Success in the world of Exports
Practical Guide to Success in the world of Exports
Contents
Introduction to Export & Import ………………………………………………………………………………………………. 4 What is Export & Import: …………………………………………………………………………………………………….. 4 Characteristics of Exports ……………………………………………………………………………………………………. 5 Indian exports market …………………………………………………………………………………………………………. 6 Future potential of Indian exports: ……………………………………………………………………………………….. 6
Export Readiness: ……………………………………………………………………………………………………………….. 7
Product Selection …………………………………………………………………………………………………………………… 9 Choosing the product: ………………………………………………………………………………………………………… 9
SWOT analysis ……………………………………………………………………………………………………………………. 9
Product analysis …………………………………………………………………………………………………………………… 13 Tariff line analysis: ……………………………………………………………………………………………………………. 13
STEEP Analysis ………………………………………………………………………………………………………………….. 15 Exports Trends: ………………………………………………………………………………………………………………… 16 Product Applicability/Usage: ……………………………………………………………………………………………… 20 Possibility of value addition: ………………………………………………………………………………………………. 21
Minimum and Maximum Capacity to export: ……………………………………………………………………….. 21
Market analysis ……………………………………………………………………………………………………………………. 22 Target Audience/market segment: ……………………………………………………………………………………… 22 Buyer Persona: …………………………………………………………………………………………………………………. 23 Market Sizing: ………………………………………………………………………………………………………………….. 23 Potential Target Markets …………………………………………………………………………………………………… 25 Market Prioritization …………………………………………………………………………………………………………. 28 STEEP analysis: …………………………………………………………………………………………………………………. 37
Import policy and regulation: …………………………………………………………………………………………….. 38 Competitor Analysis ……………………………………………………………………………………………………………… 39
Exports Procedure ………………………………………………………………………………………………………………… 42 Company formation: …………………………………………………………………………………………………………. 42 I.E. Code ………………………………………………………………………………………………………………………….. 42 Current bank account: ………………………………………………………………………………………………………. 42 Government initiatives: …………………………………………………………………………………………………….. 42 Pricing Strategy: ……………………………………………………………………………………………………………….. 44 Payment terms: ………………………………………………………………………………………………………………… 47 Customs House agents (CHA) or Freight forwarding agents: ………………………………………………….. 49 Exports Documentation: ……………………………………………………………………………………………………. 49 Exports Financing: …………………………………………………………………………………………………………….. 51
Practical Guide to Success in the world of Exports
Exports Marketing ………………………………………………………………………………………………………………… 52 Marketing Strategy: ………………………………………………………………………………………………………….. 52
Digital Marketing in Exports: ……………………………………………………………………………………………… 53 Offline Marketing channels:……………………………………………………………………………………………….. 54
Risk and Mitigation: ………………………………………………………………………………………………………….. 55
Practical Guide to Success in the world of Exports
Introduction to Export & Import
What is Export & Import:
Goods or Service, whatever it may be – small or huge, simple or complicated, becomes a part of International trade when they cross borders for sale. While the commodity is known as export item in the country where it is produced, same is termed as import item where it is consumed. In earlier days, exports became a reality when the demand in local market were met and production capacity is in surplus. But with the globalisation of trade across international markets, exports have grown in priority. In addition to the extra revenue generation, Exports is used as a base study by the companies to know more about market in target country and opportunities for establishing a branch in the country for business growth.
Exports helps in high revenue generation and expansion of business
Every government tend to encourage exports than imports, since exports bring in more foreign currency into the country. In any international business, the buyer pays using US dollars or their own currency. Having high foreign currency reserves help the government in stabilising their currency, control inflation rate in the country. Exports plays an influential role in ascertaining the country’s position in world economy. On the contrary, Imports is restricted only to such goods where the conditions in the country are not suitable to produce them or when the demand is high than the supply or the imports help in driving the growth of exports through value addition.
Macro-economic factors such as inflation rate, interest rate, exchange rate and gross domestic savings are depended on exports.
A country can either export merchandise or commercial services. Trade between the developed and emerging economies is in a rise than between developed economies according to UN Human Development Report (2013). Major countries like India, China, United States could produce adequately to meet their requirements. Smaller countries with unfavourable environmental or economic conditions tend to import to meet their needs. Index of openness is a key factor to determine whether a market is open. Top economies have good index of openness.
Countries with good Index of Openness – in 2015
Luxemburg (438%) Hong Kong (401%) Malaysia (326%).
Practical Guide to Success in the world of Exports
An important factor shaping the growth of exports and import over past century is the advancement in technology. Loads of scientific inventions in the post-world-war era brought the world into the palms of people. Computers, Internet, Telecommunication devices joined hands with ideologies generated during world war to bring a new dimension to international trade. A new mathematical discipline called Operations research helped to build logical and mathematical models to understand the different aspects of business scenario, use them to describe the relations between variables to solve problems and make decisions. With growing competition, there arises a need for every exporter to develop a business strategy to tackle constraints like legal issues, funding problems, pricing strategy and measuring & mitigating risks.
Product analysis, Market analysis, Risk analysis, Legal terms, Pricing strategy,
Payment terms, Logistics are key areas of Exports and Imports
More competitive and rapid growing economy could be materialised through exports. To meet different norms and regulations defined by each country, the exporter is bound to adopt innovative technologies frequently. This induces other non-exporting firms to adapt accordingly to be in the competition, leading to healthy growth of economy. Increase in exports implies high rate of production which brings more employment opportunities.
Characteristics of Exports
The salient features attributing to exports are as follows
1. An exporter should do a thorough product analysis and market analysis to select the best product and a suitable market. An extensive market research required to understand the customer needs and trends in buying behaviour. Decisions on packaging, pricing, payment methods should be taken based on analysis done.
2. Exports are normally cost-effective when done on a large scale. Prices quoted for per unit of commodity will be in the competitive range in large scale exports. On the other hand, in small scale exports, hefty logistics cost and duties results in high unit price.
3. Exports of niche or value added, or customised products attract good profit with relatively low competition compared to commodities traded in bulk quantities.
4. Exports get affected by either the protective policies of a country preventing excessive import of an item or by trade agreements between countries for mutual benefits and economic development.
5. Exporter face three levels of competition: Competitors from their country,
Local suppliers in target country, Suppliers from other exporting countries
Practical Guide to Success in the world of Exports
6. Exports involve various documentation process such as Certificate of origin, specifications, quality test, Invoices, shipping bills, declaration forms etc.
7. Heavy risks are involved in exports such as sudden changes in economic, political conditions of countries, market sensitivity, foreign exchange regulations holding payments, natural calamities etc.
The top 10 exporting countries as per 2016 estimate are as follows: China – $ 2 Trillion
United States- $ 1.5 Trillion
Germany – $ 1.3 Trillion
Japan – $ 641 Billion
South Korea – $ 511 Billion
France – $ 489 Billion
Hong Kong – $ 487 Billion
Netherlands – $ 480 Billion
Italy – $ 436 Billion
U.K. – $ 412 Billion
Indian exports market
India ranks 19th in the world exports. Export – led growth hypothesis (ELGH) indicate that Indian GDP has grown with an averaging about 7 percent per annum since 1995 following economic reforms in 1991. India’s export constitutes approx. 1.6% of the total global exports. In line with Ministry of Commerce report, India’s merchandise export registered a 17.48 % year-on-year growth, with US$ 24.49 billion as on Feb 2017. The country has seen a rise in exports by 8.32 % in May 2017. Petroleum, engineering, textiles, and gems & jewellery sectors have shown strong performance in exports during the month. Gujarat, Maharashtra, Tamil Nadu, Telangana, Andhra Pradesh are leading states in exporting from India. Each Indian state is known for their regional fine products in the global market. On the contrary, between 2011 and 2016 India suffered bear market in its traditionally prowess exports such as readymade garments, gems and jewellery, agricultural products, Cars, diamonds, maize, trousers, make-up and skincare items, handbag, and cotton sweaters.
Future potential of Indian exports:
India has a goal of reaching USD 900 million that is 5% in world exports share by 2020. India’s exports grew by 10.29% year on year performance in August 2017. Engineering goods, petroleum products, organic and inorganic chemicals, drugs & pharmaceuticals and RMG of all textiles have shown inclined growth. India ranks 8 in the exports of commercial services. The top exports performing service sectors are
Practical Guide to Success in the world of Exports
There will be simple ‘yes/no’ type of questions to assess on the following categories:
• Management commitment and financing
• Preparedness to identify high potential export product
• Understanding the exports process
• Preparedness to identify high potential export markets
• Executing export orders
Based on the answers, recommendations to improve the chances of winning in the exports will be provided. It is recommended to do the test to understand the capabilities and limitations of oneself before preparing to export.
Modules in this book are designed to guide you step by step to get started in exports business. First step in export business is Product selection, which is discussed in next chapter.
Practical Guide to Success in the world of Exports
Product Selection
Guess you have assessed your Export Readiness now and raring to start exports. Let’s talk about products here.
Choosing the product:
First and foremost, product selection is key to successful exports. Exporters fail to achieve an export order due to lack of idea about product selection. There is a misconception that buyers need to be identified prior to choosing product. Due to this, 90% of prospective exporters are struggling to export even after attending training sessions to understand policies and procedures.
In general, the preferred list of products by new exporters are Rice, Coconuts, Coir pith, Oil, which are exported in bulk from India. As they are all-season products and numerous enquiries are available in B2B portals, they look very tempting products. In reality, the exporters of these bulk products have established good channels of contacts. One can try bulk commodities if there is a business setup in the importing country. (This doesn’t mean your friend or relative residing in importing country, but a trustworthy partner/distributor, agency.)
The products being exported from India are broadly classified into 21 sections containing 98 chapters. Each chapter is further categorized into headings, before listing as specific item. All these sums to approximately a lakh of variety of products exported from India ranging from spirulina to heavy machinery items.
It is better to choose the product suiting one’s interest and feasibility. For firsttimers, the chances of winning an export order increases when the focus is on a single product. It is advisable to avoid perishable items such as vegetables and fruits or doing bulk commodities, for the first order when working on a low budget. They are good for exports after gaining experience.
To shortlist the list of viable products, let’s do a SWOT analysis.
SWOT analysis
SWOT stands for Strength, Weakness, Opportunity, and Threat. SWOT analysis is vital for strategy planning. Strength and weakness are internal factors whereas Opportunity and Threat are external factors. SWOT analysis is important at each stage of a business venture to succeed. SWOT analysis can be done for a person, organisation, product, market etc.
Let’s identify your SWOT with respect to your determination in exports. Export readiness assessment taken earlier should give a fair idea about your SWOT. In addition to pointing the areas to focus in exports business based on the personality, SWOT will help you identify a list of products to attempt in exports.
Practical Guide to Success in the world of Exports
Points to remember while doing SWOT analysis
• Ask someone who would give you honest answers
• Strength and weakness both on your personality and profession
• Opportunity and Threat exists for you as a person and to your business
• Strength associates with opportunity
• Weakness associates with threat
• Find your uniqueness
• Strength and opportunity give you an advantage over others/other business
• Weakness and threats must be mitigated
• Take time to think and include minute details
Please use the worksheet template to do your SWOT.
Once completing the SWOT analysis, map your strengths with the opportunities. You will be able to list out few products by end of these exercises.
SWOT analysis with respect to exports business worksheet
Strengths Weakness
What do you do better than others?
What is your uniqueness?
Which of your characters are your key strength?
What are the resources you have better access to?
What do you think as your drawback?
Which are the key areas you want to improve?
What are the activities you are afraid to attempt?
What are the resources you don’t have access to?
Practical Guide to Success in the world of Exports
Opportunity Threat
What opportunities are open to you?
What trends could you advantage of?
How can you turn your strengths into opportunities?
What threats could harm you?
What is your competition doing?
What threats do your weaknesses expose you to?
Mapping strengths with opportunities:
My area/ field of interest Possible products in field Products of my interest
Similarly, list out your relevant and interested products that are exported through your nearby port.
Practical Guide to Success in the world of Exports
Next step is to prioritize your products and choose your FIRST product for exports.
S.
NO. Criteria for Prioritization Products
1 Products that you manufacture
2 Products that you have good rapport with
manufactures – Identify at least 3 suppliers
3 Products you are technically good at
4 Products that you have niche advantage
5 Products that you can add more value to it
6 Products that from lower value of investment to higher value
7 Products that your native is well known for and you can source it abundance
8 Give the H.S. code for each product
Practical Guide to Success in the world of Exports
Product analysis
From the extensive list of varieties of products available, you might have arrived at a small, let’s say, a set of 10 products according to your strengths. It is easy to get an order if concentrated on one product initially and the chosen product has a high demand in the international market. In this module, we will discuss on the various steps of analysis used to identify the potential of the product in international market.
The potential of products can be recognized using 6 phases of analysis viz.,
Tariff line analysis (H.S. Code)
STEEP analysis
Export Trend from India
Product applicability
Possibility of value addition
Minimum and maximum capacity to export
Let’s use Pomegranate as the product analysed for explanation purpose.
Tariff line analysis:
Harmonized System of coding (H.S. code) is the international product nomenclature to represent each item for exports or imports. Since import tariffs are calculated based on H.S. code, this analysis is also termed as Tariff line analysis.
The length of H.S. code varies between developed country markets and emerging markets. The first 6 digits are common for any country. Indian Customs uses 8 digits Indian Trade Clarification based on H.S. code (ITC H.S.). They are divided in to Schedule – I for rules and regulations related to imports policies and Schedule – II for exports policies. H.S. code digits vary depending upon the country.
Directorate General of Foreign Trade (DGFT) is the governing body of ITC H.S code.
An exporter must know the H.S. Code for the product before doing any analysis. To find the H.S. code, let’s go to DGFT website (dgft.gov.in).
Practical Guide to Success in the world of Exports
H.S. code for pomegranate is found to be – 08109010. Also, pomegranate is categorized as free to export product.
Next step is to find MEIS rate for exporting the item. i.e Government incentive under MEIS scheme, explained in later chapter.
It can be obtained from Important links Query ITC (HS) Based MEIS rate (Just below the Query ITC (HS) Based Exim Policy)
Pomegranate having H.S. code 08109010 attracts 5 % MEIS exporting to any
group of countries. It means our Government encourages the exports of Pomegranate.
STEEP Analysis
STEEP stands for Social, Technological, Economical, Environmental, and Political factors influencing a business. STEEP is used for analysing a market trend. Not every factor influences every kind of business. STEEP analysis can be done for past, current and future trend analysis. A brief explanation as below:
Social: The social developments include factors like consumer behaviour, demographics, religion, lifestyles, values, and advertising
Technological: The technology aspect of STEEP analysis focuses highly on technological advancements. It includes factors like innovation, communication, energy, transport, research and development, patent regulations and life-cycle of products.
Economic: The economic condition is strongly associated with the consumers’ buying power. In this step, factors such as interest rates, international trade, taxes, savings, inflation, subsidies, availability of jobs and entrepreneurship are considered.
Environmental: Environmental developments involve ecosystem factors such as water, wind, food, soil, energy, pollution, and environmental regulations.
Political: The Political developments can highly influence individuals and organizations. It is important to be aware of likely upcoming shifts in power. Political developments can affect environmental, antitrust, financial markets, trade, and other kinds of laws. Factors to be considered include political stability, regulation of monopolies, tax policies, price regulations consumer protection, jurisdiction and trade unions.
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Practical Guide to Success in the world of Exports
Please refer to the sample STEEP analysis for Exports of Pomegranate.
STEEP Analysis Factor Opportunity Threat
Political
India is number one producer of Pomegranate in the world. Pomegranate is the main horticulture product with good revenue Other countries also increase their pomegranate export
Economic
Cost of production
– High value crop Opportunity for organic produce Informed practice on organic produce and hard to get
certification
Socio-cultural
Leading producing states Maharashtra Ganesh and
Bhagwa (Red Ruby) have good potential for exports. Perishable in fresh state. Exports through Reefer container.
Technological
APEDA is the
Export Promotion
Council for
Horticulture Implements strategies to train the farmers the cultivation of Pomegranates.
Exporters on advancing testing and procedures. Educating the formers and exporters on new implementation of testing procedures.
Exports Trends:
By now, you are aware of the fact whether your product is worthy to be exported. Next phase is to study the exports trend of the product. It is very important to know how the product fared in the foreign trade over the past few years and its earning potential. Several factors affect the export trend of the product such as free trade policy, political conditions, policies, seasonality, etc.
One important requirement of this analysis is the specification details of product. The prices differ with respect to specification, package, procuring country and exporting country.
Below is the specification for Export quality pomegranate.
Practical Guide to Success in the world of Exports
Possibility of value addition:
Value addition of products earn good profit with low competition. An exporter can try various possibilities of value addition of a product for easier penetration into export market. Some of the good examples of value addition are
Essential oil from Mango seed,
Leather toys and utilities,
Rice flour, Maize flour,
Spirulina capsules and toiletries etc.
The value addition should be based on solving a problem or adding better value
to the solution. This requires an investment.
Minimum and Maximum Capacity to export:
An exporter should be aware of his/her capacity to export. It differs depending on the product. It also depends upon your ability to invest. If you find a buyer asking for certain quantity for your product, it’s not necessary that you must bound to that quantity even if it’s beyond your capacity. So, you must know how minimum can you export to gain a decent profit.
Similarly, you must know your maximum capacity to export a product. If you have a good supply for your product, you can diversify the target market. Also, you can provide a competitive price to your buyer to encourage to buy in more quantity.
Practical Guide to Success in the world of Exports
Market analysis
Congratulations for passing the first hurdle in exports industry. Now, you would have identified the best product that suits your strengths with more opportunities in foreign markets. But which is the best market to target for your product and how to find it? This chapter exactly tells you that! Ways to identify the best market is the second most frequently asked question. Because once we know the potential market, it becomes relatively easier and quicker to find the buyer for our product.
This chapter will cover the following topics:
Target Audience and Market size
Buyer Persona
Listing out potential importing countries
Shortlisting Easy target markets based on the following
Indicative Potential Trade
Trade Intensity Index
Revealed comparative advantage
STEEP analysis of the target countries
Studying the import policy and regulation of the target countries
Target Audience/market segment:
Not every individual will be a customer for every product. There is no product in the world without any customer. Mapping the product with customer is what Target audience or market segmentation all about. Target audience is the chosen set of individuals to whom you want to sell the product, collectively known as market segment. Identifying target market will help you to strategically fix right price for your product and do the marketing plan accordingly. Firstly, on a broad note, you can classify the target market into needy, desirable and luxury market. As the name suggests, it helps you to decide whether you want to sell huge quantity with low price or optimal quantity with optimal price or less products for higher price.
In other words, choosing your niche market will help you succeed faster. Once succeeded in niche market, we can diversify to other segments as well. Having identified the product, based on the value addition and how it will be presented, there must be a fair idea on the market segment to focus. Some products can fit into all category. The buyer persona and market sizing will help you to develop niche market.
Practical Guide to Success in the world of Exports
Buyer Persona:
Once you have chosen your target market, it’s important to develop your buyer persona. Buyer Persona is the personality analysis of your customer/importer. In case of dealing with multifaceted business, it’s the personality analysis of the key decision taker in your client business/importing business. It helps to construct an achievable business strategy. Your business performance depends upon the satisfaction factor of your buyer persona.
Buyer personas are semi-fictional representations of an ideal customer, based on real data and some educated speculation about demographics, behaviours, motivations, and goals. Personas are created through research, analysis, and taking a close look at who’s already buying from you. They can help you get into the mindset of your potential buyers. So, you could say that they’re a pretty big deal, but how do you create buyer personas?
There are three things to keep in mind – research, identifying trends, and creating persona profile stories. First, do your research. Buyer personas must be based on actual research, not assumptions. Yes, research takes time, but if any of those assumptions are inaccurate, your personas will be, too.
Do a ‘Why-why’ analysis on the actions of buyers of similar products. i.e., Ask them or yourselves questions like why they purchased/rejected the item? Why they liked/disliked it? Why is it very appealing to them etc. These questions lead to the motive behind their actions. It helps in understanding the driving factors of decisions.
You can also get these details from B2B portals, Quora, Facebook pages, Google
analytics.
A handy tool to develop your buyer persona is http://www.makemypersona.com. It will help you to identify your suitable market.
Market Sizing:
Market sizing is defining the target market in terms of money. Market size can be obtained from the trade map. The important factor is Market sales potential (MSP). It helps you determine your marketing strategy.
Your Market sales potential (MSP) calculated using the formula below:
MSP = (Number of Importers ∗ Quantity to be exported ∗ Unit price)
For example: If I can supply 210 tonnes of my product with 1-ton pricing USD 400 in a month and minimum order quantity is 70 tones, I can have up to 3 buyers
Practical Guide to Success in the world of Exports
The major markets identified for pomegranate: U.A.E, Saudi Arabia, Netherlands, Nepal, U.S.A, Kuwait, U.K. Malaysia, Qatar, Thailand, Egypt, Oman, Singapore, Bahrain, Bangladesh, Vietnam, Sri Lanka, Russia, Maldives.
Now it’s your turn to do the exercise for your product.
Shortlisting the target markets based on zero tariff:
In the previous exercise, you should have shortlisted top 10 importing countries for your product.
In this section, we will see the significance of the data in trade map and major competitor countries in exports.
The trade map gives 4 types of data for market analysis such as current indicators,
trends, structure, and tariff
Data Significance
Value exported/imported – Current indicator Current market size in USD for the product
Trade balance – current indicator Imports – Exports (-ve value indicates exports >Imports)
Quantity exported/imported – current indicator Capacity of exporting/importing of the product
Unit value – current indicator Gives an idea of the pricing of the product (C.I.F – in case of imports), (F.O.B – in case of exports)
Avg. Growth in Value – Trend If 2 – 3 %, good market
Avg. Growth in quantity – Trend If +ve good market
If -ve Saturated market
Growth in value (last 1 year) – Trend Value w.r.t world’s total imports
Share in world imports – structure If high value – market leader If low value – marginal player
Ranking of partner country – structure Top exporter/importer
Total export growth in value of the partner countries – structure Whether the country is concentrating on the target market
Tariff Import duty faced by the country
Practical Guide to Success in the world of Exports
Market Prioritization
In the last segment, we have shortlisted some target markets based on Zero import duty. It means that those countries promote the import of such product. It is not enough to make sound decision.
In this section, we are going to do some calculations to check whether the target market is worthwhile to attempt.
We are going to use Indicative Trade Potential of India’s opportunity, Trade Intensity Index, Revealed Comparative Advantage, Import penetration and Market concentration analysis.
Indicative Trade Potential:
IPT is useful to check whether the target market has potential size to attempt for exporting. In such case, it helps the exporter to decide on their minimum and maximum export order capacity and pricing strategy.
Indicative Potential Trade between two countries is defined as the balance value after subtracting the current trade worth between the two countries from the minimum value among seller country’s export worth to world and buyer country’s import worth from the world.
IPT (exports from A->B) = minimum value (A’s exports to World, B’s Imports from
World) – A’s Export to B
For example,
Product Pomegranate (081090)
Country India
Partner U.A.E
Trade Flow Exports
Data Type 1 Yearly time series
Data Type 2 By Product
Practical Guide to Success in the world of Exports
T.I.I =
For example:
We shall calculate T.I.I of India (A) to U.A.E (B)
We must get following data from the trade map:
Export of 6-digit HS code (081090) from India to U.A.E (C)
Export of 2-digit HS code (08) from India to U.A.E (D)
Import of 6-digit HS code (081090) into U.A.E from world (E)
Import of 2-digit HS code (08) into U.A.E from world (F)
To get the value of C and E
Product Pomegranate (HS 081090)
Country India
Partner U.A.E
Trade Flow Exports
Data Type 1 Yearly time series
Data Type 2 By Product
Data Type 3 At the same 6 digits level
Data Type 4 Values
Practical Guide to Success in the world of Exports
Let’s calculate for Pomegranate (081090).
Let’s say
Exports of 081090 from India during 2016 = A
Exports of 08 from India during 2016 = B
Exports of 081090 from world during 2016 = C
Exports of 08 from World during 2016 = D
To get the value of A,
Product Pomegranate (HS 081090)
Country India
Partner All
Trade Flow Exports
Data Type 1 Yearly time series
Data Type 2 By Product
Data Type 3 At the same 6 digits level
Data Type 4 Values
Practical Guide to Success in the world of Exports
For example, let us see the STEEP analysis of U.A.E,
STEEP Analysis Factor Opportunity Threat
Political
7 Emirates with
individual government organisation Access to different markets
Should be aware of each government
policies on import
Economic
One of the most developed
economies in
Western Asia Payment security and MEIS
incentives Level of competition will be high
Socio-cultural
Highly Globalised society.
Religion plays an important role. Multi-cultural opportunities Care should be taken to make sure your product fits into it.
Technological
Technologically advanced country Easy access to buyers via social media and other networks. Improper preparation will lead to losing the export opportunity.
Environmental Hot, dry climate. Located near to
coastal area Opportunities for fruits and easy
trade High competition from nearby
countries
Import policy and regulation:
We are aware of the safest and easy target markets for our potential products. To do an exports business effectively, we must know the import policy and regulations of the target market. We can find it through talking to a Consultant, Customs house agent, reading the government notifications or by google it.
Packaging regulations plays an important part in exports. There are cases where the consignment had been rejected at customs due to package condition.
Knowing more about the market in target country will help you to stay ahead of
your competitors.
Practical Guide to Success in the world of Exports
Competitor Analysis
Hurray!! You have moved the second stumbling block in exports out of your way. Let’s move on to the third major step.
Having shortlisted the potential product and identified the potential markets, why do you think that the buyer will trade with you? What is it exceptional about your product or service? To succeed, you should be able to give your buyer a reason why to buy from you. Your unique selling point only can encourage importers to choose you over others. It can be price, product quality or value-addition to product/service.
Competitor analysis is vital to identify your advantage over other exporters/suppliers.
Three levels of competition exist in Exports.
Level 1: Competitor countries for your product
Level 2: Other exporters from your country
Level 3: Other local suppliers/importers of your product in target market
Level 1: Competitor countries
Trade map helps you in identifying your competitor countries.
In the case for Pomegranates:
Product Pomegranate (081090)
Country All
Partner All
Trade Flow Imports
Data Type 1 Trade Indicators
Data Type 2 By Country
Practical Guide to Success in the world of Exports
Level 2: Other exporters in your country.
B2B portals lists the local suppliers of your product. You need to research about them regarding their product specifications, pricing strategy, value addition to the product. Based on the outcome, determine your unique selling point in price, package, product quality or value-added service.
Level 3: Other supplier/importers in your target country
Third level of competitors are the other importers from target country, who may try to retain their market by lowering the prices. You can gain advantage over this level of competitors after identifying your advantage over first 2 types of competitors.
Good competition also shows that there is good demand for your product.
Practical Guide to Success in the world of Exports
Exports Procedure
You have accomplished sufficient groundwork required for exporting. So far, you have potential product for target market with competitive advantage. In this unit, the legal requirements, pricing and payment methods, Government initiative for assistance to exporters are discussed in detail.
Company formation:
If you are new to business, sole proprietorship is a best option. It is relatively easier to get other process done. Your Pan card is sufficient to start with. As exports is an International business, it is better to name your business to be easily remembered/recognised by other countries. You can also name in a such a way to reveal your competitive advantage. GSTIN is required to be able to procure your products.
I.E. Code
Those interested in EXIM business need to apply to the regional office of the Director General of Foreign Trade (DGFT) for getting Importer-Exporter Code (IEC) Number. IEC number is not mandatory in the case of imports for personal use. Now, IEC can be applied through online just by uploading the necessary documents. This step is applicable in the case of first-time exporters. Under GST regime, changes are made to accept PAN card as the license to do exports.
Current bank account:
Current bank account can be opened at any bank. It is better to choose a nationalised bank you are familiar with. All you require to open the account are PAN card, Udyog Aadhaar registration, company seal and minimum balance.
Government initiatives:
Indian government has taken several measures to improve exports from India, thereby bring in more foreign reserves into our country. Many schemes were introduced in our Foreign Trade Policy, organisations like ECGC, EXIM bank to provide financial support, export promotion councils to aid exporters.
1. Foreign Trade Policy
Latest FTP (2015-2020) focuses on simplification of export procedures and promoting domestically manufactured goods for export, in harmony with ‘Make in India’ initiative. Foreign trade policy gives a clear picture of goals, product and market strategy, infrastructure development, channels of promotions to ensure the progress of India’s position in global trade.
Practical Guide to Success in the world of Exports
Merchandise Exports from India Scheme is introduced, merging various schemes under one roof. This scheme rewards agricultural products, goods produced in village, eco-friendly items, labour intensive products, products with high earning potential exported with duty scrips. The markets are categorized into three: Traditional (30 countries), Emerging (139 countries) and other (70 countries) markets. The rewards range from 3% to 5% of FOB value of exports. This duty scrips can be used against the customs duty for the imported inputs or excise duty of domestic inputs used for manufacturing products meant for exports. It can be claimed back as duty drawback if the imported materials are used for exports purpose.
Service Exports from India Scheme replaced Served from India scheme, outspreading the benefits to all service providers having a system established in India. The rewards are given based on the net foreign exchange earned. To overcome the challenges faced by units located in Special Economic Zones, both MEIS and SEIS benefits are extended to exports from SEZ.
Government is promoting ‘Make in India’ brand image in global market. So, higher rewards will be provided to products manufactured using domestic inputs rather than imported inputs.
Steps have been taken to ease the exports procedures through digitization of process. Time and cost is saved for exporters due to the provision for online filling of applications to DGFT.
2. ECGC:
Export Credit Guarantee Corporation, controlled by Ministry of Commerce & Industry, managed by RBI, bank, Government representatives, is basically an export promotion organization. Main objective of ECGC is to cover the risk of exports under credit system. They provide insurance cover for exporters to recover from the loss in exports, offers guarantee to banks and financial institutions for financing an exporter. They provide guidance on exports activities and assist potential exporters by delivering the list of prospective buyers in foreign markets and checking the credit worthiness of a buyer. ECGC forms an able support to the exporters in times of political and economic uncertainties in buyer’s country.
3. EXIM Bank:
Export Import Bank was setup for the purpose of financing and promoting exports and imports business in India. They provide financial aid at various levels including development and expansion of production units, production, and exports of goods. Through in-depth analysis of international economics, EXIM bank empowers exporters to understand the risks and discover right export opportunities. Through their Marketing Advisory Services, they assist Indian firms to setup a plant or identify distributors and partners in abroad.
Practical Guide to Success in the world of Exports
4. Export Promotion Councils:
Export promotion Council are non-profit organizations under the control of Ministry of Commerce, playing an advisory and administrative role in promotion of cross-border trade in India. They assist exporters in understanding the export policies and export schemes of Government, participation in export promotion activities like fairs and exhibitions. They help exporters in setting up office in foreign countries. Coordination with Export Inspection council for quality control, Guidance on export finance, settling trade disputes are other functions of EPCs.
Pricing Strategy:
While deciding the price for the product/services, the company takes all the expenses incurred such as raw material, production, labour, package, transportation, marketing into consideration and add up a profit percentage. They will study the market situations, trends, competitor prices to ensure that the price quoted for their product is not too high or not too low. This method is known as Pricing strategy.
Pricing Strategy in Exports:
Exports involve trade between two or more countries. Each country will have different financial policies, tax structures, inflation rate, consumer buying capacity. Not only the production expenses, but the transportation expenses, duties levied on both governments also needs to be considered in pricing the product for International market.
Why it is important:
Deciding on a suitable price for the products help the company to achieve their objectives say sales target or profit maximisation. Pricing is considered directly proportional to the quality of the product. Sensible pricing aids in increasing and maintaining a good market share. It supports developing a brand loyalty in virtue of quality product at affordable price. Low prices though affect overall profitability, help in penetrating new markets.
Types of Pricing Strategy:
There are six different types of pricing strategies in exports marketing namely,
1. Skimming Pricing Strategy – In this strategy, the products are priced very high to recuperate all initial expenses incurred in product development and marketing. Once the break-even is achieved by serving a niche market, price is reduced considerably to increase market share.
2. Penetration Pricing Strategy – Popularly known as dumping strategy, it is mainly used in mass consumption products. In this, products are priced very low to capture the market and eliminate competitors from the market.
Practical Guide to Success in the world of Exports
3. Market Oriented Pricing – A realistic strategy taking dynamic market fluctuations into account. The products will be charged more when demand is high and less when demand is low.
4. Competitor Pricing – In this method, the company while fixing the price, simply follows the pricing strategy of leading competitor. In other words, the company holding the maximum market share decides on the price range for the product.
5. Transfer Pricing – Transfer pricing is pricing of goods transferred between two divisions of same company across borders. Difference in tax rates, restrictions on import or foreign exchange are the key factors influencing transfer pricing method.
6. Marginal Cost Pricing – Marginal cost is the cost of producing one additional unit. In this strategy, for each unit sold, the cost of raw material and direct labour involved for the additional unit are added in the price.
Incoterms:
Incoterms or International Commercial terms are set of terms outlined by International Chamber of Commerce. These are established as default payment terms commonly accepted by all countries involved in International trade. These terms distinctly distinguish the responsibility of exporters and importers. The key Incoterms are as follows:
CFR – Cost and Freight
Exporter’s Responsibility: Production and freight expenses, loading charges at
origin port.
Importer’s Responsibility: Insurance and Unloading charges at destination port.
CIF – Cost, Insurance, and Freight
Exporter’s Responsibility: Production and freight expenses, loading charges at origin port, Insurance.
Importer’s Responsibility: Unloading charges at destination port.
This term applies only to waterway transportation method.
CIP – Carriage and Insurance Paid to
Exporter’s Responsibility: Production and freight expenses, loading charges at origin port, Insurance.
Practical Guide to Success in the world of Exports
Importer’s Responsibility: Unloading charges at destination port.
This term applies to any combination of transportation methods.
DDP – Delivered Duty Paid
Exporter’s Responsibility: Production and freight expenses, loading charges at origin port, Insurance, Taxes, Import duties and Domestic freight at destination.
Importer’s Responsibility: Unloading charges at destination port.
This term applies only to all transportation methods.
DDU – Delivered Duty Unpaid
Exporter’s Responsibility: Production and freight expenses, loading charges at origin port, Insurance, and Domestic freight at destination.
Importer’s Responsibility: Unloading charges at destination port, Taxes, and Import duties.
This term applies only to all transportation methods.
ExW – Ex Works
Exporter’s Responsibility: Loading charges at exporter’s building.
Importer’s Responsibility: Freight, Insurance, Unloading charges at destination port, Taxes, and Import duties.
FAS – Free Along Ship
Exporter’s Responsibility: Loading charges at origin port dock.
Importer’s Responsibility: Loading charges on ship, Freight, Insurance, Unloading charges at destination port, Taxes, and Import duties.
This applies for waterway transportation method
FOB – Free on Board
Exporter’s Responsibility: All expenses till goods are loaded in ship at origin port.
Importer’s Responsibility: Freight, Insurance, Unloading charges at destination port, Taxes, and Import duties.
Practical Guide to Success in the world of Exports
Payment terms:
Prompt payment and on-time delivery of goods are the keys to success in international trade. Buyer and exporter should discuss in detail and reach an agreement on the payment terms having mutual benefits. There are several methods of payments in International trade as follows
Advance Payment
Letter of Credit
Documentary Collections
Documents against Payment
Documents against Acceptance
Open Account
Consignment
Advance Payment:
Advance Payment is the most preferred payment for an exporter, while least preferred for the buyer. In this method, buyer will pay the entire/partly amount before the shipment of goods. Remaining will be paid against the B/L. So, the exporters don’t have any credit risk on their part. On contrary, buyers will face unfavourable cash flow as they must wait for the shipment to reach. Also, buyers will be apprehensive that the exporters might not ship the goods on receiving payments or ship goods of undesired quality. In practical scenario, buyer provide advance payment to niche products or products with good demand.
Letter of Credit:
Letter of Credit is known as the most secure method of payment in International trade. The buyer’s bank gives an assurance to the seller that the payment will be released once the required documents are submitted and conditions in LC are met. There are several types of LC such as Irrevocable, Revocable, Stand-by, Confirmed, Unconfirmed, Transferable, Back-to-Back, Payment at sight, Deferred payment, Red clause.
1. Irrevocable LC, once issued cannot be cancelled or modified without agreement of all concern parties.
2. Revocable LC, can be cancelled or modified without prior notification to exporter. If revoked, exporters are at loss.
3. Stand-by LC, will have the guarantee of payment to exporters. If buyers fail to comply, bank will do the payment.
4. Confirmed LC, will have confirmation of exporter’s bank in addition to assurance from buyer’s bank. Exporter’s bank is held responsible for smooth transaction.
5. Unconfirmed LC, holds buyer’s bank as responsible for the payment.
Practical Guide to Success in the world of Exports
6. Transferable LC, is useful when the exporter is not the manufacturer of goods and multiple parties are involved in the trade. Instead of raising multiple LCs, one LC is transferred from one party to another.
7. Back-to-Back LC, consists of two LCs with the second LC issued on top of first LC. Buyer will give LC to an intermediate merchant, who in turn raises LC to seller of goods.
8. Payment at sight LC, has the payment released immediately or within a week after the required documents are submitted by the exporter.
9. Deferred payments LC, has the payment released to exporter after certain period from the date of document submission. Generally, payments get released once goods are received by buyer.
10. Red clause LC, has a clause printed in red denoting an advance payment can be released to seller on request.
Most preferable type of LC is irrevocable, confirmed LC or transferable LC.
Documentary Collection:
In this method of payment, exporter holds his bank as responsible for collection of payment from buyer. Exporter submits the required documents to his bank, who sends them to buyer’s bank with necessary instructions for payment. There are two types namely Document against payment and Document against acceptance.
Document against payment (D/P): Exporter’s bank instructs buyer’s bank to release documents on receipt of payment. Buyer must make the payment to bank to get the documents, so that the goods can be unloaded.
Documents against acceptance (D/A or CAD): Exporter’s bank sends a bill of exchange to buyer’s bank, along with the documents. Buyer must sign the bill of exchange, as an agreement to pay for the goods in certain number of days, to receive the documents.
Open Account:
Open account transaction is obverse of advance payment method. Exporters are exposed to higher risk in open account transactions. There is no involvement of banks. Exporters on shipment of goods, will send the documents directly to the buyer. Buyer makes the payment after clearing the goods. Payment may be delayed up to 180 days.
Consignment:
Consignment is the least preferred and highly riskier method of payment for an exporter. It is a variation of open account transaction in which the exporter will receive the payment only after the shipped goods are sold to the end customer. There is no guarantee for the exporter that he will get paid within certain period. Exporting in
Practical Guide to Success in the world of Exports
consignments is suitable only for fast moving products in market with a trustworthy buyer and distributor.
Customs House agents (CHA) or Freight forwarding agents:
Custom house agents/Freight forwarders help you with export documentation and freight procedures. The difference between them is very thin. Logistic is itself an ocean to discuss. The important thing is to have CHA/freight forwarder who will take care of your cargo needs to be shipped safely to your buyer doing the necessary documents.
Exports Documentation: Proforma Invoice
Proforma Invoice is the form of invoice send to the buyer as a reply to an inquiry. In other words, offering your quote with necessary details. It is prepared by an exporter and sent to the importer for necessary acceptance.
Packing List
It is a document detailing the packaging of the cargo/goods for exports. It contains information about the material in each individual package, such as drum, box, or carton. It is required at the time of examination at the customs to enable effective delivery and record keeping.
Commercial Invoice
Commercial invoice is a fundamental document of prime importance. It contains the same details in proforma invoice such as name of the exporter, importer, the consignee, and the description of goods. It must be signed by an exporter or his agent for further procedures.
Certificate of Origin
The Certificate of Origin indicates that the goods are manufactured in a specific country mentioned as exporting country. This certificate is sent by the exporter to the importer.
It is useful for the clearance of the goods from the customs authority of the importing country. Certificate of origin is not mandatory for every export order.
Shipping Bill/Bill of Entry
Shipping Bill/Bill of Entry is required to seek permission from the customs to export the goods by sea/air. It contains a description of export goods, the number and kind of packages, shipping marks and numbers, value of goods, the name of the vessel, the country of destination, etc.
Practical Guide to Success in the world of Exports
Mate’s Receipt
The goods are handed over to the shipping company for loading after clearing from the customs examination and other formalities. The captain of the ship issues the mate’s receipt. It contains the name of the vessel, shipping line, port of loading, port of discharge, shipping marks and numbers, packing details, description of goods, gross weight, container number, and seal number. The mate’s receipt is exchanged for the Bill of Lading.
Bills of Exchange
The Bill of Exchange is commonly known as draft. It is ‘an instrument in writing, containing an order, signed by the maker, directing a certain person to pay a certain sum of money only to the order of a person to the bearer of the instrument’.
Bill of Lading
The Bill of Lading (B/L) is a document issued by the shipping company or its agent. It acknowledges the receipt of the goods mentioned in the bill for shipment on board of the vessel. The B/L is the legal document to be referred in case of any dispute over the shipment
It contains the following information:
– The shipping company’s name and address
– The consignee’s name and address
– The port of loading and the port of discharge
– Shipping marks and particulars
– Number of packages shipped with date-rubber stamp
– Description of packages and the goods
– Gross weight and net weight
– Freight details and name of the vessel
– Signature of the shipping company’s agent
Airway Bill
Airway Bill is the receipt issued by the airlines company or its agent for carriage of goods.
Insurance Certificate
The Insurance Certificate is insurance to cover the loss or damage to the cargo during transit (marine/air insurance) if happened.
Practical Guide to Success in the world of Exports
Exports Financing:
Export financing is an important factor for exports success. The exporter may need short-term or medium or long-term financing based on the types of goods and payment conditions. There are finance and credit available to help export production and sell to buyers on credit.
An exporter may avail financial assistance from any bank depending on availability of funds and affordability of the cost of funds (Collateral security). Preshipment and post – shipment are two types of exports financing
Pre – shipment finance can be obtained as packing credit in INR or pre-shipment credit for foreign currency. It can be availed for a period of 180 – 270 days.
Post – shipment finance is provided to exporters from the date of shipment to credit period offered to the buyer. It is a short – term loan. Post-shipment advance can be obtained in the form of Export bills discounted or negotiated, Advance against bills for collection, advances against bills for collection, Advances against duty drawback receivable from government.
Export Finance to overseas Importers:
Commercial banks in India extend export credit to importers to facilitate imports of goods in 2 forms. They are supplier’s finance and buyer’s finance.
In Supplier’s finance, exporter will receive full value of the order from the bank and export the goods in partial shipment to the buyer. The buyer can make the payments in instalments to the exporter’s bank.
In buyer’s finance, the buyer is given credit under Line of credit.
Line of credit:
Line of credit is credit extended by EXIM bank, India to a financial institution or bank or Government in the importing country to facilitate the imports from India. Many importers can import the goods under one line of credit.
Practical Guide to Success in the world of Exports
Exports Marketing
Exports Marketing is essential to get the buyer for your product. There are two types of export marketing viz online/digital and offline. A successful Exports marketing starts with good marketing strategy.
Marketing Strategy:
Once marketing analysis is done and an understanding of target market size, competitors, and buyers are acquired, it’s time to develop your marketing strategy. Marketing strategy helps you to strategically do marketing and measure/analyse the result. Let’s see the steps of developing a marketing strategy.
Setting a Goal:
Setting a Goal is the preliminary step. You can have a goal for 1 year, 3 years or 5 years. The goal must be in SMART form. i.e., Specific, Measurable, Achievable, Realistic, and Time-Based.
For example: To export to in
You can make it more specific by adding quantity, price, package, and product specification. It’s better to concentrate on one product and one target country to start with.
Prioritise your marketing activities:
After setting the Goal, we must identify the marketing channels. Exports Marketing can be done through B2B portals, placing an advert at the relevant magazine, appointing freelancers, your website and social media, networking, trade fairs and exhibitions, utilizing government marketing schemes and promotion councils’ meetings.
An exporter should identify the most effective marketing channels for him/her. Prioritise the order of marketing channels from most effective to less effective.
Plan your projects and process:
After prioritizing the marketing channels, each channel has a unique approach. Each approach is to be considered as a project. Do a flowchart of activities for each project. Make sure that the flowchart of activities reflects your goal. Have a timeline for each activity and keep track of the progress.
An effective roadmap/flowchart identifies your weakness/gaps and necessary action for that. Best practice is to involve your team members. Solopreneurs can take the help from a mentor or consultant.
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Practical Guide to Success in the world of Exports
Creating a Marketing and sales funnel:
Marketing and sales funnel is a pictorial representation of stages of your buyer before making an order. Your marketing activities should encourage the buyer to move to the final stage. The stages are creating your presence in a marketing channel, replenishing the resources/benefits/process of a marketing channel, receiving an inquiry from a buyer, timely responding to your buyer, progress or drop of inquiry, achieving an order.
Each step should be analysed for the result. If the inquiry doesn’t progress to next stage, change your course of action. Inbound marketing methodology is the current trend in effective marketing. It’s a method of encouraging the buyers to contact the seller. Digital marketing follows the Inbound marketing methodology.
Digital marketing or data driven marketing is the term used to market a product or service using digital technologies. Digital marketing channels are websites, social media profiles, emails, mobile apps, search engines. Some of the techniques are search engine optimization, search engine marketing, content marketing and automation. Let’s see the role of digital marketing in exports.
Digital Marketing in Exports:
Digital marketing plays an important role in international trade. Digital marketing goes beyond just having a website or social media profile. It is a part of brand strategy. Your website and social media profile should reinforce your brand and create a trust in your buyer’s mind.
Characteristics of a good website:
A good website should be like a digital showroom of your products/services. Buyer should be able to have a proper understanding of your products/service, the purpose of your products/service, benefits of buying from you and people involved in your business, your best practices, frequently asked questions/certifications. Your social media profiles should resonate the same values as your website.
Website performance is very important. The website should be mobile responsive i.e., ability to be configured according to the mobile display. Search engine optimisation (SEO) is a vital feature for a website. Website speed should be less than 3 seconds according to global standards.
More than anything, website content is the key to winning your buyer’s trust. Your content should be educating. It shouldn’t be a copy and paste. Google penalizes such bootlegging websites.
An effective social media profile helps you to build a good network and interact with others. Social media such as LinkedIn, google+, Facebook, Pinterest, Instagram, and Twitter are used for effective B2B marketing.
Practical Guide to Success in the world of Exports
B2B portals:
There number of B2B portals that work as a connecting platform for suppliers and buyers. In most of the cases, a free membership is enough to use these platforms. One must be vigilant to avoid the scammers.
Social Media Marketing:
Social media has become a part of everyone’s life. It is unavoidable in exports marketing. LinkedIn survey says that 80% of business owners prefer LinkedIn profile to choose a lead. 69% of business flows through LinkedIn networks.
Facebook estimates 2 billion active users. Facebook business manager tool helps in gaining insights about your market, audience, and related information. You can also be part of fb pages and groups to gain knowledge and exposure.
Being sensibly active on social media helps business to enhance personal branding and networking. Networking is key to success in Exports. Social media is powerful in networking from your office or living room.
Offline Marketing channels:
Offline Marketing channels are trade fair, exhibitions, appointing freelancers/agents, attending export promotion councils’ meetings, visiting countries. There are about 44 countries, Indians can visit on receiving visa on arrival. These are potential importers of Indian products.
Indian government provides incentives for exports marketing through Market Access Initiative (MAI) and Market Development Assistance (MDA) schemes. MAI is available to exporters depending on the EPCs. MDA scheme helps exporters to cover the cost involved in attending exports marketing events.
Finding the buyers:
You can get a list of buyers from writing to Indian embassies in abroad, B2B portals, social media, networking events, developed countries government websites, EPCs, FIEO.
Obtaining an order:
You will have a list of buyers from your export marketing. Communication is crucial factor to decide your success in exports. Timely response, transparency, willingness to go necessary extra-mile are additional factors.
It is important to state the following while communicating to your buyer through email,
How did you get your buyers’ details? ex: B2B portal, direct inquiry, through your freelancer, agent, partner, exhibitions
An introduction about you and your company
Practical Guide to Success in the world of Exports
Complete product specification, package, quantity, delivery, and payment terms
Your offer (please be aware of market price) – You can check it in the trade map unit price.
Request for a call to action that is scheduling a skype call or meet up if possible
This will show you as a professional exporter. If the buyer doesn’t reply within 1 or 2 working days, chances are your offer is too low/too high, weekends, not a genuine buyer.
A genuine buyer will reply with requesting for proforma invoice or sales contract or purchase order or possibility of delay in processing the order or negotiation.
In case, if you haven’t heard anything back from them, you can follow up in a period of 2 days for 3 times. If there is no reply yet, concentrate on other buyers.
After receiving your purchase order, execute the order fulfilling the exporting conditions.
Risk and Mitigation:
Risk can be defined as the unfavourable condition that arises from the uncertainty about the future. It is the understanding of set of conditions leading to failure or loss and their level of impact. Risks are broadly classified as Systematic risk and Unsystematic risk. Systematic risks affect the entire market, making it volatile. A good example of systematic risk is demonetisation of currency overnight stalled the market for months. Unsystematic risks target a subset of market such as a sector, an industry or an organisation. It can be a new competitor emerging in market, employee strike, management change etc.
Impact of Risk in Exports:
Several sectors such as banks, logistics, customs, legal, industries join hands together in successful execution of an export/import order. Therefore, the probability of risk is high in Exports. Both systematic and specific risks have equal impact in order fulfilment. All the uncertainties associated with doing business with a country is called country risk. Country risk is measured through political and economic instability.
Types of risks in Exports:
Currency fluctuation: Based on the foreign currency flow in and out of the country, the exchange rate of local currency varies with respect to foreign currency. This results in currency fluctuation. In exports, either the supplier or buyer will be affected if there is a sharp rise or fall in the currency value.
Political instability: A stable government brings more investments or businesses into the country. Any sudden changes in the government or new policies that creates an insecurity feeling to others affect trading with the country. Goods and Service Tax
Practical Guide to Success in the world of Exports
implemented in July affected trade due to increase in tax percentage and ambiguity in exemption policies for exports.
Natural calamities: Natural disasters have devastating effects on the lives of people and entire country. All resources get depleted and tangible assets like buildings destroyed by the calamity affecting production capacity of companies. Limited resources available after a disaster will not be sufficient to meet local demand, let alone international demand.
Payment terms: There are different types of payment options in exports ranging from advance payment to delay of payments after submission of all documents to buyer’s bank. Each payment method carries its own risk either to importer or to exporter. When there is no advance payment or when buyer’s bank release fund after certain number of days, supplier must bear the expenses initially.
Trade barriers: Government might impose new rules and regulations for exports and imports in the form of new tax reforms, restriction or banning export/import of certain goods etc. These measures are taken in the interest to protect the domestic market. Country banning export/import of a commodity will allow trade agreements made before the effective date of ban. If the imported goods are taxed high, they will be priced more. Consequently, it will help in increasing the sales of domestic goods.
Economic ban: This is a form of trade barrier, applied on one country not by their own government, but by other countries. It prohibits partial or complete trade with a country. A country may enforce economic ban based on political, social issues. A civil war within a country can persuade other countries to stop trading with the country.
Ways to mitigating risk:
First and foremost, awareness of export procedures in own country is the key to overcome risks. The exporter should be aware of the laws enacted in relation to exports, the list of free to trade and restricted goods and their varieties, government organisations supporting international trade, pricing strategies and payment methods.
Secondly, exporter should study about the buyer’s country, their political relationship with exporting country. Then genuineness of buyer should be validated through checking whether he has legally established business, trading history and payment history, credit period etc.
An exporter should carefully choose the payment option. ECGC and banks provide services to mitigate the payment risks.
The currency risks can be mitigated through hedging in banks to avoid adverse
fluctuations in future. The goods should be insured to avoid risks during transport.
Directorate General Of Foreign Trade | Ministry Of Commerce And Industry | Government Of India,Trade 