How to Become a Successful Exporter

Q 1. What Every Exporter should know ?
The most important component of exim-business is the quality of the products or services being exported. Cost effectiveness is the next important component. Consistency in quality from consignment to consignment, absolute reliability on quality, dependability on timely delivery, accuracy in documentation and excellent customer services are other important basic of world class export business.
Conformance to principle buyers. requirements is most practical and pertinent point.
One needs to be buyers, friendly and go out of one’s way to meet the needs of buyer. It involves the speed and completeness of response to requirements of buyers through letter, fax or phone.
The exporter must cover export business with Export Credit Guarantee Corporation (ECGC) as a credit risk insurer provides cover to Indian Exporters in the event of non-payment due to insolvency (of importing firm) protracted default and non-acceptance of goods / documents, besides the economic and political risks. When an exporter comes to know about the non-payment while informing ECGC about the default should take appropriate action such as noting, protesting and writing to the Embassy / Trade Commission etc. ECGC has simplified procedure for settlement of claims under short term Packing Credit and Post – shipment Guarantees.

COMMERCIAL INVOICE
The commercial invoice must be produced (minimum) in triplicate, and must contain : land and place of shipment; name / firm’s name and address of seller and buyers, mode of transport, number, kind an markings of the packages and their numerical order ; exact description of goods – a customary commercial description according to kind, quality, grade, weight (both gross and net, in metric units), value of the goods – agreed price of goods – unit cost, total cost F.O.B. factory plus shipping (forwarding cost), insurance other charges, delivery and payment terms ; country of origin of goods, and the signature of a responsible official of the shipper’s firm. It is useful if the commercial invoice coutains the HTS code (Harmonized Tariff Schedule / Schedule B). This is not mandatory, but helps customs authorities to recognise the commodity and properly classify it for custom purpose.

A Pro-Forma invoice is acceptable. It is not mandatory.

BILLS OF LADING (B/L)
Generally, “TO ORDER” bills are acceptable. Bills of Lading should bear the name of the ‘party to be notified’. The consignee needs the original bill of lading to take possession of the goods.

EXPRESS bills of lading are also acceptable. These B/L’s help speed up the process in cases where Bank Financing is not necessary, with an express bill of lading, goods are automatically transferred to the designated consignee without presentation of the original B/L. This is ideal for internal company shipments of goods sold on open account or for perishable goods where advance payment is received.

PACKING LIST
Documents including a packing list should facilitate customs clearance goods.

CERTIFICATE OF ORIGIN
A certificate of origin are required by the importer / bank / Letter of Credit clause. The data it contains may have to be certified by a Chamber of Commerce.

INSURANCE CERTIFICATE
Normal commercial practices pertain, follow the instructions of the importer and the insurance. In case of need, claim must be made payable in buyer’s place of imports.

LABELLING, PACKAGING REQUIREMENTS
Difference still exist from country to country. With only minor exceptions, there are no general Labelling requirements. Requirements for specific products should be obtained from the importer. Certain commodity imports, including numerous food stuffs, are subject to special labelling regulations that require the label show the name of the manufacturer, composition, content (in metric units) and country of origin, date of manufacture and expiry of use of the product.

Hallmarking of gold and silver articles is required before they can be offered for exports.

The HS classification number consists of a minimum of six digits, which are common to all countries using the Harmonized System. Additional digits can be used to meet each nation’s individual statistical requirements and give greater detail as needed.

LANGUAGE TO USE
In almost all countries English is in use for exim business. However, either French or German in appropriate for a few countries.
FOREIGN CORRUPT PRACTICES ACT
The FCPA makes it unlawful for any person or firm (as well as persons acting on behalf of the firm) to offer, pay or promise to pay (or to authorize any such payment or promise) money or anything of value to any official (or political party or candidate for political office) for the purpose of obtaining export – import business or project by fraud.

In some countries customs procedures are complicated and rigid in areas such as duty rates. They are designed to eliminate trading loopholes. Authorities do not have to explain or justify their decisions and there is no formal appeal process (in certain countries) for custom-officers’ decision. Custom procedures are subjective when it comes to identifying whether a commodity fits in one tariff category or another.

Under – invoicing is prevalent in some countries, as a means of tax – avoidance (duty reduced) by local businesses. The Custom Authority has a tough policy regarding commercial invoices. Tariff valuation is based on either the worldwide price list received annually from foreign producers / distributors, or if that is not available, they take the highest price available in the local market. In cases where custom officials suspect under – invoicing, they usually add from 10 to 50% to the invoice value of imports for customs valuation purposes. The importer had to pay added duty or a fine before customs would release them.

IMPORT PAYMENT PROCESS
The normal payment process in early business relationship is irrevocable letter of credit, an international banking procedure with which all banks are familiar world over. This is considered a very safe and fast payment transfer instrument.

There are no Government restrictions on credit terms which are negotiated between the trading partners.

When a satisfactory trading relationship and credit – worthiness have been established, the importer will typically expect the exporter to extend a 30-day credit. This may vary from industry to industry, depend on credit references and the size of potential orders.

For a large order, the exporter may wish to secure payment by requesting a bank guarantee for the amount from the importer’s bank.

For exports shipping FOB (free on board), FAX (Free alongside ship) or C & F (Cost and freight) where payment terms are open Account, Collection by Draft, or any other method which requires payment after release of goods, the exporter is exposed financially if:

Buyer neglects to insure

Buyer’s insurance has limited coverage and an uninsured loss occurs.

Buyer does have insurance when a loss occurs, but receive claim payment from their insurer in local currency, exposing the exporter to a potential loss from fluctuating in exchange rates.

Buyer rejects good as not being in sound condition but physically no damage occurred during shipping.

This would leave the exporter with a financial interest in unclaimed goods located thousands of miles away.

For these reasons, it is in the exporter’s best interest to ship CIF (cost, insurance, freight). Shipping CIF will allow the exporter to :

1. fails the insurance programme to meet the exporter’s specific needs. The exporter can not always rely on the overseas customer to hold the exporter’s best interest at heart.

2. ensure all shipments are automatically covered to the terms of the exporter’s contracts.

3. ensure rates are competitive based on the exporter’s shipping experience, not the buyer’s.

4. ensure claim payments are in US Dollars and that negotiating and setting claims can be accomplished locally with an insurance agent at choice.

If it is obligatory that the buyer insures imports domestically, contingency coverage can often be provided by the exporters local insurance carrier to pay for the losses should the buyers policy not cover them.

PERMITTED CURRENCIES

A foreign currency which is freely convertible, i.e. a currency which is permitted by the rules and regulations of the country concerned to be converted into major reserve currencies like the US DOLLAR, Pound Sterling and for which a fairly active market exists for dealings against the major currencies is known as Permitted Currency.

The exporters / importers engaged in export / import trade, consultancy services, etc. should take advice from their banks regarding choice of currencies besides the Indian Rupee, for the purpose of contracting with their overseas counterpart.

While there are no restrictions from the Exchange Control viewpoint on any foreign currency being chosen, EXIM Policy stipulates that all export Contracts and invoices (except those from which payments are required to be received through the Asian Clearing Union) shall be denominated only in a freely convertible foreign currency.

Exports of goods under special arrangements or rupee credits extended by government of India to foreign governments are governed by terms and conditions set out by Export Trade Control authorities in the relative Public Notices. These notices cover various aspects such as type of goods eligible for export, procedure for obtaining approval for individual export contracts, manner of receiving contracts, manner of receiving payments and other matters. Important instructions relating to such exports are also communicated by Reserve Bank to authorised dealers in the form of A. D. Circulars.

The modern world of advanced cross – border of communications has eliminated numerous barriers, but many companies still prefer to deal with an established local import agent – indenting house – or distributor, rather than buying directly from abroad. The agent/distributor community has developed over centuries and is to-day a very selective and competitive group of business. Many sectors are dominated by a few powerful and quite conservation companies, which have spend decades establishing lasting relationship with their clientele, around the world.

At the same time, there is an increasing trend for foreign companies to establish branch offices in importers countries. In those instances where a foreign company does not wish to establish its own sales office it is advisable to seek local agent or distributor.

There is now a movement, direct purchasing/importing from suppliers/exporter. Consumer goods are usually sold directly to importers, wholesalers and retail outlets. Industrial goods are best handled by agents.

Exporters of capital goods, industrial raw materials, and similar commodities generally appoint an exclusive agent for the whole country.

Commercial representatives may be paid by salary or commissions alone or form a combination of both to be determined by the parties.

EUROPEAN UNION

The EU members are Belgium, Denmark, France, Germany, Greece, Italy, Ireland, Luxembourg, The Netherlands, Portugal, Spain, the United Kingdom, Sweden, Finland and Austria.

The EU Forms a customs union having free trade among the member states, but levies a common tariff on imports coming from non-EU conutries such as the US, Japan and Canada.

The EU has a common agricultural policy, joint transportation policy, free movement of goods and capital within the member states.

Other aspects of commercial activity are being harmonized as part of the single market programmes.

Under agreements reached between the EU and the members of the European Free Trade Association (EFTA) – duty-free trade for industrial products has been achieved among all countries.

Taxes, such as the value-added-tax (VAT) and excise taxes are levied in the country of final destination.

In addition to the EFTA countries, the EU nation’s extend preferential tariff treatment to certain other countries and territories with historical ties to the EU and to less developed countries in Africa, the Caribbean, and the Pacific regions. The granting of reduced tariffs to developing countries is under the Generalized System of Preference (GSP)

DIFFERENT TYPES OF EXPORT FINANCE.
1 PRESHIPMENT FINANCE
a. Packing credit
b. Advances against receivables from the Government like duty drawback.

2 POSTSHIPMENT FINANCES
a. Export bills purchased/negotiated/discounted.
b. Advances against bills sent on collection basis.
c. Advances against export on consignment basis.
d. Advances against undrawn balances.
e. Advances against Duty Drawback.

3 NEW SCHEME OF EXPORT FINANCING
a) Packing credit in foreign currency (PCFC)
b) Export Bills Rediscounting Schemes.

INTERNATIONAL TRADE FINANCES TOOLS : Forfeiting, Factoring, Credit Insurance and Post-import Financing.

Forfeiting is a viable finances option which refers to without recourse discounting of a future payable instruments.

Factoring offers at least two of the following to the seller of goods and services – Financing, Credit Protection.

Collection of Receivables, Management of Account Receivables.

EXPORT CREDIT INSURANCE : Credit Insurance Compaines can look at Insuring the total exports of a portfolio basis, provide cover for exports on collection as well L/C backed.

This also provides, to the bank potential to handle larger volume than otherwise possible and additional revenue stream.

ECGC provides cost effective ineffecting insurance and trade related services to meet the needs of Indian export market by way of providing insurance cover to exporters as also to buyer/bank/country:

INTERNATIONAL SALES CONTRACTS
Business communities and governments are developing new ways to facilitates business deals, settle dispute and create attractive business environments.

Membership of United Nations was 191 in 2002. 191 or more countries equals the same number of legal systems.

Between 1990 and 2001 alone, world merchandise exports grew by 6% while total merchandise – production increased by only 2.4%.

The key initiative was the 1980 United Nations Conventions on Contracts for the International Sale of Goods (CISG) The convention has been adopted by more than 50 countries. For countries that have not yet adopted the convention, parties wishing to conduct international trade can still base their contract on the principles in the convention.

The CISG proposes a broadly worded standard set of rights and obligations for both buyer and seller, including the options open to them if there is a problem with the contract.

There are two main model contracts – one, the International Chamber of Commerce – model International sales contract for manufactured goods, and two, the International Commercial Sales of Perishable Goods Model Contract.

Both promote harmonization of international contracting practices through use of identitical vocabulary and common reliances on the contract for the International Sale of Goods and International Chamber of Commerce Incoterms (International Commercial Terms – standard trade definitions).

SELLING THROUGH INTERMEDIARY - AGENTS AND DISTRIBUTORS.
The most widely used contracts are the International Chamber of Commerce (ICC) Model Commercial Agency Contract, ICC Model Distributorship Contract,

Association representing specific types of clients tend to propose models with the best possible contractual solutions for their parties. The International Chamber of Commerce’s approach is broader, representing all those involved, principal and agents, suppliers and distributors, sellers and buyers – without favouring any of them.

Standard contracts are in great demand by the business world, particularly for contracts of a limited economic value, which business often draft themselves.

The model contracts strike a balance between standard questions offering standard solutions and questions giving the parties a choice between several solutions. It is important to get this balance right. It there are too many alternatives, the model becomes complicated. If there are too few options, the model becomes too rigid and consequently unacceptable for those who have specific needs.

By circulating balanced standard forms, which are user-friendly and of high quality, the ICC is making a valuable contribution to the establishment of good contractual practices in international trade.

INTERNATIONAL JOINT VENTURES

A joint venture is classic type of strategic alliances between two or more companies. It can be long or short term, and used for various activities, engineering, production and distribution, among others.

Joint venture model contracts provide the international business community with models for two forms of Joint-venture agreements, The contracts are especially designed for small and medium sized entrepreneurs in emerging economies and developing markets.

A joint venture may be about the joint performance of a single activity contract. The other about organisation of long-term co-operation between parties.

The joint venture contracts vary with respect to both the objective of the joint venture and its joint implementations.

The two types of joint-venture model contracts – the one in view of creating a company and two in view of co-operation without creating a company.

INCORPORATED JOINT VENTURE CONTRACT

This is a type to create one or more joint venture companies, which are legal entities established to carry out a common activity. In this case, the joint venture agreement helps to prepare the creation of a company in a specific country. In addition to the joint venture agreement, the corporation of the parties require further legal instrument, usually articles of incorporation of the company, by-laws and shareholder’s agreement.

Only one legal instrument regulate co operation between parties.

THE MODEL CONTRACTS COMPRISE:
1. initial and additional contribution of the parties:
2. management and representation of the joint-ventures and /or the joint ventures company
3. external and internal liability of the parties.
4. sharing of profits and losses.
5. deadlook resolutions.
6. acquisition.
7. loss and transfer of partnership status.
8. exclusion of a partner.
9. end of the joint venture
10. dispute resolution.