posit ofthe nation Particularly for a short span. The nation which is undergoing severe Shortage of BOP may not be able to impor to the extent it would, if there were excess Now. Displays Pressure: The BOP displays the heavy loads onthe cate of exchange of the county, and hence also adversely affects, the trading capacity of the organisation which wants to trade with or invest in the country, which is undergoing profit or loss in the ‘xchange rate in the international market. The variations in the BOP ‘might foretell the obligaon/etiminaton of iteration! exchange control Indicator of Obligations: The varying BOP ofa nation Falicates the obligatiowelimination of international control relate? 10 Aisborseinent of the interests ant dividends, licensing expen, oval ‘expenses or the other payments tothe international firmsfins store14 with discrete time, financial, and technical 9 ; ject by a 8) Exports of Project: These refer to establishment of @ De ea business firm in another country. The term ‘Project’ has been rmall as “non-routine, non-repetitive and one-off undertaking, normally Deemed Exports: These refer to those “transactions in which ine goods supplied do not leave the country and the payment for ne goods are made in India, by the recipient of the goods”. The BBA Sixth Semester IBM) RCU performance goals”. essential condition is that such goods are manufactured in India. This category of exports has been introduced by the Export Import Policy of the Government of India. 3.1.3. Export Procedure Processing of export order involves following 1) Registration Stage: The exporter is required to register his organisation with a number of institutions and authorities, which directly or indirectly help him in the smooth conduct of export, trade. The registration stage includes: i) Registration of the Organisation: The form of organisation selected by the exporter must be registered under the appropriate Act of the country. a) A joint stock company under the stages: Registration Stage Pre-Shipment Stage Shipment Stage Iz (F | ¥ Post-Shipment Staze oC Companies Act, 1956, b) A partnership firm under the Indian Partnership Act, 1932, and c) A sale trader should seek permission from the local authorities, as required. ii) Opening Bank Account: The expos ter should open a current account in the name of the firm or company with a commercial bank which is authorised by’ the Reserve Bank of India (RBI) to deal in foreign exchange. Such bank also sérves as a source of pre-shipment and post-shipment finance for the exporter. iii) Obtaining Importer-Esporter Code. Number (IEC No,): Prior to 1.1.1997, it was obligatory for every exporter to obtain CNX number from the RBI. However, since then, IEC number issued by the Director General for Foreign Trade (DGFT) has replaced the CNX number. The application form for obtaining IEC number should be accompanied by fee of &, 1,999,roselare, Documentatton & Promotion (Module 3) iv) Obtaining Permanent Account Number (FAN): « Ng income is subject to a number of exemptions and deat under different sections of the Income Tax Act. For cla such exemptions and deductions, the exporter should rem his organisation with the Income Tax Authorities and ob, Permanent Account Number (PAN). Obtaining Sales Tax Number: Exportable goods are exemp, | from sales tax, provided, the exporter or his firm is registe led with the Sales Tax Authorities. For this purpose, the exporter required to make an application in the prescribed form to the Sales Tax Office (STO) in whose jurisdiction his (exporters Office is situated. vi) Registration with Export Promotion Council (EPC): It is obligatory for every exporter to register with the appropriate Export Promotion Council (EPC) and obtain the ‘Registration. cum-Membership Certificate’ (RCMC). The benefits provided in the current EXIM policy are extended only to the registered exporters having valid RCMC. vii) Registration with ECGC: The exporter should also register id with the Export Credit and Guarantee Corporation of India J (ECGC) in order to secure overseas payments against politica and commercial risks. It also helps the exporters in obtaining the financial assistance from commercial banks,and other financial institutions. ao Registration with Other Authorities: The exporter should also register with various other authorities, such as: | a) Federation of Indian Export Organisation. (FIEO), b) Indian Trade Promotion Organisation (ITPO), c) Chambers of Commerce (COC), and d) Productivity Councils, etc. 2) Pre-Shipment Stage: Pre-shipment stage consists of the following steps: . i) Approaching Foreign Buyers: In order to secure an export order, a new exporter can make use of one or more of the techniques, such as advertising in international media, sales promotion, public relation, personal selling publicity and participation in trade fairs and exhibitions. ii) Inquiry and Offer: An inquiry is a request from a prospectiv? importer about description of goods, their standard or gr@0® size, weight or quantity, terms of payments, etc., on getting inquiry, the exporter must process it immediately by making @" offer in the form of a Performa invoice. : sine, ca v ,BBA Sixth Semester (IBM) RCU negotiations are completed and the terms and conditions are finalised, the exporter sends three copies of Performa Invoice to the importer for the confirmation of order. The 'mporter signs these Copies and sends back (wo copies to the €xporter. iv) Opening Letter of Credit: The documentary credit or letter of credit is the most appropriate and secured method of Payment 4 adopted to settle international transactions, on the finalisation of the export, contract, and the importer Opens a letter of credit in favour of the exporter, if agreed upon in the contract, : v) Arrangement of Pre-Shipment Finance: letter of credit, the exporter prox from his bank for procuring components, processing and packi goods to the port of shipment, vi) Production or Procurement of Goods: “shipment finance from the bank, the exp. G the production of the Tequired goods, or On securing the cures a pre-shipment finance Taw materials and other ing of goods and transfer of On securing the pre- orter either arranges for » assistance can be taken from the Indian Institute of Packing (IP). Nii) Pre-Shipment ‘Inspection’: If the Soods to be exported are subject to compulsory quality control and pre-shipment inspection then the exporter should contact the Export Inspection Agency (EIA). For obtaining an inspection certificate, q ix) Central Excise Clearance: The exporters are totally exempted from the payment of central excise duty. However, the exemption should be claimed in one of the following ways: a) Export under rebate, b) Export under bond, (0%) Obtaining Insurance Cover: The exporter must take Appropriate policies in order to insure risks; ECGC policy in Order to cover credit tisks, Marine policy, if the price quotation agreed upon is CIP, clove 4 Poscoand agent i f C&F Agent: Since, exporting is a complex M9, So ing Process, the exporter should appoint a Clearing and Forwarding (C&P) agent for the smooth clearance of goods from the customs and preparation and submission of Various export documents. eeprocedure, Documentation & Promotion (Module 3) 17 3) Shipment Stage: The shipment stage includes the following steps: i) Reservation of Shipping Space: Once the export contract is finalised, the exporter reserves the required space in the vessel for shipment. On accepting the exporter's request. the shipping company issues a Shipping Order. The origina! copy of the shipping order as given to the exporter and the duplicate instruction by the shipping company to the commanding officer of the ship that the goods as per the details given should be received on board. Vii) Arrangement of Internal Transportation up to the Port of Shipment: The exporter makes necessary arrangements for transportation of goods to the port either by road or railways. On loading goods into the railway wagon, the railway authorities issue a ‘Railway Receipt’, which may be either “freight paid’ or freight to pay. It serves as a title to the goods. The exporter does the railway receipt in favour of his agent to enable him to take delivery of the goods at the port of shipment. iii) Preparation and Processing of Shipping Documents: As the 2 goods reaches the port of shipment, the exporter should issue detailed instructions to the C&F agent for the shipment of cargo along with a complete set of the documents listed below: a) Letter of Credit along with the export contract or export order, b) Commercial Invoice (2 copies), c) Packing list or Packing Note, d) Certificate of origin, ¢) GR form (original and duplicate), f) ARE-I Form, 8) Certificate of inspection, where necessary (original copy), and h) Marine insurance policy. oc1¥) Customs Clearance: The cargo must be cleared from the customs before it is loaded on the ship. For this, the above mentioned documents, along with five copies of shipping bill, are to be submitted to the customs appraiser at the customs house. The customs appraiser ensures that all the formalities relating to exchange control, quality control, pre-shipment inspection and licensing have been complied with by the exporter. After verification, all documents except the orginal GR, original copy of shipping bill and one copy of Commercial invoice, are retumed to the C&F agent. 9%), Obtaining ‘Carting Order’ from the Port Trust Authorities: The C&F agent, then, approaches the superintendent of ie concerned Port Trust for obtaining the ‘Carting Order’ forBBA Sixth Semester (IBM) RCU init artin; moving the cargo inside the dock. After obtaining the Carting Order, the cargo is physically moved into the port area and stored in the appropriate shed. : Customs Examination and Issue of ‘Let Export Order’: The customs Examiner at the port of shipment physically examines the goods and seals the packages in his presence. The same can be arranged for at the factory or warehouse of the exporter by making an application to the Assistant Collector of Customs. The customs examiner, if satisfied, issues a formal permission for the : loading of cargo on the ship in the form of a ‘Let Export Order’. “A vii) Obtaining Let Ship Order from Customs Preventive Officer’: ‘Let export order’ must be supplemented by a ‘Let ship order’ issued by the customs preventive officer. The C&F agent submits the duplicate copy of shipping bill, duly endorsed by the customs examiner, to the customs Preventive officer who endorses it with the ‘Let ship order’. i) Obtaining Mate’s Receipt and Bill of Lading: The goods are then loaded on board the ship for which the mate or the Captain of the ship issues Mate’s receipt to the Port Superintendent. The ce Gu and two to three non-negotiable copies of Bill of lading, 4) Post-Shipment Stage: The post-shipment Stage consists of the following steps: i) Submission of Documents by the C&F Agent t \ Exporter: On the completion of the shipping Procsaee he C&F agent submit the following documents to the exporter: a) A copy of invoice dily attested by the customs, : b) Drawback copy of the shipping bill, ©) Export promotion copy of the shipping bill, d) A full set of negotiable and non-negotiable Copies of bil, of €) The original L/C, export order Or contract, and f) Duplicate copy of the ARE-I form, ii) Shipment Advice to Importer: After the shi V ) the ae intimates the importer about the shipmeng seo giving him details about the date of shipment, the name om is vessel, the destination, etc. He should also send one co; the non-negotiable bill of lading to the importer. PY of eecedure. Documentation & Promotion (Module 3) | 2 iit) of s . 1 Presentation of Document to Bank for Negotiation | | mm: @ Submission of relevant documents to the bank and the pro, of getting the payment from the bank are called “Negotiation © the Documents’ and tile documents are called ‘Negotiable set e Documents’. The set normally contains: of a) Bill of exchange, sight draft or usance draft, b) Full set of bill of jading or airway bill, ¢) Original letter of credit, d) Customs invoice, c) Commercial invoice including one copy duly certified by the customs, * f) Packing list, g) Foreign exchange declaration forms, GR/SOFTEX/pp forms in duplicate, h) Exchange control copy of the shipping bill, i) Certificate of origin, GSP or APR certificate, etc., j) Marine Insurance Policy, in duplicate. i Dispatch of Documents: The bank negotiates these documents to the importer’s bank in the manner as specified in the L/C. Before negotiating documents, the exporter’s bank scrutinises them in order to ensure that all formalities have been complied with and all documents are in order. The bank then sends the bank certificate and attested copies of commercial invoice to the exporter. Acceptance of the Bill of Exchange: Bill of exchange accompanied by the above documents is known as the documentary bill of exchange. The types of documentary | collections and each relates to a buyer option for payment for the documents at presentation. This include the following: a) Documents against Payment (/P): In D/P terms, the collecting bank releases the documents to the buyer only upon full and immediate cash payment. D/P terms most closely resemble a traditional cash-on-delivery transaction. ‘The buyer must pay the presenting/Loileciuis, vat payment in freely available funds in order to possession of the documents. This type of collection © the greatest security to the seller. b) Documents against Acceptance (D/A): In D/A terms the collecting bank is permitted to release the documents !° : buyer against acceptance (signing) of a bill of exchange signing of a time draft at the bank promising to pay * | later date (usually 30, 60 or 90 days), The completed daft alBBA Sixth Semester (IBM) RCU Presented to the buyer for the collecting bank sends hich in turn sends them to held by the collecting bank and payment at maturity, after which the funds to the remitting bank, w the principal/seller. Letter of Indemnity: payment from his bank signing a letter of in indemnity the exporter the event of non-receipt with accrued interests, d) Realisation of Export Proceeds: On receiving the documentary bill of exchange, the importer releases Payment in case of sight draft or accepts the usance draft undertaking to pay on maturity of the bill of exchange. The exporter’s bank receives the payment through importer’s bank and is credited to exporter’s account, ( vi) Processing of GR Form: On Teceiving the export proceeds, the exporter’s bank intimates the same to the RBI by recording the fact on the duplicate copy of GR. The RBI verifies the details in “duplicate copy of GR with, the, original copy of GR received from the customs. If the details are found to be in order then the export transaction is treated to be completed. ii) Realisation of Export Incentives: If the exporter is eligible for export incentives, then he should submit claim for the same accompanied by the bank certificate to the appropriate authority. a c The exporter can get immediate on the submission of documents by demnity. By signing the letter of undertakes to indemnify the bank in of payment from the importer along 3.14. Documents Related to Export Trade Oy tne exact documentation required for exporting goods from the one country depends on the goods in question as well as the country to which the goods are being exported. However, the most common commercial and regulatory export documents required may be classified into following forms as shown in figure {pPocument Related to Shipment J? ‘Documents Relating Nw Inspection Documents Related to Foreign” Exchange Regulation Additional Documents | ep “gp” “Seeon BBA Sixth Sernester (IBM) RCU held by the collecting bank and Presented to the buyer for payment at maturity, after which the collecting bank sends ; the funds to the remitting bank, which in turn sends them to | the principal/seller. c) Letter of Indemnity: The exporter can get immediate payment from his bank on the submission of documents by signing a letter of indemnity. By Signing the letter of' indemnity the exporter undertakes to indemnify the bank in the event of non-receipt of payment from the importer along with accrued interests. } d) Realisation of Export Proceeds: On receiving the ; documentary bill of exchange, the importer releases payment in case of sight draft or accepts the usance draft undertaking to pay on maturity of the bill of exchange. The ; exporter’s bank receives the payment through importer’s bank and is credited to exporter’s account. ( vi) Processing of GR Form: On Teceiving the export proceeds, the 2 exporter’ bank intimates the same to the RBI by recording the fact on the duplicate copy of GR. The RBI verifies the details in “duplicate copy of GR with, the, original copy of GR received from the customs. If the details are found to be in order then the export transaction is treated to be completed. ii) Realisation of Export Incentives: If the exporter is eligible for export incentives, then he should submit claim for the same accompanied by the bank certificate to the appropriate authority. K Ry 3.1.4. Documents Related to Export Trade Yo tne exact documeniiation required for exporting goods from the one country depends on the goods in question as well as the country to which the goods are being exported. However, the most common commercial and regulatory export documents required may be classified into following forms as shown in figung'below. Documents Related a Ade Documents Related to Goods {Document Related to Shipment 5 |_| — Relating & | Inspection Documents Related to Paymcn Documents Related to Foreig Exchange Regulation Additional Documents150 BBA Sixth Semester (IBM) RCU i eroplanes, 10) For the Defence: Essential war equipments, weapons, a ool anes, ctc.. are imported from advanced countries for our defence. their cost, it is Necessary to increase exports. 11) To contribute Economie Development of Country: When mn domestic market is small, foreign market provides opportunities achieve economies of scale and growth. The supply of many Fommodities, as in the case of a number of agricultural products ih India, is more than the domestic demand. 3.4.3. Measures for Export Promotion VOY To provide effective Support to the exporters, particularly new and small exporters ard effective system consisting of several export assistances have been instituted. Although the intensity and coverage of these measures have undergone change with the liberalisation of policy, there does exist a number of schemes for export production as well as marketing. The. various export assistance or promotion measures are undertaken through a number of organisations existing both at the Centre and State Jevel. Export assistance includes the following: 1) Production Assistance: Export production assistance is available right from the Stage of acquiring land and building, procuring plant machinery, equipments, components, spares, _ technical guidance/training, to giving finance and credit in time at comparatively cheaper rate, Export production assistance includes following facilities provided to enhance the assistance: i) Infrastructural Facilities: Besides providing land and building to exporting units, Special Economic Zones, Technology Parks, Export Promotion Parks, Industrial Estates, etc., have been set- up in various parts of the country. There are 8 Special Economic Zones at Kandla (Gujarat), Santa Cruz (Maharashtra), Falta (West Bengal), Noida (UP.), Cochin (Kerala), Chennai (Tamil Nadu), Surat (Gujarat), and Visakhapatnam (Andhra Pradesh) which are functional at present (Sept ‘03), Whereas all the Zones, except Seepz, are multi-product Zones, the Seepz at Santa Cruz in Bombay is exclusively for Electronics ang Gem and Jewellery items. Private Bonded Warehouses for Exports are also allowed to be set-up in DTA (Domestic ‘Tariff Area) for procurement of goods from Gate manufacturers without payment of duty. Such app Hes are considered as_physical export, provided payment for the same is made in foreign exchange.~ | Documentation & Promotion (Module 3) c Procedures / ii) Mannfacture-in-Bond: Manufacture-in-bond facility Available both in Whereas rule 13 0} Regulations, Section is the excise as wel} as customer tegulationg f the Central Excise Rules relates to Excise 65 of the Customs Act provides facilities of manufacture in bond. iii) Machinery and Equipments: Besides making available i ‘and equipments on lease, there is a special facility tg feet co (Capita Goods) at 5% duty under EPCG, i.e., Export Promotion Capital Goods Scheme. iv) Production Inputs: Raw-materials, components, — spares, consumables, etc., whether indigenous or imported, can be obtained for export production under various schemes. Imported inputs for use in export products are importable duty free under the Duty Exemption/Remission Scheme, popularly known as Advance Licensing Scheme, Duty Free Replenisbment Certificate (DFRC), and Duty Entitlement Passbook (DEPB) Scheme, although there are several other schemes covered there under. Still another scheme known as duty free import entitlement scheme has been introduced for status holder exporters including service providers. Goods (including CG) are also allowed to be imported without an import license or Customs Clearance Permit (CCP) for jobbing, repairing, servicing, etc., against bond, surety/security. ‘Such goods are to be re-exported with specified minimum value addition. They are special for export of gold/silver jewellery and articles as also for specified sectors like pharmaceuticals, readymade garments other than leather garments, electronics/ writing instruments, and engineering goods. v) Technology Up-gradation: Besides allowing duty free import | of technical samples/prototypes and trade samples upto | specified value, simplified approval mechanism has been introduced for foreign technology agreements. Foreign exchange is also released liberally for foreign visits and testing abroad of indigenous raw materials. National Laboratories, oe Test House, etc., provide technical guidance for export Seen eee Test House offer special technical support the industry. SISIs and Regional Testing Laboratories also provide technical support. vi) Packing Credit: It is also know available even if there is no e cash credits and overdraft faci rate of interest, nas pre-shipment credit. It is *xport other in hand, It consists of ilities, and given at a concessional, \ 152 P nn : ebbescon Semester (IBM) RCY “2 pre-shipment credit is also available in fore: the PCFC Scheme. It is applicable to bot imported inputs for export goods. ii) Back-to-Back Letter of Credit (L/C): An inland Back- “ Letter of Credit Scheme has been instituted wich peter at suppliers of raw-materials, samples, etc., to exporter, eligible for export packing credit on the basis of export order or L/C in the name of the export order holder. ° ign curtency undey th the domestic and 2) Marketing Assistance: A number of steps have been taken to assist . the exporters in their marketing effort. These include conducting, sponsoring or otherwise assisting market surveys and: research; collection, storage, and dissemination of marketing information, organising and facilitating participation in international trade fairs and exhibitions; credit and insurance facilities; release of foreign exchange for export marketing activities; assistance in export procedures; quality control and pre-shipment inspection; identifying markets and products with export potential; helping buyer-seller interaction, etc. Some of the schemes and facilities which assist export marketing are as follows: : i) Marketing Development Fund (MDF): This came into being in 1963-64, the nomenclature was changed to Marketing Development Assistance (MDA) in 1975. The- fund is administered for providing grants/assistance to’ Export Promotion Councils, other export bodies, also for special schemes approved for specific export promotion efforts. The fund is on the decline, and sufficient amount had not been set apart in recent years. Assistance under the MDA is available for market and commodity researchers; trade delegations and study teams; participation in trade fairs and exhibitions; establishment of offices and branches in foreign countries; and grants-in-aid to EPCs and other approved organisations for export promotion. Interest on Export Credit by commercial banks and approved Cooperative banks enjoy a subsidy of 1.5% out of MDA. Most of the MDA expenditure in ‘the past was absorbed by the ccs. The CCS helped the exporters to increase the price Competitiveness of the Indian products in foreign markets. i) Cash Compensatory Support: Cash assistance for exports, which was later termed as Cash Compensatory Support (CCS) Was introduced in 1966. The statedobjectives were to come Exporters to meet competition in foreign markets, (0 eee Marketing competence and to neutralise disadvantages he main in the existifig stage of development of the economy. "F * proceddure, Documentation & Promotion (Module 3) isa basis for the CCS Scheme was to provide compensation for unrebated indirect taxes (on both final and intermediate stages of production) which enter into export production but are not refundable through Duty Drawback System. iii) Foreign Exchange: It is released for undertaking approved market development activities such as participation in trade fairs and exhibitions, foreign travel for export promotion, advertisement abroad, market research, procurement of samples, and technical information from abroad. iv) Trade Fairs and Exhibitions: As trade fairs and exhibitions vy) vit vii) Quality Control and Pre-Shipment Inspection: are effective media of promoting products, facilities are provided for enabling and encouraging participation of Indian exporters/manufacturers in such events. Foreign exchange is released for such purpose, the cost of participation is subsidised and the ITPO plays an important role in organising and facilities participation in trade fairs/exhibitions. Besides the ITPO, some other promotional agencies also organise trade fairs. For example, the MPEDA organises sea foods trade fair in India, in every 2" year, which attracts a number of foreign buyers and others connected with the sea foods industry. Export Risk Insurance: As international business in fraught with different types of risks, measures have been taken to provide insurance covers against such risks. The Export Credit Guarantee Corporation (ECGC) has policies covering different political and commercial risks associated with export marketing, certain types of tisks associated with overseas investments and risks arising-out of exchange rate fluctuations. Further, ECGC extends the export credit risks cover the commercial banks. Marine insurance is provided by the general Insurance Corporation and its subsidiaries. Finance: The export-import bank and commercial banks and certain other financial institutions like specified cooperative banks provide pre-shipment and post-shipment finance to exports. Some of these institutions also provide suppliers’ credit including line of credit, to promote Indian exports. Export credits generally carry concessional interest rates. ‘A number of steps have been taki improve the quality P! en by the Government to imp: vate quality of exports and to ensure that only goods of appro’ . ‘ol and are exported from the country. The Export (Quality Comessary Inspection) Act empowers the Government to m regulations in this respect. =| m BBA Sixth Semester (BM) RCU : is assisted in vili) Institutional Assistance: Export marketing anya ITPO, different ways by a number of organisations Tike TNE 2° EPCS, Commodity Boards, Export Development {YUN like the MPEDA and APEDA, JIFT, Indian Mission " Dollar Denominated Credit for Exporters: There has f ee persistent complaint, rightly so, from the exporter: eflected interest rates in India are higher: This consequently is r eae in the cost of the products, which makes firms non-compe™s He in quite a few products. Even though government agr ae principle, it is not able to bring-down the interest rates in due to the fact that such a move would increase the money supply, and result in inflation. ix 3.4.4. Stages of Export Promotion , An exporter needs guidance and assistance at different stages of his export effort. For this purpose the government of India has set-up several institutions whose main functions are to help the industry and trade engaged in exports. Institutions engaged in export effort fall in six distinct stages: At the top is the Department of Commerce in the Ministry of Commerce and Industry. This is the main organisation that formulates and guides India’s trade policy. At the second stage, there are advisory bodies to ensure that export problems are comprehensively dealt with after mutual discussions between the Government and the Industry. At the third stage are the commodity specific organisations, which deal with problems relating to individual commodities and/or groups of commodities. The fourth stage consists of service institutions, which facilitates and assist the exporters to expand their operations and reach- out more effectively to the world markets. The fifth Stage consists of Government trading organisations specifically set-up to handle export/import of specified commodities and to supplement the efforts of the private enterprise in the: field of export promotion and import management. Agencies for export promotion at the state level constitute the sixth stage. Table 3.2: Promotion Stages of Institutions Stages Bodies Responsibilities T Department of Commerce. Framing of Trade Policy, rit Advisory Bodies Coordinating discussions between industry and Government for bringing in Tequited changes,