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Concepts On International Marketing

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Published in: Management Subjects
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An introduction into International Marketing

Ayon R / Kolkata

13 years of teaching experience

Qualification: MBA/PGDM (L.P.U. (PUNJAB) - 2014), CS (I.C.S.I. (INSTITUTE OF COMPANY SECRETARIES OF INDIA) - 2013), B.Com (UNIVERSITY OF CALCUTTA - 2010), Integrated PG (C.I.M.A. (U.K) - 2013), PG Diploma (PRACHEEN KALA KENDRA CHANDIGARH - 2014)

Teaches: CA - CPT, CMA Foundation, CS - Foundation, ICWA & ICWAI, Accountancy, Business Studies, Commerce Subjects, Economics, B.Com Tuition, BBA Tuition, Bank Clerical, IBPS, BBA Subjects, Management Subjects, Tabla

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  1. B. INTERNATIONAL MARKETING (50 MARKS) CHAPTER 1. Definition of International Marketing. According to Business Dictionary, international or global marketing is defined as presenting an idea and final product to the rest of the world for the purpose of gaining an international marketing community. Examples of international companies include McDonalds and Coca-Cola. International marketing is simply the application of marketing principles to more than one country. However, there is a crossover between what is commonly expressed as international marketing and global marketing, which is a similar term. Nature and Scope of International Marketing. Nature of International Marketing 1. Broader market is available — Unlike domestic marketing the market is not restricted to national population. Population of other countries can also be targeted in international marketing. 2. Involves at least two set of uncontrollable variables — In domestic marketing the marketers have to interact with only one set of uncontrollable variables. In international marketing at least two set of uncontrollable variables are involved or more if the marketing organization deals in more countries. 3. Requires broader competence — Special management skills and broader competence is required in international marketing/business. 4. Competition is intense — An international marketing organization has to compete with both the domestic competitors and the international competitors. Hence, the competition is intense in international marketing. 5. Involve high risk and challenges — International marketing is prove to various kinds of risk and challenge like — political risk, cultural differences, changes in fashion and style of foreign customers, sudden war, changes in government rules and regulations, communication challenges due to language and cultural barriers, etc,. Scope of International Marketing 1. Export — It is a function of international business whereby goods produced in one country are shipped to another country for further sale or trade. 2. Import — Goods or services brought into one country from another for use or sale. 3. Re-export — Import of semi-finished goods, further processing, and export of finished goods.
  2. c. 4. Contractual Agreements: Patent licensing, turn key operations, co - production, technical and managerial know - how and licensing agreements are all a part of international marketing. Licensing includes a number of contractual agreements whereby intangible assets such as patents, trade secrets, know - how, trade marks and brand names are made available to foreign firms in return for a fee. INTERNTIONAL MARKETING ENVIRONMENT AND ITS FACTORS International marketing environment is a set of controllable (internal) and uncontrollable (external) forces or factors that affect international marketing. International marketing mix is prepared in light of this environment. It consists of global forces, such as economic, social, cultural, legal, and geographical and ecological forces, that affect international marketing decisions. International marketing environment for any marketer consists of internal, domestic, and global marketing forces affecting international marketing mix. G) Global Factors International UncontroliabEe Environment Err#uvtMR (c) Organisetional Factors Internal Maüeting Environment Product Internadonal Markeång Promotion Ptace Figure Three-level International Maltetjng Environment Internal or Organizational Factors: These are internal and controllable factors. They are related to internal situation of the company dealing with international trade. International marketer needs to use, adjust,
  3. and organize these factors to satisfy needs and wants of the (international) target markets. These factors include: i. Objectives of company ii. Managerial philosophy of company iii. Personal factors related to management iv. Managerial attitudes toward other nations, customers, social welfare, etc. v. Company's policies and rules vi. Resource ability of company and marketing mix vii. Form of organisation and organisational structure. viii. Nature and types of employees ix. Internal relations with other departments x. Company's relations with other stakeholders and service providers. Domestic Factors: Domestic factors are related to the economy of the nation. Overall economic, social and cultural, demographic, political and legal, and other domestic aspects constitute domestic environment for international marketing. This environment affects international marketing mix in several ways. Important domestic factors include: i. Political climate/stability/philosophy ii. Government approach and attitudes toward international trade iii. Legal system and business ethics iv. Availability and quality of infrastructural facilities v. Availability and quality of raw-materials vi. Functioning of institutions and availability of facilities vii. Technological factors viii. Ecological factors, etc. Global Factors / External Factors: Such factors are related to the world economy. Broader picture of global phenomenon affects every decisions of international marketing. Main global factors include: 1. 2. 3. 4. Customer-related factors. Political and legal factors Social factors Cultural factors
  4. 5. 6. 7. 8. 9. Competition Global relations among nations and degree of the worldwide peace. Geographic/ecological/climate-related factors Functioning of international organisations like UNO, World Bank, WTO, etc. Availability of marketing facilities and functioning of international agencies, etc. CHAPTER - 2. A. B. FOREIGN MARKET ENTRY DECISIONS. A company can enter a foreign market via the following three categories of entry modes, according to the level of control . 1. Hiqh control modes: Foreign Direct Investment (FDI) in form of wholly owned subsidiaries (WOS), or direct selling to big customers (OEMs), both entry modes are equal to full control with activities in foreign markets. 2. Intermediate modes: Mainly strategic alliances (SA) and joint ventures (JV) are somehow in- between high and low control modes. Within this category of entry modes partners agree to share resources, technology, profits, and jobs, and supplement each other's needs for a long period of time. Unlike a joint venture company, a strategic alliance does not involve formation of a new company. Typically in such cooperations, the local partner provides market-specific knowledge, such as marketing skills and relationship cultivation that are fundamental to parent companies' operations in new foreign markets. 3. Low control modes: Indirect and direct export belongs to the low control category. Indirect export represents the lowest degree of control of the activities in the foreign market. It occurs when the parent company uses independent organizations located in the parent company's own country (or third country). Direct export occurs when the parent company sells directly to an agent, distributor or importer located in the foreign market area. This provides a higher degree of control than with indirect export, but still direct export belongs to the low control modes, as the parent company deals with a foreign independent company, which can decide independently and may choose to include products from several different parent companies. FACTORS AFFECTING THE EBTRY IN FOREIGN TRADE. F•ctors Affecting Selection or Sf•rket Entry Mode External Muket S MuEet Growth GovernttEnt Level of Cornvrt'tt«t Level of R.jsk PoltuceJ Econom•e and Shipping Internal FEtors Objectives Ava: Labtllty Level of E-.x$rnence Flexibility
  5. External Factors: i) Market Size: Market size of the market is one of the key factors an international marketer has to keep in mind when selecting an entry mode. Countries with a large market size justify the modes of entry with long-term commitment requiring higher level of investment, such as wholly owned subsidiaries or equity participation. ii) Market Growth: Most of the large, established markets, such as the US, Europe, and Japan, has more or less reached a point of saturation for consumer goods such as automobiles, consumer electronics. Therefore, the growth of markets in these countries is showing a declining trend. Therefore, from the perspective of long-term growth, firms invest more resources in markets with high growth potential. iii) Government Regulations: The selection of a market entry mode is to a great extent affected by the legislative framework of the overseas market. The governments of most of the Gulf countries have made it mandatory for foreign firms to have a local partner. For example, the UAE is a lucrative market for Indian firms but most firms operate there with a local partner. iv) Level of Competition: Presence of competitors and their level of involvement in an overseas market is another crucial factor in deciding on an entry mode so as to effectively respond to competitive market forces. This is one of the major reasons behind auto companies setting up their operations in India and other emerging markets so as to effectively respond to global competition.
  6. v) Physical Infrastructure: The level of development of physical infrastructure such as roads, railways, telecommunications, financial institutions, and marketing channels is a pre- condition for a company to commit more resources to an overseas market. The level of infrastructure development (both physical and institutional) has been responsible for major investments in Singapore, Dubai, and Hong Kong. As a result, these places have developed as international marketing hubs in the Asian region. vi) Level of Risk: From the point of view of entry mode selection, a firm should evaluate the following risks: a) Political Risk: Political instability and turmoil dissuades firms from committing more resources to a market. b) Economic Risk: Economic risk may arise due to volatility of exchange rates of the target market's currency, upheavals in balance of payments situations that may affect the cost of other inputs for production, and marketing activities in foreign markets. International companies find it difficult to manage their operations in markets wherein the inflation rate is extremely high. c) Operational Risk: In case the marketing system in an overseas country is similar to that of the firm's home country, the firm has a better understanding of operational problems in the foreign market in question. vii) Production and Shipping Costs:
  7. Markets with substantial cost of shipping as in the case of low-value high- volume goods may increase the logistics cost. viii) Lower Cost of Production: It may also be one of the key factors in firms deciding to establish manufacturing operations in foreign countries. CHAPTER - 3. A. PRODUCT AND SERVICE PACKAGING Product packaging: Product packaging isthe art and science of creating boxes, covers, tubes, bags and other containers thatare sturdy enough to protect the product inside, and that are effective promotional pieces in themselves. To a very large degree, the quality of design work on the package affects how well your products sell.When shopping, you reach for products whose packaging is attractive and looks p rofessional, and you instinctively shy away from unattractively packaged products. The design of the container along with the images, logos, marketing text, ingredients and fine print, all go into creating something people will feel confident to buy. Therefore it is essential that packaging be of the highest quality so that it acts as your in-store salesperson Issues in packaging in international markets: International marketers need to take into account the following factors for deciding appropriate packaging in various international markets; changes in climates across countries lengthy & difficult transportation lengthy periods on shelves varying sizes of packaging different consumer preferences in packaging some standardization needed to make the product recognizable growing environmental consciousness different types of channels of distribution different cost pressures environmental concern
  8. Issues in labeling: International marketers also need to design appropriate labeling for various markets, to cater for the market differences as well as to adhere to regulations. In the following are the list of issues marketers face in labeling in international markets; different languages of foreign markets information details to be provided instructions for use different price or currencies different promotions consumer preferences in various markets (color, wording style etc..) rules and regulations of foreign countries Issues in warranty and service policies: International marketers also face issues, whether to standardize or to localize warranty and service policies in international markets. Factors favoring standardization or localization of warranty andservice policies in international markets are listed beow. Factors favoring standardization presence of multinational customer goods purchased in one market but consumed elsewhere products affecting human health and safety standardized products Factors favoring localization different competitive situation different quality levels in different markets different use conditions lack of international service network stronger guarantees when the company is entering in new market (marketing tactic) barriers to import of replacement parts and traveling of foreign staff availability of human resources & ability of local distributors
  9. CHAPTER - 4. INTERNATIONAL PRICING. A. Factors influencing international pricing. Some of the most important factors influencing pricing strategy in international marketing are as follows: Pricing decisions are complex in international marketing. A firm may have to follow different pricing strategies in different markets. Whatever might be the strategy followed, pricing has to reflect the proper value in the eyes of the consumer. Pricing is an important strategic and tactical competitive weapon that can be used by a firm in international marketing. It represents that element of the marketing mix, which is controllable by the firm to a large extent. A firm should integrate pricing strategies with the other elements of the international marketing mix. Choice of a pricing strategy is dependent on: 1) Corporate goals and objectives 2) Customer characteristics 3) Intensity of inter-firm rivalry 4) Phase of the product life cycle Although there are many factors that affect global pricing, there are four factors that stand out as most important. First, the nature of the product or industry gives the power in flexibility based on the product. Price flexibility is essential in competing with rivals in a foreign industry. Flexibility stems from a product that is specialized or that gives a technological edge. When the global market has few threats, little price adjustment is needed. As competition and threats increase, the ability to raise and lower prices is essential to competition. #skimming #predatory pricing Second, the location of the production facility affects the global pricing of a company. When a company exports to their foreign market, the ability to have price flexibility is low. This is not the case when companies manufacture in the global market they are penetrating due to the ability to absorb currency rate fluctuations. An
  10. example of this is Mazda in the 1990's. The refused to open a manufacturing plant outside of Japan. As Japan's currency appreciated against the currency of the import countries, the company began to lose profits. Third, the distribution system is very important in global pricing. This is especially true when the company is exporting to the global market they are penetrating. A company that distributes its products through its own overseas subsidiaries is able to control the final price of the product much more. This allows them to be able to adjust prices quickly in response to increased competition. Fourth, foreign currency differentials plays a large factor in the setting of global pricing. Inflation, exchange rate fluctuations, and price controls play a large role in hindering the entry to a market. Because the currency of a company appreciates and depreciates, a company should be able to have a flexible strateB7 in pricing as sometimes their currency may switch from being undervalued to being overvalued, or visa versa. B. METHODS OF INTERNATIONAL PRICING. 1) Skimming Strategies: One of the most commonly discussed strategies is the skimming strategy. This strategy refers to the firm's desire to skim the market, by selling at a premium price. Skimming refers to the objective of achieving highest possible contribution in a short time. To use this approach, the product has to be unique and the target market should be willing to pay the high price. Success of this strategy depends on the ability and speed of competitive reaction. A firm with a small market share can face aggressive local competition when using skimming. Maintenance of high quality requires lot of resources. If the product is sold cheaply at home, then the problems of gray market can surface. This strategy delivers results in the following situations: i) When the target market associates quality of the product with its price, and high price is perceived to mean high quality of the product.
  11. ii) When the customer is aware and is willing to buy the product at a higher price just to be an opinion leader. iii) When the product is perceived as enhancing the customer's status in society. iv) When competition is non-existent or the threat from potential competition exists in the industry because of low entry and exist barriers. 2) Penetration Pricing Strategies: As opposed to the skimming strategy, the objective of penetration price strategy is to gain a foothold in a highly competitive market. The objective of this strategy is market share or market penetration. Here, the firm prices its product lower than the others do in competition. Penetration pricing uses deliberate low prices to stimulate market growth and capture market share. It can be useful when there is a mass market and price sensitive customers. Japanese companies increasingly resort to penetrative pricing due to intense local competition. This strategy delivers results in the following situations: i) When the size of the market is large and it is a growing market. ii) When customer loyalty is not high customers have been buying the existing brands more because of habit rather than any specific preferences for it. iii) When the market is characterized by intensive competition iv) When the firm uses it as an entry strategy v) Where price-quality association is weak.
  12. 3) Differential Pricing Strategies: This strategy involves a firm differentiating its price across different market segments. The assumption in this strategy is that different market segments do not communicate or have different search costs and value perceptions of the product. In other words heterogeneity in the market motivates a firm to adopt this strategy. 4) Geographic Pricing Strategies: This strategy seeks to exploit economies of scale by pricing the product below the competitor's in one market and adopting a penetration strategy in the other. The former is termed as second market discounting. This second market discounting is a part of the differential pricing strategy where the firm either dumps or sells below its cost in the market to utilize its existing surplus capacity. So, in geographic pricing strategy, a firm may charge a premium in one market, penetration price in another market and a discounted price in the third. 5) Product Line Pricing Strategies: These are a set of price strategies, which a multi-product firm can usefully adopt. An important fact to be noted is that these products have to be related, in other words belonging to the same product family. Faced with multi-products and fluctuating demand, the firm may adopt a combination of the following strategies to effectively manage its product line or maximize its profits across the product line. C. PAYMENT TERMS OF INTERNATIONAL PRICING. Cash-in-Advance With cash-in-advance payment terms, an exporter can avoid credit risk because payment is received before the ownership of the goods is transferred. For international sales, wire transfers and credit cards are the most commonly used cash-in-advance options available to exporters. With the advancement of
  13. the Internet, escrow services are becoming another cash-in-advance option for small export transactions. However, requiring payment in advance is the least attractive option for the buyer, because it creates unfavorable cash flow. Foreign buyers are also concerned that the goods may not be sent if payment is made in advance. Thus, exporters who insist on this payment method as their sole manner of doing business may lose to competitors who offer more attractive payment terms. Letters of Credit Letters of credit (LCS) are one of the most secure instruments available to international traders. An LC is a commitment by a bank on behalf of the buyer that payment will be made to the exporter, provided that the terms and conditions stated in the LC have been met, as verified through the presentation of all required documents. The buyer establishes credit and pays his or her bank to render this service. An LC is useful when reliable credit information about a foreign buyer is difficult to obtain, but the exporter is satisfied with the creditworthiness of the buyer's foreign bank. An LC also protects the buyer since no payment obligation arises until the goods have been shipped as promised. Documentary Collections A documentary collection (D/C) is a transaction whereby the exporter entrusts the collection of the payment for a sale to its bank (remitting bank), which sends the documents that its buyer needs to the importer's bank (collecting bank), with instructions to release the documents to the buyer for payment. Funds are received from the importer and remitted to the exporter through the banks involved in the collection in exchange for those documents. D/Cs involve using a draft that requires the importer to pay the face amount either at sight (document against payment) or on a specified date (document against acceptance). The collection letter gives instructions that specify the documents required for the transfer of title to the goods. Open Account An open account transaction is a sale where the goods are shipped and delivered before payment is due, which in international sales is typically in 30, 60 or 90 days. Obviously, this is one of the most advantageous options to the importer in terms of cash flow and cost, but it is consequently one of the highest risk options for an exporter. Because of intense competition in export markets, foreign buyers often press exporters for open account terms since the extension of credit by the seller to the buyer is more common abroad. Therefore, exporters who are reluctant to extend credit may lose a sale to their competitors.
  14. CHAPTER - 6. INTERNATIONAL DISTRIBUTION. A. MANAGEMENT OF INTERNATIONAL DISTRIBUTION CHANNELS. Many companies today distribute goods throughout their local region or across the country with considerable success, and some may be considering expanding into an international market to increase sales. The fact is that managing international distribution channels can be profitable and rewarding for many companies, but it can also be challenging on several different levels. By spending some time analyzing what is involved in managing international distribution channels, you may make a more informed decision about expansion that is right for your company. The Right Market For Your Products Firstly, you should carefully consider the benefit associated with finding an international market that is similar to your own. Reaching into international markets can be difficult to do because your products may appeal to a different target audience, marketing messages may be skewed when they reach a foreign audience or are translated into a foreign language and more. Examples of similar international markets that may be compatible include New Zealand and Australia or Singapore, Malaysia and Hong Kong. Do your research and find out if the desired market does have a demand for your goods. Choosing the right international market is imperative for success as your company expands. Talk to local retailers and their customers to establish if the market is worth the investment. Other Logistical Concerns In addition to selecting the right international market to invest in, there are other logistical concerns to consider when managing international distribution channels. For example, you must consider if you will sell your goods online or through local retailers.
  15. Selling Online to International Markets Online distribution only requires you to ship goods overseas direct to the customer. But international freight can cause issues and lost stock can be a time consuming nightmare to deal with. Consider insurance. Supplying International Retailers While selling big orders to international retailers sounds good it also brings with it some administrative issues. The lack of transparency, trust and distance between you and the retailer can cause communication issues and in a lot of cases the retailer will ignore your account leaving you with little hope in recovering what's owed to you. Get in front of your desired retailers as much as possible. Establish a good business relationship with them before entering into a risky business deal. Consider getting a local distributor. Someone who can go door knocking when it comes time to do the debt collection. Managing Multiple Currencies You must also navigate the challenges associated with working with multiple currencies. Fluctuating currencies rates are not manageable on spreadsheets. Consider a good cloud based inventory management and sales management system to handle this for you. As you can see, there are many factors to consider when you are evaluating the pros and cons of managing international distribution channels. Thanks to innovations in technology, shipping services and more, expanding a company's operations into international areas is easier to do than ever before, and many companies are finding great levels of success from these efforts. However, you'll need to carefully consider each of these points so that you make the best decision possible for your business. B. MANAGEMENT OF INTERNATIONAL LOGISTICS.
  16. International Logistics Management Logistics management skills are one of the most needed competencies in global economies. The International Society of Logistics defines logistics as a professional discipline that ensures the successful support of the product throughout its life. From design engineering to manufacturing and materials, packaging and marketing, and distribution and disposition, logistics involves every possible phase of the product support process. The main goal of a logistician is to minimize both public and private operating costs and maximize productivity. Well- trained logisticians must be equipped with both technical skills and basic management skills. For this reason, the international logistics management program is part of the Department of Management. The program provides students with the basics of management such as economics, law, accounting, and principles of management in the first two years. Students then go on to specialize in logistics, starting with an introduction to logistics, and continuing with area courses such as distribution channels and supply chain management, transportation management, logistics planning, retailing, inventory, maintenance and production. Thus we expect that our graduates can work across an entire organization. C. SELECTION AND APPOINTMENTS OF FOREIGN SALES AGENTS. Selling a product through an overseas agent is a very successful strategy. Sales agents are available on commission basis for any sales they make. The key benefit of using an overseas sales agent is that you get the advantage of their extensive knowledge of the target market. Sales agent also provides support to an exporter in the matter of transportation, reservation of accommodation, appointment with the government as and when required. It is, therefore, essential that one should very carefully select overseas agent. Merits of Appointing Foreign Sales agents. There are various types of merits associated with appointed a sales agent for export purpose are as follow: Sales agent avoids the recruitment, training, time and payroll costs of using own employees to enter an overseas market. An agent is a better option to identify and exploit opportunities in overseas export market. An agent already have solid relationships with potential buyers, hence it saves the time of the exporter to build own contacts. An agent allows an exporter to maintain more control over matters such as final price and brand image - compared with the other intermediary option of using a distributor.
  17. Demerits of Appointing Foreign Sales agents. There are also certain disadvantages associated with appointing a sales agent for export purpose which are as follows: After-sales service can be difficult when selling through an intermediary. There is a risk for exporter to lose some control over marketing and brand image. Important Points While Appointing a Sales Agent: Appointing right sales agent not only enhance the profit of an exporter but also avoid any of risks associated with a sales agent. So it becomes important for an exporter to take into consideration following important points before selection an appropriate sales agent for his product. Size of the agent's company. Date of foundation of the agent's company. Company s ownership and control. Company s capital, funds, available and liabilities. Name, age and experience of the company s senior executives. Number, age and experience of the company s salesman. Oher agencies that the company holds, including those of competing products and turn-over of each. Length of company s association with other principal. New agencies that the company obtained or lost during the past year. Company s total annual sales and the trends in its sales in recent years. Company s sales coverage, overall and by area. Number of sales calls per month and per salesman by company staff. Any major obstacles expected in the company s sales growth. Agents capability to provide sales promotion and advertising services Agent's transport facilities and warehousing capacity. Agent's rate of commission; payment terms required.
  18. A. References on the agents from banks, trade associations and major buyers. Some source of Information on Agents is: Government Departments Trade Associations. Chambers of Commerce. Banks. Independent Consultants. Export Promotion Councils. Advertisement Abroad. CHAPTER -7 IMPORT AND EXPORT POLICIES AND PRACTICES IN INDIA. POLICY OF INDIA India New Foreign Trade Policy (Exim Policy) 2015-2020 India New Foreign Trade Procedure 2015-2020 Exim Policy or Foreign Trade Policy is a set of guidelines and instructions established by the DGFT in matters related to the import and export of goods in India. The Foreign Trade Policy of India is guided by the Export Import in known as in short EXIM Policy of the Indian Government and is regulated by the Foreign Trade Development and Regulation Act, 1992. DGFT (Directorate General of Foreign Trade) is the main governing body in matters related to Exim Policy. The main objective of the Foreign Trade (Development and Regulation) Act is to provide the development and regulation of foreign trade by facilitating imports into, and augmenting exports from India. Foreign Trade Act has replaced the earlier law known as the imports and Exports (Control) Act 1947. EXIM Policy Indian EXIM Policy contains various policy related decisions taken by the government in the sphere of Foreign Trade, i.e., with respect to imports and exports from the country and more especially export promotion measures, policies and procedures related thereto. Trade Policy is prepared and announced by the Central Government (Ministry of Commerce). India's Export Import Policy also know as Foreign Trade Policy, in general, aims at developing export potential, improving export performance, encouraging foreign trade and creating favorable balance of payments position. History of Exim Policy of India In the year 1 962, the Government of India appointed a special
  19. B. Exim Policy Committee to review the government previous export import policies. The committee was later on approved by the Government of India. Mr. V. P. Singh, the then Commerce Minister and announced the Exim Policy on the 12th of April, 1985. Initially the EXIM Policy was introduced for the period of three years with main objective to boost the export business in India What does Darjeeling Tea, Basmathi Rice, Indian Carpet, Kancheepuram Silk, Mysore Sandalwood Oil, Indian Garments, Indian Software, Surat Diamonds to name a few have in common. They represent the modern symbols of Indian foreign trade. On 1st April 201 5, the new Foreign Trade Policy (FTP) for the period 2015-20 was announced which replaces the 2009-14 FTP which expired on 31 st March 2014. With the announcement of new policy, exporters' one-year wait for new FTP has come to end. India's Foreign Trade Policy also known as Export Import Policy (EXIM) in general, aims at developing export potential, improving export performance, encouraging foreign trade and creating favorable balance of payments position. Foreign Trade Policy is prepared and announced by the Central Government (Ministry of Commerce). Foreign Trade Policy or EXIM Policy is a set of guidelines and instructions established by the DGFT (Directorate General of Foreign Trade) in matters related to the import and export of goods in India. The foreign trade policy, has offered more incentives to exporters to help them tide over the effects of a likely demand slump in their major markets such as the US and Europe. Foreign trade is exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP). While international trade has been present throughout much of history, its economic, social, and political importance has been on the rise in recent centuries. The Foreign Trade Policy of India is guided by the Export Import in known as in short EXIM Policy of the Indian Government and is regulated by the Foreign Trade Development and Regulation Act, 1992. DGFT (Directorate General of Foreign Trade) is the main governing body in matters related to EXIM Policy. The main objective of the Foreign Trade (Development and Regulation) Act is to provide the development and regulation of foreign trade by facilitating imports into, and augmenting exports from India. Foreign Trade Act has replaced the earlier law known as the imports and Exports (Control) Act 1947. STEPS IN STARTING AN EXPORT BUSINESS.
  20. Setting the organizatim the mode of operation Naming the business and the product Deciding Export Entering in to Pricing and export contract Selecting the an export Selecting the Selecting the channels of Figure-8: Steps for Starting an Export Business 1. Setting the organization: Involves the important decision of either forming a partnership, sole proprietary organization, or a company. 2. Selecting the mode of operation: Refers to the fact that an exporter can act as either a merchant exporter or manufacturer exporter, as explained in the following points: (i) Merchant Exporter: Refers to the exporter who buys the goods from the manufacturer and then sells them to foreign customers. (ii) Manufacturer Exporter: Refers to the exporter who manufactures goods for the exporting agent who acts on behalf of the seller and charge commission. 3. Naming the organization and selecting the product: Act as important step as it influences an export organization to a large extent. The name of the organization should be attractive and meaningful. In addition, the trade name and logo of the organization should reinforce its image in the minds of its customers. The product to be exported should be selected after full analysis. It should be ensured that all governmental policies are adhered while selecting the product. 4, Selecting the markets: Refers to deciding the target markets to export products. Various factors, such as political stability, demand stability, tariff and non-
  21. tariff barriers, language issues, and transport issues, need to be considered for selecting the markets. The information regarding the international market can be collected from the export promotion councils, Indian Institute of Foreign Trade (IIFT), foreign embassies, and research documents. 5. Selecting the buyers: Implies targeting the customers for selling products. The information about customers can be taken from the export promotion councils, international yellow pages, trade research journals, and international magazines. The customers can be attracted by organizing trade exhibitions and providing advertisement in newspapers and magazines. 6. Selecting the channels of distribution: Implies opting the best distribution channel for the effective delivery of products. Following are some of the international distribution channels: (i) Export consortia: Refers to a voluntary alliance of organizations to promote each other's products through joint actions. Cooperation comes before competition in export consortia. (ii) Direct exports: Imply direct distribution to the distributors or retailers in the foreign country. (iii) Export agent: Refers to an individual or organization that acts as an exporter on behalf of local manufacturers and charge commission. An export agent helps in promoting the products, finding the markets, and locating the foreign customers. 7. Processing an export order: Involves verifying, checking, or carefully examining various items after receiving an export order. These items are mentioned as follows:
  22. i. Product description, such as style, color, labeling, and packing ii. Terms of payment iii. Terms of shipment iv. Inspection requirements v. Insurance requirements 8. Entering into export contract: Helps in avoiding any further dispute between an importer and exporter. An export contract can take the following three types of forms: (i) Proforma invoice: Refers to a bill prepared by the exporter to be sent to the importer. The bill is signed by the importer after accepting all the terms and conditions and a copy is sent back to the exporter. (ii) Purchase order: Refers to an order sent by the importer to the exporter. After checking the order, the exporter accepts and signs it and then it is sent back to the importer. (iii) Letter of credit: Takes the form of the contract that is issued by the importer's bank in favor of exporter. 9. Deciding Export Pricing and Costing: Depends upon various factors and differs from exporter to exporter. Examples of such factors are as follows: i. Range of products offered ii. Frequency of purchase iii. Aggressive marketing and sales promotion
  23. c. D. iv. After-sales service in products v. Product differentiation and brand image vi. Supply of products vii. Competitor's prices. EXPORT FINANCE. Meaning of Export Finance: In order to be competitive in markets, exporters are often expected to offer attractive credit terms to their overseas buyers. Extending such credits to foreign buyers put considerable strain on the liquidity of the exporting firms. Therefore, it is extremely important to make adequate trade finances available to the exporters from external sources at competitive terms during the post-shipment stage. Unless competitive trade finance is available to the exporters, they often resort to quote lower prices to compensate their inability to offer competitive credit terms. As a part of export promotion strategy, national governments around the world offer export credit, often at concessional rates to facilitate exports. EXPORT RISK INSURANCE. Trade credit insurance, business credit insurance, export credit insurance, or credit insurance is an insurance policy and a risk management product offered by private insurance companies and governmental export credit agencies to business entities wishing to protect their accounts receivable from loss due to credit risks such as protracted default, insolvency or bankruptcy. This insurance product is a type of property and casualty insurance, and should not be confused with such products as credit life or credit disability insurance, which individuals obtain to protect against the risk of loss of income needed to pay debts. Trade credit insurance can include a component of political risk insurance which is offered by the same insurers to insure the risk of non-payment by foreign buyers due to currency issues, political unrest, expropriation etc.
  24. This points to the major role trade credit insurance plays in facilitating international trade. Trade credit is offered by vendors to their customers as an alternative to prepayment or cash on delivery terms, providing time for the customer to generate income from sales to pay for the product or service. This requires the vendor to assume non-payment risk. In a local or domestic situation as well as in an export transaction, the risk increases when laws, customs communications and customer's reputation are not fully understood. In addition to increased risk of non-payment, international trade presents the problem of the time between product shipment and its availability for sale. The account receivable is like a loan and represents capital invested, and often borrowed, by the vendor. But this is not a secure asset until it is paid. If the customer's debt is credit insured the large, risky asset becomes more secure, like an insured building E. EXPORT ASSISTANCE AND INCENTIVE SCHEMES. Export Incentives The Government of India has framed several schemes to promote exports and to obtain foreign exchange. These schemes grants incentive and other benefits. The few important export incentives, from the point of view of indirect taxes are briefed below: Free Trade Zones (FTZ) Several FTZs have been established at various places in India like Kandla, Noida, Cochin, etc. No excise duties are payable on goods manufactured in these zones provided they are made for export purpose. Goods being brought in these zones from different parts of the country are brought without the payment of any excise duty. Moreover, no customs duties are payable on imported raw material and components used in the manufacture of such goods being exported. If entire production is not sold outside the country, the unit has the provision of selling 25% of their production in India. On such sale, the excise duty is payable at 50% of basic plus additional customs or normal excise duty payable if the goods were produced elsewhere in India, whichever is higher. Electronic Hardware Technology Park / Software Technology Parks This scheme is just like F TZ scheme, but it is restricted to units in the electronics and computer hardware and software sector. Advance Licence / Duty Exemption Entitlement Scheme (DEEC) In this scheme advance licence, either quantity based (Qbal) or value based (Vabal), is given to an exporter against which the raw materials and other components may be imported without payment of customs duty provided the manufactured goods are exported. These licences are transferable in the open market at a price. Export Promotion Capital Goods Scheme (EPCG) According to this scheme, a domestic manufacturer can import machinery and plant without paying customs duty or settling at a concessional rate of customs duty. But his undertakings should be as mentioned below:
  25. F Deemed Exports The Indian suppliers are entitled for the following benefits in respect of deemed exports: Refund of excise duty paid on final products Duty drawback Imports under DEEC scheme Special import licenses based on value of deemed exports The following categories are treated as deemed exports for seller if the goods are manufactured in India: Supply of goods against duty free licences under DEEC scheme Supply of goods to a 100 % EOU or a unit in a free trade zone or a unit in a software technology park or a unit in a hardware technology park Supply of goods to holders of licence under the EPCG scheme Supply of goods to projects financed by multilateral or bilateral agencies or funds notified by the Finance Ministry under international competitive bidding or under limited tender systems in accordance with the procedures of those agencies or funds where legal agreements provide for tender evaluation without including customs duty Supply of capital goods and spares upto 10% of the FOR value to fertilizer plants under international competitive bidding Supply of goods to any project or purpose in respect of which the Ministry of Finance permits by notification the import of goods at zero customs duty along with benefits of deemed exports to domestic supplies Supply of goods to power, oil and gas sectors in respect of which the Ministry of Finance permits by notification benefits of deemed exports to domestic supplies Manufacture Under Bond This scheme furnishes a bond with the manufacturer of adequate amount to undertake the export of his production. Against this the manufacturer is allowed to import goods without paying any customs duty, even if he obtain it from the domestic market without excise duty. The production is made under the supervision of customs or excise authority. EXPORT PRICING. Export pricing is the most important factor in for promoting export and facing international trade competition. It is important for the exporter to keep the prices down keeping in mind all export benefits and expenses. However, there is no fixed formula for successful export pricing and is differ from exporter to exporter depending upon whether the exporter is a merchant exporter or a manufacturer exporter or exporting through a canalising agency. Determining Export Pricing Export Pricing can be determine by the following factors:
  26. Range of products offered. Prompt deliveries and continuity in supply. After-sales service in products like machine tools, consumer durables. Product differentiation and brand image. Frequency of purchase. Presumed relationship between quality and price. Specialty value goods and gift items. Credit offered. Preference or prejudice for products originating from a particular source. Aggressive marketing and sales promotion Prompt acceptance and settlement of claims. Unique value goods and gift items. G EXPORT DOCUMENTATION. Exporters should seriously consider having the freight forwarder handle the formidable amount of documentation that exporting requires; freight forwarders are specialists in this process. The following documents are commonly used in exporting; which of them are actually used in each case depends on the requirements of both our government and the government of the importing country. 1. Commercial invoice 2. Bill of lading 3. Consular invoice 4. Certificate of origin 5. Inspection certification 6. Dock receipt and warehouse receipt 7. Destination control statement 8. Insurance certificate 9. Export license 10. Export packing list. H. DOCUMENTS FOR POST PARCEL CUSTOMS CLEARANCE. In case of Post Parcel, no Shipping Bill is required. The relevant documents are mentioned below: Customs Declaration Form - It is prescribed by the Universal Postal Union (UPU) and international apex body coordinating activities of national postal administration. It is known by the code number CP2/ CP3 and to be prepared in quadruplicate, signed by the sender. Despatch Note, also known as CP2. It is filled by the sender to specify the action to be taken by the postal department at the destination in case the address is non-traceable or the parcel is refused to be accepted.
  27. Prescriptions regarding the minimum and maximum sizes of the parcel with its maximum weight : Minimum Total surface less than size: 140 mm X 90 mm. not area Maximum size: Lengthwise not over 1.05 m. Measurement of any other side of circumference 0.9 m./ 2.00 m. Maximum weight: 10 kg usually, 20 kg for some destinations. Commercial invoice - Issued by the seller for the full realisable amount of goods as per trade term. Consular Invoice - Mainly needed for the countries like Kenya, Uganda, Tanzania, Mauritius, New Zealand, Burma, Iraq, Ausatralia, Fiji, Cyprus, Nigeria, Ghana, Zanzibar etc. It is prepared in the prescribed format and is signed/ certified by the counsel of the importing country located in the country of export. Customs Invoice - Mainly needed for the countries like USA, Canada, etc. It is prepared on a special form being presented by the Customs authorities of the importing country. It facilitates entry of goods in the importing country at preferential tariff rate. Legalised/Visaed Invoice - This shows the seller's genuineness before the appropriate consulate/ chamber of commerce/ embassy. It do not have any prescribed form. Certified Invoice - It is required when the exporter needs to certify on the invoice that the goods are of a particular origin or manufactured/ packed at a particular place and in accordance with specific contract. Sight Draft and Usance Draft are available for this. Sight Draft is required when the exporter expects immediate payment and Usance Draft is required for credit delivery. Packing List - It shows the details of goods contained in each parcel/ shipment. Certificate of Inspection - It shows that goods have been inspected before shipment. Black List Certificate - It is required for countries which have strained political relation. It certifies that the ship or the aircraft carrying the goods has not touched those country(s). Weight Note - Required to confirm the packets or bales or other form are of a stipulated weight. Manufacturer's/ Supplier's Quality/ Inspection Certificate. Manufacturer's Certificate - It is required in addition to the Certificate of Origin for few countries to show that the goods shipped have actually been manufactured and are available. Certificate of Chemical Analysis - It is required to ensure the quality and grade of certain items such as metallic ores, pigments, etc. Certificate of Shipment - It signifies that a certain lot of goods have been shipped. Health/ Veterinary/ Sanitary Certification - Required for export of foodstuffs, marine products, hides, livestock etc. Certificate of Conditioning - It is issued by the competent office to certify compliance of humidity factor, dry weight, etc. Antiquity Measurement - Issued by Archaeological Survey of India in case of antiques. Transhipment Bill - It is used for goods imported into a customs port/ airport intended for transhipment. Shipping Order - Issued by the Shipping (Conference) Line which intimates the exporter about the reservation of space of shipment of cargo through the specific vessel from a specified port and on a specified date.
  28. Cart/ Lorry Ticket- It is prepared for admittance of the cargo through the port gate and includes the shipper's name, cart/ lorry No., marks on packages, quantity, etc. Shut Out Advice- It is a statement of packages which are shut out by a ship and is prepared by the concerned shed and is sent to the exporter. Short Shipment Form - It is an application to the customs authorities at port which advises short shipment of goods and required for claiming the return. Shipping Advice - It is prepared in aligned document to be used to inform the overseas customer about the shipment of goods. I . EXPORT PROCESSING ZONE. Type of free trade zone (F T Z), set up generally in developing countries by their governments to promote industrial and commercial exports. In addition to providing the benefits of a F T Z, these zones offer other incentives such as exemptions from certain taxes and business regulations. Also called development economic zone or special economic zone. J. LEGAL ASPECTS OF EXPORT TRADE. In India, exports and imports are regulated by the Foreign Trade (Development and Regulation) Act, 1992, which replaced the Imports and Exports(Control) Act, 1947, and gave the Government of India enormous powers to control it. The salient features of the Act are as follows:- It has empowered the Central Government to make provisions for development and regulation of foreign trade by facilitating imports into, and augmenting exports from India and for all matters connected therewith or incidental thereto. The Central Government can prohibit, restrict and regulate exports and imports, in all or specified cases as well as subject them to exemptions. It authorizes the Central Government to formulate and announce an Export and Import (EXIM) Policy and also amend the same from time to time, by notification in the Official Gazette.
  29. It provides for the appointment of a Director General of Foreign Trade by the Central Government for the purpose of the Act. He shall advise Central Government in formulating export and import policy and implementing the policy. Under the Act, every importer and exporter must obtain a 'Importer Exporter Code Number' (IEC) from Director General of Foreign Trade or from the officer so authorised. The Director General or any other officer so authorised can suspend or cancel a licence issued for export or import of goods in accordance with the Act. But he does it after giving the licence holder a reasonable opportunity of being heard. As per the provisions of the Act , the Government of India formulates and announces an Export and Import policy (EXIM policy) and amends it from time to time. EXIN/I policy refers to the policy measures adopted by a country with reference to its exports and imports. Such a policy become particularly important in a country like India, where the import and export of items plays a crucial role not just in balancing budgetary targets, but also in the over all economic development of the country. The principal objectives of the policy are:- To facilitate sustained growth in exports of the country so as to achieve larger percentage share in the global merchandise trade. To provide domestic consumers with good quality goods and services at internationally competitive prices as well as creating a level playing field for the domestic producers. To stimulate sustained economic growth by providing access to essential raw materials, intermediates, components, consumables and capital goods required for augmenting production and providing services. To enhance the technological strength and efficiency of Indian agriculture, industry and services, thereby improving their competitiveness to meet the requirements of the global markets. To generate new employment opportunities and to encourage the attainment of internationally accepted standards of quality.
  30. CHAPTER 5 IT WILL BE SAME AS PRODUCT PROMOTION AS GIVEN EARLIER ADVERTISING, TRADE FAIR, EXIBITIONS ALL THESE WILL BE SAME.

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