Guidlines to Start Export
International marketing is complex and challenging activity in today’s dynamic world environment. International marketing involves the performance of operations that determine existing and potential demand in a market. In order to determine the market opportunity it is necessary to study the customers market needs and characteristics through market research, demand, analysis and forecasting. It should also consider situations that may influence existing and potential demand. In order to influence the demand pattern of customers, the marketing operations should include activities like product development, branding and packaging, pricing, advertising, sales promotion, public relations etc.
Exporter stands a much greater chance of success if as a first step he starts thinking about his objectives in terms of what products to export, where to export and how to export. To meet the objectives and to effectively utilize resources an action plan should be prepared. Top management’s commitment is the most important factor leading to export success, A successful exporter should be aware of the strength and weaknesses of his competitors from other countries, who export to the same international market.
It is necessary to select very carefully the products to be sold in any particular market. The selected products must be in demand in the country where the product is to be sold. Exporter should select the product that can be manufactured and sourced with consistent standard quality The products selected should be those that can be manufactured at most economic cost so that it can be competitively priced and is profitable to sell. The products should be available in sufficient quantity so that timely and regular supply can be ensured.
The target markets should be selected after consideration of various factors like past performance, market size, scope of export of selected product, demand stability, preferential treatment to products from developing countries, penetration of competitive countries and products, distance of potential market, transport problems, language problems, tariff and non-tariff barriers applicable, distribution infrastructure, competitive pricing etc. The exporter should collect adequate market information before selecting one or more target markets.
Export costing and financing - In the era of global market economy and fierce competition, importance of accurate costing of product need not be over- emphasized. In-accurate costing can lead to either losing the order or loss of profit. Export pricing is the most important tool for promoting sales and contesting international competition. Exporter has to face competition from domestic producers in the export market, producers in other competing supplying countries and domestic producers in his own country.
Cost, demand and competition are the three important factors that determine price. The price for export should be as realistic as possible. The exporter has to exclude cost for domestic production which are not applicable for export and add those elements of cost which are relevant to the export product. The price has to be realistic considering all export benefits and prices in foreign market. There is no fixed formula for successful export pricing. It differs from exporter to exporter depending upon whether the exporter is a merchant or manufacturer. Pricing strategies shall also depend on various circumstances and situations. Exporter can still be competitive with higher prices if he offers better delivery package or other added advantages.
Price Vs Cost – Price and cost are not synonymous. Price is what the seller offer to the customer. Cost is the price that is incurred for the product. Price includes profit margin. Cost only gives the expenses incurred. This may form the basis of price policy. Price may include any contingency i.e, any liability likely to be incurred in future, but is not certain to happen. Such liability is added either in full or part, depending upon the probability of happening of event.
Export price -Additional expenses that have to be added in export price are:
- Loading charges from works to truck/rail/air, etc
- Freight charges to port of shipment
- Clearing and forwarding charges
- Dock charges/terminal handling charges etc
- Freight charges to the destination port
- Insurance charges
- Insurance (both to port of shipment and to destination)
- Interest charges (special rates available for exports)
- Guarantee/Warrantee costs
- Any other expenses
In order to withstand international competition, the Government offers certain exemptions and incentives/benefits. These are additional realizations which intend to reduce the cost of your product. The following are a few of them:
- There is no sales tax applicable on the final product.
- There is no excise duty applicable on the final product
- One can claim duty drawback
- Income tax benefits under 80HHC
- Special import license
- Credit of duty under Duty Entitlement Pass Book Scheme
- Any other specific subsidy announced by the Government
Depending upon the export pricing strategy these factors can be taken into account for the final price quote.
- Special packing, marking and labeling
- Additional supervision and effort for export production
- Export transportation cost
- Cost of export procedures
- Marketing cost
- Additional insurance cost
An exporter can determine whether the price is competitive by simply looking at the prices quoted by other exporters and foreign producers for the same product in a particular market.
Identifying and contacting prospective buyers -Identification of right market, buyer and product sets the ball of success rolling. A beginner in export should recognize the importance of correspondence with the buyer. When the exporter has entered into correspondence, there my be delay in receiving response from his customer. He should not hesitate in reminding him in a very polite manner after lapse of a reasonable time. After having generated firm inquiries one should proceed to make a firm offer. An offer is a document which is drawn in favor of the buyer clearly indicating the items offered, the price at which it is offered, quantity, terms of delivery, payment, etc. Offers are normally made through Pro-forma Invoices clearly stating the terms and conditions. An offer can also be in the form of a letter. After making an offer, it is always advisable to obtain the buyer’s acceptance. Buyer’s acceptance may be obtained by his signing the duplicate copy of the offer. It can also be in the form of an acceptance letter from the buyer. The following information should be incorporated in the offer:
- Unit price and the currency
- Description of the item
- Terms of delivery: FOB/C&F/CIF etc.
It is advisable to make a remark in the offer whether the shipment will be made by air/ocean
Payment terms - The mode of payment required from the buyer has to be clearly stated. A few of the common modes of payment are as under:
- Letter of Credit - This is a documentary credit whereby a bank guarantees the payment on behalf of a buyer subject to the beneficiary submitting documents conforming to the L/C terms. This is the most commonly used mode of payment.
- Cash against documents or Documents on presentation - This is the same as Documents through bank. The bank delivers the negotiable set of documents to the beneficiary
- D/A (Documents on acceptance) -- This is a credit facility given for a certain period. D/A 90days means that the beneficiary will pay 90 days after the documents or re delivered to/accepted by the buyer.
- Advance payment - One can also ask for Advance payment in full or part (in combination with one of the above). It should, however, be noted that the payment has to be through authorized banking channels. After receiving the advance payment a FIRC (Foreign Inward Remittance Certificate) should be obtained from the bankers. This should be submitted to the negotiating bank after shipment.
Mode of shipment - It should be clearly stated whether shipment will be made by air, ocean liner, post parcel, road etc. It is also advisable to state the shipment port and destination port.
Packing - The manner in which the goods will be packed should be mentioned. Packing plays a very important role in exports. The packing should be export worthy to ensure that the goods reach the buyer in proper shape.
Validity - The validity of the offer should be clearly indicated. There may be occasions when by the time the order is received the input costs have increased.
Delivery - The delivery period should be clearly stated. This should also indicate whether shipments will be in parts (part shipment) and whether transshipment should be allowed.
Sending / Exporting samples and exhibits -The samples should have attraction, information, retention and reminder values. In terms of Foreign Exchange Management (export of goods and services) Regulations, 2000 trade samples of goods and publicity material supplied free of payment may be exported freely without making any declaration about their value or undertaking to bring into India any foreign exchange. The Samples of any value can be sent freely by air or sea, if the customs authorities are otherwise satisfied. The samples properly marked with regard to value can be sent by air or sea on submission of the following documents:
- Shipping bill - Since the samples neither attract any export duty nor are entitled to duty drawback, a free shipping bill in duplicate (or in triplicate if transshipment is involved) is to be submitted.
- Commercial invoice - A copy of the exporter’s commercial invoice declaring the value of the parcel.
- Packing list (one copy), if more than one packet.
- Proof showing the need for sending the sample - Usually foreign buyer’s letter asking for the sample should be sent in original.
Parcels packed and addressed in the prescribed manner may be sent along with the above mentioned documents to your clearing and forwarding agents. After their shipment by sea or air, you shall get a bill of lading or air way bill a copy of which should be sent to the addressee by the exporter for enabling the former to take its delivery. The samples of goods against which foreign buyer agrees to make payment can be exported in the same manner in which normal exports are effected.
Registration of exporters - An exporter is primarily required to register himself with the Import export authorities, export promotion councils, sales tax authorities and central excise authorities. It is pertinent to mention here that w.e.f 1.1.1997 an exporter is no more required to register with the Reserve Bank of India.
Necessity for obtaining IEC Number - The customs Authorities will not allow import or export of goods into or from India unless one holds a valid Importer Exporter Code number. The Importer Exporter Code Number is issued under the import export policy and handbook of procedures issued by the Ministry of Commerce. As per the export import policy, no export or import shall be made by any person without an Importer-Exporter Code (IEC) number unless specifically exempted. This number is required to be filled in the bill of entry incase of imports or shipping bill incase of exports or any other documents prescribed by rules made under the Foreign Trade Development and Regulation Act or the Customs Act 1962. The code number is also required to be filled in foreign exchange declaration forms like GR, PP forms etc and other applications required to be submitted by the exporters to banker/RBI.
Issue of IEC Number and Statement - The licensing authority concerned issues an IEC number. A copy of such IEC number is endorsed to the concerned Bankers as per the details given in the IEC application form. A consolidated statement of IEC numbers issued by the licensing authority shall be sent to the offices of the Exchange Control Department of the RBI. An IEC number allotted to an exporter is valid for all its branches/division/units/factories. Each IEC holder is required to furnish yearly details of imports/exports made by him in the preceding licensing year by 30th June. The information shall be furnished online by the IEC holder by accessing the website at www.nic.in/eximpol. Failure to submit the details by the stipulated period shall result in blocking of such IEC for import/export purposes from 1st July. In cases, where the IEC holder has not made any import/export in the preceding licensing year, such IEC is made inoperative from 1st July by the
Director General of Foreign Trade.
Registration with Export Promotion Councils - Any person applying for a license/certificate to import-export or any other benefit or concessions under Import Export Policy is required to furnish a Registration-cum-Membership Certificate granted by the Export Promotion Councils. In the case of Natural Rubber, Rubber Board is the authority to issue RCMC. Prescribed application form is available in Rubber Board website www.rubberboard.org.in. The form may also be collected from the Market Promotion Department of the Rubber Board. Application should be submitted in duplicate. Documents to be enclosed with the application form are:
- A self attested copy of the IEC number issued by the licensing authority concerned
- A Certificate from the bank in support of the applicant’s financial soundness.
- A self attested copy of Dealers/Processors License or Cert9ificate of registration of estate issued by the Rubber Board.
Application for RCMC duly filled in along with enclosures should be sent to The Dy. Director (Marketing), Market Promotion Department, 1st Floor, Central Laboratory Building, RRII Campus, Rubber Board, Kottayam-686 009, Kerala. If the application for registration is granted, the Registering authority issues the Registration-cum-Membership Certificate. The RCMC is deemed to be valid from 1st April of the licensing year in which it was issued and shall be valid for five years ending on 31st March of the last licensing year. No fee is required for registration as an exporter of Natural Rubber. In order to monitor the export of Natural Rubber, a statement showing the details of export made in every month should be furnished on or before 5th of the succeeding month in the prescribed format. If there is no export in a particular month, a “Nil” statement may be sent.
Registration with Sales Tax Authorities - Goods which are to be shipped out of country for exports are eligible for exemption from both State and Central Sales tax. For this purpose, the export firm should be registered with sales-tax authorities of the concerned State after following the prescribed procedures.
General procedure for registration
For registration apply to the sales-tax officer under whose jurisdiction your head/registered office is located. Thereafter, a sales-tax inspector may visit your office to check
- account books showing sales/purchase transactions
- house rent/tax receipt
- partnership deed or other relevant documents
- ration card etc
Registration under the Central Sales Tax Act - Every dealer who sells any local taxable good in the course of inter-state trade and commerce shall be liable to get registered under the Central Sales Tax Act. Registration must be applied within 30 days from the date on which first inter-state sale is effected. The registration under the Central Act may be applied either along with the registration under the Local Act or subsequently. However, registration under Local Act is compulsory before the dealer is registered under the Central Act. The procedure for registration and the details/documents required are similar to that under the Local Act. The Registration Certificate under Central Act is issued in Form B. Registration entitles a dealer to purchase goods from outside the State, for resale or for use in manufacture, at concessional rate of tax by furnishing a declaration.
Procedure for claiming Exemption from Sales Tax - By virtue of Section 5 of the Central Sales Tax Act, a dealer who is registered with the Sales Tax Authority, can claim the exemption from sales tax in respect of sales of such goods in the course of exports out of the territory of India. The exporter can buy the goods from dealer/manufacturer for the purpose of export trade without payment of sales tax by issuing Form H to the selling dealer from whom he purchases goods for export. After registration with Sales Tax Authority, the exporter should apply in prescribed pro-forma to the concerned Sales Tax Officer for issuing “Form H” along with the following documents:
- Copy of the shipping bill, duly certified by the Customs authority
- Copy of invoice duly certified
- Copy of letter of credit
- Copy of confirmed export order
The exporter usually has to execute a surety bond in prescribed form ( for safe custody of the statutory forms to be issued to him) if so directed by Sales Tax Officer. On receipt of the application the STO may order for issuance of Form H to the exporter. After the goods have been exported the exporter shall fill in Form H in triplicate. One copy of Form H will be retained by the exporter and the other two copies will be given to dealer or manufacturer from whom the exporter has purchased the goods for export. Form H cannot be endorsed in favor of a third party. The exporter is also required to maintain a proper account of Form H in the prescribed form/register. This prescribed form/register duly filled up, is to be submitted to Sales Tax Authority, within the prescribed time limit.