1

INTRODUCTION TO EXPORT
MARKETING I
(Meaning and importance of Exports)
Unit Structure
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9

Objectives
Introduction
Definitions of Export Marketing
Features of Export Marketing
Importance of Export Marketing
Distinguish between Domestic Marketing and Export
Marketing.
Motivations for Export Marketing
Present Problems / Difficulties faced by Indian Exporters.
Summary
Questions for Self-Assessment

1.0 OBJECTIVES
The main purpose of this chapter is
To provide you with an overview of export marketing.
To understand the meaning of export marketing
To explain the features of export marketing
To know the importance of export marketing at national level
and firm level.
To distinguish between domestic marketing and export
marketing.
To elaborate the motivations for export marketing.
To find out the present problems / Difficulties faced by Indian
exporters.

1.1 INTRODUCTION
Export marketing means exporting goods to other countries
of the world. It involves lengthy procedure and formalities. In export
marketing, goods are sent abroad as per the procedures framed by
the exporting country as well as by the importing country. Export

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marketing is more complicated to domestic marketing due to
international restrictions, global competition, lengthy procedures
and formalities and so on. Moreover, when a business crossed the
borders of a nation, it becomes infinitely more complex. Along with
this, export marketing offers ample opportunities for earning huge
profits and valuable foreign exchange.
Export marketing has wider economic significance as it
offers various advantages to the national economy. It promotes
economic / business / industrial development, to earn foreign
exchange and ensures optimum utilization of available resources.
Every country takes various policy initiatives for promoting exports
and for meaningful participation in global marketing. Global
business is a reality and every country has to participate in it for
mutual benefits. Every country has to open up its markets to other
countries and also try to enter in the markets of other countries in
the best possible manner. This is a normal rule which every country
has to follow under the present global marketing environment. In
the absence of such participation in global marketing, the process
of economic development of the country comes in danger.

1.2 DEFINITIONS OF EXPORT MARKETING

1) According to B. S. Rathor
Export marketing includes the management of marketing
activities for products which cross the national boundaries of a
country.
2) Export marketing means marketing of goods and services
beyond the national boundaries.

1.3 FEATURES OF EXPORT MARKETING

The main important features of export marketing are as
follows.
1) Systematic Process
Export marketing is a systematic process of developing and
distributing goods and services in overseas markets. The export
marketing manager needs to undertake various marketing
activities, such as marketing research, product design, branding,
packaging, pricing, promotion etc. To undertake the various
marketing activities, the export marketing manager should collect
the right information from the right source; analyze it properly and
then take systematic export marketing decisions.

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2) Large Scale Operations
Normally, export marketing is undertaken on a large scale.
Emphasis is placed on large orders in order to obtain economies in
large sole production and distribution of goods. The economies of
large scale help the exporter to quote competitive prices in the
overseas markets. Exporting goods in small quantities is costly due
to heavy transport cost and other formalities.
3) Dominance of Multinational Corporations
Export marketing is dominated by MNCs, from USA, Europe
and Japan. They are in a position to develop world wide contacts
through their network and conduct business operations efficiently
and economically. They produce quality goods at low cost and also
on massive scale.
4) Customer Focus
The focus of export marketing is on the customer. The
exporter needs to identify customers needs and wants and
accordingly design and develop products to generate and enhance
customer satisfaction. The focus on customer will not only bring in
higher sales in the overseas markets, but it will also improve and
enhance goodwill of the firm.
5) Trade barriers
Export marketing is not free like internal marketing. There
are various trade barriers because of the protective policies of
different countries. Tariff and non-tariff barriers are used by
countries for restricting import. The export marketing manager must
have a good knowledge of trade barriers imposed by importing
countries.
6) Trading Blocs
Export trade is also affected by trading blocs, certain nations
form trading bloc for their mutual benefit and economic
development. The non-members face problems in trading with the
members of a trading bloc due to common external barriers. Indian
exporters should have a good knowledge of important trading blocs
such as NAFTA, European Union and ASEAN.
7) Three faced competition
In export markets, exporters have to face three-faced
competition, i.e., competition from the three angles from the other
suppliers of the exporters country, from the local producers of
importing country and from the exporters of competing nations.
8) Documentation
Export marketing is subject to various documentation
formalities. Exporters require various documents to submit them to

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various authorities such as customs, port trust etc. The documents
include Shipping Bill, Consular Invoice, Certificate of Origin etc.
9) Foreign exchange regulations
Export trade is subject to foreign exchange regulations
imposed by different countries. These regulations relate to
payments and collection of export proceeds. Such restrictions affect
free movement of goods among the countries of the world.
10) Marketing mix
Export marketing requires the right marketing mix for the
target markets, i.e. exporting the right product, at the right price, at
the right place and with the right promotion. The exporter can adopt
different marketing mixes for different export markets, so as to
maximize exports and earn higher returns.
11) International marketing Research
Export marketing requires the support of marketing research
in the form of market survey, product survey, product research and
development as it is highly competitive. Various challenges,
identification of needs and wants of foreign buyer in export
marketing can be dealt with through international marketing
research.
12) Spreading of Risks
Export marketing helps to spread risks of business. Normally
export firms sell in a number of overseas markets. If they are
affected by risks (losses) in one market, they may be able to spread
business risks due to good return from some other markets.
13) Reputation
Export marketing brings name and goodwill to the export
firm. Also, the country of its origin the gets reputation. The
reputation enables the export firm to command good sales in the
domestic market as well as export market.

1.4 IMPORTANCE OF EXPORT MARKETING

Exports are important for all countries whether developed or
underdeveloped. The need / importance / advantages of export
marketing can be explained from the viewpoint of a country and
that of business organization.
1.4.1 Need / Importance / Advantages of Export Marketing at
the National Level:
1) Earning foreign exchange
Exports bring valuable foreign exchange to the exporting
country, which is mainly required to pay for import of capital goods,

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raw materials, spares and components as well as importing
advance technical knowledge.
2) International Relations
Almost all countries of the world want to prosper in a
peaceful environment. One way to maintain political and cultural
ties with other countries is through international trade.
3) Balance of payment
Large scale exports solve balance of payments problem
and enable countries to have favourable balance of payment
position. The deficit in the balance of trade and balance of
payments can be removed through large-scale exports.
4) Reputation in the world
A country which is foremost in the field of exports,
commands a lot of respect, goodwill and reputation from other
countries. For example, Japan commands international reputation
due to its high quality products in the export markets.
5) Employment Opportunities
Export trade calls for more production. More production
opens the doors for more employment. Opportunities, not only in
export sector but also in allied sector like banking, insurance etc.
6) Promoting economic development
Exports are needed for promoting economic and industrial
development. The business grows rapidly if it has access to
international markets. Large-sole exports bring rapid economic
development of a nation.
7) Optimum Utilization of Resources
There can be optimum use of resources. For example, the
supply of oil and petroleum products in Gulf countries is in excess
of home demand. So the excess production is exported, thereby
making optimum use of available resources.
8) Spread Effect
Because of the export industry, other sectors also expand
such as banking, transport, insurance etc. and at the same time
number of ancillary industries comes into existence to suppo0rt the
export sector.
9) Higher standard of Living
Export trade calls for more productions, which in turn
increase employment opportunities. More employment means more
purchasing power, as a result of which people can enjoy new and
better goods, which in turn improves standard of living of the
people.

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1.4.2 Need / Importance / Advantages of export marketing at
Business / Firm / Enterprise Level
1) Reputation
An organization which undertakes exports can bring fame to
its name not only in the export markets, but also in the home
market. For example, firms like Phillips, HLL, Glaxo, Sony, coca
cola, Pepsi, enjoy international reputation.
2) Optimum Production
A company can export its excess production after meeting
domestic demand. Thus, the production can be carried on up to the
optimum production capacity. This will result in economies of large
scale production.
3) Spreading of Risk
A firm engaged in domestic as well as export marketing can
spread its marketing risk in two parts. The loss is one part (i.e. in
one area of marketing) can be compensated by the profit earned in
the other part / area.
4) Export obligation
Some export organization are given certain concessions and
facilities only when they accept certain export obligations Largescale exports are needed to honour such export obligations in
India, units operating in the SEZs / FTZs are expected to honour
such export obligations against special concessions offered to
them.
5) Improvement in organizational efficiency
Research, training and the experience in dealing with foreign
markets, enable the exporters to improve the overall organizational
efficiency.
6) Improvement in product standards
An export firm has to maintain and improve standards in
quality in order to meet international standards. As a result, the
consumers in the home market as well as in the international
market can enjoy better quality of goods.
7) Liberal Imports
Organizations exporting on a large-scale collect more foreign
exchange which can be utilized for liberal import of new technology,
machinery and components. This raises the competitive capacity of
export organizations.
8) Financial and non-Financial benefits
In India, exporters can avail of a number of facilities from the
government. For example, exporters can get DBK, tax exemption

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etc. They also can get assistance from export promotion
organizations such as EPCs IIP, etc.
9) Higher profits
Exports enable a business enterprise to earn higher prices
for goods. If the exporters offer quality products, they can charge
higher prices than those charged in the home market and thereby
raise the profit margin.
Check your progress
1. Define Export Marketing.
2. Export is important for all the countries whether developed or
underdeveloped. Explain.

1.5 DIFFERENCE BETWEEN DOMESTIC MARKETING

AND EXPORT MARKETING.
Domestic / Home marketing

Export / International marketing

1) Meaning
Domestic
marketing
is
restricted to political boundaries
of a country. It involves buying
and selling activities within one
country only

International marketing covers all

countries for marketing purpose.
It involves buying and selling
activities at the global level.

2) Nature
Domestic marketing is easy
and simple due to several
reasons such as uniform
currency system, limited trade
restrictions,
uniform
trade
practices and short distances
for transport of goods.

International marketing is difficult

and complicated due to reasons
such as use of different
currencies, trade restrictions long
distances and absence of uniform
trade practices.

3) Trading Blocs
Absence of trading blocs and
tariff and non-tariff barriers
provide ample scope for
expansion
in
domestic
marketing activities.

Trading blocs and tariff and nontariff barriers exist in international

marketing and they restrict free
trade among the countries of the
world.

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4) Licensing and procedures
It is free from licensing and
lengthy
procedures
and
formalities. This brings simple
in trading operation

It involves licensing, permissions

and lengthy procedures. This
makes
marketing
operations
complicated, time-consuming and
difficult.

5) environmental changes
Changes in the economic,
political or social environment
create limited effects on
domestic marketing

Changes in the economic,

political or social environment
create far-reaching effects on
international marketing scenario

6) Risk in trade
The risk involves is limited due
to limited area of operations,
political stability and uniform
rules and laws

The risk involves is heavy due to

vast area of operations, highly
sensitive nature of markets and
political factors.

7) Competition
It is not highly competitive. The
scope for competition is
restricted due to uniform
business environment

It is highly competitive as different

countries involved are in different
stages of economic and industrial
growth.

8) Government Interference
Maximum
interference
is
in
international
Least interference in the observed
marketing
activities.
domestic marketing activities.
9) Division
It has two broad divisions.
marketing
and
It has no division as it is one Foreign
multinational marketing.
integrated marketing activity.
10) Quantities involved
International marketing activities
Domestic marketing activities are always in large quantities and
are
conducted
in
small profit potentials are also more.
quantities with limited profit
potentials.
11) Incentives
In home marketing, special
concessions,
facilities
and
incentives are normally not
offered
to
traders
and
manufacturers.

In export marketing, special

incentives,
facilities
and
concessions are offered to
manufacturers of export oriented
goods and exporters.

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12) Agencies Involved
Agencies involved in home
marketing include wholesalers,
retailers and other trading
organizations.

Agencies in export marketing

include manufacturer exporters,
merchant
exporters,
export
houses and trading houses.

13) Method of payment

Payment
in
international
In domestic marketing payment marketing is through letter of
credit and documentary bills of
is through cash or cheque
exchange.
14) Use of currency
It involves the use of multiple
It involves the use of one currencies particularly US $.
currency. For example Rupee
in India.

1.6 MOTIVATIONS FOR EXPORT MARKETING

Companies have to take several decisions to participate in
export marketing. There are same basic economic reasons which
influence a company decision regarding participation in export
business. Such reasons can be treated as motivators for export
marketing. These motivational factors for export marketing are as
follows.
a) Rate of profit
The rate of profit in export business is normally higher as
compare to rate of profit in domestic marketing. The unit value
realization of export products normally increases. Such progressive
improvement in the unit value of realization is one reason which
acts as a motivator for exporting.
b) Sales and production stability
Export marketing may enable a firm to maintain sales and
production stability. For example, in the case of seasonal products,
exporting may help to achieve sales stability, because the seasons
may be opposite in certain export markets. For example woolen
clothing.
c) Inadequate domestic demand
The level of domestic demand may be insufficient for utilizing
the available production capacity fall, i.e. at the optimum level.
Here, the company enters in export marketing so that the available
production capacity will be utilized fully for meeting domestic
demand and demand from abroad. This is one motivational factor
for export marketing.
d) Economic growth

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Growth is another major reason for internationalization. The
growth potential of many foreign markets is a very strong attraction
for foreign companies. Several developing countries, like China,
and India, have been growing at a much faster rate than the
developed countries. Many multinational companies are eager to
establish their foothold in such countries, considering future
potential.
e) Reducing business risks
Geographical diversification facilitates distribution of
business risks among different export markets. Even the risks in
internal marketing can be reduced by undertaking export marketing.
A diversified business spreads business risks among different
markets.
f) Information and media Revolution
There has been tremendous growth in the field of
information and media. For example, internet facility has given a big
boost to a global trade. Now, business firms can conduct global
operations with much investment in setting up elaborate offices.
Business activities in other countries can be conducted through
information network.
g) Strategic vision
Some firms have a strategic vision to enter in export
markets. The business strategy of such firms includes systematic
international growth. Therefore, the stimulus for export marketing
comes from desire to grow and expand, need to become more
competitive.
h) Accepting social responsibility
Export promotion is a collective responsibility of all social
groups including business enterprises. Some large enterprises
accept this social obligation and participate in export marketing.
Here, social responsibility acts as a motivation for export marketing.
i) Government policies
Government policies and Regulations may also encourage
the companies for international marketing. Some companies export
and invest in foreign countries to avail economic incentives, and
benefits provided by the government. Also some companies
internationalize due to governments emphasis on import
development and foreign investment. In India, certain companies
export in order to fulfill their export obligation.
j) W. T. O.
Due to WTO, member nations have reduced a number of
restrictions on foreign investment, and trade in goods and services.
For example, the custom duties have been reduced world wide.

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This has motivated business firms to enter in the global markets to
a greater extent.
k) Benefit of bulk selling
Export business is normally in bulk quantity. Export orders
are much larger as compared to orders in domestic marketing.
Export business is undertaken in order to take the benefits of
selling in bulk i.e. in large quantities. It helps to earn foreign
exchange in large.
In brief, export marketing offers many benefits to exporting
organization. Such benefits encourage companies to participate in
export marketing. The benefits also act as motivators for export
marketing.

1.7 PRESENT PROBLEMS / DIFFICULTIES FACED BY

INDIAN EXPORTERS
At present, Indian exporters face a number of problems /
difficulties. The problem demotivates the business firms to enter
into foreign markets. These problem / difficulties are as follows.
a) Recession in world market
The world market, faced recession in 2008 and in the first
half of 2009. The recession was triggered due to sub-prime crisis of
USA in September 2007. Due to recession, the demand for several
Indian items such as Gems and Jewellery, Textiles and Clothing
and other items were badly hit. During recession, exporters get low
orders from overseas markets, and they have to quote lower prices.
Therefore, exporter gets law profits or suffers from losses.
b) Technological differences
The developed countries are equipped with sophisticated
technologies capable of transforming raw materials into finished
goods on a large scale. Less developed countries, on the other
hand, lack technical knowledge and latest equipments. And
therefore they have to use their old and outdated technologies. It
leads to the lopsided development in the international market.
c) Reduction in export Incentives
Over the years, the Govt. of India has reduced export
incentives such as reduction in DBK rates, withdrawal of income tax
benefits for majority of exporters, etc. The reduction in export
incentives demotivates exporters to export in the overseas markets.

d) Several competitions in global marketing

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Export marketing is highly competitive. This competition
relates to price, quality, production cost and sales promotion
techniques used. Indian exporters face three-faced competition
while exporting. This includes competition from domestic exporters,
local producers where the goods are being exported and finally
from producers of competing countries at global level. Such
competition is one special problem to the exporters.
e) Problem of product standards
Developed countries insist on high product standards from
developing countries like India. The products from developing
countries like India are subject to product tests in the importing
countries. At times, the importing countries do not allow imports of
certain items like fruits, textiles and other items on the grounds of
excessive toxic content. Therefore Indian exporters lose markets
especially in developed countries.
f) Fluctuations in Exchange Rate
Every country has its own currency which is different from
international currencies. The dominant international currencies are
US dollar or Sterling Pound. From the point of view of Indian
exporters we are interested to realize the payment in international
currency. Foreign exchange earned by the operators is converted
into Indian rupees and paid to the exporters in Indian currency; this
exposes the exporters to the dangers of fluctuation in foreign
exchange rates.
g) Problems of Sea Pirates Attacks
A major risk faced by international trade is attack by pirates
in the Gulf of Aden. More than half of Indias merchandise trade
passes through the piracy infested Gulf of Aden. New exporters
and importers are facing problem, because of increased pirate
attacks as they find it difficult to get insurance cover.
h) Problem of subsidies by Developed countries
The developed countries like USA provide huge subsidies to
their exporters. For example, in case of agriculture exporters, USA,
UK and other provide huge subsidies to their exporters. Therefore,
the exporters of developing countries like India find it difficult to face
competition in the world markets.
i) Problem in preparing Documents
Export involves a large number of documents. The exporter
will have to arrange export documents required in his country and
also all the documents as mentioned in the documentary letter of
credit. In India, there are as many as 25 documents (16 commercial
and a regulatory documents) to be filled in.
j) Government restrictions and foreign exchange regulations

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The Government restrictions compel the exporters to follow
certain rules and regulations in the form of licenses, quotas, and
customs formalities. Due to such restrictions, new problems
develop before the exporters. Even trade restrictions in foreign
countries create problems before exporters. Indian exporters face
this difficulty of government restrictions and foreign exchange
regulations even when trade policy is now made substantially
liberal.
k) High risk and Uncertainties
Export marketing is subject to high risks and uncertainties.
The risks may be both political and commercial. Political risks
involve government instability, war, civil disturbances, etc. The
commercial risks involve insolvency of the buyer, protracted default
on the part of the buyer dispute on quality and so on.
l) Competition from China
India is facing stiff competition from China in the world
markets, especially in the OECD markets. As a result, Indias share
of export of OECD markets has declined from 53% of total exports
in 2000-01 to about 38% in 2007-08. Some of the Indian exporters
have lost their overseas contracts due to cheap Chinese goods and
supplies. This is the major problem of exporters.

1.8 SUMMARY
Marketing is defined as using all of the resources of the
organisation to satisfy customer needs for a profit. The difference
between export marketing and domestic marketing is simply that it
takes place across national borders. This means that the exporters
have to face with barriers to trade, such as differing languages,
politics, laws, governments and cultures. They may need to
account for getting the product half-way across the globe to distant
markets and pay the import duties imposed on these products by
the importing country. They will also need to deal with the logistical
and documentation problems surrounding exports. These are just
some of the problems you will face.
Export marketing also involves preparing an offering that will
entice the foreign buyer and customer. This offering comprises a
product that is offered at a certain price and that is made available
or distributed to the foreign customer. At the same time, the offering
is communicated or promoted to the buyer using certain
communication or promotion channels. These elements the
product, price, distribution (place) and promotion are called the
marketing mix.

1.9 QUESTIONS FOR SELF-ASSESSMENT

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a) Explain the meaning and features of export marketing.

b) Discuss the importance of export marketing at the national
level.
c) Enumerate the importance of export marketing at the firm
level.
d) Distinguish
marketing.

between

Domestic

marketing

and

export

e) Explain motivations for export marketing

f) Explain the problems of Indian exporters in promoting
exports.
g) Explain the following concepts in about 30 words.
1. Export Marketing

vvvv

2
INTRODUCTION TO EXPORT
MARKETING - II
(Trends in world trade and Indias
exports)
Unit Structure
2.0 Objectives
2.1 Introduction
2.2 Trends in world trade

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2.3
2.4
2.5
2.6
2.7
2.8
2.9

2.0

Sunrise export
Review of services export
Composition of Indias export since 2000
Direction of Indias export since 2000
Reasons for Indias poor share in world trade
Summary
Questions for self-assessment

OBJECTIVES

After studying this chapter the students may be able to

Understand the trends in world trade.

Know about the sunrise export

Review of services export

Explain the composition of Indias export since 2000

Explain the direction of Indias exports since 2000

Describe the basic reasons for Indias poor share in world

trade

2.1

INTRODUCTION

World trade means trade between different countries of the

world. It is also called as international trade. Such trade is carried
on between developed, developing and less developed countries.
World trade is expected to be free and fair to all participating
countries. However, world trade is dominated by developed and
rich countries and the poor and developing countries are exploited.
The benefits of world trade are not shared equally by
participating countries.

2.2

TRENDS IN WORLD TRADE

International inter-dependence is the base of world trade.

There are various trade restrictions on world trade. They include
tariff and non-tariff barriers. In spite of such restrictions world trade
is increasing in volume during the period 1995-2006. This is visible
from the trends in world trade noted below.
The world exports of goods and services doubled between
1995 and 2006 to reach over US $ 14 trillion in 2006.
The years 2008 and 2009 were tumultuous ones for world
trade. The sub-prime crisis of USA in 2007 led to the global

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financial crisis in September 2008. The financial crisis resulted in
full blown global recession which resulted in considerable fall in
world trade. World trade volume grew by only 2.8% in 2008 as
compared to 7.3% in 2007. The world trade growth tumbled down
month after month from September 2008 on worlds. While the fall
seems to have been stalled with the recovery in the later part of
2009, but the world trade continues to vulnerable given the nature
of recovery and the EU crisis.
World Trade Estimates
(a) IMF Estimates
The world recession in 2008-09 had deep impact on world
trade. The global trade of about 16 US $ trillion in 2008 collapsed.
In the first half of 2009 . The world trade was 5.8 US $ trillion
compared to 8.2 US $ trillion in the corresponding first half of 2008.
According to IMF, growth of world output and trade volume of
goods and services fell to - 0.8% and 12.3% respectively in 2009.
The crisis seems largely to have petered out in the second
half downtrend. The IMF projects a better than expected growth in
the trade volume of 5.8% for 2010 and 6.3% for 2011.
Consequently, world out put growth is estimated to increase to
3.9% in 2020 and 4.3% in 2011.

Trade in growth in trade volumes (percent change)

World trade volume (goods & services)

Import
Advanced economies
Emerging & developing economies
Export
Advanced economies
Emerging & developing economies

2008

2009

Projections
2010
2011

2.8

-12.3

5.8

6.3

0.5
8.9

-12.2
-13.5

5.5
6.5

6.3
7.7

1.8
4.4

-12.1
-11.7

5.9
5.4

5.6
7.8

Source :- IMF (world economic outlook) jan, 2010

(b) WTO Estimates
In march 2009, WTO estimated a decline of 9% global trade
for 2009, the largest in over 60 years.

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(c) World Bank Estimates

The world bank estimates world real GDP growth to fall by
2.2% and world trade volume to fall by 14.4% in 2009. As per world
bank, the dollar value of world trade plummeted by 31% between
August 2008 and its low point in March 2009. Examination of the
month wise export and imports for the world, India and some major
trading partners of India from 2008 onwards indicate a recovery in
trade with export growth becoming positive in November 2009 over
November 2008.
The following table indicates export growth and import
growth of some of the leading countries between November 2008
and November 2009 (percent)

INDIA
CHINA
EU
USA
Japan
Hong-Kong
SINGAPORE

Export growth
18.2
-01.2
11.4
-02.4
01.5
01.3
13.3

Import growth
-02.6
26.7
05.2
-03.8
-09.9
06.5
04.4

Source :- Economic survey 2009-10

The above table indicates that there is recovery in export
and import growth of some of the countries. The export and import
growth has become less negative in the countries mentioned above
for example the export growth of India has increased by 18.2% and
the import growth has become less negative by -2.6% between
Nov.2008 and Nov.2009

2.3

SUNRISE EXPORTS

Exports of the country can be classified on different

considerations. For example, Indias exports are classified into
principal exports are classified as primary products, manufactured
goods, ores and minerals and mineral fuels and lubricants. The
term sunrise exports are also used in relation to Indias exports.
Sunrise products are those products, which Indian exporters
have lately begun to export in the overseas markets, and such
products have a growing demand in the world markets. Some of the
sunrise products are as follows.
Horticulture products, Such as fruits and vegetables

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Green technology products such as wind turbines, electric cars.
etc.
Dairy products
Value added marine products
Processed fruits and vegetable products
Value added meat products, etc.
Let us, now consider few details of sunrise exports
(a) Export of services
India has recently emerged as a major player in global
services trade. The services include travel, transport,
communication, insurance, software, and business services. The
export growth rate of all services increased from 24.1% in 2000-01
to 32.1% in 2006-07. This sector is acting as an engine of growth. It
is making rapid progress in exports.
(b) Readymade garments
The exports of cotton apparel readymade garments have
made significant improvement on recent years. These exports were
just Rs.9 crores in 1970-71 and rose to Rs.38215 crores in 200708. This indicates growing importance of sunrise export item.
(c) Handicrafts
At present, the single largest item of exports is handicrafts.
During 2007-08, handicrafts exported were of the order of
Rs.80992 crores out of which gems and jewellery accounted for
Rs.79142 crores. Export of handicrafts was only of Rs.70 crores in
1970-71.
(d) Engineering goods
This category includes iron and steel, electronic goods and
computer software. Even up to 1980-81, exports of this group were
only of Rs.827 crores. The exports started picking up by 1990-91.
During 2007-08, exports have shot up to Rs.1,47,845 crores
accounting for 23.1% of total exports.
There are some more export items which can be classified
as sunrise exports. Along with the diversification of exports, the
sunrise export items will increase and their contribution in Indias
total exports will become more and more significant.

2.4

REVIEW OF SERVICES EXPORT

India is one of the leading exporters of services in the world.

At present, India ranks 9th in the world for overall services exports.
Currently, India ranks 2nd in the world for computer and information
services exports. The trend towards globalization has resulted in

19
steady growth of trade in services. Probably the fastest growing
sector of world trade is trade in services. Services include travel
and entertainment, education, business services such as
engineering, accounting and legal services. Following table given
clear idea about the Indias export of services.
Indias export of services
Services Group
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(i)

software services
business services
transportation
travel
financial services
communication services
insurance
other services

Percentage Share
2000-01
2008-09
39.0
45.5
02.1
16.2
12.6
11.1
21.5
10.7
02.1
03.9
07.0
02.1
01.7
01.4
14.0
09.1

Total (pre cent)

Total (vaule) US $ billion

100.0
16.3

100.0
101.7

Source:- economic survey 2009-10

(a) Software Services
India ranks 2nd in the world for software services . Growth of
software services exports has been reasonably good since 200001. The share of software services exports has increased by 6.5%
points between 2000-01 and 2008-09. In 2008-09 software services
generated foreign exchange worth 46.3 US $ billion.
(b) Business Services
At present, business services occupies the second position
in Indias services exports. Between 2000-01 and 2008-09,
business services exports have increased by 7.7 times. In 2008-09,
it contributed about 16.5 US $ billion worth of foreign exchange in
India.
(c) Transportation
Transportation services export is directly linked with export
of merchandise. Its share has declined by 1.5% between 2000-01
and 2008-09. The fall in transportation exports is a reflection of the
fall in merchandise trade. In 2008-09, it contributed about 11.3 US
$ billion worth of foreign exchange.
(d) Travel
The share of travel services has declined considerably since
2000-02. The fall in travel services is a reflection of the decline in
tourist arrivals in India. This fall is mainly on account of terrorist

20
activities in India. In 2008-09, it contributed about 10-9 US $ billion
worth of foreign exchange.
(e) Financial Services
The share of financial services in the services exports of
India has increased by 1.8% between 2000-01 and 2008-09. In
2008-09, it contributed about 4 billion US $ in India.
(f) Communication Services
This group has shown considerable decline in its share in
the services exports. It lost about 5% share in the total services
exports between 2000-01 and 2008-09. In 2008-09, if contributed
about 2 US $ billion worth of foreign exchange in India.
(g) Insurance Services
The insurance services have shown a decline in the share of
services exports of India. However, in the first half of 2009-10, all
services items have shown a negative growth except insurance
services.
(h) Other Services
This group has shown considerable decline in its share in
the services exports. It lost about 4.9% share in the total services
exports between 2000-01 and 2008-09.
conclusionIn brief services exports are expected to grow in the second
half of 2009-10 but at a slower pace, with pick up in the global and
Indias merchandise exports, transportation services exports are
expected to increase. Software services export is also expected to
grow in the second half of 2009-10, with an overall growth of 5% in
2009-10. Travel receipts are also expected to increase in the
second half of 2009-10.

2.5

COMPOSITION OF INDIAS EXPORTS SINCE2000

By composition, we mean the commodities exports which

are exported from the country to the rest of the world and the
commodities which are imported from abroad. Indias share in the
world export trade has moved up from 0.7% in 2000 to 1.2% in
2009. In 2009, Indias export share in world trade is very low as
compared to other developing countries like China 9.1%, South
Korea 2.9%, Hong-Kong 2.5%, and Singapore 2.1%.
The following table shows composition
merchandise exports during 2000-01 and 2008-09.

of

Indias

21
Indias merchandise exports (percent)
Product
(a)
(b)
(c)
(d)
(e)

2001-01

2008-09

14.0
02.0
79.0
04.3
00.7
100.0
44.6

09.1
04.2
66.4
14.9
05.4
100.0
185.3

Agriculture items
Ores & minerals
Manufactured items
Fuel & lubricants
Other
Total (percentage)
Total US $ billion

Source: - economic survey, 2009-10.

The above table points out that the composition of Indias
merchandise exports are explained in brief as follows(a) Agricultural and Allied Products
This includes tea, coffee, tobacco, spices, sugar, raw cotton,
fruits, vegetable and pulse. The share of exports of agriculture and
allied products has declined from 14.0% in 2000-01 to about 9.1 %
in 2008-09.
(b) Ores and Minerals
This includes manganese ore, mica and iron ore. The export
of ores and minerals was 2% of total exports in 2000-01 and
increased to 4.2% in 2008-09. A major share of ores and minerals
exports comes from the export of iron ore.
(c) Manufactured Items
This includes textiles, ready-made garments, leather and
footwear, engineering goods, chemicals, and so on. The share of
manufactured goods in total export earnings was about 79% in
2000-01 and reduced to 66.4% in 2008-09.
(d) Mineral Fuels and Lubricants
There has been an improvement in the export of mineral
fuels and lubricants both in terms of value and in terms of
percentage. In percentage terms, its share has increased from
4.3% in 2000-01 to 14.9% in 2008-09.
The first category of exports includes traditional items while
the other categories include non-traditional items of exports. After
2000, positive changes are noticed in the composition of Indias
foreign tread. Exports now cover wide range of items from
agricultural, industrial, services and other sectors.

22
The importance of non-traditional items is increasing while
the importance of traditional items is declining. New items like
ready made garments, sports goods, engraining goods, gems and
jewellery and marine products are being exported on a large scale
from India.
Projects exports have also made significant progress in
recent years. Electronic hardware and software exports have
increased in a significant way. This suggests that there is
diversification on the composition of Indias export trade.
Check Your Progress
1. Define the terms:
a. Sunrise products
b. Services
c. Engineering goods
d. Composition of export
2. Indian is one of the leading exporters of services in the world.
Explain.

2.6

DIRECTION OF INDIAS EXPORTS SINCE 2000

By direction of export trade, we mean the countries to which

we export goods and services. India has trading relations with large
number of countries. The process of trade liberalization and world
trade dynamics have brought out major shifts in the directional
pattern of Indias foreign trade. For the purpose of direction of
exports, the countries to which India exports are broadly divided
into five groups that is
Organization for economic co-operation and development
(OECD) comprising of USA, Canada, European Union, Australia
and Japan.
Organization of Petroleum Exporting Countries (OPEC) which
includes Kuwait, Iran, Iraq, Saudi Arabia, UAE and others.
Eastern Europe which includes Rassia, Georgia and others.
Developing
countries of Asia, Africa, Latin America and
Caribbean
Other countries which do not fall in the above four groups
Direction of Indias exports (in percentage)
Group
OECD

2000-01
52.7

2007-08
38.4

23
OPEC
E. Europe
Russia
Developing countries
Others
Total (parentage)
Total US $ Billion

10.9
03.0
02.0
29.2
04.2
100.0
44.6

16.3
02.1
00.6
42.6
00.4
100.0
163.1

Source: - RBI handbook of statistic on Indian Economy 2007-08

From the above table it gives proper direction of Indias
exports. These one explained as follows(a) Exports to OECD Countries
The share of total export earnings to OECD countries has
slightly declined over the years. In 2000-01, the share of total
export earning from OECD countries was about 52.7%. However,
the share of total export earning from OECD countries has come
down to about 38.4% in 2007-08.
The share of some of the important OECD countries in
Indias export trade is stated as follows
USA
UK
Germany
Japan

2000-01
2000-01
2000-01
2000-01

21%
5.2%
4.3%
4.1%

2007-08
2007-08
2007-08
2007-08

12.6%
4.1%
3.1%
2.4%

(b) OPEC Countries

The share of total export earning from OPEC counties has
increased. In 2000-01 it was about 10.9%. It has increased to
16.3% in 2007-08. The share of export to UAE has increased from
5.8% in 2000-01 to 9.6% in 2007-08.
(c) Eastern Europe
Over the years, the exports to Eastern Europe have declined
mainly due to the disintegration of USSR. In 2001-01, the total
export earning from this group was 3%. It came down to 2% in
2007-08. The main country in this group is Russia. Its share in
Indias export trade has come down from 2% in 2000-01 to 0.6% in
2007-08.
(d) Developing Countries
Indias exports to developing countries have increased over
the years. It has increased from nearly 29% in 2000-01 to 42.6% in
2007-08. Among the developing countries, the major contribution

24
comes from china. Chinas share in Indias exports has increased
from 1.9% in 2001-01 to 6.6% in 2007-08.

2.7

REASONS FOR INDIAS POOR SHARE IN

WORLD TRADE

Indias export performance is poor over the years, since

independence, Indias share of the world export trade has been
very low. At present Indias share of the world export trade is 1%.
The share of export of other developing countries of Asia, namely
China, South Korea, Malaysia, Singapore and Thailand is much
more than of India.
There are several reasons for poor performance of Indias
export trade. The reasons or causes can be broadly divided into
two groups as shown below.
Reasons/causes of Indias poor share in world trade
Exporter- related
Causes/reasons

General causes/reasons

Poor quality
High prices
Inadequate promotion
Poor follow-up of sale
Poor negotiation skills

Poor infrastructure
Presence of good
domestic market
Documentation and
formalities
Negative attitude of overseas
Buyers
Problem of trading blocs
I) Exporter Related causes/reasons
(1) Poor quality
One of the main reasons for poor performance of Indias
export trade is due to the poor quality of products. A good number
of Indian exporters, especially, the small-scale exporters do not
give much importance to quality control. Due to problems in quality,
the Indian exporters do not get orders from foreign buyers. There
are also cases, where Indian goods are rejected and sent back to
India by foreign buyers.
(2) High prices
The price of Indian goods is higher as compared to other
Asian countries. The price of Indian exports is high due to higher
value of Indian rupee vis-a vis the value of some of the other Asian
countries such as Malaysia, Thailand, Philippines etc., some of the
Indian exporters quote higher prices in order to make higher profits

25
per unit sold. The price of Indian goods is also affected by high
transaction costs, and documentation formalities.
(3) Inadequate promotion
Promotion is vital for export marketing. However, a good
number of Indian exporters do not give much importance to
promotion. Apart from advertising, and sales promotion, Indian
exporters must participate in trade fairs and exhibitions. But in
reality, a good number of Indian exporters are not professional in
advertising and sales promotion. They also do not take part in trade
fairs and exhibitions, and if they do so, they lack professional
approach in handling the visitors at the trade fairs and exhibitions.
(4) Poor Follow-up of Sales
There is after poor follow-up of sales. The Indian exporters
do not bother to find out the reactions of the buyers after the sale.
They are also ineffective in providing after-sale-service. As a result,
there is poor performance of Indias export trade.
(5) Poor Negotiation Skills
Indian exporters, especially the small exporters lack
negotiation skills. Due to poor negotiation skills, they fail to
convince and induce the foreign buyers to place orders. The lack of
negotiation skills is mainly due to poor training in marketing and
negotiation skills.
II) General Causes/Reasons
(1) Poor Infrastructure
The infrastructure required for export of goods is poor. Due
to poor infrastructure facilities, Indian exporters find it difficult to get
orders, and also to deliver the goods at the night time. The poor
infrastructure facilities like poor port-handling facilities, inadequate
warehousing facilities, poor transport facilities etc,.
(2) Presence of Good Domestic Market
In India, there is a good domestic market sellers find a ready
market for their goods within the country. Therefore, they do not
take pains to get orders from overseas markets. However, from the
long term point of view, Indian marketers should look beyond
domestic markets, and enter in the export markets.
(3) Documentation and Formalities
In India, there are number of documentation and other
formalities. Due to the various formalities, some of the marketers do
not enter the export field. Therefore, there is a need to simplify and
reduce formalities and documentation work on the part of
government authorities.

26
(4) Negative Attitude of Overseas Buyers
Some of the overseas buyers, especially from developed
nations have a negative attitude towards Indian goods. They are of
the opinion that Indian goods are of inferior quality, and that the
Indian exporters provide poor service after sales. Therefore, there
is a need to correct this negative attitude through affective
promotion and good marketing practices.
(5) Problem of Trading Blocs
Indian exporters are affected due to the presence of trading
blocs. There are some powerful trading blocs in the world such as
NAFTA, European union and ASEAN. The trading blocs reduce onr
eliminate trade barriers on member nations, where as, they impose
the trade barriers on non-members. Since India is not a member of
the powerful trading blocs, Indian exporters do face problems to
export goods to the member countries of the trading blocs.

2.8

SUMMARY

Though we are still not out of the crisis, there is a greater

degree of confidence, particularly in countries with strong
fundamentals like India and china which have weathered the crisis
with great dexterity and spearheaded the recovery.
India's chief exports include computer software, agricultural
products (cashews, coffee), cotton textiles and clothing (readymade garments, cotton yarn and textiles), gems and jewellery, cut
diamonds, handicrafts, iron ore, jute products, leather goods,
shrimp, tea, and tobacco. The country also exports industrial
goods, such as appliances, electronic products, transport
equipment, light machinery as well as chemical and engineering
products. India imports rough diamonds, cuts them, and exports the
finished gems. Services exports includes transportation services,
Software services, Travel receipts which are expected to grow in
the second half of 2009-10.
The macro economic reform policies were introduced by the
Government of India in the industrial, commercial and financial
sectors. The trade policy reforms aimed at creating an environment
for achieving a quick quantum jump in exports. Major changes were
effected in the Exim Policy to serve this purpose. Commodityspecific as well as country-specific liberalization measures were
resorted to promote further exports. The commerce ministry and
the associated organizations were re-oriented to bring about a
totally exporter-friendly climate. India, with 16% of the worlds
population, would have had to increase its imports and exports by
32 times to just reach the worlds average. India remained poor its people had to survive on less than a dollar a day.

27

2.9

QUESTIONS FOR SELF-ASSESSMENT

(a) Explain briefly the trends in world trade?

(b) What do you mean by sunrise exports? Give brief details of
Indias sunrise exports ?
(c) Explain growing importance of services export in world trade?
(d) Explain composition of Indias export since 2000?
(e) Explain the direction of Indias export since 2000?
(f) Describe the reason for Indias poor share in world trade?

vvvv

3
INTERNATIONAL MARKETING - I
Unit Structure
3.0 Objectives
3.1 Introduction
3.2 Definitions of International Marketing
3.3 Features of International Marketing
3.4 Importance of International Marketing
3.5 Trade Barriers
3.6 World Trade Organization
3.7 Uruguay Round
3.8 Objectives of WTO
3.9 Functions of WTO
3.10 Implications of WTO Agreements
3.11 Summary
3.12 Questions for Self-Assessment

3.0

OBJECTIVES

28
The main vision of this chapter is to:
Define international marketing
Explain the features and importance of international marketing
Understand Trade Berries
Know about WTO and its objectives, functions and implications

3.1 INTRODUCTIONS
International marketing is the marketing activity carried on
across national boundaries. It is the marketing activities involved
between countries. It always crosses the boundaries of the country.
In brief, marketing activities beyond the boundaries of the country
are termed as international marketing. International/global trade,
inter-regional trade, world trade and export marketing are some
terms which are to some extent identical with the term international
marketing. Export marketing is one major area/aspect of
international marketing as export marketing deals with exports
while international marketing is broader in scope and deals with
imports and exports.

3.2

DEFINITIONS OF INTERNATIONAL MARKETING

1. According to Hess and Eateorq

International marketing is the performance of business
activities that direct the flow of goods and services to consumer or
users in more than one nation.
2. According to Subhash c. Jain
The term international marketing refers to exchanges
across national boundaries for satisfaction of human needs and
wants.

3.3

FEATURES OF INTERNATIONAL MARKETING

1.

There are large scale operations.

2.

There is dominance of multinational corporations.

3.

It is subject to tariff and non-tariff barriers.

4.

There is presence of Trading blocs.

5.

It is subject to foreign exchange regulations.

6.

There is stiff competition.

7.

It is regulated by international forums such as WTO.

29
8.

There is a need for international marketing research.

(For explanation refer features of export marketing)

3.4

IMPORTANCE OF INTERNATIONAL MARKETING

The importance benefits of international marketing are

explained as follows:
1. Lowers prices
International marketing enables companies to specialize in
those goods and services in which they are more competent. By
specialization, international marketing lowers the prices of goods
and services. The comparative cost benefits enjoyed by firms due
to specialization are partly passed on to the consumers.
2. Increases the real income and national well being
International marketing ensures that each country
specializes in the production of those commodities, which it is best
suited to produce, export its surplus produce and import those
commodities which it can obtain cheaper from abroad. In doing so,
it increases the real income and national well being of all the
participating countries.
3. Furthers technological development
By specialization, it lowers the prices of goods and services
all over the world. Consequently it stimulates their consumption and
demand for more and better goods, which causes further
specialization and technological developments.
4. Provides higher standard of living
International marketing provides better life and welfare to
people in different countries. It provides goods which can not be
produced in the home country. This raises the standard of living of
the people and social welfare.
5. Reduces dangers of monopolistic exploitation
By ensuring free competition, international marketing
reduces the dangers of monopolistic exploitation of consumers by
the home producers; exploitation of one country by another country
is also difficult since there are numerous suppliers in international
markets.
6. Ensures optimum use of resources
International marketing enables to make optimum utilization
of resources. Countries having surplus resources or production
can export to other markets.

30
7. Builds cultural relations
International marketing changes the quality of life of people.
It not only exchanges goods and services among nations but also it
develops closer social and cultural relations between different
nations.
8. Bridges the technological gap
It makes possible to transfer technology and other
assistance from the developed nations to the developing ones and
as such, it narrows the gap between the developed and developing
countries.
9. Bring international co-operation and world peace
International marketing brings countries closer due to trade
relations. Because of interdependence of countries, cordial
relations are maintained and this ensures world peace.
10. Brings about rapid industrialization
Most of all, international marketing brings about a rapid
growth and development not only of the developing nations but also
that of developed ones. While the developed nations provide aid,
capital goods and technology to the developing nations, which in
turn supplies raw materials and labour to the developed nations.

3.5

TRADE BARRIERS

Free and fair international trade is an ideal situation as free

trade is beneficial to all participating countries. However, various
types of barriers/restrictions are imposed by different countries on
international marketing activities. Such imposed or artificial
restrictions on import and exports are called Trade barriers which
are unfair and harmful to the growth of free trade among the
nations. The trade barriers can be broadly divided into two broad
groups.
Tariff Barriers.
Non-Tariff barriers.
3.5.1

TARIFF BARRIERS

Tariffs refer to a customs duty or a tax on products that

move across borders. The most important tariff barrier is the
customs duty imposed by the importing country. A tax may also be
imposed by the exporting country on its export. However,
governments rarely impose tariff on export, because countries
want to sell as much as possible to other countries. The main
important tariff barriers are as follows:

31
1. Specific duty
Specific duty is based on the physical characteristics of
goods. When a fixed sum of money, keeping in view the weight of
measurement of a commodity, is levied as tariff it is known as
specific duty.
For example, Rs. 5.00 par meter of cloth or Rs. 5.00 on each
T.V. set or Washing machine imported, such duty is collected at the
time of entry of goods.
2. Ad-valorem duty
Ad-valorem duties are imposed at a fixed percentage on the
value of a commodity imported. Here, value of the commodity
imported is taken as a base for the calculation of duty. Invoice is
used as a base for this purpose. This duty is imposed on the goods
whose value cannot be easily determined e.g. work of art, rare
manuscript, antiques, etc.

3. Compound duty
It is a combination of the specific duty and Ad-valorem duty
on single product. For example, there can be a combined duty
when 10% of value (ad-valorem) and Rs. 1/- on every meter of
cloth charged as duty. Thus, in this case, both duties are charged
together.
4. Sliding scale duty/Seasonal duties
The import duties which vary with the prices of commodities
are called sliding scale duties. Historically, these duties are
confined to agricultural products, as their prices frequently vary,
mostly due to natural factors. These are also called as seasonal
duties.
5. Countervailing duty
It is imposed on certain imports where products are
subsidized by exporting governments. As a result of government
subsidy, imports become cheaper than domestic goods. To nullify
the effect of subsidy this duty is imposed in addition to normal
duties.
6. Revenue tariff
A tariff which is designed to provide revenue to the home
government is called revenue tariff. Generally, a tariff is imposed
with a view of earning revenue by imposing duty on consumer
goods, particularly, on luxury goods which demanded from the rich
is inelastic.
7. Anti-dumping duty

32
At times, exporters attempt to capture foreign markets by
selling goods at rock-bottom prices, such practice is called
dumping. As a result of dumping, domestic industries find it difficult
to compete with imported goods. To offset anti-dumping effects,
duties are levied in addition to normal duties.
8. Protective tariff
In order to protect domestic industries from stiff competition
of imported goods, protective tariff is levied on imports. Normally, a
very high duty is imposed, so as to either discourage imports or to
make the imports more expensive as that of domestic products.
9. Single column tariff
Under single column tariff system, the tariff rates are fixed
for various commodities and the same rates are made applicable to
imports from all countries. These rates are uniform for all counties
as discrimination is not made as regards the rates of duty.

10. Double column tariff

Under double column tariff system, two rates of duty on all or
on some commodities are fixed. The lower rate in made applicable
to a friendly country or to a country with bilateral trade agreement.
The higher rate is made applicable to all other countries with which
trade agreements are not made.
11. Triple column tariff
Under triple column tariff, three different rates of duty are
fixed. These are- (a) general rate (b) international rate and (c)
preferential rate. The first two rates are similar to lower and higher
rates while the preferential rate is substantially lower than the
general rates and is applicable to friendly countries.
3.5.2

NON-FRAFIFF FARRIERS

A non-tariff barrier is any barrier other than a tariff that raises

an obstacle to free flow of goods in overseas markets. Non-tariff
barriers, do not affect the price of the imported goods but only the
quantity of imports.
Some of the important non-tariff barriers are as follows1. Quota System
Under this system, a country may fix in advance, the limit of
import quantity of a commodity that would be permitted for import
from various countries during a given period. The quota system can
be divided into the following categories.

33
(a) Tariff/Customs Quota: - A tariff quota combines the features of
the tariff as well as the quota. Here, the imports of a commodity
up to a specifically volume are allowed duty free or at a special
low rate duty. Imports in excess of this limit are subject to a
higher rate of duty.
(b) Unilateral Quota: - The total import quantity is fixed without prior
consultations with the exporting countries.
(c) Bilateral Quota:- In this case, quotas are fixed after negotiations
between the quota fixing importing country and the exporting
country.
(d) Mixing Quota :- Under the mixing quota, the producers are
obliged to utilized domestic raw materials up to a certain
proportion in the manufacturing of a finished product.
2. Prior Import Deposits
Some countries insist that importers should deposit even up
to 100% of their imports value in advance with a specified authority,
normally their central bank. Only after such deposits, the importers
are given a green signal to import the goods.
3. Foreign Exchange Regulations
The importer has to ensure that adequate foreign exchange
is available for import of goods by obtaining a clearance from
Exchange Control Authorities prior to the concluding of contract
with the supplier.
4. Consular Formalities
Some countries impose strict rules regarding consular
documents necessary for importing goods. They include import
certificates, Certificate of origin and certified consular invoice.
Penalties are provided for non-compliance of such documentation
formalities.
5. State Trading
State trading is useful for restricting imports from abroad as
final decision about import are always taken by the government.
State trading acts are one non-tariff barrier.
6. Export Obligation
Countries, like India, impose compulsory export obligation on
certain importers. This is done to restrict imports. Those
companies, who do not fulfill export obligation (to compensate for
imports) have to pay a fine or penalty.
7. Preferential Arrangements
Some nations form trading groups are preferential
arrangements in respect of trade amongst themselves. Imports

34
from member countries are given preferences, whereas, those from
other countries are subject to various tariffs and other regulations.
8. Other Non-tariff Barriers
There are a number of other non-tariff barriers such as health
and safety regulations, technical formalities, environmental
regulations, embargoes etc.
Check Your Progress
1. Define the terms:
a. Tariff
b. Trade Barriers
c. Revenue Tariff
d. Anti-dumping duty
e. Specific Duty
2. Free and Fair International Trade is an ideal situation.
Discuss.

3.6 WORLD TRADE ORGANISATION (WTO)

The world trade organization (WTO) started functioning from
1st January 1995. WTO is the result of Uruguay Round of
negotiations. WTO is the successor to the General Agreement on
Tariffs and Trade (GATT). GATT has ceased to exist as a separate
institution and has become part of the WTO.
WTO has larger membership that GATT. India is one of the
founder members of WTO.
From GATT to WTO
1947- 23 countries including India signed GATT agreement.
GATT was created to regulate and liberalise world trade by
reducing tariff barriers.
1948 GATT came into force to liberalise world trade.
1949 Second Round was held as Annecy in France. Discussions
were held to reduce tariff on number of goods. About 5000
tariff concessions on various products were agreed upon.
1950 Third Round was held at Torquay (England). About 8700
Tariff concessions were agreed.
1956 Fourth Round was held at Geneva. Tariff reduction at this
round was worth 2.5 US $ Billion.

35

1960 The Fifth Round called Dillion Round was held at Geneva.
It was held in two phase. Phase I- to create a single
schedule of concessions for the EC based on its common
external tariffs. Phase II- for general round of tariff
negotiations.
1964 The Sixth Round, called Kennedy Round was held at
Geneva. Tariff reductions and anti-dumping measures
were discussed. The round took 3 years to complete.
1973 The Seventh Round, called the Tokyo Round was launched
at Tokyo and concluded at Geneva. It took six years to
conclude. Negotiations were held to reduce tariffs as well as
non-tariff barriers on goods.
1987 The Eighth Round, called the Uruguay Round was Launched
at Uruguay and concluded at Geneva after 8 years.
Negotiations took place on various matters:1. Tariff and non-tariff measures.
2. Trade in services.
3. Trips agreement.
4. Trims agreement.
5. Trade in textiles.
6. Trade in agriculture.
7. Creation of WTO, etc.
The WTO came into existence, which is more of a
permanent institution with its headquarters at Geneva.
The following table provides a summary of GATT rounds.
Year

Place

Matters Covered

Counties
participated

1947

Geneva

Tariff Reduction

23

1949

Annecy

Tariff Reduction

13

1950

Torguay

Tariff Reduction

38

1956

Geneva

Tariff Reduction

26

1960

Geneva

Tariff Reduction

26

1964

Geneva

Tariff and Anti- dumping

62

1973

Tokyo/Geneva

Tariff and Non-tariff

102

36
1986

Uruguay/Geneva Tariff, Non-tariff,

TRIPs,TRIMs

123

3.7 URUGUAY ROUND

The Uruguay round was launched at Uruguay in 1986. It was
the last round as far as GATT was concerned because at the end
of this round, it was decided by the participating countries to
replace GATT by WTO from 1st January 1995.
The main highlight of Uruguay Round are1. Trade in servicesFor the first time in the history of GATT, trade in services like
banking, insurance, travel etc. has been brought under multilateral
agreement. The inclusion of services in the agreement reflects the
growing importance of services in the world economy. The GATTs
agreement introduces a number of general obligations in the
services.
2. Anti-dumping measuresThe developed countries have increasingly resorted to antidumping measures. The Uruguay round seeks to introduce new
rules relating to dumping, which would benefit the developing
nations.
3. TRIPsAt the Uruguay round, the TRIPs agreement was signed.
The TRIPs agreement provides protection of intellectual property
rights including patents, trade marks, copyrights, etc. This
agreement is expected to boost research and development and
investment in property rights.
4. Agreement on AgricultureThe agreement on agriculture was signed. The main
objectives to increase market access to agriculture items in
member nations. The member nations have to change or remove
their non-tariff barriers like quotas on agriculture items.
5. TRIMsAt the Uruguay round, the TRIMs agreement was signed.
The TRIMs agreement introduces a number of measures by
member countries to treat foreign investments on par with domestic
investments and also removal of QRs on imports. Certain
measures that discriminate against foreign investments were to be
withdrawn by member nations, such as dividend balancing
requirements.

37
6. Agreement on Textiles and ClothingThe MFA (Multi-Fiber agreement) was in force since 1973.
Under MFA the developed countries (France, USA, Canada, Japan
England etc.) that were importing textiles and clothing from
developing nations were imposing quotas. At the Uruguay round, it
was decided to withdraw MFA within a period of 10 years (by 0101-2005). MFA has been withdrawn, which would benefit the textile
exporting counties including India.

3.8 OBJECTIVES OF WTO

WTO desires to achieve the objectives as decided by GATT. These
are as follow1. Free trade i.e. trade without discrimination
2. Growth of less developed countries.
3. Protection and preservation of environment.
4. Optimum utilization of available worlds resources.
5. Raising living standard of citizens of member counties.
6. Settlement of trade disputes among member countries
through consultation and dispute settlement procedures.
7. Generating employment opportunities at global.
8. Enlargement of production and trade.

3.9 FUNCTIONS OF WTO

1. Administration of agreementIt looks after the administration of the 29 agreements (signed
at the conclusion of Uruguay round in 1994), plus a number of
other agreements, entered into after the Uruguay round.

2. Implementation of reduction of trade barriersIt checks the implementation of the tariff cuts and reduction
of non-tariff measures agreed upon by the member nations at the
conclusion of the Uruguay round.
3. Examination of Members Trade PoliciesIt regularly examines the foreign trade policies of the
member nations, to see that such policies are in line with WTO
guidelines.
4. Collection of foreign trade informationIt collects information in respect of export-import trade,
various trade measures and other trade statistics of member
nations.

38

5. Settlement of disputesIt provides conciliation mechanism for arriving at and

amicable solution to trade conflicts among member nations. The
WTO dispute settlement body adjudicates the trade disputes that
cannot be solved through bilateral talks between member nations.
6. Consultancy servicesIt keeps a watch on the development in the world economy
and it provides consultancy services to its member nations.
7. Forum for negotiationWTO is a forum where member nations continuously
negotiate the exchange of trade concessions. The member nations
also discuss trade restrictions in areas of goods, services,
intellectual property etc.

8. Assistance of IMF and IBRDIt assists IMF and IBRD for establishing coherence in
universal economic policy administration.

3.10 IMPLICATIONS OF WTO AGREEMENTS

Participation in WTO has implications on foreign trade and
development of developed as well as developing nations. Although
the ultimate goal of WTO is to free world trade in the interest of all
nations of the world. Yet in reality the WTO agreements have
benefited the developed nations more as compared to developing
ones. This is because; the developed countries of Europe and
America have powerful influence on the WTO agreements.
The impact of WTO on developing countries is explained as
follows3.10.1 Negative Impact1. Impact of TRIPSThe TRIPS agreement of WTO favours the developed
countries as compared to the developing countries. Under the
TRIPs agreement protection is given to intellectual property rights
such as patents, trade marks, layout designs, etc. The TRIPs
agreement favours the developed nations as they hold a large
number of patents.
The agreement on TRIPS extends to agriculture through the
patenting of plant varieties. This may have serious implications for

39
developing countries agriculture including India. Patenting of plant
varieties may transfer all gains in the hands of MNCs which will be
in a position to develop almost all new varieties with the help of
their huge financial resources and expertise.
The agreement on TRIPs also extends to micro-organisms
as well. Research in micro-organisms is closely linked with the
development of agriculture, pharmaceuticals and industrial
biotechnology. Patenting of micro-organisms will again benefit large
MNCs as they already have patents in several areas and will
acquire more at a much faster rate.
2. Impact of TRIMSAgreement on TRIMs requires the treatment of foreign
investment on par with domestic investment. Due to TRIMs
agreement, developing countries including India have withdrawn a
number of measures that restricts foreign investment. This
agreement also favours the developed nations. Due to huge
financial and technological resources at their disposal, the MNCs
from developed countries would play a dominant role in developing
countries. Besides foreign firms are free to remit profits, dividends,
and royalties to the parent company, thereby causing foreign
exchange drain on developing nations.
3. Impact of GATSThe Uruguay round included trade in services under WTO.
Under the GATs agreement, the member nations have to open up
the services sector for foreign companies. The developing countries
including India have opened up the services sector in respect of
banking, insurance, communication, telecom, transport, etc. to
foreign firms. The domestic firms of developing countries may find it
difficult to compete with giant foreign firms due to lack of resources
and professional skills.
4. Impact of reduction of tariffsAs per the WTO agreement, the developing countries have
to reduce the tariff barriers. As on result of this, the developing
countries have resorted to reduce tariff years in a phased manner.
For example, India has reduced the peak customs duty on nonagricultural goods to 10% . As the protection to domestic industry
gradually disappears, the firms in developing nations have to face
increasing competition from foreign goods.
5. Impact on small sector-

40
WTO does not discriminate industries on the basis of size.
Small sector has to compete with large sector. Therefore, as per
WTO agreement, India has greed to withdraw reservation of items
of small scale sector in a phased manner since 2000. By February
2008, India has withdrawn reservation for small sector of over 700
items. Only 35 items are reserved for small scale sector as on 5 th
Feb., 2008.
Due to dereservation, the small units have to compete with
large industries and also from cheaper imports. As a result, several
small firms have become weak or sick during the past couple of
years.
6. Impact on agricultureThe developing countries India and China are among the
largest producers of agricultural items like vegetables, fruits, food
grains, etc. However, the agricultural productivity is low as
compared to other countries. Due to low productivity, the farmers
from developing counties stand to lose in the world markets. The
WTO agreement on agriculture has only in theory favoured the
developing countries, but in practice, its implication have seriously
affected agricultural exports to world markets, as the developed
countries provide lot of subsidies to their farmers.
3.10.2

Positive Implications
The positive impact of WTO on developing countries can be
viewed from the following aspects.
1. Growth in merchandise exportsThe exports of developing countries like India, China, Brazil,
etc. have increased since the setting up of WTO. The increase in
exports of developing countries is due to reduction in trade barriers
Tariff and Non Tariff. For example, Indias merchandise exports
have increased by 4 times since 1995 as shown below.
Indias merchandise exports in 1995 35 US $ billion and
2006-07 it is 126 US $ billion.
2. Growth in services exportsThe WTO has also introduced an agreement on services
called GATS. Under this agreement, the member nations have to
liberalise the services sector. Certain developing countries like
India would benefit form such an agreement. For example Indias
services exports have increased from about 5 billion US $ in 1995
to 76 billion US $ in 2006-07. The software services accounted for
about 40% of the services exports of India.

41
3. Foreign Investment
As per the TRIMs agreement, restrictions on foreign
investment have been withdrawn by member nations of WTO
including developing countries. Therefore, the developing countries
like Brazil, India, China etc, have been benefited by way of foreign
direct investment as well as by euro equities and portfolio
investment. In 2006-07 foreign investment in India was 15.5 US $
billion, out of which FDI was 8.5 US $ billion.
4. Textiles and clothingIt is estimated that the textiles sector would be one of the
major beneficiaries of the impact of Uruguay Round. At the
Uruguay Round, it was agreed upon by member countries to phase
out most favourable area. Under most favourable area, the
developed countries used to import quotas on textile exporting
countries. Now it would benefit the developing countries including
India by way of increase in export of textiles and clothing.
Therefore, it can be concluded that the WTO has created
both a positive and negative impact on developing countries. It is
expected that the developing countries like Brazil, India China,
South-Korea, would greatly benefit from WTO agreements in the
coming years, provided they make efforts to improve efficiency and
international competitiveness.

3.11 SUMMARY
Free and fair international trade is an ideal situation as free
trade is beneficial to all participating countries. The trade barriers
can be broadly divided into two broad groups.
1. Tariff Barriers.
2. Non-Tariff barriers.
Tariffs refer to a customs duty or a tax on products that
move across borders. Tariff Barriers includes Specific duty, Advalorem duties, Sliding scale duty, Countervailing duty, Revenue
tariff, Anti-dumping duty, Protective tariff, Single column tariff,
Double column tariff, Triple column tariff etc.
A non-tariff barrier is any barrier other than a tariff that raises
an obstacle to free flow of goods in overseas markets. Some of the
important non-tariff barriers are Quota System, Prior..Import
Deposit, Foreign Exchange Regulation, Consular Formalities and
Export Obligation etc are the main non-tariff barriers.
The world trade organization (WTO) started functioning from
1st January 1995. WTO is the result of Uruguay Round of
negotiations. Administration of agreement, Implementation of

42
reduction of trade barriers, Examination of Members Trade
Policies, Collection of foreign trade information, Settlement of
disputes, Consultancy services, Forum for negotiation, Assistance
of IMF and IBRD etc are the main functions of WTO.

3.12 QUESTIONS FOR SELF-ASSESSMENT

1.

What is international marketing & explain the importance of

international marketing?

2.

Discuss the various tariff barriers on international trade?

3.

What are the various non-tariff barriers on international trade?

4.

Evaluate briefly the various trade barriers?

5.

Explain the features of international marketing?

6.

What are the main objective and functions of WTO? Discuss?

7.

Explain the implication of WTO on international marketing with

reference to its major agreements?

8.

Discuss the positive and negative impact of WTO and

developing nations?

9.

Define the terms within 30 words:

a. International Marketing
b. Specific Duty
c. Ad- Valorem Duty
d. Compound Duty
e. Countervailing Duty
f. Protective Duty
g. Quota System

vvvv

4
INTERNATIONAL MARKETING- II

43
Unit Structure
4.0
Objectives
4.1
Introduction
4.2
Types of Economic Integration
4.3
Objectives of Economic integration
4.4
Trading Blocs
4.5
European Union (EU)
4.6
North American Free Trade Agreement (NAFTA)
4.7
Association of South-East Asian Nations (ASEAN)
4.8
South Asian Association for Regional Co-operation
4.9
Implication of Trading Blocs
4.10 Global System of Trade Preferences (GSTP)
4.11 Principles of Guidelines of GSTP
4.12 Summary
4.13 Questions for Self-assessment

4.0

OBJECTIVES

The main purpose of this chapter is to:

Describe major regional economic groupings

Explain the types and objectives of economic integration

Know in detail about the trading blocs- (EU, NAFTA ASEAN,

SAARC)

Understand the implications of trade blocs for international

marketing

Identity the global system of trade preferences and its

principles or guidelines

4.1

INTRODUCTION

Economic integration is a group countries which join together

for enhancing trade and development. The member countries try to
encourage trade within the group by removing or reducing tariff and
non-tariff barriers. They may discriminate against non-members by
collectively imposing common external barriers.

4.2

TYPES OF ECONOMIC INTEGRATION

The economic integration varies from lowest degree of

integration i.e. Preferential Trade Arrangement to highest degree of
integration i.e. Economic Union. The various types of economic
integration are as follows.

44
1. Preferential Trade Arrangement
It is the lowest form of integration. The members of the
group impose lower trade barriers on member nations. However,
the members individually impose trade barriers on non-members.
An example of this type of integration is SAPTA that was signed by
seven countries of south Asia including India in 1995.
Features
The main features are as follows:
(a) The member nations reduce trade barriers on member nations
(b) The member nations individually impose trade barriers on non
members.
(c) There are restrictions on movement of labour and capital within
the group
(d) The member nations do not adopt common economic policies
2. Free Trade Area
In this case, the member nations remove all trade barriers
amongst them. But each nation retains or imposes its own barriers
on trade with non-members. Examples of types of integration
include SAFTA, NAFTA etc,
Features
The main features of Free Trade Area are as follows:
(a) The member nations remove trade barriers on member nations.
(b) The member nations individually impose trade barriers on nonmembers.
(c) There are restrictions on movement of labour and capital within
the group
(d) The members do not adopt common economic polices
3. Customs Union
It is similar to Free Trade Area. It removes all trade barriers
on member nations. In addition, it imposes common external
barriers on non-members. The best example is that of European
Economic Community (EEC) that came into existence in 1957 by
signing Treaty of Rome by six countries- France, Italy, Germany,
Belgium, Netherlands and Luxemburg.
Features:
The main features are as follows:
(a) Removal of all trade barriers amongst member nations.
(b) Collective bargaining with non-members.

45
(c) Common external barriers on non-members.
(d) Members restrict the movement of labour and capital within the
region.
4. Common Market
It is a higher degree of economic integration. It treats the
entire market of all member nations as one market. The best
example is that of European Common Market (ECM). The EEC got
converted into ECM in 1993.
Features:
This type of integration involves.
(a) Removal of all trade barriers amongst member nations
(b) Common external barriers on non-members
(c) Removal of restrictions of movement of labour and capital
among member nations
(d) Collective bargaining with non-members
5. Economic Union
It is the highest degree of economic integration. Example of
this type of integration is the European Union that came into
existence in 1995. The ECM got converted in to EU. Benelux is
another example that was formed after World War II by 3 countries
Belgium, Netherlands and Luxemburg.
Features
The main features of economic union are on follow
(a) Removal of all trade barriers on trade amongst member nations
(b) Free movement of labour and capital among member nations
(c) Common economic polices such as monetary policies and fiscal
policies, agriculture policies etc,
(d) Common external barriers on non-members etc

4.3 OBJECTIVES OF ECONOMIC INTEGRATION

The main objectives of economic integration of trading blocs
are as follows.
1. To reduce or if possible to eliminate trade barriers among
member nations.

46
2. To promote free transfer of labour, capital and other factors of
production.
3. To maintain better cultural, social and political ties with each
other.
4. To assist member nations in any possible way with special
reference to international trade.
5. To promote growth of the region through mass production and
marketing of goods.
6. To bargain collectively with the non-members by means of their
collective strength.
7. To impose common external tariff and non tariff barriers on
non-members.
8. To generate competition among firms of the member countries.
9. To increase consumer welfare in the region.
10. To generate higher employment in the region.

4.4

TRADING BLOCS

A trading bloc is a group of countries, which is formed for the

purpose of economic, social and cultural developments in the
region. Some of the prominent trading blocs include European
Union, NAFTA, ASEAN, SAARC etc.
The main objective of trading blocs areTo reduce or if possible to eliminate trade barriers among
member nations.
To promote free transfer of labour, capital and other factors
of production.
To maintain better cultural, social and political ties with each
other.
To assist member nations in any possible way with special
reference to international trade.
To promote growth of the region through mass production
and marketing of goods.
To bargain collectively with the non-members by means of
their collective strength.
To impose common external tariff and non-tariff barriers on
non-members.

4.5 EUROPEAN UNION (EU)

47
4.5.1 Introduction
This was originally established as European Common
Market by the treaty of Rome in 1957, and came into operation in
1959. The founder members of the community were France, West
Germany, Italy, Belgium, Netherlands and Luxembourg. In 1973 UK
joined the community. Today it is known as EU, and comprises
Belgium, Denmark, France, Greece, Ireland, Italy, Netherlands,
Portugal, Spain United Kingdom, Germany, Luxembourg, Finland,
Austria and Sweden.
The association has advanced to the extent of removing
most trade barriers and allowing free movement of persons and
goods within the union. They have also established a European
Parliament for which member are selected from each country on
proportionate basis, and are given powers to legislate may issues
which are them ratified by the governments.
They have a common currency which is the Euro.
4.5.2 Objectives of EU
The main objectives of European Unions are as follows To eliminate trade barriers on member nations.
To assist member nations during the times of emergencies.
To develop cultural and social relations.
To promote free transfer of labour and capital among member
nations.
To bargain collectively with the non-members by means of
collective strength.
To impose common external barriers on non-members.
4.5.3 Policies of European Union:
There are number of policies adopted by European Union.
These policies are as follows1. Common Agriculture PolicyThe main aims of this policy is improving the agricultural
production and to improve the position of the EU formers. It also
aims to make available food products at reasonable rates. It allows
free movement of food products among member nations.
2. Common Fisheries PolicyIt provides equal access to fishing areas to all nationals of
EU. It adopts common market standards for marine products.
3. Common Transport Policy-

48
It aims at integration of transport facilities of the entire
community. It monitors organization and control of transport system
within the community.
4. Fiscal PolicyIt aims at unification of tax rates, and other fiscal matters. It
monitors common value added tax on products in the member
states.
5. Industrial PolicyIt facilitates research and development among member
nations. It aims at improving international competitiveness of
industries of EU member states.
6. Competition PolicyIt prohibits agreements which lead to prevention, or
restriction of competition within the EU. It aims to promote
competition within the EU by restricting anti-competitive practices.
CHECK YOUR PROGRESS:
1. Explain the following terms briefly:
a. Economic Integration
b. Preferential Trade Arrangement
c. Free Trade Area
d. Customs Union
e. Common Market
f. Economic Union
g. Trading Blocs
2. Fill in the blanks:
a. Some of the prominent trading blocs include European
Union are--------------------------------------------.
b. European Economic Community (EEC) got converted into -----------------------------in 1993.
c. European Union has a common currency which is -------------d. The best example of Customs Union is ----------------------------------- came into existence in 1957.
e. Today European Common Market is known as---------.
f. Best example of Preferential Trade Arrangement is ------------

49

4.6

NORTH AMERICAN FREE TRADE AGREEMENT

(NAFTA)

The North American Free Trade Agreement (NAFTA) is

the most powerful trade bloc in the world. The members of the bloc
are USA, Canada and Mexico. This bloc came into operation in
1994. The NAFTA is basically a trade and investment agreement
with a view to reduce barriers on the flow of goods, services and
people among the three counties. The agreement covers only
goods and services manufactured/produced in North America or if
imported goods and services that meet certain local content
requirements, the nationality of ownership does not matter, as long
as such local content requirements are met.
NAFTA has a total population of 360 millions. Its formation
is an attempt to gain comparative advantage against the enlarged
European Union and to out pace the EEA.
This trade agreement is quite comprehensive and covers
many areas such as tariff reduction, free movement of
professionals among the member countries, financial and direct
investment matters and consumer safety. There are side
agreements relating to protection of labour and protection of the
natural environment. The NAFTA treaty envisages elimination of all
trade and investment restrictions among the member countries over
a period of 15 years.
Objectives of NAFTA:
The main objectives of NAFTA are as follows
To eliminate trade barriers on trade and facilitate movement of
Goods and services.
To develop cultural and social relations.
To remove restrictions on transfer of technology to member
nations.

To negotiate collectively with non-members on certain foreign

Trade matters.

To promote fair competition in FTA.

To provide protection and enforcement of intellectual property

rights.

To develop industries in Mexico in order to create employment

and to reduce migration from Mexico to USA.

To assist Mexico in earning additional foreign exchange to meet

foreign debt burden measures undertaken by NAFTA.

50
1. Residents of NAFTA nations can invest freely in other NAFTA
countries.
2. Protection of Intellectual Property Rights of the members
countries.
3. Free movement of labour from one country to another.
4. Pollution control along the USA- Mexico border.
5. Standardization of product standards in member countries.

4.7

ASSOCIATON OF SOUTH EAST ASIAN

NATIONS (ASEAN)

The ASEAN was established on 8th Aug. 1967 in Bangkok by

five original member nations that include Malaysia, Indonesia,
Philippines, Thailand and Singapore. At present there are 10
members who also include Brunei, Cambodia, Laos, Myanmar and
Vietnam.
ASEAN original purpose was to preserve peace among its
member nations and to respond to the communist threat in the
region from china. During the first nine years of its existence,
ASEANs primary focus was political.
The economic co-operation began at the first ASEAN
Summit in Bali in 1976, when the declaration of ASEAN Accord was
signed. The ASEAN countries agreed to co-operate in the supply
and purchase of basic commodities, the establishment of
preferential trading arrangements, and the stabilization of prices in
the region and promotion of export earnings from production of
regional commodities.
The ASEAN countries formed the ASEAN Free Trade Area
(AFTA) in September 1994. The AFTA initially set to function for 10
years in order to develop inter ASEAN trade.
Objectives of ASEAN
The main objectives of ASEAN are as follows1.

To accelerate economic growth, social progress and cultural

development of member countries.

2.

To promote active collaboration and mutual assistance in

matters of common interest.

3.

To maintain close co-operation with the existing international

and regional organization with similar aims.

4.

To ensure the stability of the south East Asian region.

51

4.8

SOUTH ASIAN ASSOICATION FOR REGIONAL

CO- OPERATION (SAARC)

Seven nations in the Indian subcontinent region have joined

hands to form the South Asian Association for Regional Cooperation (SAARC) in 1985. The SAARC members include India,
Pakistan, Srilanka, Bangladesh, Nepal, Bhutan and Maldives. Its
headquarter has been established at Kathmandu. A conference of
heads of the countries is held every year but conferences were
generally delayed for the one reason or the other.
Among the SAARC countries, concessional tariff rates have
been introduced for 226 trade items. These concessional rates
range between 10% to 100 %. India gave this concession to 106
items, which is the highest among all SAARC countries. Similarly,
other member countries also gave concessional rates.
To explore trade possibilities among SAARC nations, first
SAARC trade fair was held at Pragati Maidan in New Delhi on
January 9-14, 1996. The theme of the fair was co-operation for
growth. SAARC nations displayed their various products and also
their export capacities in this fair.
Objectives of SAARC
The main objectives of SAARC are as follows
1. To promote welfare of the people of the region and to improve
the quality of life
2. To accelerate economic growth in the region through regional
co-operation
3. To accelerate social progress and cultural development
4. To promote and strengthen collective self-reliance among the
member nations
5. To contribute to mutual trust, understanding and appreciation of
each others problems
6. To strengthen co-operation with other developing countries
7. To strengthen co-operation amongst member nations at
international forums (such as WTO) on matters of common
interests
8. To co-operate with international and regional organizations with
similar objectives

4.9 IMPLICATION OF TRADING BLOCS

In

Trade blocs and free international trade do not go together.

fact, trade blocs are against the growth of free

52
global/international trade. They adversely affect the process of
trade liberalization at the global level. However, trade blocs are also
useful for integration of economies of member countries. EU is one
popular and successful trade blocs which has brought the
integration of economies of member countries. All member
countries are getting benefits from this trade bloc. In brief trade
blocs have positive and negative aspect. It is a mixed blessing. Let
us, now briefly note the implication of trade blocs.
4.9.1 Positive Implications
1. Trade Creation
Economists argue that economic integration leads to trade
creation. This is because, a trading bloc may remove tariff on
member nations. As a result, a high cost producing country of the
bloc can import goods from law cost producing member nation. Due
to formation of a free trade area, there is proper allocation of
resources, and the nations can take advantage of comparative
cost. Due to the comparative cost advantage, trade creation takes
place.
2. Competition
The formation of a trading bloc leads to intense competition
between firms of the entire bloc. Due to intense competition, the
efficiency of the firms improves. This leads to reduction in prices
and improvement in quality.
3. Economies of large scale
Due to economic integration, there can be economies of
large scale production and distribution. Firms in the region will try to
specialize in those goods and services which they are more
capable of producing. This leads to large scale production and
distribution, which in turn brings economies of large scale. The
economies of large scale are partly passed on to the consumers in
form of lower prices.
4. Economic growth
The formation of a trading bloc can increase economic
growth of the region. Due to reduction of trade barriers, firms in the
region would be in a position to produce goods at a lower price.
This would increase demand, which in turn would lead to large
scale production. The increase in production of goods and services
may lead to economic growth in the region.
5. Employment
Due to large scale production and distribution of goods, the
employment also increases. There can be direct and indirect effect
on employment. The direct effect in the industries producing goods
and services. The indirect effect is due to the increase in

53
employment in the supporting industries such as ancillary units,
banking, insurance etc.
6. Technological development
Due to economic integration, there can be improvements in
technology. As the firms grow, they would go for higher
technological developments. A part of the increased profits can be
utilized for research and development for the purpose of improving
technology that will help to reduce prices, and improve quality.
7. Investment
There can be higher investment. The member nations may
reduce or remove restrictions on investment. Therefore, there can
be an increase in intra regional investments, which in turn would
increase the economic development of the region. Also, the region
would be in a position to attract more investment from other
countries due to its growth potential.
8. Social and cultural relations
Due to integration, there can be betterment of social and
cultural relations in the region. The member countries can improve
their relations with each other through the exchange and social
programmes. This will indirectly help for the peace and prosperity of
the region.
9. Better utilization of resources
The economic integration would help to make better
utilization of resources. Due to the growth of the region, there would
be optimum use of physical resources, human resources and
financial resources.
The optimum use of resources would in turn lead to higher
efficiency and productivity of the various firms in the region.
10. Consumer welfare
A trading bloc facilitates consumer welfare in the region. Due
to economic growth, the employment opportunities increase, which
in turn increase purchasing power, and the people can enjoy higher
standard of living. Also, due to trading bloc, the consumers may
have to pay lower prices, and at the same time enjoy higher quality
products.

4.9.2

NEGATIVE IMPLICATIONS
The trading blocs can negatively affect the nonmembers countries. This is due to the following:
1.

Common external barriers

54
The member countries of the trading bloc may impose
common external barriers on non-members. The common external
barriers may be in the form of tariff and non-tariff barriers. Due to
such external barriers, the non-members stand at a disadvantage
and as such their trade with trading member countries gets affected
to a certain extent.
2.

Collective bargaining by member nations

The members of the trading bloc collectively bargain with
non-members in respect of trade related matters. Due to their
collective bargaining power, the non-member nations stand at a
disadvantage.

4.10 GLOBAL SYSTEM OF TRADE PREFERENCES

(GSTP)
The agreement on GSTP among developing countries was
signed on 13th April, 1988 at Belgrade. It was signed by 48
developing countries including India those were the members of
group 77.
Objectives of GSTP:
The main objectives of Global System of Trade Preferences are as
follows:
(a) To promote and sustain mutual trade. For example products
originating from India are eligible for preferential tariff treatment
upon import in participant countries.
(b) To develop economic co-operation among developing countries
(member of group 77) through exchange of trade concessions.
The GSTP establishes a frame work for the exchange of
trade concessions among the members of group 77. The coverage
of GSTP extends in the area of tariff, Paratariff, non-tariff
measures, direct trade measures and sectroal arrangements.
1.

Tariff concessions or measures, tariffs means custom duties

stated in the national tariff schedules of the participant
member.

2.

Para-tariff concessions, para-tariff means border charges and

fees other than tariff which are solely imposed on imports.

3.

Non-tariff measures, non-tariffs mean any measure or

regulation such as quotas that restrict mostly imports.

4.

Direct trade measures, which mean measures conductive to

promote mutual trade of members such as long and medium
term contracts containing import and supply commitments in

55
respect of specific products, state trading operations,
government and public procurement etc.
5.

Sectoral agreements, which means agreements amongst

participants regarding the removal or reduction of tariff, nontariff, and para-tariff barriers as well as other trade promotion
measures for specified products.

4.11 PRINCIPLES OR GUIDELINES OF GSTP

The GSTP framework is based on the following :
Principles or guidelines
1. The GSTP shall be reserved for the exclusive participation of
developing countries that are members of groups 77.
2. The benefits of GSTP shall accrue to the developing countries
members of the group 77, who are participants in the GSTP
agreement.
3. The GSTP shall be based and applied on the principal of
mutuality of advantages in such a way to benefit equitably all
participants, (taking into account their respective levels of
economic and industrial development, the pattern of their
external trade and trade policies and systems.)
4. The GSTP shall be negotiated step by step, improved and
extended in successive stages, with periodic reviews.
5. The GSTP shall not replace, but supplement and reinforce,
present and future sub-regional, regional and inter-regional
economic groupings of developing countries of group 77.
6. The special needs of the least developed countries shall be
clearly recognized and concrete preferential measures in favour
of these countries should be agreed upon, the LDCs will not be
required to make concessions on a reciprocal basis.
7. The GSTP shall include all products, manufactures and
commodities in their raw, semi-processed and processed forms.
8. Inter-governmental sub-regional, regional and inter-regional
groupings for economic co-operation among developing
countries that are members of the group 77 may participate,
fully as such, if and when they consider it desirable, in any or all
phases of the work of the GSTP.

4.12 SUMMARY

56
Economic integration is a group countries which join together
for enhancing trade and development. The various types of
Economic integration are Preferential Trade Arrangement, Free
Trade Area, Custom Unions, Common Market and Economic
Union.
A trading bloc is a group of countries, which is formed for the
purpose of economic, social and cultural developments in the
region. EU, NAFTA, ASEAN, SAARC are some of the main Trading
Blocs.
Trade blocs are against the growth of free international
trade. However, trade blocs are also useful for integration of
economies of member countries. Trade Creation, Large scale
production and distribution, Economic growth, Employment,
Technological development, Higher investment, Betterment of
Social and Cultural relations, Better utilization of resources,
Consumer welfare these are the positive points of implication of
trade blocs.

4.13 QUESTIONS FOR SELF-ASSESSMENT

1.

What are the different types of regional economic groups?

2.

Trading blocs are harmful for the growth of world trade.

Discuss.

3.

Explain the implications of trading blocs on international

marketing?

4.

Trade Blocs and free International Trade do not go together.

Explain.

5.

Write short motes on(a) EU

(b) NAFTA
(c) ASEAN
(d) SAARC
(e) GSTP

6.

Give full forms of and explain the terms briefly.

(a) EU
(b) NAFTA
(c) ASEAN
(d) SAARC
(e) GSTP

vvvv

57

PRELIMINARIES FOR SATRTING

EXPORT BUSINESS- I
Unit Structure
5.0
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
5.9
5.10
5.11
5.12
5.13

Objectives
Introduction of overseas market research
Meaning of marketing research
Identifying foreign market
Factor influencing selection of foreign markets
Product planning strategies for exports
Steps in new product development process
International product life cycle
Methods of entry in foreign markets
Direct exporting
Indirect exporting
Distinguish between direct exporting and indirect exporting
Summery
Question for self-assessment

5.0

OBJECTIVES

The main vision of this chapter is to:

Know about overseas market research
Understand the meaning, need and importance of marketing
research
Identifying foreign markets and what are the factors influencing
selection of foreign market
Explain product planning strategies for exports
Evaluate steps in new product development process
Understand international product life cycle
Discuss methods of entry in foreign markets
Understanding merits and demerits of direct and indirect
exporting
Distinguish between direct exporting and indirect exporting

5.1

INTRODUCTION
RESEARCH

TO

OVERSEAS

MARKET

58

Overseas market research is a must for successful and

profitable export marketing. This is the most promising way of
making companys marketing operations sensitive to the changing
requirements of international markets. Published data on different
aspects of global marketing are now available easily for the conduct
of overseas market research. Field research is required when
published data are not available as per the need of the research
project. The popularity of overseas market research is fast growing
along with the globalization of business.
Preliminaries for export business are related to
different aspects of export management such as products, markets,
buyers, marketing channels and the methods of exporting. Deciding
preliminaries for export business is similar to broad decision to be
taken while constructing a very big tower of 15 to 20 floors. Actual
construction work will be as per the preliminary decision taken.
Similarly, export marketing activities of a firm will be conducted as
per the preliminaries decided. The decision on preliminaries for
starting export business is important as fault decisions may lead to
difficulties while conducting export business.

5.2

MARKETING RESEARCH

5.2.1 DEFINITION
(a)
According to Donald s. Tull and Del. I. Howkins
Marketing research is a formalized means of obtaining
information to be used in making marketing decisions.
(b)

According to the American marketing association

Marketing research refers to the systematic gathering,
recording and analysis of data about problems relating to the
marketing of goods and services.

5.2.2 NEED AND INPORTANCE OF MARKETING RESEARCH

The objective of marketing research is to facilitate decision
making in a number of marketing areas. In international marketing.
Market research is needed for taking decisions on the following:
(a)

Consumer needs and wantsOne of the main objectives of marketing research is to

identify consumer needs and wants. Accordingly, the company can
manufacture and deliver the goods to the consumers to meet their
satisfaction. A company which has already launched its products
will try to find out as to what extent the companys products has
satisfied the needs and wants of its consumers.
(b)
Promotional campaigns-

59
Promotional campaigns are needed in overseas market for
large scale marketing of the product. Details of such campaigns
can be finalized with the help of market research.
(c)

Competitive advantageMarketing research is conducted to find out the strength of

the competitors. An attempt is made to find out why some
consumers prefer competitors brands, the special features that
appeal to them. Accordingly, the company may incorporate and
improve on such features in its products to gain competitive
advantage.
(d)

Appropriate pricing decisionsAppropriate pricing decisions in overseas marketing are

possible through detailed study of overseas market in regard to
market competition, consumer psychology, Product demand,
substitutes available and so on.
(e)

Effectiveness of channels of distributionMarketing research also conducted to find out the

effectiveness of the present and potential channels of distribution.
The existing channels may be studied in light of channel objectives.
If the present channels are not cost effective and are not in a
position to deliver the goods effectively, then the company may
select alternative channels.
(f)

Determine the positioning of the productMarket research is needed in order to determine the
positioning of the product, taking into consideration the sociocultural factor of overseas market.
(g)

Packaging designMarketing research may be conducted to design better and

appropriate packaging for the consumers. Different customers may
prefer the package design differently. Through packaging design
research a company may identify the right design required by its
target customers.
(h)

Forecasting salesMarketing research can be conducted to judge whether there

would be demand for a new product in the market. Also, the
demand for existing products can be forecasted. Accordingly, sales
programmers can be designed.

5.3

INDENTIFYING FOREIGN MARKETS

Selectivity is the key to success in all spheres of life

including export marketing. An exporter may wish to deal in all kind

60
of products and to sell them anywhere in the world. However, it is
not possible for him to do so due to the wide expanse and demand
variations in different markets of the world. Therefore, an exporter
has to select proper products and proper markets in order to
operate at the international level.
The market selection process is as follows:
(a)

Determine export marketing objectives

The exporter must first determine export marketing
objectives in terms of product development, profit, sales, share of
market etc; both form short term and long term point of view. The
objectives are set taking into account the financial and managerial
resources of the firm.
(b)

Collection of information
The exporter must collect relevant information from the
overseas markets. The information may be in respect of demand
for the product, competition, nature of consumers, political situation,
import regulations, infrastructure facilities etc.
(c)

Analysis of information
The exporter has to analyze the collected information in
respect of overseas markets. Such analysis is required to shortlist
the over seas markets. For example, the exporter has to analyze
the like and dislikes of the buyers, the purchasing power, buying
pattern etc,
(d)

Short listing of markets

A detailed investigation of the markets will help the exporter
to short list the countries which may be considered for export
purpose. The main objective of short listing is to arrive at a list of
few counties which are likely to influence the selection decision.
(e)

Detailed investigation
The exporter may conduct a detailed analysis of certain
markets. He may collect necessary information in respect of various
factors such as the nature of the customers, the nature and degree
of competition, the present and potential demand for the product
the trade polices of the government and soil. The information can
be collected from primary sources as well as form secondary
sources.
(f)

Evaluation and selection of markets

The company has to eliminate countries where trade or
investment barriers prohibit probable market entry. These barriers
would include Tariffs Quotas, Foreign Exchange Regulations etc,.
The exporter may select only those countries or markets, which
would provide a good rate of return for its investment.

61
(g)

Entry in overseas markets

The exporter then makes necessary arrangements to enter
in the overseas markets. He may appoint the required sales people,
and intermediaries. He should complete all other formalities
regarding the entry in overseas markets. He would then produce
the goods as per the requirements of overseas buyers.
(h)

Follow-up
The exporter should undertake a review of the performance
in the overseas markets. Such review would enable the exporter to
know which markets are performing well, and which one are not.
He would then find out the reasons for the same, and if there are
problem, he would try to resolve such problems, or exit from such
markets that do not provide good potential.

5.4

FACTORS INFLUENCING
FOREIGN MARKETS

SELECTION

OF

The exporter must consider certain factors to select the

appropriate foreign markets. The factors that influence the selection
of foreign markets include the following:
(a)

Competition
The exporter must consider the degree of competition in the
overseas markets. Nowadays, due to globalization, there is high
degree of competition in the overseas markets. In the ultimate
analysis the price factor is very important. The selling price as
related to competition and quality is a very important factor. It is not
only the existing competition but the potential new competition has
also to be assessed properly.
(b)

Demand
One has to determine the demand of the product in the
foreign market. Based on the present demand and the suppliers
already there, whether one more competitors would be able to get a
reasonable market share is the crucial point to be decided. The
perceived durability how long will be the demand persists, and
whether there are any patent laws or public laws of the country
present or imminent has also to be looked in to.
(c)

Import Regulations
The exporter must consider the import regulations including
custom formalities while considering the selection of overseas
markets. If there are too many formalities and regulations, the
exporter may avoid such markets. This is because; lot of money,
effort and time is wasted in following the formalities and regulations
in the importing country.

62
(d)

Size of the Market

Selection of a product also depends on the markets which
have been identified for sales abroad. All products may not have
equally good markets everywhere; therefore, selection of the
product depends upon the market requirements. It is always better
to concentrate on one or two markets as least to start with. One
should study the target markets closely, with regard to market
requirements in terms of product specification continuity of demand,
change in fashion, credit requirement etc,.
(e)

Distribution Network
There is need for efficient distribution network in the
overseas markets. The distribution network includes agents and
dealers and other agencies that support the distribution such as
transportation services, banking facilities, insurance services,
warehousing facilities etc, markets that offer good distribution
network reduces the burden on the exporter and therefore, the
exporter may select such markets for exporting.
(f)

After-Sale-Service
If the product selected for export is such that it requires
servicing after sales, then the exporter should see to it that he can
avail such facilities to the overseas buyers. It is not always easy
and within ones means to open servicing centers abroad. At the
same time, it is difficult to find a distributor or agent having servicing
facilities. If it is not possible for the exporters to provide such
servicing facilities then the exporter should not venture to export
such products.
(g)

Higher Productivity
An export firm can benefit from the economies of large scale
operations. Higher productivity is a must in the competitive market.
Export firms spend a lot on research and development in order to
absorb the increased production. As the domestic markets have
limited capacity the exports become unavailable.
(h)

Social Responsibility
Some business houses are committed to exports. They have
build up their image in domestic as well as in overseas markets.
They take up export activity to meet social responsibility of
strengthening foreign exchange reserve of the nation.
(i)

Political Stability
Exporters need to look into the political stability factor before
selection of overseas markets. Exporters may ignore those
markets, where there is lot of political instability. Due to political
instability, there is change of governments or the government may
find it difficult to adopt stable foreign trade policies. This creates

63
risks and uncertainties for the exporters. Exporters may select
those markets, where there good degree of political stability.
(j)

Reducing Business Risk

A diversified business helps the export firm in spreading the
risk in several export markets. When a firm is selling its product in a
number of markets, a downward trend in a market may be counter
balanced by a rise in sales in the overseas markets.
(k)

Location
The exporters may consider the location factor in selection of
overseas markets. Normally distant location markets need to be
avoided as there are high transportation, and delays in deliveries,
and other problems.

5.5

PRODUCT
EXPORTS

PLANNING

STRATEGIES

OF

Product planning involves a number of product related

decisions such as product design, product-mix, branding, pricing
etc,. Therefore, the exporter has to adopt various product planning
strategies such as(a)

PRODUCT DESIGN STRATEGIES

Exporters have the following options in respect of product
design strategies.
(i)

Product Innovation StrategyUnder this strategy, the exporter develops a new product in
response to the demand prevailing in overseas markets. Low cost
items for developing countries and high cost items for developed
countries may be developed for example readymade garments to
take advantage of fashion in different countries.
(ii)

Product Adaptation StrategyUnder this strategy, both the product and the message are
changed to increase the adaptability of the product. This helps to
meet the specific needs of the foreign buyers. Products like office
machines, health goods, and electrical goods require this strategy.
It is a costly strategy. It is generally used to serve large size
markets.
(iii)

Product Standardization StrategyUnder this strategy, the exporter sells the same product all
over the world with One product, One message-worldwide. For
example Coca-cola, Sony etc. The exporters use this strategy when
their product is too well known and enjoys global reputation. It is an
economical strategy. This is because it does not require any

64
modification. Moreover, it enjoys the economies of large-scale
production and marketing.
(b)

PRICING STRATEGIES
As far as pricing strategies are concerned, an exporter may
adopt any of the following strategies:
(i)

Skimming PricingWhere high price is charged when the product is launched in

the market as in the case of innovative products.
(ii)

Differential PricingWhere different price are charged in different markets

depending upon market and competitive conditions.
(iv)

Standard pricingWhere the same price is charged in all the global markets,
which is quite rare.
(c)

DISTRIBUTION STRATEGIES
Distribution channel includes a set of marketing institution
participating in the marketing activities involved in the movement of
flow of goods or services from the primary producer to the ultimate
consumer. In international marketing, two categories of marketing
channels are involved i.e.(i)

Direct ExportingDirect exporting is a method of exporting goods directly to

the foreign buyers by the manufacturer himself
(ii)

Indirect exportingWhere the manufacturer exports through intermediaries such

as Star Export Houses or Merchant Exporters .
(d)

PROMOTION STRATEGIES
The exporter also needs to adopt suitable promotion
strategies(i)

Standard Promotion Strategy

Where the same promotion-mix is used in all the global
markets and with the same promotional theme.
(ii)

Differential Promotion Strategy

Where different promotion-mix is used depending upon
market and competitive situation and with different promotion
theme.

65
(e)

After-Sale-Service Strategy
After-sale-service is plays very important role in the case of
durables, office equipment and machinery. The exporter needs to
adopt proper after-sale-service strategy. Exporters may have a tieup with after-sale-service agencies in overseas markets. They may
also depute their own service staff in important markets.
(f)

Product Positioning Strategy

The exporter should develop effective product positioning
strategy. The exporter may position the brand to create a distinct
image by adopting positioning by features, price, use, benefits etc.
(g)

Product Line Strategy

The exporter should decide whether to concentrate on one
product or deal with product line. It is a group of related products.
For example, a food items products line may include milk powers,
health drinks, fruits etc.

5.6

STEPS IN NEW PRODUCT DEVELOPMENT

PROCESS

Exporters need to be competitive in the overseas markets.

To be competitive, exporters may develop a new product for the
export markets.
The following are the steps in new product development
process:
(a)

Idea Generation
The beginning of successful product is a creative idea. For
the generation of new idea, it is necessary to gather information
about the unfulfilled needs of the consumer, their attitude and the
qualities that a product should possess. New idea may come form
brainstorming technique, normal group technique, inviting
suggestions from customers, obtaining feedback from dealers.
(b)

Analyzing the Ideas

The export marketing manager and his team may analyse
the new product ideas. Analysis of benefits, costs must be
conducted. The benefit analysis must be conducted in terms of
sales, profits, market share etc. costs analysis must be conducted
in terms of production and distribution costs.
(c)

Short-listing of Ideas
A detailed investigation of the marks will help the exporter to
short list the countries which may be considered for export purpose.
The main objective of short listing is to arrive at a list of few
countries which are likely to influence the selection decision.

66
(d)

Investigation
The exporter may conduct a detailed analysis of certain
markets. He may collect necessary information in respect of various
factors, such as the nature of the customers, the nature and degree
of competition, the present and potential demand for the product
and the trade policies of the Government and so on. The
information can be collected from primary sources as well as from
secondary sources.
(e)

Selection of Best Idea

The export manager may select the best idea after detailed
investigation. He may select that idea which would provide
maximum possible benefits at minimum possible costs. The new
product idea must be such that would provide maximum value to
the customers and at the same time generate higher return to the
exporter.
(f)

Product Development
The export manager must make arrangement for product
development. He has to organize necessary resources i.e. physical,
capital and manpower. He must also give necessary directions to
the production team to design and develop the product that can
meet customers expectations.
(g)

Test Marketing
In this step of product development, market testing of the
new product is under taken. The purpose is to understand its
possible success in actual marketing. It is necessary to measure
the consumer reaction to the product before large scale production
of new product. Market testing includes product quality, features,
packaging, price etc. Market testing enables the firm to improve the
product and increase the customer acceptance.
(h)

Commercialization
If the test marketing results are positive, the manager may
go ahead with the production and marketing on a larger scale. The
product will be launched in a large market area. The manager may
undertake appropriate promotion-mix which includes publicity,
advertising, sales promotion, trade fairs participation etc.
(i)

Review of Product Performance

The most important step in the product development is the
review of actual market performance of the product. It is a type of
post introduction step. The exporter has to analyse actual market
performance of the product. This includes acceptance of the
product, market demand and sales position and so on. Here, the
exporter can collect information data from consumer, retailer and
dealer and so on. If the performance is not satisfactory he has to
take prompt remedial measures.

67
(j)

Changes in Marketing Mix

On the basis of product performance review, the export
marketing manager may have to make certain changes in the
marketing-mix. Marketing mix changes may be required in respect
of products design features, product pricing, promotion mix and
products distribution.
CHECK YOUR PROGRESS:
1. Selectivity is the key to success in all spheres of life including
export marketing. Discuss.
2. Explain the following terms briefly:
a. Product Innovation strategy
b. Product Adaptation strategy
c. Skimming pricing
d. Differential pricing
e. After-sale-service strategy
3. Explain the following steps in new product development
process:
a. Idea generation
b.
Investigation
C.
Test marketing
d.
Review of product performance

5.7

INTERNATIONAL PRODUCT LIFE CYCLE

Every product has its life cycle. It is similar to a life cycle of a

human being. It starts with birth and ends with death. Similarly,
every product has a life cycle which starts when the product is
introduced in the market, growth, maturity and decline. These are
the stages in the domestic product life cycle. Similar to this, a
product which is being sold in an overseas market has its product
life cycle called international product life cycle. This life cycle has
different stages and each stage has its features.
The theory of international product life cycle (IPLC) is
applicable to consumer products, synthetic fabrics and electronic
equipment i.e. those products which have long lives in terms of the
time span from innovation to eventual high consumer demand.
Following are the stages of product life cycle:
(a)

Introduction Stage
The product first takes birth or entry in the market. At this
stage, sales pick up slowly and to ensure the survival or to enhance
the sales, it is very much necessary to develop brand awareness.

68
Brand awareness and brand loyalty can be developed through
advertising and sales promotion technique. This stage involves low
sales, high promotional expenditure, loss or negligible profits,
higher margin to dealers etc.
(b)

Growth Stage
In the growth stage the product is poised for growth. This
stage involves rapid growth in sales, rise in profits, repeat
purchases and brand loyalty, increased competition, introduction of
more models or variations, intensive promotional efforts etc.
(c)

Maturity Stage
In the maturity stage, the product is well settled in the market
along with the competitors. This stage involves stagnation of sales,
decline in profits, intense competition, retentive advertising to
remind the customers etc.
(d)

Decline Stage
In the decline stage, sales decline due to the entry of new
and improved products or due to change in consumer preferences
of habits. This stage involves entry of substitutes, decline in sales,
decline in profits at a rapid pace, minimum promotional effort,
withdrawal or modification in product, repositioning of product etc.
At international product life cycle the stages are:
(a)
Local Innovation
(b)
Overseas Innovation
(c)
Maturity
(d)
Worldwide imitation
(e)
Reversal
In export marketing the concept of international product life
cycle (IPLC) is something different form domestic marketing
product life cycle. Domestic product life cycle is quit easy to
understand but IPLC is comparatively difficult to understand. But it
cleared by understanding the stages which are stated above .

5.8

METHODS OF ENTRY IN FOREIGN MARKETS.

There are several methods of entry in foreign markets which

an international marketer can opt for. Some of the important
methods are as follows:
(a)

Direct Exporting
Direct exporting means exporting the products by the
manufacturer himself i.e. without using the services of middlemen
like merchant exporters, Export houses etc. A manufacturer

69
exporter can undertake direct exporting of his products in the target
market through his export department or division.
(b)
Indirect Exporting
Indirect exporting is an alternative to direct exporting which
may not be possible in the case of all exporters. In indirect
exporting, the exporting firm will prefer to export to the target
market through marketing middlemen such as merchant exporter,
export houses, trading houses or through co-operative or
government agencies.
(c)

Joint Venture
A business firm may enter into a joint venture with foreign
firms as the main strategy for entry in foreign markets. Joint
ventures have several advantages over other strategies. The firm
can easily adapt to cultural variations in foreign markets with the
help of its overseas partner. Also, the foreign partner may have well
established distribution network. In other words, there would be
less risks and need for less investment due to the support of foreign
partner.
(d)

Franchising Strategy
Franchising is a form of licensing in which a parent company
the franchiser permits another independent entity (franchisee) the
right to do business in a prescribed manner. This right can take the
form of selling the franchisers products, using its name, production
and marketing techniques or general business approach.
(e)

One Country Production Base

A firm may maintain one country production base. Preferably
in the domestic market, due to various lacational advantages such
as low cost labour, or availability of cheap materials. However, the
distribution could be done in several world markets. For distribution,
the firm may use either company owned distribution channels, or
foreign controlled distribution channels.
(f)

Licensing
Under international licensing, a firm in one country (the
licensor) permits a firm in another country (the licensee) to use its
assets such as Patents, Trademarks. Copyrights, Technology,
Technical know-how, marketing skills or some other specific skills.
The monetary benefit to the licensor is the royalty or fees, which the
licensee pays.
(g)

Contract Manufacturing
Under contract manufacturing, a company contracts with
firms in foreign countries to manufacture or assemble the products
while retaining the responsibility of marketing the product. This is a
common practice in the internationals business.

70

(h)

Acquisitions
It involves purchasing another company already operating in
a foreign country market where the firm wants to enter. Synergetic
benefits can result if the firm acquires a unit with strong goodwill
and a good distribution network. Research indicates that a wholly
owned subsidiary is more successful in international markets as
compared to joint ventures. However, proper information must be
obtained before acquiring a foreign firm.
(i)

Turnkey Contracts
In case of turnkey contracts, a foreign company plans and
constructs a project and hands it over to the government or a
domestic private company for execution. Such practice is common
in oil, steel, cement and fertilizer sectors.
(j)

Green-Field Development
Firms may go green field development project. It involves
setting up manufacturing plant and distribution system in other
countries. It allows a firm more freedom in designing the plant,
selecting its own workforce and choosing right suppliers and
dealers. This strategy has been followed by many firms such as
Honda, Toyota and Nissan etc.

5.9

DIRECT EXPORTING

Basically there are two methods of exporting (A)

Direct Exporting
(B)
Indirect Exporting
In direct exporting, the export is undertaken directly by the
manufacturer. The manufacturing firm makes its own arrangement
to export its products either within the existing sales network or by
creating a separate export department of division. This type of
exporters is known as manufacturer exporters.
5.9.1 ADVANTAGES OF DIRECT EXPORTING
Following are the advantages of direct exporting:
(a)

Good will
Due to direct contact with consumers the firm can establish
close relationship with the consumers and create goodwill
/reputation in the market.
(b)

Optimum Production Capacity

A manufacturer selling in domestic as well as overseas
markets can utilize his production capacity fully as wide market

71
area is available. Excess production can be exported through
special measures.
(c)

Spreading of Risks
The direct exporter can spread business risks by exporting
to several overseas markets. If he sells only in domestic market,
there may be business risks due to recession, or other reasons.
(d)

Export Obligation
At times, the manufacturer may have to fulfill export
obligation due to import of machinery under the Export Production
Capital Goods (EPCG) scheme. The manufacturer exporter can
fulfill export obligation by direct exports.
(e)

Direct Control
Direct exporters can exercise a direct control over export
packaging, pricing, advertising, promotion, after sales services and
other marketing activities.
(f)

Export Incentives
The direct exporter can claim a number of incentives such as
duty drawback, exemption form income tax, exemption from sales
tax, refund of excise duty etc.
(g)

First-Hand Information
Direct exporters get first hand information about the needs
and requirements of foreign markets and there by can satisfy them
effectively.
(h)

Higher Price
Direct exporters can charge higher prices in comparison to
competitors as they are well aware of the market conditions and
can fulfill the requirements of consumers effectively.
5.9.2 DISADVANTAGES OF DIRECT EXPORTING
Following are the disadvantages of direct exporting:
(a)

High Degree of Risk

Direct exporters are prone to more risks as they shoulder the
twin responsibilities of manufacturing as well as marketing. They
are also subject to the risks of domestic as well as overseas
markets.
(b)

More Investment
The exporter needs more capital investment suitable
organization structure, more marketing efforts and effective
supervision and control as the entire responsibility marketing is
shared by the exporter himself.

72

(c)

Lacks Specialization
Since a direct exporter looks after numerous activities of
production, distribution, marketing, he cant do justice to any one of
them, creating chaotic situation in the organization.
(d)

High Overhead
A manufacturer exporter has to hear the production
overheads as well as marketing overheads as he is engaged in
production and exporting.
(e)

Unsuitable to Small Firm

Small firms may find it difficult to export directly on their own.
They may depend more on the merchant exporters or co-operative
marketing.
(f)

Less Economies of Distribution

The direct exporter may not be able to reap economies of
large scales in respect of distribution. The merchant exporter can
however, enjoy such economies, as he can combine several
shipments together.

5.10 INDIRECT EXPORTING

The manufacturer does not directly export to foreign buyers.
The manufacturer exports through intermediaries such as merchant
exporters, export houses, all forms of trading houses, export
consortia etc.
5.10.1 Advantages of Indirect Exporting:
The following are the advantages of indirect exporting
(a)

Less Risks
Indirect exporters are prone to comparatively less risks as
the risk of marketing gets transferred to export market
intermediaries. At the same time, these intermediaries are
specialized in their own field.
(b)

Less Investment
Sine indirect exporters concentrate only on manufacturing or
assembling of goods, they require a lesser amount of capital than
the direct exporters.
(c)

Specialization
A manufacturer specializes on production activates due to
indirect exporting. He concentrates his attention on production

73
activities only he is relived from the botheration of marketing
exporting.

(d)

Suitable to Small Firms

The indirect method of exporting is more suitable to small
firms. This is because small firms face a number of problems in
negotiating and selling their products in the international markets.
They can export their products through intermediaries or marketing
co-operatives.
(e)

Availability of improved inputs

Indirect exporters can import raw materials, components,
spare parts, etc. for export production through intermediaries such
as export houses, trading houses etc,
(f)

Technical Guidance
The manufacturer can obtain technical guidance for the
manufacture of products from the export houses through whom he
exports.
(g)

After-Sale-Service
The export houses through their overseas offices may
provide after-sale-service, which is beyond the scope of small scale
manufacturer.
(h)

Less Overhead
The indirect exporter has to share overheads relating to
production activities only as he is not concerned with marketing. An
indirect exporter will have less burden of overheads as compared to
direct exporter.
5.10.2

Disadvantages of Indirect Exporting

The following are the disadvantages of indirect exporting

(a)

Lower Price
In case of indirect exports, there are many intermediaries.
Hence, the total revenue gets distributed among various
intermediaries and the exporter cant charge a high price.
(b)

No Export Incentives
The exporting firm may not get the benefits of various
incentives and facilities provided since he is not involved directly in
the promotion of exports.
(c)

Excessive Dependence
Due to lack of direct contact with foreign consumers, indirect
exporters are totally dependent on market intermediaries for the
information about foreign markets and receipt of export proceeds.

74

(d)

Second Hand Information

The manufacturer may not get first hand information of the
export markets. Some time, the intermediaries may not provide
necessary information on time.
(e)

Lack of Control
Indirect exporters cant exercise a direct control over
marketing decisions such as packaging, pricing, advertising, sales
promotion and after-sales service due to their dependence on
market intermediaries.
(f)

Lower Sales
The manufacturer may not be able to get more sales through
the intermediaries. This is because the intermediaries may promote
the sales of a particular manufacturer only.

5.11 DISTINGUISH BETWEEN DIRECT EXPORTING

AND INDIRECT EXPORTING
Direct Exporting

Indirect Exporting
a) Meaning

Export marketing is undertaken The manufacturer exporter,

directly by the manufacturer.
exports the goods through
intermediaries.
b) Market Information
A manufacturer exporter gets In
indirect
exporting,
the
first hand market information for manufacturer gets information
his business as he operates from
intermediaries.
Such
directly in export marketing
information may be inadequate,
unreliable and supplied late.
c) Control
The exporting firm exercises The exporting firm has limited
complete control on export control on pricing etc. as
pricing. Packaging and so son.
marketing is given to the
marketing middlemen
(d) Reputation

75
The direct exporter can earn The manufacturer may not earn
goodwill in international market. reputation in overseas markets.
The intermediaries get the
reputation.

76
(e) Risks
Direct exporters assume more
risks as they look after both the
production
and
marketing
activities.

Indirect exporters assume fewer

risks, as they are simply
concerned with manufacturing
or producing of goods.

(f) Investment
It requires more investment as It requires less investment as
the exporting firm has to look the exporting firm is concerned
after
manufacturing
and only with the manufacturing
exporting.
activity.
(g) Incentives
Direct exporters can claim a Indirect exporters cant avail
number incentives such as these benefits unless the export
rebate on income tax, duty documents are transferred in
drawback etc.
their name.
(h) Overheads
The manufacturer/exporter has The manufacturer has to bear
to
bear
production
and only production overheads.
distribution overheads.
(i) Price
Exports can fetch high prices if Exports may fetch lower price
sold directly by manufacturer.
due to intermediaries margin.
(j) Specialization
It requires concentration on both In indirect marketing, the
marketing
and
production manufacturer can specialize in
aspects and as such lacks manufacturing aspects.
specialization.
(k) Suitability
This strategy is suitable for the This strategy is suitable for
large business houses having small businessmen as they may
huge financial and physical find it difficult to export directly.
resources.

5.12 SUMMARY
Preliminaries for starting Export business includes overseas
market research, Identifying proper foreign market, proper
production to export, proper method to entry in foreign market,
proper method for exporting etc.

77
Export marketing needs marketing research for knowing the
consumers needs and wants, details about promotional campaigns,
taking competitive advantages, taking appropriate pricing decision,
selecting effective channel of distribution, taking proper packaging
decision, forecasting sales etc.
Foreign market selection process includes: Determining
export marketing objectives, collection of relevant information,
analysis of the collected information, Short listing of markets,
Detailed analysis of certain markets, Evaluation and selection of
markets, making necessary arrangements to enter in the overseas
markets, Undertaking a review of the performance in the overseas
markets etc.
Certain factors influence n selection of Foreign Market.
These factors are: Competition, Demand, Import Regulations, Size
of Market, Distribution network, After-sale- services, Higher
productivity, Social responsibility, Political stability, Location etc.
Product planning means decisions related to product it
means product planning strategies. Various product planning
strategies are: Product design strategies, Pricing Strategies,
Distribution strategies, Promotion Strategies, After-sale services
strategies, Product positioning strategies, product line strategy etc.
New product development is a scientific process. This
process includes the steps like: Idea generation, Analyzing the
ideas, Short- listing the ideas, Investigation, Selection of best idea,
Product development, Test marketing, Commercialization, Review
of Product performance, Changes in Marketing mix etc.
There are various methods to enter in the overseas market
exporter have to select proper method. Some of the important
methods are: Direct exporting, Indirect exporting, Joint venture,
Franchising strategy, One country production base, Licensing,
Contract manufacturing, Acquisition, Turnkey contracts, GreenField development etc.
Direct and indirect exporting are the basic methods of
exporting.

5.13 QUESTIONS FOR SELF-ASSESSMENT

1. Explain the need and importance of overseas market research?
2. Evaluate the procedure to conduct overseas market research?
3. Discuss the procedure in identifying foreign markets?
4. Enumerate the product planning strategies for exports?

78
5. What are the steps in new product development process?
6. What are the steps in product life cycle?
7. Explain briefly the methods of exporting?
8. What are the advantages and disadvantages of direct
exporting?
9. Discuss the merits and demerits of indirect exporting?
10. Distinguish between direct exporting and indirect exporting?
11. Briefly explain the following terms:
a. Product life cycle
b. Direct Export
c. Indirect exporting
d. Franchising strategy
e. Green-field development project

vvvv

6
PRELIMINARIES FOR STARTING
EXPORT BUSINESS - II
Unit Structure
6.0
6.1
6.2
6.3
6.4
6.5
6.6
6.7

Objectives
Introduction of channels of distribution in export markets
Types of channels of distribution in export markets
Need and importance of warehousing
Necessity of warehousing in export marketing
Tools/elements of product promotion in export markets.
Importance of product promotion in export markets
Summery

79
6.8
6.9

Questions of self-assessment
Case study

6.0

OBJECTIVES
After studying the unit the student will be able:

To know the introduction part of channels of distribution in

export markets.
To understand meaning and types of channels of distribution in
export markets.
To elaborate the needs, importance
warehousing in export marketing.

and

necessity

of

To explain the different tools/elements and importance of

product promotion in export markets.
To understand and solve the cases.

6.1

INTRODUCTION

Production and distribution are two closely related activities.

Goods produced need to be distributed to consumer quickly and
efficiently. The function of distribution involves the critica process of
ensuring that products of the firm reach the proper location for sale
at the proper time and in proper quantity. Distribution is the route
that goods take between production and final consumer. Channels
are the routes taken by goods on their journey from producer to
consumers.

6.2

CHANNELS OF DISTRIBUTION IN EXPORT

MARKETS

6.2.1 MEANING
Channels of distribution are the marketing intermediaries
through whom the product reaches to the final user or consumer.
6.2.2 TYPES OF CHANNESL OF DISTRIBUTION
(a)

Canalizing Agencies
In export market goods are sent through the canalizing
agencies. Canalized items are exported through canalizing
agencies.
(b)

Export Consortia
Indian exporter generally used this channel for exporting
goods of small manufacturer. It means small exporters can jointly
export through export consortia.

80
(c)

Merchant Exporters
In this channel of distribution, they obtain orders from
overseas markets. Assemble the goods, and then export.
(d)

Export houses/trading Houses

They are similar to merchant exporters. To become export
house or trading house or star trading house or super star trading
house certain criteria must be fulfilled. These are the important
intermediaries who help to export goods from one country to
another.
(e)

Overseas Sales Agents

The exporter can appoint overseas agents to distribute,
market his goods. This in one of the important channels of
distribution at overseas market.
(f)

Direct Exporting Channel

The exporter can also undertake direct exporting in the
overseas markets. The direct exporting can be done through Sales
Representatives and E-commerce or Online business.
(g)

Indirect Exporting Channel

Indirect channel is used in exporting when a manufacturer
markets his product through another firm which acts as the
manufacturers sales intermediary/middleman. At the overseas
marketing level used number of intermediaries such as export
broker, export agent/sales representative of the manufacturer,
export management company, purchase/buying agent, export
distributor and so on.

6.3 NEED AND IMPORTANCE OF WAREHOUSING

Warehousing is an important element of physical distribution.
Warehousing creates time utility. It fills the gap between the time of
production till the time of consumption or delivery in the market.
The following are the need and importance of warehousing.
(a)

Supply of Seasonal Goods

Warehousing is needed as it is useful for the supply of
seasonal goods to the consumers throughout the year. The
seasonal goods are preserved properly due to scientific
warehousing facilities. The agricultural production is seasonal but
the demand is through out the year. This regular and continuous
demand is satisfied through warehousing of such commodities.
Thus, warehousing creates time utility. Warehousing is important as
it facilitates regular supply of seasonal goods to consumers.
(b)

Seasonal Demand

81
Certain goods are required only during a particular period of
the year. However, production is carried of throughout the year so
as to meet heavy season demand effectively. Here, warehousing
plays an important role. It is because of warehousing that the goods
produced during off season are preserved properly and supplied to
the consumers during the required season in a fresh and attractive
manner.
(c)

Large Scale Production

Warehousing is needed as production is now conducted on
a large scale and that too in the anticipation of demand. There is
time gap between production and consumption. Goods may be
used by the consumers even one year after the actual production.
During this period goods must be preserved properly. Warehousing
is useful for keeping the goods intact during this interval.
(d)

Perishable commodities
Warehousing is needed in order to bring reasonable safety
to perishable commodities like eggs, fruits, flowers, medicines and
so on. Such commodities are preserved properly and are made
available to consumers at any time due to cold storage facilities.
(e)

Speculation
Firms may maintain a large inventory of items, whose prices
are highly volatile. Firms may speculate that prices may go up in
the near future. Therefore, they may stock the products in
warehouses to earn higher profits by selling them at a later date.

(f)

Product conditioning
Some items need to be stored to attain the required level of
quality. For example, ripening of fruits like mangoes is carried out
under controlled temperature conditions after they are plucked from
the trees. Such products may require appropriate warehousing.
(g)

Price Stability
Warehousing plays an important role in bringing reasonable
price stability in the case of consumer goods. Due to warehousing
facilities, it is possible to bring proper balance between demand
and supply of goods. It is this balance between the demand and
supply that brings price stability. Warehousing is useful for timely
deliveries of goods and the rush orders are also executed properly.
(h)

Delivery Schedules
Proper stocking of finished goods helps a firm to adhere to
the delivery schedule in the market. Due to stocking of adequate
items, the firms can deliver them in the market as per the delivery
schedule. This helps to generate corporate image and customer
satisfaction.

82

6.4

NECESSITY OF WAREHOUSING IN EXPORT

MARKETING

Warehousing is necessary and useful in export marketing. It

is one important infrastructure facility required for large scale
exporting. Warehousing facilities are required for manufacturing
goods for export purpose.
Warehousing in export marketing becomes a necessity for
the following reasons:
(a)

Huge Quantities
Export transactions are conducted in huge quantities.
Naturally, such goods need to be stored in a proper manner before
transportation. For this, warehousing facilities are necessary
particularly at the port towns.
(b)

Just-In-Time supplies
In several developed countries like Japan, USA etc., firms
require, just-in-time supplies, such as auto components or parts.
For example, Honda motors sign just-in-time supply contracts with
its vendors. Therefore, the supplier need to have warehouses in the
overseas markets to supply the components or parts on time to the
foreign firms.
(c)

After-SaleService Requirement
In the case of engineering goods, exporters need to provide
timely and efficient after-sale-service. Therefore, the exporters
need to maintain a good stock of part or components in the
overseas markets. Some times, exporters may have to replace
quickly the entire product. Therefore, there is a need for
warehousing of parts, components and the finished items.
(d)

Export Procedure
Export procedure is lengthy. Here, pre-shipment inspection
is necessary. In addition, customs formalities are required to be
completed at the port town. Thereafter, goods are loaded in the
ship for onward transportation. These steps in the export procedure
are time consuming. During this period warehousing of export items
is needed.
(e)

Risk in Export Market

Export marketing is risky. Risk relates to safety and security
of goods. The importer may not make payment, if the quality of
imported goods is inferior or if the goods are damaged during
transportation. This may lead to trade dispute and delay in securing
payment from the importer. All such situations can be avoided if
satisfactory warehousing facilities are available to the exporters.
(f)

Tariff Quota Regulations

83
Export countries may impose tariff quota regulations. Under
tariff quota, certain quantity is allowed to be imported at low or no
custom duty. Beyond that quantity higher duty is imposed.
Overseas suppliers need to produce the goods well in advance,
and therefore, there is a need for warehousing for such products.
CHECK YOUR PROGRESS:
1.

2.
3.

6.5

Define the following terms:

a. Channels of distribution
b. Canalizing agencies
c. Export consortia
d. Merchant exporters
e. Export houses
f. Overseas sales agents
g. Direct exporting channels
h. Indirect exporting channels
i. Warehousing
Enlist the points showing the necessity of warehousing in
Export marketing.
Explain the following points of tools of production promotion:
a.
Advertising
b.
Personal selling
c.
Public relations
d.
Direct mailing
e.
Publicity
f.
Internet

TOOLS/ELEMENTS OF PRODUCT PROMOTION

IN EXPORT MARKETS

The following are the tools/elements of product promotion in

export markets.
(a)

Advertising
Advertising is one popular and extensively used tool of
product promotion in domestic and foreign markets. Advertising as
a promotion strategy is used in every country of the world
irrespective of its economic, political or social development. A
manufacturer advertises his products/goods in overseas market to
make the target buyers aware of the attributes of the product so
that they may be induced to purchase it.
(b)

Sales Promotion
Sales promotion includes activities that seek to directly
induce, or indirectly serve as incentives to motivate, a desired
response on the part of target customers, and intermediaries. The
various sales promotion techniques include free samples,

84
consumer contests, money-refund offers, free gifts, quantity
discount and installment selling.
(c)

Personal Selling
Personal selling is face to face communication with one or
more prospective buyers/users and influencing the buyer with the
aim of motivating the prospect toward a purchase decision.
It is one of the four tools of marketing communication. The
other tools are public relations and publicity, sales promotion and
advertising. Arrange of top executives meetings with the top
executives of a potential buying company. In foreign markets
personal selling is possible in trade fairs and exhibitions and also at
stores level.
(d)

Public Relations
Modern firms are concerned about the effects of their actions
on the public. The firm should understand concerns of the public
and communicate to them its goals and interests, otherwise, they
may misinterpret, distort or be openly hostile to the firms actions.
The firm needs to communicate to correct erroneous impressions of
the company in the minds of general public, to maintain goodwill,
and explain the firms goals and interests.
(e)

Direct mailing
Direct mailing is the sending of sales literature through mail
to select or perspective customers. Advertising is costly in overseas
markets. For industrial products, such advertising in national
newspapers, T.V., and commercial radio is not required. One of the
most cost efficient methods of product promotion in foreign markets
is the direct mailing method. This method is selective and also
personal in nature.
(f)

Publicity
Publicity is news carried in the mass media about a firm and
its products, policies, personnel, or actions. A newspaper or a
magazine publishing an article on the company about its products
or activities is publicity. It can be either favourable reporting or an
unfavourable reporting in the media.
(g)

Packaging
An attractively designed packaging can influence or induce
the prospects to buy the product. A well designed packaging can
communicate the type and quality of the product. Packaging often
has attention attracting value.
(h)

Sales Promotion
Sales promotion technique communicates with the audience
through a variety of non-personal media to supplement advertising.

85
Sales promotion technique is used extensively in domestic and
overseas markets. In sales promotion, various vehicles like free
samples, gifts, coupons and contests are used for the information
of buyers.
(i)

Trade Fairs and Exhibitions

Participation in trade fairs and exhibitions in one more
method of approaching large number of foreign buyers easily,
quickly and economically. Here, the exporter attracts customers to
his product or products. Trade fair acts as valuable marketing
communication tool for exporters from developing countries.
(j)

Internet
Now a day, internet can be used to communicate export
marketing information. Internet can be referred as electronic yellow
pages. The exporter can provide information of the product on the
internet. Importers can get the information on the internet and
contact the exporter.

6.6

IMPORTANCE OF PRODUCT PROMOTION IN

EXPORT MARKETS

The following are the importance of product promotion in

export markets.
(a)

Product Awareness
It makes the potential customers aware of the product. It
brings to the knowledge of the potential customers regarding the
availability of new and better goods and services. The export
marketer can communicate such information through various
means of communication i.e. advertising, publicity, personal selling,
trade fairs and exhibition and so on.
(b)

Persuasion
The exporter should make proper use of selling points in the
communicating massage in order to persuade consumer to buy the
product. He can also make effective use of unique selling
proposition. While drafting the communication massage . Hence, to
inform and persuade the prospective buyers to buy the product .
(c)

Reputation
Effective communication can bring in good name to the
exporters brands and also to the firm. People from different
countries become familiar with the name and brands of the
company. Effective communication can also improve the name of
the country.
(d)

Education

86
An effective communication programme educates the
prospective consumers about the different uses of the
communicate product, its advantages over other substitutes,
contents of the product, availability of a product, technical aspect of
the product etc,. It can also be used to warm consumers of imitation
of brands, duplicate and face products etc.
(e)

Developing Brand Loyalty

Marketers need to communicate with consumers to use their
brands to discourage brand switching. This requires the firm to
remind the customers that the brand is still available, inform
consumers about the modifications in the product, if any. The
marketer also needs to communicate the fact that the brand
benefits are superior to those of the competitors.
(f)

Informing Intermediaries
An effective communication can also be used to inform
intermediaries about the range of products produces by the firm,
terms and conditions of the sale and delivery, incentives offered,
etc. and to persuade them to stock and sell the companys products
in overseas market.
(g)

Expansion of market
Effective communication helps to stimulate more and more
demand from the audience or prospects. The exporter can also
enter into other market areas or countries. This helps to boost up
large scale production and marketing.

(h)

Goodwill
An effective communication programme can be used as a
tool for the promotion of the image not only of the product and the
company but also of the country as a whole in the overseas
markets. Good quality products and timely services can go a long
way in enhancing the goodwill. This helps in increasing the market
share for the product.
(i)

Inducing Product Trials

A lot of communication is needed to induce people to try
products. The main motive of such communication is to motivate
rather than to inform. For securing action, the firm may resort to
sales promotion techniques such as provision of samples, free gifts,
discounts, contests and so on.
(j)

Overcoming Negative Attitudes

Generally, foreign buyers have some apprehension about
the quality of the products originating from developing countries.

87
Effective and positive communication can help to change the
negative attitude of the consumers towards the product.
(k)

Economic Growth of the Nations

Effective communication helps to expand consumer markets.
It enables large scale production and distribution. New and better
varieties of goods enter the market scene. The consumers are
often receptive of responsive to the new products. This helps the
economic development of the exporting nations.

6.7

SUMMARY

Production and distribution both are very closely related

activities. For distribution channels are necessary. Channel is a
route of distribution. There are different types of channels of
distribution like: Canalizing agencies, Export consortia, Merchant
exporters, EXPORT houses, overseas sales agents, direct
exporting channels, Indirect exporting channels etc.
For physical distribution of goods Ware housing is an
important element. The points showing the importance of it are: for
the supply of seasonal goods, to meet heavy season demand
effectively, large Scale Production, to bring reasonable safety to
perishable commodities, speculation, to attain the required level of
quality, price stability, firm to adhere to the delivery schedule.
Several tools for product promotion can be used by the
manufacturer these are: advertising, sales promotion, personal
selling, public relation, direct mailing, publicity, packaging, sales
promotion, trade fairs and exhibitions, internet etc.
Product promotion is very much needed in overseas market
as it provides: product awareness, persuasion, reputation,
education, develops brand loyalty, expansion of market, inducing
product trials, overcoming negative attitudes, economic growth of
the nation.

6.8

QUESTIONS FOR SELF-ASSESSMENT

(a)

What are the different types of channels of distribution in

export markets?

(b)

Explain the need and importance of warehousing?

(c)

Explain the necessity of warehousing in export marketing?

(d)

What are the tools/elements of product promotion in export

markets?

(e)

Discuss the importance of product promotion in export

markets?

88

6.9 CASE STUDY

The case study method was first developed in 1871 by
Christopher Lang dell at the Harvard Law School to make the
students to learn for themselves by independent thinking and by
analyzing problems or situations. A supporting objectives in to
make the students to develop skills in using their knowledge .
A case is a description about a problem or situation. The
problem or situation may be real or hypothetical. A case sets forth,
in a factual manner, the events and organizational circumstances
surrounding a particular managerial situation. The essence of the
students role in the case analysis is to diagnose and understand
the situation described in the case and them to recommend
appropriate solution or a action plan.
Case Study Process
Get an overview of the case
Read the case thoroughly
Analysis and Evaluation
Recommendation
Benefits from Case Study
Lean by doing
Increase ability ask right questions
Identity and understand underlying problems
Expose students to wide range of industries, organisation,
functions and responsibility
Strengthens students grasp of management theory
Learn to take decision based on insufficient information
Learn to deal with different view point
(A) Case Study
Beauty looks is a Delhi based partnership business dealing
in making and marketing of artificial jewellery. The two partners are
Kunal Gaurav and Nikhil Upadhaya. It was comfortable business
with steady women customers who buy for themselves and others
too. One of their regular clients is one Mrs. Meghna Lamba who
visits the showroom twice a year and makes bulk purchases. Mrs.
Lamba is resident of Bonn, Germany, she buys for her friends and
acquaintances and sells at a higher price. Kunal and Gaurav review
the purchases made by Mrs. Meghna Lamba and think of exploring
the possibility of entering into export market. Diversification of
business may sound lucrative but overseas markets are full of
uncertainties and risks. They decide to depute their marketing

89
manager Praful Rane to proceed to Bonn and collect relevant
information about German market and adjoining feasible markets.
Questions & Solution
(a) Why overseas market is considered lucrative?
Ans:- Over seas market is always considered lucrative because it
enables the exporter to earn the invoable foreign and also obtain
various incentives offered by out government. Export business is as
diversification which helps domestic business men to expand the
size of the business. Exporters can process abroad for the export
promotion tours and also can take advantage of easy imports
against export performance. Exporters earn higher profits and can
also spread marketing risks.
(b) In your opinion, what relevant informations should Praful Rane
collect to facilitate entey into overseas market?
Ans:- Praful Rane must proceed to Germany to collect relevant
informations to facilitate his employers to decide about entry into
export markets. In my opinion Rane should collect information
based on primary data. For this purpose he must prepare
questionnaire and carefully select sample size. As he is likely to
face language problem he must take help from a local rofessional
who will assist him in getting correct replies. I fell Rane should
divide information collection. Under the following heads:(i)
market information
(ii)
product information
(iii)
distribution information
(iv)
price information
(v)
promotion information
(B) Case Study
Lifeline has been manufacturing and marketing waterpumps
for qgricultural use for the past four decades. Its family owned
business with the second generation at the helms of affairs. Its
current chairman Ashish Garde is considered a progressive
businessman. He reviewed his business and thought they were
doing reasonably well in the domestic market. There has been
regular orders from the rural areas. Slowly they have captured the
market in Western India and are now venturing into the southern
market. Mr. Garde is not content with the domestic business. He
always visualized entering into the export markets, so far as
oversea market is concerned he considers himself a novice. in
order to win over his situation, he thought of taking help from a
consultant. He was formally introduced to international consultants
who agreed to collect basic data.

90
Questions
(a)

Why Ashish Garde had attraction for overseas business?

(b)

How should international consultants advise Ashish Garde to

explore foreign markets?

(C) Case Study

Hindustan Ayurveda Ltd. is a Nagpur based pharmaceutical
company which has made its strong presence felf in the domestic
market with its limited brands of ayurvedic preparations in
healthcare business. It claims to market its products without any
side effects which have become its selling point. One of its new
products is Dio-care which is a combination of fenugreek, cinnamon
and bittergrud and is found significantly useful to control blood
sugar in diabetes patients. This brand is considered an important
innovation in the treatment of diabetes. Its sale has caught up in a
big way in the domestic market. In the meeting of board of directors
they toyed with the idea to explore global market far their innovative
product. The directors felt the company is financially strong, has
effective marketing department, a well equipped R&D department
with programme outlook of management and supportive
government policy, now is the right time to diversify into overseas
market. The director also expressed their apprehension that export
market is most unpredictable and uncertain. At the end of the
deliberation they decided to go ahead and venture into export
markets.

Questions
(a)

Give your opinion about the possibility of success of Diocare in overseas markets.

(b)

Identity the steps involved to explore export markets for an

innovative product Dio-care in health care business

(D) Case Study

From 2000 to 2005 Toyota, world renowned Japanese car
sold more in America than in Japan. Toyota performed only
responsibly well in Europe. Looking into encouraging sales in
America, Toyota gave serious thought how to continue its more
than satisfactory performance. If Toyota wanted to increase its
sales it must change its strategy to Americanization of Toyota The
challenge before Toyota management was not to lose sight of what
made it click initially and that was a devotion to quality and
customer satisfaction. Toyota opened its subsidiaries in US but
there were regular clash between Japanese bosses and American
subsidiaries. Mostly disputes related to cultural differences. For
example Japanese bosses opposed introduction of full size pick up.

91
After screening the parking lots packed with full size pick ups, the
conflict was solved and Toyota Tundra was born. Toyota faced
another challenge. The average age of an American driving Toyota
was 45. In fact, its ad campaigns were directed towards Generation
and younger market. Now Toyota had to cater to two distinct
segments of the market one for the middle aged buyers and the
other for the young crowd. Americans are known to use cars for
shorter duration. Toyota must decide to follow a product strategy
where regular innovations take place.
Questions
(a)

What is Americanization of Toyota & give example?

(b)

Why was there clash between parent company and

subsidiaries & what was Toyotas selling point?

(E) Case Study

India has been the home of Ayurveda, but unitll the early
nineties people preferred allopathy. The reason behind this
preference was the feeling that allopathy gives quick relief and also
it has q cure for practically everything. During this course very little
was done to market ayurvedic medicines in India. Obviously, the
market got restricted.
Himalaya drugs has been a key player in the ayurvedic
medicines in India. But its products never caught the fancy of India
consumers, manly due to lack of information and other marketing
deficiencies. The company, along with the brand name, did specify
that the medicines are proprietory ayurvedic medicine. The
information was often overlooked by the consumers and the market
remained restricted. Also no serious efforts were made to promote
the brands.
In order to change things in its favour and to cash in on the
so called Ayurved fever the company changed its strategy.
Instead of naming its products independently, the company used a
brand mane viz. Ayurvedic concepts and started advertising the
same. This immediately caught the fancy of the costomers and the
market started expanding one very important aspect stressed by
the company was that their medicines have no side effects.
Question
(a)

What should the company do to maintain its position in the

market?

(b)

Suggest any two strategies for a successful entry into the

global market?

92

vvvv

7
EXPORT MARKETING AND
PROMOTIONAL ORGANISATION-I
Unit Structure
7.0
7.1
7.2
7.3
7.4
7.5
7.6
7.7
7.8
7.9
7.10
7.11
7.12
7.13
7.14

Objectives
Introduction
Types of export marketing organisation
Export promotion organisation
Export promotion Council
Commodity Boards
Marine products export development authority
Agricultural and processed food product export development
authority
Federation of Indian export organisations
Indian institute of foreign trade
National council for trade information
Indian trade promotion organisation
Export inspection council
Summary
Questions for self-assessment

7.0

OBJECTIVES

After studying this chapter the students will be able to

Know the meaning of export marketing organisation
Understand the various types of export marketing organisation
Elaborate export promotion organisation
Understand the various functions and activities of export
promotion council, commodity board, marine products export

93
development authority, agricultural & processed food product
export development authority, federation of Indian export
organizations, Indian institute of foreign trade, national council
for trade information, Indian trade promotion organisation,
export inspection council.

7.1

INTRODUCTION

Export marketing organizations are specialized agencies

concerned with export trade. They look after the export of Indian
goods and services. These organisation explore foreign markets
and arrange to send goods to foreign buyers as per the orders
received collected. They also maintain necessary facilities and
export staff to manage export marketing activities efficiently. Export
organizations conduct export trade transactions on their own. They
have export department or export division for export marketing
operations.

7.2

TYPES
OF
EXPORT
ORGANISATIONS (EMOs)

MARKETING

In India, different types of export marketing organisation are

operating. These are as follows
(a)
Manufacturer Exporter
The manufacturer exporter is the direct exporter. The
manufacturer obtains the orders from the overseas markets,
manufactures the goods and then exports. The main advantages
are reputation in the domestic as well as overseas markets,
optimum use of resources, spreading of risks of domestic market,
and export obligation fulillment.
(b)
Merchant Exporter
Merchant exporters are those traders who do not
manufacturer goods by themselves but they arrange the required
goods and services from local manufacturer and sell directly to the
foreign buyers. Normally such exporters have very good
arrangement with several manufacturers who produce goods as per
the requirements of the merchant exporters. However, if any
dispute arises as to the quality of products in foreign markets, the
merchant exporter alone is responsible.
(c)
Canalising Agencies
Canalizing agencies are concerned with production,
distribution and marketing of goods and services. The main
canalizing agency is the State Trading Corporation of India which
was established on May 18, 1956 to organize and undertake
exports from India of all such goods which the corporation
determines from time to time and also organize and undertake
purchase and sales of goods and services.
(d)
State Corporations
In some states of India such as Bihar, U.P. and Gujarat,
state government, have set up corporations to look after exports of
small scale sector. This is because, small sector units find it difficult

94
to negotiate with overseas buyers, and also to undertake various
export formalities. Therefore, the small units supply the goods to
state corporations, which look after export activities.
(e)
Export Consortium
Manufacturers, especially in the small sector can organize
themselves into a co-operative organisation for export purpose,
which is called as export consortium. The export consortium enable
individual exporters to take the advantage of joint marketing efforts,
such as joint negotiation with overseas buyers, joint marketing
research, joint shipment etc.
(f)
Export Houses
Export houses were introduced by the government of India in
the year 1960 with the objective of promoting export by providing
assistance for building marketing infrastructure and expertise
required for export promotion. To quality for export house, the
exporter must have aggregate export performance during the four
years of Rs. 20 Crore.
(g)
Star Trading Houses
The government of Indian has recognized a new class of
trading house called star trading house to facilitate global
marketing activities in the export-import policy. 1990-93 exporters
having exports during the preceding three licensing years of Rs.
500 Crores FOB shall qualify the exporter for the recognition as a
star trading status.
(h)
Trading House
Manufacturer exporters, merchant exporters, EOUs, units in
SEZs and others can apply for trading house status. In April, 2007,
the government replaced the concept of three star export house by
trading house. To quality for trading house, the exporter must have
total export performance (FOB) during the four years of Rs. 500
Crore.
(i)
Premier Trading Houses
Manufacturer exporters, merchant exporters, EOUs units in
SEZ and others can apply for premier trading house status. In April,
2007, the government replaced the concept of five star export
houses by premier trading house. To qualify the premier trading
house, the exporter must have aggregate export performance
(FOB) during the four years of Rs. 10,000 Crore.

7.3
7.3.1

EXPORT PROMOTION ORGANISATIONS

MEANING
Export marketing is a highly specialized activity requiring
continuous organizational support at different stages from choosing
or selection of products, identification of overseas markets and
customers, selling techniques and channelisation of incentives,
assistances and facilities granted against exports.
7.3.2
FEATURES
OF
EXPORT
PROMOTION
ORGANISATION:
(a) Basically Service Orgainisations

95
Export promotion organizations are basically service
organisation and are connected with export promotion activities and
not with trading activities.
(b)
Create Favourable Image of Indias Export Potentials
Export promotion organizations create awareness about
Indias export potential, favourable impression about Indias
industrial development and finally create favourable image of India
in foreign countries.
(c)
Easy Availability of Services to Exporters
The services of export promotion organizations are available
easily and economically to all exporters as they are established
basically for the benefit of exporting community.
(d)
Government Initiative in Formation
The government of India took initiative in establishing export
promotion ortanisation in order to develop institutional intrastructure
for export. Government provides financial support to them
(e)

Provide Non-Financial Services

Export promotion organizations do not provide direct
financial services to exporters. They issue certificates, etc. Useful
to obtain bank finance and benefit of government incentives
facilities.
Many export promotion organizations have been developed.
The various export promotion organisation are classified into the
following groups.

7.4

EXPORT PROMOTION COUNCIL

7.4.1 MEANING
Export Promotion Councils are non-profit organizations
registered under the companies act or the societys Registration
Act, as the case may be. They are supported by the financial
assistance from the Central Government. It has been made clear
by the new EXIM policy that the support given to the EOCS by the
government, monetary or otherwise, would depend upon effective
discharge of the functions assigned to them. Democratization of the
member ship of the EPCs, Democratic elections of office bearers of
the EPCs being held regularly, and timely audit of the account of
the EPCs.
At present, there are 24+3 EPCs operating in India. The
various EPCs are as followsApparels EPC, Basic Chemicals, Pharmaceuticals and
Cotton Textiles EPC, Carpet EPC, Cashew EPC, Engineering EPC,
Gems and Jewellery EPC, Handloom EPC, Indian Silk EPC,
Council for Leather Export, Plastics and Linoleum EPC, Synthetic
and Rayon textiles EPC, Sports Goods EPC, Shellac EPC, Wool
and woolens EPC, Electronic and computer software EPC,
Handicrafts EPC, the power loom development and EPC, Export

96
Promotion Council for EOUs and SEZ units, Project Export
Promotion council of India, Pharmaceutical export promotion
council, Jute manufacturers development council, Wool industry
EPC.
There are three other organizations considered as EPCAgricultural and Processed Food Product Export Development
Authority, Federation of India Export Organisation and the Marine
Products Export Development Authority.
7.4.2 FUNCTIONS/ROLE OF EXPORT PROMOTION COUNCILS
The following are the functions of export promotion councils
(a)

Issue of Certificate of Origin

Certain countries demand certificate of origin from the

exports. In India EPC, can issue certificate of origin to the exporter
certifying the origin of goods.
(b)

Collection of Information

It collect valuable information on overseas import, import

regulations, about competitors, market potential and other
development in foreign trade.
(c)

Supplying of Information

It provides information on latest developments in the field of

exports trade. It may relate to various aspects of foreign trade.
Such information is vital to the exporters to promote their sale,
abroad.
(d)

Organising Seminar

It organizes seminars, workshops, meeting and conferences

on various aspects of foreign trade. Exporters are invited to take
part in such seminars and workshops.
(e)

Trade Fairs and Exhibitions

It may also assist the concerned authorities in organizing

trade fairs and exhibitions in India and abroad, It may also assist
the exporters to take part in such trade fairs and exhibitions. It may
also arrange buyer-seller meets, so as to promote Indian exports.
(f)

Recommendation to Government

It apprises or advises the government authorities on current

export problems and suggest measures for export growth. It also
advises the government in framing proper EXIM policies from timeto-time.
(g)

Sending Trade Delegations

To make arrangements for sending trade delegation and
study teams to countries for promoting the export of specific
products and to circulate the reports of such visits abroad among
member exporters. In addition, to invite trade delegations from
abroad.

97
(h)

Professional Advice

It may provide professional advice to exporters in areas such

as, technology up gradation, quality and design improvement,
standards and specification, product development, innovation etc.
(i)

Exploration of Overseas Markets

It may assist the exporter in exportation of overseas markets

and identify items having export potentials.
(j)

Developing Export Consciousness

This organisation makes all the possible efforts to develop

export consciousness in out country.

7.5

COMMODITY BOARDS

7.5.1 MEANING
Along with export promotion councils commodity boards
have been established by the government of India for many
commodities with high export potential. These boards are supplementary to EPCs and function on the same lines. The CBs are for
promoting exports of specific commodities particularly the
traditional commodities including tea, coffee, etc. The commodity
boards look after the export promotion of primary and traditional
items of exports while the EPCs look after the export promotion of
non-traditional items.
7.5.2 FUNCTIONS OF COMMODITY BOARD
The functions and activities of commodity boards are similar
to that of EPCs
(a) Issue of certificate origin
(b) Collection of information
(c) Supplying of information
(d) Organising seminars
(e) Trade fairs and exhibitions
(f) Recommendation to government
(g) Sending trade delegation\
(h) Professional advice
(i) Exploration of overseas markets
(j) Developing export consciousness
(For explaination of the points please refer functions of EPCs)

7.6

MARINE PRODUCTS EXPORT DEVELOPMENT

AUTHORITY (MPEDA)

Marine Products Export Development Authority (MPEDA)

was constitutes in the year 1972 by replacing the Marine Products
Exports Promotion Council under the Marine Products Export
Development Authority Act 1972. The headquarter of MPEDA is

98
located at Kochi in Kerala. The authority operates two overseas
trade promotion offices, one at Tokyo (Japan) and the other at New
York (USA). The role envisaged for the MPEDA under the statue is
comprehensive, which covers organisation, co-ordination,
regulation and growth of the export of marine products with special
reference to the quality, processing packaging, storage, transport,
shipment marketing extension and trading in various aspects of the
industry.
7.6.1 FUNCTIONS OF MPEDA
The broad functions of the authority involve regulatory
functions, promotion and publicity, development and training and
advice to the Central Government on maters connected with marine
products and their exports
(a) The authority encourages Indian export marketing organizations
to take active interest in the export of marine product.
(b) The authority directly participates in international fairs and also
through ITPO in several other fairs. This gives publicity to wide
range sea food available in India for exports.
(c) MPEDA undertakes the mandatory registration of fishing
vessels, processing plants, storage premises, conveyances and
exporters and the voluntary registration of export under the
registered exporters policy.
(d) The authority looks after the catching processing and exporting
marine production including dry fish, frozen prawns, lobsters,
canned fish, and fish oil and so on. It also takes keen interest in the
development of off shore and deep sea fishing and also in the
promotion of exports of marine products.
(e) MPEDA gives advice to the central government on marine
products and their exports. It also fixes standards and
specifications for the purpose of exports of marine products.
(f) MPEDA provides training facilities in marine products and their
exports. MPEDA also provides useful services to foreign buyers.
(g) The authority promote sea food exports by liaisoning with Indian
exporters and overseas importers.
(h) The authority promotes the image of Indian sea products in
overseas markets through publicity campaigns.

CHECK YOUR PROGRESS:

1. Define the following terms:
a.
Manufacturer exporter
b.
Merchant exporter

99
c.
Canalising agencies
d.
Export consortium
e.
Export houses
f.
Star Trading Houses
g.
Export promotion organization
h.
Commodity board
2. Fill in the blanks:
a. The headquarter of MPEDA is located at ------------- in Kerala.
b. The authority of MPEDA operates two overseas trade
promotion offices, one at---------- and the other at ---------------.
c. The -------------------look after the export promotion of primary
and traditional items of exports.
d. There are -------------EPCs operating in India.
e. Export houses were introduced by the government of India in
the year -------------.

7.7

AGRICULTURAL AND PROCESSED FOOD

PRODUCTS
EXPORT
DEVELOPMENT
AUTHORITY (APEDA)

7.7.1 MEANING
APEDA stands for the Agricultural and Processed Food
Products Export Development Authority. Its registration office is
located at New Delhi. APEDA is an autonomous organisation
attached to the ministry of commerce of the government of India.
The main function of APEDA is to build links between Indian
producers and the global markets. It also arranges buyer-seller
meets.
7.7.2 FUNCTION OF APFDA
The following are the functions/activities of APEDA
(a) Development of the agricultural and processed food
industries
APFDA seeks to develop the industries related to the
agricultural and processed food by providing such industries with
the financial assistance, undertaking surveys and feasibility studies,
participation in the equity capital through joint ventures and other
relief and subsidy schemes.
(b) Quality Control and Up gradation
It carries out the inspection of various products under its
purview, especially meat and meat products in slaughter house,
processing plants, storage premises conveyances or other places
where such products are kept or handled, for the purpose of
ensuring the quality of such products.
(c) Collection and Dissemination of Information
It collects valuable information form the owners of factories
or establishments engaged in the production, processing,
packaging, marketing or export of commodities under its purview. It

100
collects information about foreign markets through studied, surveys
research, etc. and publishes them for the benefit of the exporters.
(d) Advisory Role
It provides recommendatory advisory and other support
services to the trade and industry. It helps exporters by solving their
problems, explaining the procedures, rules and regulation, etc. It
also assists importers of Indian products in foreign countries
through Indian missions abroad.
(e) Other Services of APEDA
To register the exporters on payment of such fees as may be
prescribed.

To fix standards an specifications for the products under its

purview for export.

To set and improve the packing and packaging standards for

the products under its preview.

To assist the Indian exporters with marketing infrastructure for

export of goods abroad.

To promote production and development of products under its

purview for export purpose.

To develop manpower through training and development

programmes in various aspects of the industries connected with
these products

To invite trade delegations from abroad and also organize the

buyer-seller meets and other business interactions.

To participates in the inter national trade fair and exhibitions in

order to give a wide publicity to the Indian products.

To distribute annual awards in order to encourage its members

to perform better on the export front.

7.8

FEDERATION
OF
ORGANISATIONS (FIEO)

INDIAN

EXPORT

7.8.1 MEANING
Federation of Indian Export Organizations (FIEO) is an apex body
of various export promotion oragnisations. It was set up in October
1965. It represents the Indian entrepreneurs spirit of enterprise in
the global market. It has kept pace with the countrys evolving
economic and trade policies and has provided the content, direction
and thrust to Indias expanding international trade. As the apex
body of all Indian export promotion organisations, FIEO works as a
partner of the government of India to promote Indian exports.

101
7.8.2 FUNCTIONS OF FEDERATION OF INDIAN EXPORT
ORGANISATION
The following are the important functions of federation of
Indian export organisation.
(a)
International linkage
It has forged strong links with counterpart organizations in
several countries as well as international agencies to enable direct
communication and interaction between India and world
businessmen.
It is registered with UNCTAD as a national non-government
organisation, and has direct access to information and data
origination form UN bodies and world agencies like the IMF, ADB,
ESCAP, World Bank, FAO, UNIDO and others.
(b)
Dissemination of Information
It has bilateral arrangements for exchange of information as
well as for liaisoning with several overseas chambers of commerce
and trade and industry associations.
(c)
Liaisoning with Government
It sends representations on policy matters to Central and
State (regional) governments. It helps in establishing contacts
between the government and commercial bodies both in India and
overseas.
(d)
Market Development Assistance (MDA)
The ministry of commerce, government of India, through
FIEO, reimburses certain percentage of the expenditure incurred by
the recognized exporters, such as all types of export houses, on
sales cum study tours, participation in exhibition and fairs abroad,
advertisements in foreign media etc.
(e)
Market Research and Development Department
The market research and development department offers the
following services to the exporters community i.e.Arranging meeting with diplomats, incoming delegations and
buying missions, inviting delegations, organizing trade fairs and
exhibitions in India as well abroad opening foreign offices and
warehouses, organizing seminars for promotion of international
trade, opening new FIEO offices abroad.
(f)
Publicity Department
The publicity department of FIEO performs the following
functionsBringing out various special supplements in Indian and
overseas dailies in order to project the selected finished products in
India and abroad. Creating and telecasting episodes in NEPC
channel to promote Indias prominent brands in various countries
covered by the channel. It has published directory of foreign buyers
and dictionary of Indian exporters. It publisher a fortnightly
magazine, FIEO NEWS, to cover development in the field of
international trade concerning India.

7.9

INDIAN INSTITUTE OF FOREIGN TRADE (IIFT)

102
7.9.1 MEANING
Indian institute of foreign trade was set up in 1963 by the
government of India as an autonomous body registered under the
societies registration act. It was set up with the prime objectives of
professionalizing the countrys foreign trade management and
increase exports by developing human resource, generating,
analyzing and disseminating data and conducting research.
7.9.2 FUNCTIONS OF INDIAN INSTITUTE OF FOREIGN
TRADE
The following are the functions of Indian institute of foreign
trade.
(a) Training
The IIFT has been recognized as centre of excellence for
imparting training and education in international business. Its
specialization in international business and a global out look makes
it unique among management schools in the country. If offers oan
inspiring learning environment, which transforms the bright young
students into talented creative professionals.
(b) Collects Information
IIFT conducts markets studies and surveys in overseas
market. it tries to find out demand for Indian products in the
overseas markets. It may also study consumer preferences and
competition in overseas markets.
(c) Supplies Information
IIFT conducts market studies and surveys in the overseas
markets. It tries to find out demand for Indian products in overseas
market. It supplies this information to the exporters. The exporters
can use such information while making their export marketing
decisions.
(d) Organises Seminars and Workshops
IIFT organizes seminars and workshops in a number of
export marketing areas, such as export pricing, export promotion,
etc. Exporters can take advantage of such workshops and
seminars by taking active part them.
(e) Trade Delegations
IIFT sends delegates abroad to study overseas markets and
also to interact with overseas importers. At the same time, it invites
delegates from abroad, who can study Indian market conditions
and can also interact with Indian exporters.
(f) Professional advice
IIFT provides professional advice to exporters in a number of
areas such as export pricing, export procedures, promotion etc.
(g) Management Development programmers
Combining a unique blend of research and consultancy, IIFT
has been a pacesetter in addressing to the needs of business
executives by continuously aliening the focus of its management
development programmes with the changing realities. As a result,
its intensive short duration programmers have received the most
enthusiastic response.

103
(h) Publishes Information
IIFT publishes information through its journals i.e. foreign
trade review (quarterly) and foreign trade bulletin (monthly).

7.10 NATIONAL
COUNCIL
INFORMATION (NCTI)

FOR

TRADE

7.10.1 MEANING
National council for trade information (NCTI) is as joint
venture of ITPO and national information centre. Its activities mainly
relate to supply of trade, business and economic information NCTI
was established in October,1994 to provide latest, trade business
and economic information to help India and foreign enterprises in
the promotion of trade from and to India. In this sense, it acts as an
export promotion organisation.
The NCTI uses high speed NICNET national information
highway for collection and dissemination of trade information. This
network is connected to 200 networks in 160 countries.
7.10.2 FUNCTIONS OF NCTI
Following are the important functions/activities of NCTI.
(a) To create databases at national and international levels for
promotion of exports.
(b) To collect information on various aspects of trade and
commerce in different countries.
(c) To disseminate information of countries and products to trade
and industry.
(d) To establish linkages with trade promotion bodies, regulatory
bodies, chambers and associations among others.
(e) To establish linkages with commercial wings of Indian missions
abroad and foreign missions in India.
(f) To publish papers, periodicals and other literature relating tot
trade and commerce.
(g) To maintain liaison with trade and commercial bodies different
countries.
(h) To organize training, seminars and conferences on matters
relating to trade and commerce.
(i) To create information base for all types of marketing intelligence
on trade aspects.

7.11 INDIAN TRADE PROMOTION ORGANISATION

(ITPO)
7.11.1 MEANING
Indian trade promotion organisation was set up by the
Ministry of Commerce, Government of India, on 1st January, 1992
with its headquarters at New Delhi after the merger of Trade
Development Authority (TDA) and Trade Fair Authority of India

104
(TFAI). It has five regional offices in India at Mumbai, Bangalore,
Kolkata, Kanpur and Chennai and four in Germany, Japan, UAE
and USA.
As a premier trade promotion agency of the government of
India, the ITPO provides a broad spectrum of services to trade and
industry so as to catalyse the growth of bilateral trade, particularly
Indias exports and technological up gradation and modernisaiton of
different industry segments.
7.11.2 FUNCTION
OF
INDIAN
TRADE
PROMOTION
ORGANISATION
The following are the functions or activities of Indian trade
promotion organisation
(a) Organising Trade Fairs and Exhibitions
ITPO organizes trade fairs and exhibitions in India and
abroad and to book stalls/space for Indian exporters to participate
in overseas trade fair and exhibitions. ITPO acts as a publicity wing
of government of India for organizing trade fair and exhibitions in
India and abroad.
(b) Publicity
It gives publicity in connection with the organisation of trade
fairs and exhibitions in India, so that foreign parties may visit India
to visit in such trade fairs and exhibitions.
(c) Collections of Information
ITPO collects information of various trade fairs and
exhibitions to be held abroad. The information is collected in
respect of place or venue of exhibition, date and duration, products
to be displayed, booking of space formalities, etc.
(d) Supply of Information
ITPO provides information to Indian parties regarding
overseas trade fairs and exhibitions. Such information may be
useful to Indian parties or exporters to take proper decisions in
respect of participation in overseas trade fairs, and exhibitions.
(e) Delegations
Inviting trade delegations from abroad and sending Indian
trade delegation abroad. ITPO book orders for Indian goods. In
addition, to send Indian trade delegations abroad for market survey
and for signing contracts for the supply for Indian goods.
(f) Booking of Space in Overseas Trade Fairs
ITPO books necessary space/stalls for Indian exporters. This
enables Indian exporters to participate in overseas trade fairs and
exhibitions.
(g) Consultancy Services
It provides consultancy services to Indian exporters to
participate and display their product in trade fairs and exhibition in
India and abroad.
(h) Seminars and Workshops
ITPO
organizes
seminars/workshops
for
giving
information/guidance to exporters about fairs and exhibitions

105
arranged in India and abroad. ITPO has set up a trade information
centre at its headquarters in New Delhi. It is considered as the best
source of information on import and export trade.

7.12 EXPORT INSPECTION COUNCIL (EIC)

7.12.1 MEANING
The Exporter Inspection Council of India was set up by the
government of India under section 3 of the export (quality control
and inspection) act, 1963 to provide for the sound development of
export trade through quality and pre-shipment inspection. Certain
amendments were made in the act in July, 1984 in order to provide
the power to search and seize commodities, initiate ad justification
proceedings against erring manufacturers/exporters, cancellation or
withholding of the certificate of inspection issued by the inspection
agencies, etc.
The EIC is an apex body for controlling the activities of the
quality and pre-shipment inspection of the commodities meant for
export.
7.12.2 FUNCTIONS OF EXPORT INSPECTION COUNCIL
The following are the functions of EIC:
(a) Monitoring of quality control
The main function of EIC is to monitor quality control and
pre-shipment inspection of export items. At present over 1000 items
are subject to compulsory inspection before shipment of goods. EIC
has set up five EIAs each at Mumbai, Cochin, Calcutta, Delhi and
Chennai to conduct actual inspection of goods before shipment.
(b) Collection of Information
EIC collects information in respect of quality of products in
the overseas markets of the competing nations. This information is
supplied to the exporters.
(c) Pilot Test House
A Pilot Test House has been set up in Mumbai with
necessary infrastructural facilities of testing the products to meet
the requirements of the international standards. The test house has
three major sectional laboratories i.e. chemical, electric and
mechanical laboratory.
(d) Organises Seminars and Workshops
It conducts seminars and workshops in respect of improving
quality standards of Indian products exporters can attend such
seminars and workshops and take necessary guidance and
assistance.
(e) Consultancy Services
It provides consultancy services to exporters to improve the
quality.
(f) Recommendation to Government
EIC recommends to the governments to take appropriate
measures for setting up of quality up gradation fund and other
facilities to the exporters to improve the quality.

106
(g) Delegation Abroad
EIC sends delegations abroad to study quality control
techniques and other developments in the area of quality control.
(h)
GSP Certification
An important function of the EICs is to issue certificate of
origin under the Generalized System of Preference (GSP) required
for specified products exported to preference giving countries of
Europe, America, Japan etc,
EIC undertakes quality development and export promotional
activities by way of arranging training of various quality control
techniques to the personal at all levels in the industry.

7.13 SUMMARY
Export marketing organizations are specialized agencies
concerned with export trade. Manufacturer exporters, Merchant
exporters, Canalising agencies, State corporations, Export
consortium, Export houses, Star trading houses, Trading houses,
Premier trading houses etc are the main EMOs.
EPCs are the export promotion organizations established for
Issuing Certificate of origin, Collecting and supplying information,
organizing seminars and trade fairs and exhibitions, sending trade
delegations, providing professional advice, developing export
consciousness. Commodity Boards are supplementary to EPCs.
MPEDA was introduced for organisation, co-ordination,
regulation and growth of the export of marine products with special
reference to the quality, processing packaging, storage, transport,
shipment marketing extension and trading in various aspects of the
industry.
The main function of APEDA is to build links between Indian
producers and the global markets. It also arranges buyer-seller
meets.
FIEO is an apex body of all Indian export promotion
organizations and working as a partner of the government of India
to promote Indian exports.
IIFT was set for professionalizing the countrys foreign trade
management and increasing exports by developing human
resource, generating, analyzing and disseminating data and
conducting research.
NCTI was established to provide latest, trade business and
economic information to help India and foreign enterprises in the
promotion of trade from and to India.

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ITPO provides a broad spectrum of services to trade and
industry so as to catalyse the growth of bilateral trade.
The Exporter Inspection Council of India was set up to
provide for the sound development of export trade through quality
and pre-shipment inspection.

7.14 QUESTIONS FOR SELF-ASSESSMENT

(a) explain various export marketing organizations in India?
(b) What are the features of export promotion organisation in
India?
(c)

Discuss the functions of export promotion councils?

(d) Write short notes on commodity boards?

(e) Write in brief about MPEDA?
(f)

What are the functions of APEDA?

(g) Discuss the activities of FIEO?

(h) Explain the functions of ITFT?
(i)

Write a note on NCFIT?

(j)

What are the functions of ITPO?

(K) Discuss the activities of EIC?

vvvv

8
EXPORT MARKETING AND PROMOTINAL
ORAGNISATION IN INDIA - II
Unit Structure
8.0
8.1
8.2
8.3

Objectives.
Indian institute of packaging (IIP) Mumbai.
Indian council of arbitration (ICA) New Delhi.
Directorate general of commercial intelligence and statistics
(DGCI&S).

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8.4
8.5
8.6
8.7
8.8
8.9
8.10

Directorate general of foreign trade.

Chambers of commerce.
Software technology parks (STP) scheme.
100% Export oriented units (EOUS).
Special economic zones.
Summary
Questions for self-assessment.

8.0

OBJECTIVES

After studying this chapter students will be able to

Understand the functions/activities/role of IIP, ICA, DGCI&S,
DGFT, chambers of commerce, and STP.
Know the benefits of 100% export oriented units.
Explain special economic zones.
Discuss the features of SEZ.
Know the sales in DTA.
Evaluate contribution of SEZs in Indias exports.

8.1

INDIAN INSTITUTE
MUMBAI

OF

PACKAGING

(IIP)

8.1.1 MEANING
The Indian Institute of packaging was set up in Mumbai on
14th may, 1966 with an objective to giving guidance and training to
Indian exporters, in regard to packaging techniques. It was set up
by the government of India in collaboration with the industry for
removing the deficiencies in the field of packages.
Indian institute of packing is a registered body under the
Societies Registration Act, and undertakes research activities on
raw materials for packaging industry. It keeps India in line with the
international developments in packaging. It is a service
organization.
8.1.2 FUNCTIONS OF IIP
The following are the important functions of Indian institute of
packaging.
(a)

Training Programme
It is primarily engaged in training programmes relating to
packaging industry. This institute makes the trainees familiar with

109
packaging technology, packaging materials, and current trends in
packaging in the world markets.
(b)

Improvement in Quality of Packaging

IIP makes constant efforts to upgrade and improve the
design and quality of packaging, so as to promote Indian products
abroad. Undertake research on raw material used of the packaging
industry and to bring improvement in the quality of packaging.
(c)

Collection of Information
IIP collects information on latest trends in the packaging in
respect of raw materials, design etc. To keep abreast of
international developments in packaging and to collect information
on new trends in packaging .
(d)

Testing Facilities
It also undertakes testing of packaging materials and
packages to ensure export quality.
(e)

U N Certification
All dangerous goods packages need a UN certification mark
before they can be dispatched IIP is the only authorized body in
India to give this certification.

(f)

Environmental Cell
The institute has an environment cell, which guides
exporters as to what type of material can be used or incorporated in
the packaging of their products so as to reduce environmental
threats.

(g)

Research and Development

It undertakes research and development programmes for
creating and improving overall infrastructural facilities for achieving
packaging improvement so as to prevent losses during
transportation.
(h)

Develops Packaging Consciousness

Export packaging is vital as it not only protects and
preserves the product, but also promotes the product in
international markets. Therefore, IIP develop consciousness of the
need for good packaging among Indian exporters.
(i)

Publications
It publishes two quarterly magazines, one devoted to the
technological aspect of packaging and the other to technoeconomic aspects of packaging.

110

8.2

INDIAN COUNCIL OF ARBITRATION (ICA) NEW

DELHI

8.2.1 MEANING
Trade disputes can be settled quickly/peacefully through
arbitration rather than through costly and lengthy legal procedure.
The establishment of Indian council of arbitration (ICA) in April,
1965 (at New Delhi) is a step taken in this direction. The purpose of
ICA is to promote arbitration as a means of settling commercial
disputes and popularizes the concept of arbitration among traders
particularly those engaged in international trade. The ICA is an
apex body for the settlement of disputes in foreign trade.
The ICA is registered as a non profit service organization
under the societies registration act. The council is a grantee
institution of the department of commerce. The jurisdiction of the
council can be invoked only if there is an arbitration clause in the
contract or if both the parties agree to refer the disputed matter to
the council. The conduct of arbitration proceeding is governed by
the rules of arbitration prepared by the council.
8.2.2

ROLE OF INDIAN COUNCIL OF ABRITRATION

The following are the important role played by Indian council

of arbitration.
(a)

Regular Meetings and Training

The ICA arranges regular meetings of businessmen,
representatives of EPCs, and chambers of commerce and
discusses problems relating to the settlement of disputes and the
conduct of arbitration.
(b)
Publications
The council has published a book called guide to arbitration
in India which explains the rules and procedures of commercial
arbitration under Indian law. The council also publishes I.C.A.
Arbitration Quarterly.
(c)

Peaceful Settlement of Commercial Disputes

The ICA is successful in solving large number of commercial
disputes in a peaceful manner. The government has now decided
to frame a comprehensive legalization an arbitration for India based
on the united nations commission on international trade law
(UNCDTRAL) model.

8.3

DIRECTORATE GENERAL OF COMMERCIAL

INTELLINGENCE AND STATISTICS (DGCI&S)

111

8.3.1 MEANING
The DGCI&S is one of the oldest agencies in India. It was
setup in 1862 at Kolkata. It is the nodal agency of government of
India, which is responsible for collections, compilation and
dissemination of trade statistics and various types of commercial
information. The commercial information is required by policy
makers, researchers, exporters, importers and others.
8.3.2 FUNCTIONS OF DGCI&S:
The following are the various functions of DGCI&S
(a)

Publications
It brings out number of publications relating to foreign trade.
Some of them are monthly statistics of foreign trade of India,
foreign trade statistics of India. India trade journal, a weekly journal,
directory of Indian exporters, directory of Indian importers.
(b)

Data Capture
The daily trade returns (DTRs), forming the source
document for foreign trade data, are received form major custom
houses through VAST. The data from minor ports are received
through e-mail or CDs. A monitoring-cum-feed back system has
been in operation for improving the quality and coverage of data
received from custom houses.
(c)

Data Processing
The daily trade returns from custom houses and minor ports
are passed through a series of coverage checking and cleaning
operations at the EDP unit of DGCI&S. The data processing is
done with the help of ORACLE based platform.
(d)
Priced Information Service System (PISS)
Data are disseminated among private parties, EPCS, CBs,
Foreign Embassies, etc. On payment basis under a special scheme
called PISS. Under this scheme, the users are to pay Rs. 1/- pur
unit record of information.
(e)

Quick Estimates
DGCI&S makes available quick estimates on aggregate data
export and import, principal commodities. The quick estimates
enable the government of India to assess Indias foreign trade
performance scenario in advance, as well as to study the impact of
various trade policies.
(f)

Resolves Commercial Disputes

The trade dispute reconciliation section of DGCI&S receives
complaints and disputes relating to foreign trade for the purpose of

112
resolution. Generally, the disputes are referred to DGCI&S by
Indian diplomatic missions abroad, RBI, export promotion councils
chamber of commerce etc.
(g)

Commercial Intelligence
Many exporters do not get necessary information regarding
overseas buyers. Commercial intelligence branches of DGCI&S
provide such information to exporters with names and addresses of
foreign buyers. Country-wise and commodity-wise trade information
indicating existing and potential Indian exporters to identify the
overseas markets and to select the most suitable export items.
(h)

Commercial Library
The commercial library attached to the office of DGCI&S is
offering its services free of cost to general public since 1919. A vast
number of users such as traders, manufacturers, government
officials, students, researchers and others avail the services of this
library. Special collection of the library includes documents
published by United Nations, UNCTAD, WTO, World Bank, IMF,
Overseas chambers of commerce, etc.

8.4 DIRECTORATE GENERAL OF FOREIGN TRADE

(DGFT)
8.4.1 MEANING
This directorate relating to foreign trade is headed by the
director general of foreign trade and is responsible for the execution
of the foreign trade policy (FTI) announced by the government form
time to time for the promotion of exports. In addition, the work
relating to issue of licenses and monitoring of export obligations,
etc. is also looked after by this organization directorate.
The directorate has its headquarters at New Delhi. In
addition, there are 31 regional offices of the directorate in the field
of information.
8.4.2 FUNCTIONS OF DGFT
The following are the functions of DGFT
(a)

Implementation of foreign trade policy

DGFT is responsible for the implementation of foreign trade
policy of India. The FTP is implemented by introducing various
schemes and guide lines through its network of 32 regional offices
spread across country.
(b)

Granting of IEC number

113
DFGT grants importer-exporter code number to exporters
and importers from India. It is the registration number, which
enables Indian parties to deal in foreign trade. The IEC number is
issued by the regional offices of DGFT.
(c)

Regulates transit of goods

DGFT permits or regulates transit of goods form India or
from countries adjacent of India in accordance with the bilateral
treaties between India and other countries.
(d)

Resolving of export related problems

DGFT or its regional offices attends to the problems and
grievances of exporters. It co-ordinates with other departments to
resolve all the trade and export related problems to resolve all the
trade and export related problems. For speedy redressal of genuine
grievances of trade and industry relating to policy and procedures,
grievance committees have been set up in the regional licensing
offices.
(e)

Interaction with trade and industry

DGFT has opened a chat window on its web site for
interacting with the trade and industry. It provides replies to queries
on foreign trade policy and procedures. The chat window is open
form 3 p.m. to 5 p.m. on second Wednesday of every month.
(f)

Co-ordination with other offices

DGFT works in close co-ordination with other related
economic offices like customs dept, central excise, enforcement
directorate, etc.
(g)

Publications
DGFT is responsible for the publication of foreign trade
policy and hand book of procedures, ITC (HS) classification of
export-import items.
(h)
Trade facilitator
DGFT also acts like a trade facilitator. It deals with the
quality complaints of foreign buyers. Trade facilitation on the part of
DGFT helps to promote Indian exports in the overseas markets.
CHECK YOUR PROGRESS:
1. Fill in the blanks:
a. Indian institute of packing is a registered body under the --------------------------------------Act.
b. The Directorate General of Foreign Trade has its
headquarters at -------------------.
c. The Directorate General of Foreign Trade has-------regional offices in the field of information.
d. The DGCI&S was setup in 1862 at -------------.

114
e. The ICA is an -------------------for the settlement of
disputes in foreign trade.
2. Give full forms of:
a. DGFT
b. DGCI&S
c. PISS
d. DTRs
e. IIP

8.5

CHAMBERS OF COMMERCE

8.5.1 MEANING
Chambers of commerce is voluntary non-profit making and
democratic associations of traders, businessmen, professionals
and industrialists. The scope of activities of the chambers of
commerce is winder as compared to trade associations.
The Indian merchants chambers and the Maharashtra
chambers of commerce are the examples of chambers of
commerce. In India, we have also Associated Chambers of
Commerce. (ASSO CHAM)
8.5.2 FUNCTIONS/ROLE/ACTIVITIES
COMMERCE

OF

CHAMBERS

OF

The following are the various functions/role/activities of

chambers of commerce in export promotion.
(a)

Issue of certificate of origin

To issue certificate of origin to members and also to issue
other certificates and documents required by the exporters for
different purposes.
(b)
Information on foreign markets
To collect, analyse and supply information about foreign
markets, governments offered by the government and so on to the
members through meetings seminars, workshops and official
journal of the chamber. Library facility is also provided to members
interested in exporting their goods abroad.
(c)

Sending trade delegations

To send delegations of members to foreign counties for
study and survey purpose and thereby to supply information to
members about potential markets available abroad.
(d)

Discussion on common problems

115
To provide a convenient platform to members to discuss the
common problems arising out of export policies. Incentives and
procedures introduced by the government from time-to-time.
(e)

Recommendation to government
It provides recommendations to the government authorities
to solve export problems and suggest measures for export growth.
It may advise the government in framing proper export-import
policies. It may recommend certain modifications in the existing
government policies and programmes.
(f)

Inviting trade delegations

It may invite trade delegations from abroad both at private
level and at governmental level, such trade delegations are very
important to promote export trade of India. Foreign delegations visit
India and sign contracts with Indian exporters.
(g)

Representation on problems of exports

To take specific problem cases of members i.e. exporters to
appropriate government authorities for remedial measures .
(h)

Exploration of overseas markets.

It may assist the exporter in exploration of overseas and
identify items having export potential. It may also assist the
exporters to open offices of branches abroad. It may guide the
exporter in setting up of joint ventures abroad.
(i)

Training in export management

To arrange short training courses in export management in
order to provide education and guidance to members interested in
export trade and international marketing.

8.6

SOFTWARE
SCHEME

TECHNOLOGY

PARKS

(STP)

8.6.1 MEANING
Under STP scheme, a software development unit can be set
up for the purpose of development of software, data entry and
conversion, data, processing, data analysis and control data
management or call centre services for exports. Under EHTP
scheme, a unit can be set up for the purpose of manufacture and
development of electronics hardware, and software in an integrated
manner for export. The policy provisions for STP, EHTP and BTP
schemes are substantially the same as those applicable to the

116
general EOU scheme. Thus, the provisions of foreign trade policy
regarding importability of goods, DTA sale, clearance of samples,
sub-contracting, inter-unit transfer, repairs, re-conditioning and reengineering, sale of unutilized material, de-bonding etc. are more or
less same for STP/EHTP/BTP units as well as general EOUs.
However, considering the special requirement of the
software/hardware development sector, some specific provisions
have been made for the STP/EHTP units in the foreign trade policy
as well as in the customs notifications governing the scheme.
8.6.2 FUNCTIONS
(a) An EHTP/STP/EOU units may export all goods and services
subject to the fulfillment of conditions laid down in export
import policy.
(b) EHTIP/STP/EOU
unit
may
export
goods
manufactured/software developed by it through a merchant
exporter/status holder recognized under the EXIM policy.
(c) These units may import without payment of duty all types of
goods including capital goods as defined in the EXIM policy
required by them for its activities. The goods can be imported
which are required for the approved activity, including, capital
goods, free of cost or on loan from clients.
(d) These units may procure from DTA without payment of duty
specified goods for creating a central facility for use. The
central facility for software development can also be accessed
by units in the DTA for export of software.
(e) The import of second hand capital goods is also permitted
without payment of duty.

8.7

100% EXPORT ORIENTED UNITS (EOUs)

8.7.1 MEANING
The export oriented units (EOUs) scheme, introduced in
early 1981, is complementary to the EPZ scheme. It adopts the
same production regime but offers a winder option in location with
reference to factors like source of raw materials, port, hinterland
facilities, availability of technological skills, existence of an industrial
base and the need for a larger area of land for the project.
EOUS have been established with a view to generating
additional production capacity for exports by capacity for exports by

117
providing an appropriate policy framework. Flexibility of operations
and incentives.
8.7.2

BENEFITS/INCENTIVES GIVEN TO 100% EOUs

(a)

The EOUS are mainly concentrated in the engineering,

chemicals, plastics, granites and food processing. Such units
ae permitted to import raw materials, spare parts, machinery,
etc, without the payment of import duty. They can also
procure indigenous capital goods, components and raw
materials without payment of excise duty and in return must
produce goods for exports for 10 years.

(b)

EOUS need not pay excise duty when they use domestic
raw materials, etc, for the production which are to be
exported.

(c)

100% EOUS need not be located in the FTZS. They may be

located at any place and may be of any size.

(d)

100% EOUS are given special concessions such as five

year tax holiday and two years gestation period before
exporting.

(e)

EOUS export the entire or at least 75% their production and

there by contribute in promoting exports.

(f)

Foreign equity up to 100% is permissible in the case of

EOUS.

8.8

SPECIAL ECONOMIC ZONES (SEZ)

8.8.1 MEANING
The concept of special economic zones (SEZS) was
suggested by the comer and industry minister late Mr. Murasoli
Maran while introducing third revision to EXIM policy 1997-2002.
The SEZs are in addition to EPZs and FTZs operating in India. A
scheme for setting up SEZs in country to promote export was
announced by the government in the Exim policy announced on
31st March, 2000. The SEZs intend to provide an internationally
competitive and hassle free environment for export and are
expected to give a further boost to the countrys exports.
The idea of SEZS is borrowed from china where such zones
are operation efficiently and are contributing nearly 40 percent of
total exports. The government policy is for the creation of SEZS in
all parts for export promotion. They are expected to provide an
internationally competitive and hassle-free environment for exports.

118
The SEZ scheme is expected to give a further boost to countrys
exports. The state governments are expected to participate in
export promotion by starting SEZs in their states. The SEZs can be
set-up in the public, private joint sector or by state governments.
The government policy is to provide convenient infrastructure facilities and various incentives to such SEZS so as to
make them key engines of export growth.
8.8.2 FEATURES OF SEZ
The following are the features of special economic zones.
(a)

Domestic sales/purchases
Goods going into the SEZ area from DTA (Domestic Tariff
Area) shall be traded as deemed exports and goods coming form
the SEZ area into DTA shall be treated as if the goods are being
imported.
(b)

Export and import of goods

SEZ units may export goods and services including agroproducts, partly processed jewellery, sub-assemblies and
components. It may also export by products, rejects, waste-scrap
arising out of the production process.
SEZ units import without payment of duty, all types of goods,
including capital goods, whether second hand or new. The SEZ
units can import goods free of cost or loan from clients.
(c)

Net foreign exchange earning (NFE)

A SEZ unit shall be a positive net foreign exchange earner.
NFE shall calculate cumulatively for a period of five years form the
commencement of commercial production.

(d)

Domestic tariff area (DTA) sales and supplies

Sales of SEZS from DTA are to be treated as exports. Sales
to DTA from SEZ are to be exempted form special additional duty
(SAD). This would make the sales to DTA from SEZ 4% cheaper
than import. DTA sale by service/trading units shall be subject to
achievement of positive NFE.
(e)

Export through status holder

A EZ units may also export goods manufactured by it though
a merchant exporter/status holder or any other EOU/EPZ/SEZ
units.
(f)

Inter-limit transfer

119
Transfer of manufactured goods or imported goods from one
SEZ units to another EPZ/EOU/SEZ unit is allowed, but not
counted towards export performance.
(g)

Administration and setting up of SEZ

SEZ will be under the administrative control of development
commissioner. A SEZ may be set up in the public, private or joint
sector. The existing EPZS may also be converted into SEZ by the
ministry of commerce and industry.
(h)

Export proceeds
SEZ unit can bring back their export proceeds in 360 days
as against normal period of 180 days and can retain 100% of the
proceeds in the EEFC Account.
8.8.3 SALES IN DTA
DTA means Domestic Tariff Areas. This is the area in which
normal taxes, duties etc. are collected from the producer of goods
for internal/domestic marketing. However manufacturing units
operating in the special economic zones or EOUS, EHTPS, STPS
and BTPS are given concession in regard to taxes, customs duties
in relation to goods import or goods purchased from domestic
suppliers for the conduct of production mainly for exports. The
purpose of giving such incentive concession is to make the prices
of exportable items competitive so that exports will be promoted. In
short, special incentives/concessions are given to units operating in
SEZS, EOUS, STPS etc. in order to charge competitive prices
abroad and thereby capture foreign markets. It acts as a motivating
factor.
It may also be noted that this incentive is given only when
goods are exported. However, if a part of production made in SEZ
is sold in the DTA, the concerned manufacturer will have to pay all
regular taxes and duties which are normally paid in the DTA. This
point is made clear in the FTP statements issued from time to time.
The following points will make this matter more clear.
8.8.4 INCENTIVES TO UNITS IN SEZS
The SEZ offers to entrepreneurs as attractive package of
incentives and concessions, gradually introduced over a period of
time.
(a)
All imports into the zone such as capital goods, raw
materials, packing materials, components, office equipment etc.
have been placed under OGL system and such import are
permitted duty free entry into the zone, subject to the terms of the
project approval.

120
(b)
Indigenous goods such as capital goods, raw materials and
other production requirement can be procured from domestic tariff
area (DTA) into the zone free of central excise duty.
(c)
There is total waiver of the provision of the export trade
control order with regard to the products manufactured and
exported from the SEZ.
(d)
Central excise is also exempted on
manufactured within the zone for export purposes.

the

products

(e)
A five year tax holiday is the most significant fiscal benefit to
units.
(f)
The import policy permits sales up to 25% of their annual
production in the home market without requirement of import
license but subject to payment of leviable customs duty. This is in
addition to the facility otherwise, available to the units for sale in the
DTA against valid import licensees subject to payment of customs
and other duties.
(g)
For attracting foreign investors equity participation even up
to 100% is permitted in the industrial ventures promoted in SEZ.
(h)
Repatriation of dividends and profits is freely permitted,
subject to payment of taxes as applicable.
(i)

For export promotion, units in SEZ are given a special facility

of blanket permits.

(j)

Units in SEZ can given a longer credit period of up to 360

days.

8.8.5 CONTRIBUTION OF SEZ IN INDIAS EXPORT

In the near future, the SEZS scheme will prove to be an
engine of growth attracting FDI and thus increase exports. The
contribution of SEZS in the export growth is likely to be substantial
in the years to come. The table given below shows exports form
SEZS during 2006-07 and 2007-08.

Exports from special economic zones (SEZS)

2006-07

2007-08

Rs. crores

Rs. crores

% change

121
Kandla

1,882

1,483

26.9

Seepz

11,265

12,048

-6.5

Noida

16,843

6,893

144.4

Madras

3,017

2,384

27.8

Cochin

4,471

803

456.8

Falta

1,026

999

2.7

741

750

-1.2

Surat

12,294

5,197

136.6

Manikanchan

1,775

1,018

74.4

Jaipur

296

168

75.7

Indore

338

217

55.8

66,638

34,615

92.5

Visakhapatnam

Total (including others)

Sources: - statistical outline of India, 2008-09, Tata Services Ltd.

(table 113, P-99.)
By 18th Dec,2008, notified SEZ, were 274. During 2007-08 ,
the total exports from all 19 SEZS (govt & private together) were
Rs. 66,638 crores indicating an increase of 92.5% over 2006-07.
The government expects exports from SEZS to touch Rs. 125,950
crore during 2008-09, an increase of more than 89% over the last
fiscal. The government sees SEZS as vehicles of industrialization
and employment generation. By the end of Sep.2008, total 362,650
persons were employed by all SEZS and the total investment in all
SEZS was Rs. 93,507 crores. In future, more SEZS, more
investment and more jobs are possible. SEZA currently provide
employment to move than 2.8 lakh people. Companies operating in
these zones includes Nokia, Wipro and Mahindra and Mahindra.
The government has granted 453 formal approvals for setting up of
SEZS. New SEZS have come in states like Rajasthan, Gujarat,
A.P., Punjab, U.P., Karnataka and Maharashtra. In brief, SEZS are
proving to be key export engines and as vehicles of industrialization
and employment generation.

8.9

SUMMARY

The Indian of packaging was set up with an objective to

giving guidance and training to Indian exporters, in regard to
packaging techniques.

122
Trade disputes can be settled quickly/peacefully through
arbitration rather than through costly and lengthy legal procedure.
The establishment of Indian council of arbitration (ICA) in April,
1965 (at New Delhi) is a step taken in this direction. The purpose of
ICA is to promote arbitration as a means of settling commercial
disputes and popularizes the concept of arbitration among traders
particularly those engaged in international trade.
The DGCI&S is the nodal agency of government of India,
which is responsible for collections, compilation and dissemination
of trade statistics and various types of commercial information.
Directorate general of foreign trade is responsible for the
execution of the foreign trade policy (FTI) announced by the
government from time to time for the promotion of exports.
Under STP scheme, a software development unit can be set
up for the purpose of development of software, data entry and
conversion, data, processing, data analysis and control data
management or call centre services for exports.
EOUs have been established with a view to generating
additional production capacity for exports by capacity for exports by
providing an appropriate policy framework.
The government policy is for the creation of SEZs in all parts
for export promotion. They are expected to provide an
internationally competitive and hassle-free environment for exports.

8.10 QUESTIONS FOR SELF-ASSESSMENT

(a) Discuss the role of Indian Institute of packaging?
(b) Write a detailed note on Indian council of arbitration?
(c) Explain the activities of department of commercial intelligence
and statistics?
(d) Discuss the role of directors general of foreign trade?
(e) Discuss the role of chambers of commerce in export
promotions?
(f)

Write short notes software technology parks?

(g) Write a note on export oriented units?

123
(h) What are the features of SEZS?
(i)

Explain the incentives available to units in SEZ?

(j)

Write a note a contribution of SEZS in Indias exports?

vvvv

9
FOREIGN TRADE POLICY
Unit Structure
9.0
9.1
9.2
9.3
9.4
9.5
9.6
9.7
9.8
9.9
9.10

9.0

Objectives.
Meaning of EXIM POLICY
Main objectives
Highlights and Implication of FTP 2009-14
Special Focus Initiatives
Towns of excellence
Eligibility criteria for status holders EH/STH/TH/PTH/SEH
Privileges / Benefits /Facilities for status holders
Functions of EH/TH/STH/SSTH
Negative list of exports
Question for self-assessment

OBJECTIVES

After studying this chapter students will be able to

Understand the meaning and objectives of EXIM POLICY.
Know highlights of FTP 2009-14
Indentify special focus initiatives

124
Explain towns of export excellence
Know eligibility criteria and privileges of status holders
Elaborate important functions of EH/TH/STH/SSTH
Findout negative list of exports

9.1

MEANING OF EXIM POLICY

EXIM policy means the policy relating to exports and

imports. In other words, it is the policy relating to foreign
trade/international marketing. Even policies relating to export
promotion are covered within the scope of the EXIM policy. In India
policy is formulated and announced by the ministry of commerce,
Government of India. It contains policy and procedure relating to
imports and exports. In India export policy resolution of 1970 is
considered as an important land mark in the history of Indias EXIM
policy. On the basis of export policy resolution of 1970 the export
import policy statements were announced regularly by the
government since 1985. The policy statement announced by the
government contains special schemes incentives and concessions
offered to the exporter.
The government of India introduces the EXIM policy,
normally for a period of five years. The EXIM policy provides a list
of initiatives and procedural guidelines for exports and importers. In
2004, the government of India renamed the EXIM policy as Foreign
Trade Policy.

9.2

MAIN OBJECTIVES
TRADE POLICY

OF

INDIAS

FOREIGN

In general, the principal objectives of Indias foreign trade

policy are as follows.
1. To strengthen the base for export production for promoting
exports.
2. To place special emphasis an exports to generate high net
foreign exchange.
3. To simplify and streamline import-export procedures.
4. To facilatate technological up gradation of domestic production
so as to make Indian goods globally competitive.
5. To reduce import through import substitution, encouragement to
indigeneous production and there by to conserve foreign
exchange for better purposes and use.

125
6. To act as an effective instrument of economic growth by giving
thrust to employment generation, especially in semi-urban and
rural areas.
7. To offer different types of export incentives, concessions and
facilities so as to encourage manufacturers and exporters to
take more initiative in export promotion. Exports are made
attractive/profitable through such export incentives.
8. To import continuity and stability to foreign trade policy.
9. To encourage the attainment of high and internationally
accepted standards of quality and there enhance the image of
Indias products abroad.
10. To establish the framework for globalization of Indias foreign
trade.

9.3

HIGHLIGHTS
2009-14

AND

IMPLICATIONS

OF

FTP

The main highlights of FTP 2009-14 are as follows.

1. Focus Product and Focus Market Schemes
The FTP 2009-14 announced higher financial support for
focus product and focus market scheme.
(a) Focus Product
A large number of products from various sectors have been
included for benefit under focus product scheme. These include
engineering product, value added products of plastic, jute and sisa
products, green technology products, project goods, vegetable,
textiles and certain electronic items.
The incentive available under focus product scheme has
been raised from 1.25% to 2% of FOB value of export.
Higher allocation under market development assistance and
market access initiative schemes has been provided.
(b) Focus Market Scheme
Under this scheme 26 new markets have been added.
These include 16 new markets in Latin America and 10 in AsiaOceania.
The incentive available under focus market scheme has
been raised from 2.5% to 3% of FOB.
2. Technological Up gradation
Indian firms are encouraged to adopt technological up
gradation with a view to raise competitive capacity. Technological

126
up gradation will enable Indian industries to produce goods of
internationally acceptable standards. Technological up gradation
will improve quality of Indian goods, reduce the cost of production
and will increase competitive strength in the global market.
3. EPCG Relaxations
To increase the life of existing plant and machinery, export
obligation on import of spares, moulds etc. Under EPCG scheme
has been reduced to 50% the normal specific export obligation.
Re-fixation of annual average export obligation for a
particular financial year, in which there is decline in exports from
the country, has been extended for the 5 years policy 2009-14.
The application and redemption forms under EPCG scheme
have simplified.
4. Green Products from North East
Focus product scheme benefit has been extended for export
of Green Products and for some other export products originating
from north eastern region.
5. Status Holders
To accelerate exports and encourage technological up
gradation, additional duty credit scrips shall be given to status
holder @ 1% of the FOB value of past exports. The duty credit
scrips can be used for procurement of capital goods with actual
user condition. This facility shall be available for sectors of leather,
textiles, jule, handicrafts, engineering units, plastics and basic
chemicals, subject to certain exclusions.
Transferability of duty credit scrip being issued to status
holders under (VKGUY) Vishesh Krishi Gram Udyog Yojana has
been permitted. This is subject to the condition that transfer would
be only to status holders and scrip would be utilized for the
procurement of cold chain equipments only.
6. Marine Sector
Fisheries have been exempted from maintenance of overage
annual export obligation under EPCG scheme. This is subject to
the condition that fishing travelers, boats and ships and other
similar items shall not be allowed to be imported under this
provision. This would provide a fillip to the marine sector which has
been affected by the current downturn in exports to recession in the
world markets.
7. Gems and Jewellery Sector
India is becoming a major destination for diamonds and
diamond jewellery because of customs duty and licensing duty

127
being removed on rough diamonds. Duties on exports of plain and
non-sided jewellery put jewellery exports in a better position.
To promote export of gems & jewellery products the value
limits of personal carriage have been increased from US $ 2 million
to US # 5 million and export promotion tours, has been also
increased from US $ 0.1 million to US $ 1 million.
8. Agriculture Sector
Because of the governments initiative to boost agro exports
through its EXIM policy, the position of this sector has improved.
Multiple facilities and incentives have been given to help the sector
diversify and expand. Export, quantitative and packaging
restrictions have been removed to facilitate agro exports.

9. Leather Sector
Leather sector shall be allowed re-export of unsold imported
new hides and skins and semi-finished leather from public bonded
warehouses, subject to payment of 50% of the applicable export
duty.
Enhancement of FPS role to 2% would also benefit the
leather sector.
10. Tea Sector
Export of tea has been covered under VKGUY scheme
benefits. Minimum value addition under advance authorization
scheme for export of tea has been reduced form existing 100% to
50% . DTA sale units from the existing 30% to 50% .
11. Pharmaceutical Sector
Pharma sector extensively covereal under market linked
FPS for countries in Africa and Latin America and some countries
in oceania and far east. Export obligation period for advance
authorization issued with 6-APA as input has been increased from
the existing 6 months to 36 months as is available for other
products.
12. Handloom Sector
To simplify claims under FPS, requirement of handloom
mark for availing benefits under FPS, has been removed.
13. Automobile Sector
Automobile industry, having their own research &
development establishment would be allowed free import of
reference fuels up to a maximum of 5 KL per annum, which are not
manufactured in India.

128

9.4

SPECIAL FOCUS INITIATIVES

The foreign trade policy (FTP) 2004-09 has identified certain

thrust sectors having prospects for export expansion and potential
for employment generation. This sector includes agriculture,
handlooms and handicrafts, gems and jwewllery and leather and
footwear sectors.
The following are the sector specific policy initiative for the
thrust sectors.
(a) Agriculture
Agriculture sector promote the export, the following are
some of the initiatives in the FTP 2004-09.
A new scheme called Vishesh Krishi Gram Udyog Yojana
(Special Agricultural Produce Scheme) has been introduced to
increase the export of fruits, vegetables, flowers, minor forest
produce and their value added products. Under this scheme,
exports of these products are eligible for duty free credit entitlement
for importing inputs and other goods.
Agriculture sector is eligible for duty free import of capital
goods under EPCG scheme and is permitted anywhere in the
agriculture export zone (AEZ).
The agriculture sector is permitted to utilize funds from the
assistance of states of infrastructure developments of exports.
Liberalization of import of seeds, bulbs, tubers and plating
material. The export of plant portions derivatives and extracts to
promote export of medicinal plants and herbal products.
(b) Handlooms and Handicrafts Sector
The following are the special focus initiatives for promoting
the export of handlooms and handicrafts sector, under FTP
2004-09.
Extension of facilities like enhancing duty free import of
trimmings and embellishments for handlooms and handicrafts.
Exemption of samples from countervailing duty. Authorizing
handicraft export promotion council to import trimmings,
embellishments and samples for small manufactures.
Establishment of a new handicraft special economic zone.
(c) Gems and Jewellery Sector

129
To promote the exports of gems and jewellery sector, the
following are the initiative under FTP 2004-09.
Permission for duty free import of consumables for metals
other gold and platinum up to 2% for FOB value of exports.
Duty free re-import entitlement for rejected jewellery allowed
up to 2% FOB value of exports.
Increase in duty free import of commercial samples of
jewellery to Rs. 1 lakh.
Permission to import gold of 18 carat and above under the
replenishment scheme.
(d) Leather and Footwear Sector
To promote the export of leather and footwear sector, the
following are the special focus initiative under FTP 2004-09.
Duty free import of trimming and embellishments up to 3%
and 5% of the FOB value of exports, for duty free import of
specified items.
Reduction in the incidence of customs duties on the inputs
and on plant and machinery.
Import of machinery and equipment for effluent treatment
plants for leather industry exempted from customs duty.
Re-export of unsuitable imported materials has been
permitted.
In brief it is to be noted that the threshold limit of designated
Towns Of Export Excellence has been reduced from Rs. 1,000
crores to Rs. 2.50 crores, in the all the above thrust sectors.
CHECK YOUR PROGRESS:
1. Fill in the blanks:
a. In 2004, the government of India renamed the EXIM policy as ---------------------------------b. Under Focus product scheme -----------new markets have been
added.
c. Export of tea has been covered under ---------------- scheme
benefits.
2. Define the following terms:

130
a. Focus products
b. Focus product scheme
c. EXIM policy

9.5

TOWNS OF EXCELLENCE

In August 2006, 11 towns in the country have emerged as

dynamic industrial clusters contributing significantly to Indias
exports, industrial clusters are given recognition as Towns Of
Excellence in order to maximize their export potential. They were
given the statues of Town of Excellence,
These 11 towns are as follows:
1. Tirupur, Tamil Nadu for hosiery.
2. Karur, Tamil Nadu for handlooms.
3. Madurai, Tamil Nadu for handlooms.
4. Ludhiana, Punjab for woolen knitwear.
5. Panipat, tamil Nadu for woolen blankets.
6. Kanoor, Kerala for handlooms.
7. Alleppey, Kerala for coir producs.
8. Aroor, Ezhupunna, Kodanthuruthu & Kuthiathodu, (AEKK),
Kerala for seafood.
9. Kekhra. U.P. for handlooms.
10. Dewas, M.P. for pharmaceuticals.
11. Jodhpur, Rajasthan for handicrafts.
In the foreign trade policy (FTP) 2004-09, the govt. of India
amounced the threshold limit of designated Town of Export
Excellence. The limit has been reduced from Rs. 1000 crores to
Rs. 2.50 crore for the thrust sectors such as agriculture,
handlooms, handicrafts, gems and jewellery, leather goods and
marine products.
The towns of excellence get the benefit of ASIDE scheme for
developing infrastructure in the industrial clusters. The units in the
towns of excellence also get the facility of common service and
EPCG scheme. They also get the benefit for MAI scheme for
creating focused technology services.
In the foreign trade policy 2009-14 about 7 towns of export
excellence are announced by the government
1. Jaipur for handicrafts
2. Srinagar for handicrafts
3. Anantnag for handicrafts

131
4.
5.
6.
7.

Kanpur for leather products

Dewas for leather products
Ambur for leather products
Mailhabad for horticultural products

9.6

ELIGIBILITY CRITERIA FOR STATUS HOLDERS

EH/STH/TH/PTH/SEH

The eligibility for the grant of export/trading house/star

trading house/super star trading house certificate is determined on
the basis of average FOB value of physical or services exports. In
2007, the government of India re-named the star export houses as
export houses/trading houses.
The following export organisation are eligible to claim status
of export houses/trading houses
Merchant and manufacturer exporters
Service providers
Export oriented units
Units located in SEZ, Agri export zones
Units located in electronic hardware technology parks, software
technology parks
Units located in Bio technology parks
Exporters with the following FOB value of exports over a
period of four years of physical exports are considercal for
registration as export TH/STH/SSTH.
status
Export House
Star Export House
Trading House
Star Trading House
Premier Trading House

Performance criteria
Rs. crore
20
100
500
2500
10,000

For calculation of export performance, the following points

are to be noted.
1. Double weightage would be considered for grant of star export
house status in the following cases.
(a) Manufacture exporters in SSI/Tiny sector/cottage units.
(b) Units registered with KUICS/KVIBS.

132
(c) Units located in north eastern states, Sikkim and Jemmu &
Kashmir.
(d) Units exporting handloom/handicrafts/hand knotted or silk
carpets.
(e) Exporters exporting to counties in Latin America/CIS/SubSaharan Africa.
(f) Units having ISO 9000 series/ISO 14000 series.
2. Exports made on re-export basis shall not be counted for the
purpose of recognition.
3. Exports made by a subsidiary of a limited co. shall be counted
towards export performance of the limited company, only if the
limited company has a majority shareholding in the subsidiary
company.
4. In case the recognition is claimed based up on the current years
export performance, same shall be considered only in case the
exporters have export performance during any of the preceding
three years as well.

9.7

PRIVILEGES/BENEFITS/FACILITIES
STATUS HOLDERS

FOR

The government has provided the following benefits for

EH/TH/STH/SSTH.
1.

Special Licences
As per the EXIM policy 2002-07, the status holders are
eligible for license/certificate/permission and customs clearance for
both imports and exports on self declaration basis.
2.

Relaxation of Foreign Exchange Norms

These status holders are allowed to retain 100% of foreign
exchange in exchange earners foreign currency account. They can
open foreign offices or oppoint foreign representatives without
obtaining prior permission of the reserve Bank Of India, provided
that the expense on such offices or representatives is met from the
from the foreign currency account maintained by them.
3.

Duty Free Entitlement

Duty free entitlement is available to status holders under the
following criteria.
(a) It shall be 10% of the incremental growth in exports provided
the incremental growth is more than 25% in FOB value of
exports.
(b) However, there should be a minimum export turnover of 25
crores Rs. This duty free entitlement can be used for import of
capital goods, office equipments etc.

133
4.

Market Development Assistance (MDA)

The status holders can claim financial assistance under
MDA scheme for developing export markets. This assistance can
be any where between 25% to 60% of the actual expenses incurred
depending up on the individual case concerned.
5.

Relaxation in Collection Period

Normal period given by RBI for realizing export proceeds
from buyers is 180 days. But in case of status holders, it is
enhanced from 180 days to 360 days.
6.

Exemption of Compulsory Negotiations

The status holders are exempted from compulsory
negotiation of documents through banks. In other words, they can
send the documents directly to the customers. However,
remittances would continue to be received through banks only.
7.

Priority Fixation of Norms

The status holders enjoy the benefit of fixation of inputoutput norms on priority.
8.

Trade Delegations
The representatives of status holder are given preference by
the Govt. while selecting members of trade delegations to visit
foreign countries.
9.

Participation in decision-making
The government considered the views of these organizations
in formulating foreign trade policies. Especially, SSTHs are offered
membership of top consultative bodies of the government.
10. Benefit of Training
Status holders are given preference in respect of selections
of participants for training programmes organized in India as well as
abroad. Such participation is sponsored by the Govt. of India.
11. Golden Status Certificate
Exporters who have attained EH/TH/STH/SSTH status for
three terms or more and continue to export are eligible for golden
status certificate which would enable them to enjoy the benefit of
status certificate irrespective of their actual performance thereafter,
as per the guidelines issued in this regard from time to time.
12. Exemption from Pre-shipment inspection
Such status holders are exempt from the requirement for
compulsory pre-shipment inspection as provided under the export
Act, 1963.
13. Legal Undertakings

134
The status holders are allowed to submit legal undertakings
instead of bank guarantees at the time of customs of their import
consignments under different schemes as given in the EXIM policy.

9.8

FUNTIONS OF EH/TH/STH/SSTH

The EH/TH/STH/SSTH undertakes a number of functions to

promote exports. The main functions are as follows.
1.

Exports of SSI Items

The EH/TH/STH/SSTHS encourage exports of small scale
industries and cottage industries. To assist SS units and SS &
cottage industries in exporting their goods in foreign markets. For
this, financial and technical assistance is provided.
2. Product Development
To supply information and assist manufacturers in the
product research and development activities so as to produce
attractive and agreeable goods to buyers from target markets
abroad.
3.

Introduction of New Product

To market the products of small manufacturers in foreign
markets and to introduce their new/promising products in suitable
markets abroad.
4.

Supply of Inputs
To supply raw materials, machinery and other inputs to their
manufacturer suppliers so as to enable them to produce quality
products which command market abroad.
5.

Product Research
The status holders undertake product research and
development. To supply useful information to their manufacturer
suppliers. Such information relates to needs and expectations of
foreign buyers, market trends abroad, product requirements and so
on.
6.

Risks Bearing
To undertake marketing risk credit risk in export trade
transactions.
7.

Arrangements for Forwarding Goods

To look after packaging, transportation, documentation and
other formalities relating to assembling packing and forwarding
goods to foreign in markets .
8.

Providing Information Suggestions

To provided information and suggestions to Govt. authorities
as regards measures for export promotion, problems of exporters,

135
deficiencies in the EXIM policy of the Govt. and suggestions for
making export incentives and concessions more purposeful.
9.

Managing Export Trade Formalities

To procure goods for exporting, finding out buyers abroad,.
Making arrangement for shipment and collection of payment from
foreign buyers .

9.9

NEGATIVE LIST OF EXPORTS

Negative list of exports contains those export items which

are either banned or con not be freely exported. The negative list of
exports consists of these parts.
I) Prohibited Items
II) Restricted Items
III) Canalised Items
I) Prohibited Items
The prohibited items are banned from exporting. The latest
list of prohibited items as on 1st January, 1996 contains 10 items.
There are us follows.
(a) All forms of wild animals
(b) Exotic birds
(c) All items of plants
(d) Human selection
(e) Tallow of and animals origin
(f)

Fat of any animals origin

(g) Oils of any animals origin

(h) Chemicals
(i)

Sandal wood items

(j)

Red sanders wood in any form

II)

Restricted Items
The restricted items are allowed to be exported only with
special licencing by the DGFT. At present, there are 31 items.
Some of restricted export items are as follows.
(a) Beche-de-mer of sizes below 3 inches.
(b) Cattle
(c) Camel
(d) Chemical fertilizer and micronutrient fertilizers

136
(e) Fabrics/textile items with imprints of excerpts or verses of the
Holy Quran
(f)

Deoiled qrundnut cakes

(g) Fresh and frozen silver prmfrets of weight less than 300 gms.
(h) Fur of domestic animals, excluding lamb fur skin
(i)

Fodder, including wheat and rice shraw

(j)

Hides and skins as mentioned in the policy

III) Canalised Items

This list contains those items which are to be exported only
through designated canalized agencies. At present there are five
items which are canalized. They are as follows
Items

Canalised Agency

(a) Petroleum Products

(b) Gum karaya

Indian oil corporation ltd.

The
tribal
co-operative
marketing federation of India ltd
(TRIFED)
(c) Mica waste and scrap
MMTC and MITCO
(d) Mineral ores and scrap Indian rare earths ltd, Kerala
concentrates
minerals & metals ltd. and MOIL
(e) Nigar seeds
NAFED, TRIFED and 2 others

9.10 QUESTIONS FOR SELF-ASSESSMENT

1.

Explain the highlights and implications of FTP 2009-14?

2.

Discuss the eligibility criteria for status holders?

3.

Explain the benefits of status holders?

4.

What are the functions of status holders? Explain it?

5.

Write short notes on

(a) Special focus initiatives
(b) Towns of excellence
(c)

Negative list of exports

137

vvvv

10
EXPORT PRICING
Unit Structure
10.0
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12

Objectives
Introduction
Factors determining export prices
Basic data required for export pricing decisions
Marginal cost pricing
Export pricing strategies
Skimming pricing strategy
Penetration pricing strategy
Break even analysis
Export pricing quotations
Simple problems on FOB price
Summary
Questions for self-Assessment

10.0 OBJECTIVES
After studying the unit the students will be able;
To describe the factors that determining export price.
To know basic data required for export pricing decisions.
To understand marginal cost pricing and export pricing
strategies.
To identify the break even point.
To explain the different types of quotations.

10.1 INTRODUCTION

138
Price means the expression of value of utility of a commodity
in terms of money. Price is the technique of determining such
acceptable price at which the seller is willing to sell and the buyer is
willing to buy the product.
In any export market, pricing and profitability are closely
related as profit margin depends on the price fixed. Price fixed
should be most reasonable. Some people consider price as value
for money while others associate it with quality. An exporter must
take all such perceptions into consideration while deciding the
price.
Export pricing is also closely related to export promotion,
since high prices go against export promotion, profit margin will be
low if price is low but the demand will be more.

10.2 FACTORS DETERMINING EXPORT PRICES

10.2.1 INTERNAL FACTORS
1) Costs
Cost is the most important factor to be considered in the
process of price determination, since cost constitutes a major part
of the price. The export price should include direct cost like raw
material cost and indirect cost like distribution cost.
2) Objectives of the firm
Internationally, pricing must consider costs, nature of
markets and at the same time, it must be consistent with the firms
world wide objectives, such as profit maximization, market share,
for example, if the objectives of a firm is to increase return on
investment, then it may charge a higher price, and if the objective is
to capture a large market share, then it may charge a lower price.
3) Product
The product plays an important role in fixing price. If a
product is of superior quality, then a firm may either adopt premium
strategy or high value strategy. In premium pricing, the firm would
charge high price for high quality, and in the case of high value
pricing, the firm would charge moderate price for high quality.
4) Image of the firm
The firms enjoying a good image in the market may charge a
higher price, as compared to those firms which do not enjoy
reputation in the market. This is because; consumers have trust
and confidence in the firms enjoying name and reputation in the
market.

139

5) Promotional Activities
Pricing is related to promotional activities. If a firm
undertakes heavy advertising and sales promotion, then price
planning must ensure that these promotional costs will be
recovered, at least in the long term. It is often observed that highly
advertised or promoted brands command high price as compared
to lowly promoted brands.
6) Product life cycle
The stage of a products life cycle affects pricing. For
example, when a firm introduces a product in a competitive market,
then it may charge a lower price to attract the customers. During
the growth stage, a firm may increase the price, especially in a low
competition market.
The marketer may also consider the probable length of the
products life cycle. If the probable length of the products life is
expected to be long, then lower price may be charged, as
compared to the products with shorter life span.
10.2.2 EXTERNAL FACTORS:
1) Competition
Pricing decisions also depend upon competition in the export
market. It is difficult to have monopolistic conditions in the
international market. In competitive market the exporters have no
control over pricing decisions. Price of a product is influenced by
the competitive forces of the market.
2) Demand
The prices in every market are directly related to the demand
for products. The demand may be elastic or inelastic. Pricing
depends on the degree of elasticity of demand. Highly elastic
demand for a product tends to keep its price low, because a slight
change in the price may cause considerable change in demand for
such a product. In contrast, products having relatively inelastic
demand can be quoted at comparatively higher prices.
3) ConsumersThe types of consumers for whom marketing efforts are
made play an important role in export pricing. A product for young
people or fashion oriented goods will carry a high price. Further the
composition of the consumers in terms of their income and paying
capacity play an important role in export pricing.
4) Economic conditions
The economic conditions prevailing in the market must be
considered while fixing prices. During the times of recession when
consumers have less money to spend, the marketers may reduce

140
the price to influence buying decision of the consumers. However,
during economic boom, the marketers may change a higher price.
5) Channel of distribution
The marketer must consider the number of channel
intermediaries and their expectations. The longer the chain of
intermediaries would increase the price of the goods.
6) Market Opportunities The marketer may consider the market opportunities for
growth. If the market promises long term growth prospects, then the
marketer may consider fixing lower prices.

10.3

BASIC DATA REQUIRED

PRICING DECISIONS

FOR

EXPORT

The calculation of cost depends on the availability of reliable

data connected with exportable products, external markets and
other marketing information. The details of information required for
export pricing very from product to product, market to market and
firm to firm. An export firm needs the following information for
pricing and costing.
1) Product cost
a) Material
b) Labour
c) Factor overhead
d) Administrative overhead
2) Cost of Distribution
a) Selling cost
b) Packing cost
c) Transportation cost
d) Insurance cost
3) Cost Relating to Exports
a) Product modification
b) Cost of documents
c) Export packing and marketing
d) Loading at factory
e) Transport to dock or airport
f) Handling charges and fees at port or airport.
4) Cost Estimates
a) FOB, C & F or CIF
b) Sea freight or air freight

141
c) Unloading charges at destination
d) Airport handling charges or fees
e) Import duty and taxes
f) Clearing agents fees
g) Transport to importers warehouses
h) Importers margin
i) Wholesalers and retailers margin
5) Regulation in exporting country
a) Floor price
b) Duty drawback scheme
c) Import replenishment
d) Income Tax
e) Railway freight concession
6) Regulation in importing country
a) Import duty
b) Quota restrictions
c) Sources of supply (foreign or domestic)
d) Substitute products.
e) Complimentary products
f) Terms of payment
7) Other Relevant Data
a) Customers attitude towards prices and quality
b) Inventory of finished goods
c) Political restrictions on trade
d) Air or ship services
e) Business policy
f) Sales in units and rupees
g) Trade agreement bilateral or multilateral.

10.4 MARGINAL COST PRICING

10.4.1

MEANING

This suggests allocation of fixed cost over a period of time

and not in the short run. The export price should be as minimum as
possible to compete in the export market. Expenses incurred for its
domestic operations should be taken out from total export price.
Exporter should recover fixed cost even from domestic market if
export market is more competitive. Only variable costs should be
recovered from export market. The rational behind this is that fixed
costs dont change according to volume, variable costs change by
volume of production marginal cost therefore move around variable

142
costs. This suggests that export price should be equal to marginal
cost, which can fully recover variable cots. Any excess price of
marginal cost should be attributed to fixed cost and the excess
there of the profit.

10.4.2 ADVANTAGES OF MARGINAL COST PRICING:

The following are the advantages of marginal cost pricing.
1. Price may be used as a weapon to penetrate into the
overseas market.
2. This method may be used as an alternative to face
competition effectively.
3. Fixed costs and sometimes, variable costs are realized from
the home market.
4. By fixing reasonably lower price, consumers from developing
countries, with limited income, can be better attracted.
10.4.3 DISADVANTAGES OF MARGINAL COST PRICING:
The following are the disadvantages of marginal cost pricing.
1) When a price is fixed at reasonably lowest for the overseas
market by reducing marginal costs, it becomes difficult to
increase the price at a later stage when the total costs of
production are increased.
2) This method of pricing is not at all advisable to a producer
who mainly concentrates to export marketing.
3) The industry where the proportion of variable costs are on
higher side, cannot afford to the marginal cost pricing.
4) The industry in which raw materials constitutes a large
proportion of the total costs, also cannot afford to such
pricing.
Marginal cost approach is suitable in the large home market
and where the goods are manufactured for mass consumption.

10.5 EXPORT PRICING STRATEGIES

Pricing strategy refers to the basic policy adopted in respect
of pricing in a given market situation. There are several pricing
strategies. The exporter may adopt a particular strategy at the time
of launching the product in the overseas market. The exporter has
to adopt pricing strategies during the lifetime of the product. The
exporter should constantly review the pricing strategy adopted by

143
his firm. If required, the exporter may switch over from one strategy
to another.
The following are some of the important pricing strategies.
1) Skimming pricing strategy
A high premium price is charged when a product is launched
in the market. This strategy aims at high profit margins in the early
stages of product introduction. The skimming pricing strategy can
be of two types i.e.
a) Rapid skimming pricing
When high prices are charged, and the product is promoted
with heavy promotional expenditure.
b) Slow skimming pricing
Where high prices are charged, and there is limited
promotional effort to promote the product.
2) Penetration pricing strategy
A strategy of charging law prices in the early stages of
product introduction in the market is called Penetration Pricing
Strategy.
The objective is to launch a new product at a lower price to
capture as large a share of the market as possible within a short
time.
This strategy can be of two types.
a) Rapid Penetration pricing strategy
Where low prices are charged, and the product is promoted
with heavy promotional expenditure.
b) Slow Penetration pricing strategy
Where low price is charged, and there is limited promotional
expenditure to promote the product.
3) Probe pricing strategy
The exporter may fix a higher price in the export market
during the early stages of product introduction. This is done to find
out or probe the reaction of the buyers towards the price. The
prices are then adjusted accordingly. The exporter may follow this
technique, especially, when sufficient information is not available in
respect of competitors pricing, purchasing power of the buyers, and
so on.
4) Follow the Leader Pricing Strategy

144
Under this strategy, several exporters may fix the price very
close to the price charged by the leading competitor in the market.
5) Differential Trade margins pricing strategy
The exporter may adopt differential trade margins pricing
strategy. He may allow various types of discounts or trade margins.
The various discounts that can be offered includes, quantity
discounts on bulk orders, seasonal discounts during off season to
push up sales, cash discounts to encourage prompt payments,
goodwill discounts, trade discounts etc. the price are accordingly
adjusted depending upon the type of discount offered.
6) Standard export pricing strategy
In this case, an exporter may charge the same price in all
the foreign markets, i.e. developed as well as developing countries.
The pricing is based an average unit cost.
7) Differential pricing strategy
Under this strategy different prices are charged in different
markets. There can be differential pricing between two or more
overseas markets.
8) Market pricing strategy
If identical or homogeneous products are already exiting in
the market, the standard approach is market pricing. This means,
based on the competitors prices, the final price is determined and
production and marketing functions both are adjusted to the price.
9) Transfer pricing strategy
Transfer pricing refers to the pricing of goods or services
among subsidiaries within a corporation. This strategy s adopted by
a MNC (Multinational Corporation). The subsidiaries of a MNC
trade among themselves or with the parent firm. It seems that any
price charged by a subsidiary to another subsidiary or to the parent
firm is acceptable as the sales are undertaken within the
corporation.
10) Trial Pricing
In this case, a firm may launch a new product with low
pricing, for a limited period of time. The purpose is to win customer
acceptance first and make profits later. Often, trial pricing is seen
as an alternative to giving away samples of a product in order to
make people to have a trial of the product.
11. Flexible- Price Strategy
In this case, a firm offers the same product and quantities to
different customers at different prices. For example, when a new
product is introduced, a firm may sell it at a special price to its loyal
customers. A retailer may offer special price to frequent shopper as
compared to other customers, who do not buy frequently from that
store. The special price is a reward for customers loyalty.

145

CHECK YOUR PROGRESS:

1. Fill in the blanks:
a. Price means the expression of value of utility of a
commodity in terms of -----------------------.
b. High prices are charged and limited promotional effort
are done to promote the product it is called as -------------c. When different prices are charged in different markets it
is called as -----------------------------------.
d. When low prices are charged, and the product is
promoted with heavy promotional expenditure it is called
as ---------------------------.
e. In Marginal costing only --------------- should be recovered
from export market.
2. Define the following terms:
a. Trial pricing
b. Transfer pricing
c. Follow the leader pricing
d. Flexible pricing
e. Penetration pricing
3. Enlist the Internal factors determining the price.

10.6

SKIMMING PRICING STRATEGY

10.6.1

MEANING
A high premium price is charged when a product is launched
in the market.
This strategy is suitable to those products that offer
important benefits to the target audience, and that the target
audience does not mind paying higher price. Secondly, for
skimming pricing to be successful, there should be little chance for
competitors to enter the market in a short period of time. This is
possible in the case of highly technical and complex products.
10.6.2 ADVANTAGES OF SKIMMING PRICING STRATEGY
1. Higher Profits
Higher prices fetch higher revenue, such higher revenue or
profits can provide enough funds for financing big projects of
international level.
2. Developmental Expenses

146
Higher profits in the initial stages can cover large
developmental expenditure such as that of testing laboratory
expenses, distribution network etc.
3. Demand Assessment
Normally if enough demand exists, it is easier to quote a
higher pri9ce initially, then slowly lower it down up to a certain limit
and again shoot it up once the market is satisfactorily captured.

4. Suitability
Skimming prices are essential in case of certain products
which may become out of date due to changes in fashion,
technology, etc. If the seller charges low prices initially ad await for
rise in price at a later date, then he may not get enough revenue
because of declining demand.
5. No Blocking of Funds
High prices do bring income and as such funds are not
blocked. The exporter can use such funds in production and
marketing activities.
6. Feasible for Short Term
Such prices are useful when the exporter wants to stay in
the market only for a short period of time and not interested in the
long run business in export markets.
7. Prestige Status
Only the higher class of the society can afford to pay high
prices and as such it brings prestige status to the users.
8. Reflection of High Quality
High prices often reflect high quality of the product many-atimes, customers psychologically fell that high prices mean high
quality.
10.6.3

DISADVANTAGES
STRATEGY

OF

SKIMMING

PRICING

1) Slower Turnover
High prices may prevent quick sales and as such it may
result into slow turnover.
2) Growing Competition
High profit margin may attract new competitors into the
market resulting into severe competition and price-cutting practices.
3) Customer Dissatisfaction

147
High prices may create the problem of brand loyalty. Repeat
orders may not easily flow on account of customer dissatisfaction
towards high prices.
4) Uncertainty of High Profit in the Long Run
Initially, when the product is introduced the profits may be
safeguarded but soon the prices have be lowered, thereby
adversely affecting the overall profitability of the firm. Hence the
strategy may not be feasible in the long run.

5) Not Useful for Products of Daily Use

Skimming price strategy may be advantageous only case of
producers goods and not for consumer goods of daily use.

10.7

PENETRATION PRICING STRATGY

10.7.1 MEANING
A strategy of charging low prices in the early stages of
product introduction in the market is called Penetration Pricing
Strategy.
The objectives in to launch a new product at a lower price to
capture as large a share of the market as possible within a short
time .
This strategy is suitable to those newly introduced products,
which can generate a large volume of business.
10.7.2

ADVANTAGES
STRATEGY

OF

PENETRATION

PRICING

1. Quick Sales
This strategy enables the exporter to capture the market by
quick sales. This is because of low price, many consumers may be
induced to buy the products.
2. Brand Loyalty
It is possible to develop a strong brand loyalty in the market.
Low price coupled with good quality attract repeat purchases form
customers.
3. Economies of Large Scale
The exporter can get the benefit of substantial economic of
large scale production and distribution of goods.
4. Less Competition

148
Competitors may not be tempted to enter into the market
because of low profit margin.
5. Brand Leadership
This strategy helps the exporter in becoming a brand leader
in the market because of lower competition and higher sales.
6. Long Term Strategy
Penetration strategy is useful in the long run as prices can
be gradually increased considering the degree of competition.

7. Suitability
It is suitable to those product where there is a possibility of
repeat purchases or where the seller is assured of large and long
term market.
8. No Blocking of Funds
There may be no blocking of funds due to quick sales which
will result in over all high income to the exporter.
10.7.3

DISADVANTAGES OF PENETRATION PRICING

STARTEGY

1. Development expenses
Penetration policy is not helpful in recovering the initial
developmental expenditure such as that on advertising campaign.
2. Consumers Doubts
Consumers may doubt the quality of goods as prices are
low, because lower prices are associated with the quality.
3. Disadvantageous in Long Run
Generally it is easier to reduce the price but difficult to raise
it as there is risk of customers switching their loyalty over brands in
the market.
4. Prestige Status
Buyers may not have felling of status in buying a product
purchased by the masses and whose price is also considerably
low.
5. Blocking of Funds
Exporters funds may get blocked of there are no quick sales
despite low prices.
6. Price Resistance
When consumers get used to lower prices, they will resist
any future increase in price by the exporter.

149

7. Problem of Obsolescence
When a product loses share in the market, the exporter is
forced to quit the market. This situation may arise when the product
becomes out dated.

10.8

BREAK-EVEN ANALYSIS

10.8.1

MEANING
It is a technique commonly used in costing to analyse the
cost-volume-profit relationship. Break even technique is concerned
with finding out that level or point at which the sales will break-even
(no profit or no loss).
The point or the level at which the sales break even is called
break even point:. The break even point is that point at which the
firms total sales revenue is equal to the cost of goods sold. The
BEP can also be called as No Profit, No Loss Point because at
this point there is neither profit not loss to the firm. In other words, it
can be said that it is the first or the staring point towards profit.
Anything that is sold over and above BEP level of output indicates
profit to the firm.
An export firm will break even when the total export revenue
(FOB price plus Incentives) is equal to the total cost of goods sold,
break even analysis is useful to exporters i.e. To decide the
minimum guantily of goods to be sold in the export markets, and to
fix the export price so as to recover the cost of goods sold.
10.8.2 FORMULA TO CALCULATE B.E.P.

BEP

FC
FC
OR
SP VC
C

Where, SP = Selling Price

VC = Variable Cost
FC = Fixed Cost
C = Contribution (i.e. profit)
For exampleFixed cost = Rs. 3.00,000
Variable cost = Rs. 5 per unit
Selling price = Rs. 10 per unit
Production capacity 1,50,000 units per year
Therefore

BEP

FC
SP VC

150

3,00,00
3,00,000
10 5
3,00,00
3,00,000
5
60,000 units

The break-even point can be illustrated in the following diagram

Sales
Profit

9,00,000

Sales and Cost

Total Cost
Break Even Point
6,00,000
Variable Cost

3,00,000
Loss
Fixed Cost
O

30,000

60,000

90,000

1,20,000

Output (units)

Thus, the firm will break even at 60,000 units. It the firm
exports 40,000 units, it will not make any profit, but if it sells more
than 60,000 units, it will make a profit.

10.9

EXPORT PRICING QUOTATIONS

10.9.1 MEANING
Quotation is an offer or proposal made by an exporter in
reply to the enquiry from an importer. The quotation should clearly
state the price and other terms and conditions. It may be in the form
of a proforma invoice that gives a clear idea to the importer about
the price to be paid by him in case the deal in struck. It also states

151
the terms of credit, delivery schedule, terms of payment and as to
which party will bear the cost of freight, cost of insurance and in the
absence of insurance, loss or damage to the goods in transit, if any
10.9.2 TYPES OF QUOTATIONS
The important types of quotations are as follows.
I) FOB (Free On Board) Quotation
Under FOB quotation, the seller quotes a price which
includes all expenses incurred till the goods are actually loaded on
board the ship. This means packing charges, local transport
charges and dock dues are covered in the price quoted. Even the
expected profit is included in the FOB price.
In short, FOB price can be summed up as follows
FOB price = cost of production + profit margin + expenses up to on
on board the ship - export incentives
Sellers obligations under FOB quotation
1. He has to load the goods on board the ship named by the buyer.
2. He has to obtain bill of lading from the shipping company and
forward it to buyer to enable him to take delivery of goods.
3. He must inform the buyer certain details like the name of the ship
and the possible date of delivery.
4. He has to arrange for the necessary space in the vessel.
5. He must inform the buyer without delay that the goods have
been delivered on board the vessel of aircraft.
Buyers Obligations under FOB Quotation.
1.
2.
3.

He should inform the seller the name of the ship by which

the goods are tot be sent and also the expected date of
delivery.
He has to bear the risk when goods are loaded on the ship.
He should make payment to the exporter as per the terms of
contract.

Under FOB quotation the seller has no right of lien on goods

and that of stoppage in transit, because the shipping company is
deemed to the agent of the buyer. As per the law, delivery to the
buyers agent is treated as delivery to the buyer himself.
II)

C&F Quotation (Cost and Freight)

152
C&F means cost plus freight. The price quoted includes total
cost of goods, packing, carriage, loading charges and the payment
of freight up to the part of destination. The other expenses like
cartage, unloading charges and expenses of carrying the goods
from the part of delivery to the warehouse are to be borne by the
importer. Insurance charges are also to be borne by the importer.
In short, C&F price can be summed up asC&F price = F.O.B. + freight

Sellers obligations under C&F quotations.

In addition to the obligations mentioned under FOB
quotation, the seller must pay freight charges to the shipping
company the under takes to carry the goods form the part of
shipment to the part of destination.
Buyers obligations under C&F quotation.
1. He has to arrange and pay for insurance.
2. He has to pay clearing charges, import duties etc.
3. He has to make payment as per the commercial invoice.
4. He has to bear the loss or damage to the goods, if any, from the
time and place at which the sellers obligations are over.
III) CIF (Cost Insurance and Freight) Quotation
CIF means cost, insuran and freight. It includes FOB price
plus freight plus marine insurance up to the part of destination. In
other words, CIF price includes cost of production and all other
expenses till the goods reach the port of destination in the buyers
country. The unloading charges at the buyers port, custom duties
etc, are to be paid by the importer.
In short, CIF price can be summed up asCIF price = FOB price + Freight + Insurance
Sellers obligations under CIF quotation
In addition to the obligations mentioned under FOB
quotation, the seller must pay for freight and insurance cover also.
Buyers obligations under CIF quotation
1.
2.

He has to pay clearing charges, import duties etc.

He has make payment as per the commercial invoice.

153

10.10

SIMPLE PROBLEM ON FOB PRICE

Problem
Calculate the minimum FOB price which can be quoted by
an exporter form the following details.
1.

Ex-factory cost
Packing cost
Transport cost

Rs. 1,50,000
Rs. 3,000
Rs. 2,000

Profit contribution at 10% of FOB cost

Duty draw back at 5% of FOB price.
Solution
EX-factory cost
Packing cost
Transport cost
FOB cost
Contribution towards profit 10%
FOB Revenue

Rs. 1,50,000
Rs. 3.,000
Rs.
2,000
1,55,000
15500
1,70,500

The amount of assistances will be considered as follows

Let minimum FOB price be Rs. x
Duty drawback at 5% f FOB price be = 0.05x
FOB price + Incentives = FOB cost + profit
x + 0.05x = 1,70,500
1.05x = 1,70,500

1,70,500
1.05
1 05

minimum FOB is = Rs. 1,62,381

2.

From the following data calculate the minimum FOB price

which the exporter ca quote
Ex-factory cost
Expenses up to on board the ship

Rs. 4,40,000
Rs. 40,000

Contribution towards profit 25% of FOB cost

Duty drawback
10% of FOB price
Solution
Ex-factory cost

Rs.4,40,000

154
Expenses
FOB cost
Contribution towards profit
FOB revenue

Rs. 40,000
Rs.4,80,000
Rs.1,20,000
6,00,000

Now FOB price has to be lowered in proportion of assistances.

Let minimum FOB price be Rs. x

Duty drawback at 10% of FOB price be = 0.10 x
FOB price + DBK = FOB cost + profit
X + 0.10x
= 4,80,000 + 1,20,000
1.10x
= 6,00,000

6,00,00
6,00,000
1 10
1.10

= 5,45,454.54
minimum FOB price which the exporter ca quote is
= Rs. 5,45,455
3.

Calculate minimum FOB price from the following particulars.

Ex-factory cost
Packing cost
Transport
Contribution toward profit

Rs. 2,80,000
Rs. 5,000
Rs. 7,000
Rs. 38,000

Duty drawback 10% of FOB price

Conversion rate 1$ = 45
Solution
Ex-factory cost
Packing cost
Transport
FOB cost
Contribution towards profit
FOB revenue

Rs. 2,80,000
Rs.
5,000
Rs.
7.000
2,92,000
38,000
3,30,000

The amount of assistance will be considered as follows

Let minimum FOB price be Rs. x

155
Duty drawback at 10% of FOB price = Rs. 0.10
FOB price + DBK = FOB cost + profit
X + 0.10x = 2,92,000 + 38,000
1.10x = 3,30,000

3,00,00
3,00,000
1.10
1 10

X = 3,00,000
minimum FOB price in $ = 3,00,000/45
= $.6,667

FOB
B price
e rate
Exchange
4.

3,00,000
3,00,0
= $ 6,667
45

Problem
Calculate FOB price form the following particulars
Ex-factory cost
Expenses up to board the ship

Rs. 22,000
Rs. 2,000

Contribution towards profit 25% of FOB Cost/DBK 10% also

calculate profit/loss if he accepts an offer of Rs. 28,000
Solution
Ex-factory cost
Expenses up to board the ship
FOB cost
Add profit 25% on FOB cost
FOB revenue
Let minimum price be Rs.x
DBK 10% of FOB price be 0.10x
FOB price + DBK = FOB cost + profit
X + 0.10x = 24,000 + 6,000
1.10x = 30,000

30,000
1.10
1 10
X = 27,272

Thus, minimum FOB price is Rs. 27,272

Rs. 22,000
Rs. 2,000
Rs. 24,000
Rs. 6,000
30,000

156
CheckFOB price
Drawback duty

Rs. 27,272
Rs. 2,728
Rs. 30,000

Calculation of profit/loss if an offer of Rs. 28,000 is accepted.

FOB price offer
Drawback duty
Total realization

Rs. 28,000
Rs. 2,800
Rs. 30,800

Profit/loss = (total realization) (FOB cost)

= 30,800 - 24,000
= 6,800
Profit if an export offer of RS. 28,000 is acceptable = Rs. 6,800.
5. From the following data, calculate the FOB price .
Ex-factory cost
Packing cost
Transportation
Contribution towards profit

Rs. 28,000
Rs.
500
Rs.
700
Rs. 3,800

Duty drawback 10% FOB price

Conversion rate 1 $ = Rs. 45
Solution
Ex-factory cost
Packing cost
Transport cost
FOB cost
Contribution towards profit
Fob revenue

Rs. 28,000
Rs.
500
Rs.
700
Rs. 29,200
Rs. 3,800
Rs. 33,000

As the exporter is entitled for duty drawback, the minimum FOB

price therefore has to be worked out as follows
Let minimum FOB price be Rs. x
Duty drawback at 10% of FOB price be = 0.10x
FOB price + DBK = FOB cost + profit
X + 0.10x = 29,200 + 3,800
1.10x = 33,000

33,000
1.10
1 10

157
x

30,000

x = 30,000
minimum FOB price be Rx. 30,000
The amount of foreign exchange that can be earned if the
FOB
B price
Exchange rate is Rs. 45 per sterling =
exchange
e rate

30,000
= 667
45
The following is the cost data of Hindustan expo ltd.
=

6.

Ex-warehouse price
Export packing expenses
Transportation charges form to never docks
Marine loading charges

Rs. 15,000
Rs. 3,000
Rs. 1,000
Rs. 1,000

Profit contribution 10% FOB cost

Duty drawback 10%
Calculate minimum FOB price for the firm if 1$ = Rs. 40
If marine freight is $ 100, what is C&F price ?
Solution
Ex-warehouse price
Export packing expenses
Transport charges
Marine loading charges
FOB cost
Profit contribute at 10% on FOB cost
FOB revenue
Calculation of minimum FOB price
Let minimum FOB price be Rs. x
DBK 10% of FOB price be = Rs. 0.10 x
FOB price + DBK = FOB cost + profit
X + 0.10x = 20,000 + 2,000
1.10 x = 22,000

22,000
1
10
1.10

X = Rs. 20,000
i)

minimum FOB price if 1$ = R 40

Rs. 15,000
Rs. 3,000
Rs. 1,000
Rs. 1,000
Rs. 20,000
Rs. 2,000
Rs. 22,000

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= 20,000
= $ 500
ii)

C&F = FOB + Freight

=

10.11

$ 600

SUMMARY

There are internal and external factors which determine the

export price. Internal factors include cost, objectives of the firm,
product, image of the firm, promotional activities, product life cycle
etc. External factors include competition, demand, consumers,
economic condition, channel of distribution, market opportunity etc.
While determining the cost some basic data has been
required such as product cost, cost of distribution, export cost, cost
estimates, regulations in export country and importing country etc.
Marginal cost pricing suggests that only variable costs
should be recovered from export if the export is more competitive
and the fixed costs can be recovered from the domestic market.
There are several export pricing strategies like Skimming
strategy, Penetration strategy, Probe strategy, Follow the leader
strategy, Differential trade margins strategy, Standard export
strategy, Market strategy, Transfer strategy, Trial strategy, Flexible
strategy.
Quotation is an offer or proposal made by an exporter in
reply to the enquiry from an importer. Important types of quotation
are FOB Quotation, C&F Quotation, CIF Quotation.

10.12 QUESTIONS FOR SELF-ASSESSMENT

1.

Discuss the factors to be considered in export pricing?

2.

What are the various items of cost included in export pricing?

Explain it ?

3.

State the basic data required in export pricing?

4.

Explain in brief the pricing strategies?

5.

Write a short note on the FOB quotation?

6.

Bring out the impact of incentives on pricing?

7.

Write short notes on the following

a) Skimming pricing strategy

159
b) Penetration pricing strategy
c) Break even point analysis
d) Marginal cost pricing

vvvv

11
EXPORT FINANCE
Unit Structure
11.0 Objectives.
11.1 Introduction.
11.2 Meaning of export finance.
11.3 Pre-shipment Finance.
11.4 Post-shipment Finance.
11.5 Role of commercial banks.
11.6 Exim bank.
11.7 SIDBI.
11.8 ECGC.
11.9 Forfeiting scheme of EXIM bank.
11.10 Methods of payment/terms of payment.
11.11 Factors determining payment terms.
11.12 Letter of credit
11.13 Summary
11.14 Questions for self-assessment.

11.0 OBJECTIVES
After studying the unit the students will be able to:
Understand the meaning and types of export finance.
Explain the features of pre-shipment and post-shipment finance.
Understand the role of commercial bank.

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Know about the EXIM bank, SIDBI, and ECGC and for forfeiting
scheme of EXIM bank.
Explain the method of payment and factors determining
payment terms.
Describe the letter of credit and its types, procedure and parties.

11.1 INTRODUCTION
Export finance broadly cover the study of the financial need
and institutional framework to provide finance of export trade export
credit institutions, foreign exchange implications, and the methods
of securing payment of export proceed.
Exporter are provided with short term, medium term, and
long term finance depending upon the type of goods to be exported
and terms of payment offered to overseas buyers by the finance
institutions.

11.2 MEANING OF EXPORT FINANCE

Exporter needs finance both at the pre-shipment stage and
at the post shipment stage. The finance required to meet various
expenses before shipment of goods is called as per-shipment
finance or packing credit. The finance which is provided by banks
after shipment of goods comes under post-shipment finance.
In India, financial institution like commercial banks SIDBI and
EXIM bank are directly concerned with export financing. The
reserve bank of India, is indirectly concerned with export financing,
as it frames rules and regulations regarding terms and conditions of
export finance to be followed by commercial banks and other
financial institutions. The ECGC is also connected with export
financing. It protects the exporters against risks of non-payment by
the importer.
The exporter may require short, medium and long term
finance. The short term finance is required to meet Working
Capital needs. The working capital is used to meet regular and
recurring needs of a business firm. The regular and recurring
finance needs of a business firm refers to purchase of raw
materials, payment of wages and salaries expenses like payment of
rent, advertising etc.
The exporter may also require Term Finance. The term
finance or term loans which is required for medium term and for
long term .The term finance is required to finance fixed assets and
long-term working capital needs.

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11.3 PRE-SHIPMENT FINANCE

11.3.1 MEANING
Pre-shipment finance also popularly known as packing
credit. It is an advance credit facility contained by an exporter from
a bank or financial institution. The reserve bank of India defines it
as any loan to exporter for financing the purchase, processing,
manufacturing or packing of goods. Precisely, it is an interim
advance provided by a bank for helping the exporter to purchase,
process, and pack and ship the goods. Packing credit is working
capital extended to an exporter.
11.3.2 FEATURES OF PRE-SHIPMENT FINANCE
The salient features of packing credit are as follows
1. EligibilityPacking credit is granted to those exporters who have export
order or a letter of credit in their name from the foreign buyer.
An indirect exporter can also obtain packing credit if:
a) He produces a letter from concerned export house or other
concerned party stating that a portion of the export has been
allotted in this favour.
b)
The export houses or other concerned party should also state
that they dont wish to obtain packing credit for the same.
2. PurposePacking credit is provided to the exporter to meet working
capital requirements before shipment of goods such as payment of
raw material, payment of wages etc.
3. Documentary EvidencePre-shipment finance is granted against the evidence of
irrevocable L/C confirmed order for export. The document of L/C
confirmed order must be deposited with the lending institution.
4. Form of FinancePacking credit can be either in the form of funded or nonfunded advance. Red Clause/Green clause L/Cs are the forms of

162
funded finance. Non-funded facilities include domestic L/Cs, backto-back L/Cs and various guarantees.
5. Amount of Packing CreditThe amount of packing credit depends on the amount of
export order and credit rating of the exporters by the bank. The
bank may also consider the export incentives receivable such as
DBK, IPRS etc.

6. Period of Packing CreditIt is normally granted for a period of 180 days. Further
extension of 90 days is considered with the prior permission of RBI.
7. Rate of InterestPacking credit is provided at a concessional rate of interest.
The difference in normal rate of interest and export finance rate of
interest is reimbursed by RBI to banks.
8. Loan AgreementBefore disbursement of loan, the banks require the exporter
to execute a formal loan agreement.
9. Maintenance of AccountsAs per RBI directives bank must maintain separate accounts
in respect of each pre-shipment advance. However, running
accounts are permitted in case of certain items produced in
FTZs/EPZs and 100% EOUs.
10. Disbursement of loanNormally, pre-shipment finance advance not sanctioned in
lump sum, but it is disbursed in a phased manner.
11. Monitoring The Use of AdvanceThe bank advancing packing credit should monitor the use of
pre-shipment finance by exporter i.e. whether the amount is used
for export purpose or not penalty can be imposed for misuse.
12. Repayment-

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The exporter is expected to liquidate or repay the amount of
advance together with interest charge as soon as the export
proceeds or incentives are realized.

11.4 POST-SHIPMENT OF FINANCE

11.4.1 MEANING
When an advance or a loan is needed by an Indian exporter
after completing the process of shipment of goods, it is termed as
Post-shipment Finance. This finance is needed after making the
shipment and before realization of payment from overseas buyers.
Post-shipment finance is provided to meet working capital
requirements after the actual shipment of goods.
11.4.2 FEATURES
The main features of post-shipment finances are as follows1. EligibilityThis facility is available to the exporters who have actually
shipped the goods or to an exporter in whose name the export
documents are transferred.
2. PurposePost-shipment finance provides working capital to the
exporter from the date of shipment to the date of realization of
export proceeds.
3. Documentary EvidenceIt is extended against the evidence of shipping documents
indicating the compliance of actual shipment of goods or other
necessary evidence in case of deemed and project exports.
4.

Forms of Post-Shipment Finance-

Banks provide post-shipment finance under different forms

such as discounting of export bills, advance against goods sent on
consignment basis, advance against retention money etc.
5.

Amount of Post-Shipment Credit-

The amount of post-shipment finance depends upon the

working capital requirements of the exporter after shipment of
goods.
6.

Period of Post-Shipment Finance-

164
Short term loan is provided by commercial banks usually for
90 day. EXIM bank provide medium term finance for a period
between 90 day and 5 years and long term loan provided by EXIM
bank in case of export of capital goods and turnkey projects for a
period between 5 years and 12 years.
7.

Rate of Interest-

Post-shipment finance facility is granted at a concessional

rate of interest, as compared to the rate of interest charged for
domestic or local parties.
8.

Loan Agreement-

The exporter is required to execute a formal loan agreement

with the bank before the amount of loan is actually disbursed.
9.

Maintenance of Accounts-

As per RBI directives, banks must maintain separate

account in respect of each post-shipment advance. However,
running accounts are permitted in case of units in SEZ/EPZ and
100% EOUs.
10. Disbursement of Loan AccountsNormally, post-shipment credit advances are not given in
lump sums. It is disbursed in installments as and when required by
the concerned exporter.
11. Monitoring the use of AdvanceThe bank advancing post-shipment credit should monitor,
the use of post-shipment credit by the exporter i.e. whether the
amount is used for export purpose or not. Penalty can be imposed
for misuse.

11.5 ROLE OF COMMERCIAL BANKS

The exporter is expected to repay the amount of loan to the
bank as soon as he receives export proceeds. Generally, the
lending bank itself realizes the export proceeds from the importers
banks.
Commercial banks provide a major part of export finance.
They extend financial assistance both at pre-shipment as well as
post-shipment levels to exporters not only on priority basis but also
on liberal terms.

165
The directives of Reserve Bank of India under Exchange
Control Regulation Act make it obligatory for payments of exports to
be settled through the medium of a bank in India authorized to deal
in foreign exchange. Commercial banks services are divided into
(a) Fund Based Assistance (Financial Services)
(b) Non-Fund Based Assistance (Non-Financial Assistance)
(a) FUND BASED ASSISTANCE
The commercial banks provide fund based activities at preshipment stage and post-shipment stage.
(i) Pre-Shipment Stage
The commercial banks provide finance on short terms basis
for a normal period of 180 days at a very concessional rate of
interest. The various forms of advance are cash packing credit
loan, advance against hypothecation, advance against pledge etc.
(ii) Post-Shipment Stage
The commercial banks provide finance at the post-shipment
stage normally for a period of 90 days at a concessional rate of
interest. The various forms of post-shipment finance are negotiation
of bills drawn under LC, purchase/discounting of bills, overdraft
against bills under connection etc.
(b) NON-FUND BASED ASSISTANCE
(I) Banks Guarantees
Banks are authorized to issue guarantees and furnish bid
bonds in favour of overseas buyers. The various guarantees issued
by banks are1. Bid Bonds Banks issue bid bonds to enable exporters to
participate and quote price in various global tenders.
2. Preference Guarantee It is required in case of export of
capital goods and turnkey projects and construction contracts.
3. Advance Payment Guarantee The banks also issue advance
payment guarantee to the overseas buyer who normally makes
certain advance payment to the Indian exporter against a bank
guarantee.
4. Guarantee for Payment of Retention Money Banks issue a
guarantee for payment of retention money by the overseas party

166
who would release the retention money to the Indian party only
after receiving guarantee from bank.
5. Guarantee for Foreign Currency Loans It is sanctioned by
financial institution abroad to Indian exporters who raise funds to
finance their projects abroad.
(ii) Credit Rating of Importers
Banks undertake credit rating of importers on request from
exporters. They collect important information about their credit
worthiness and supply the same to the exporters.
(iii) Information about Foreign Exchange
Banks also provide information on the exchange rates of
various countries.
(iv) Dollar Account
Commercial banks provide services to their clients by
opening 25% dollar account. Under this account, an exporter is
allowed to retain 25% of the receipts in foreign currency accounts
with a bank in India; these accounts help exporters to meet
payment in foreign currencies.
(v) Invoicing in a Foreign Currency
Sometimes a buyer insists for invoicing in a foreign currency
which is generally suitable to him. Banks provide necessary
information on this matter, such as whether the said currency is
marketable or not, if the contract is not for major currencies.
(vi) Confirmation of Letter of Credit
Banks also undertake the job of advising and confirming of
L/C opened by importers.
(vii) Forward Exchange Contracts
Banks cover the risks of fluctuations in foreign exchange
rates by fixing the rate in advance for future transactions. Such
rates are known as forward exchange rates.
(viii) Currency for Invoicing Services
Banks provide foreign currencies for invoicing services, as
all currencies are not readily available and may require prior
permission for their release.

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11.6 EXPORT-IMPORT BANK OF INDIA (EXIM BANK)

11.6.1

MEANING
The EXIM bank of India is a public sector financial institution
established on 1st January, 1982. It started operating from 1st
march, 1982. It was established by an Act of Parliament, for the
purpose of financing, facilitating and promoting foreign trade. It is
also the principal financial institution for coordinating the working of
institutions engaged in financing Indias foreign trade.
This bank was mainly created for the purpose of financing
medium and long term loans to exporters there by promoting the
countrys foreign trade.
11.6.2 OBJECTIVES OF EXIM BANK
The main objectives and purposes of EXIM bank are as
follows
1. Financing of export and imports of goods and services not only
of India but also of third world countries.
2. Financing of joint ventures in foreign countries.
3. Financing of Indian manufactured goods, consultancy and
technological services of deferred payment terms.
4. Financing R&D and techno-economic study.
5. Co-financing global and regional development agencies.
11.6.3 FUNCTIONS OF EXIM BANK
The assistances offered by EXIM bank to the exporters can
be grouped under the following three categories.

FUNCTIONS OF EXIM BANK

Fund Based Assistance

Financial
assistance
to Indian
companies

Financial
assistance
to foreign
govt. and
business
firms

Non-Fund Based Assistance

Financial
assistance
to Indian
commercial
banks

Guarantees
and Bonds

Advisory
and other
services

168

i) FUND BASED ASSISTANCE

EXIM bank provides direct loans to exporters, refinance,
overseas buyers credit, foreign lines of credit, overseas investment
finance and pre-shipment credit. EXIM bank re-discounts export
bills, and extends re-lending facility to banks abroad. It renders
technology and consultancy services.
EXIM bank provides term finance for export oriented units. It
assists programme. It assists SSI who are exporting by its bill re
discounting programme. It also has on agency credit line with IFC.
It refinances exports of computer software.
Fund based assistance is divided in to three broad groups.
These are as follows.
1. Financial Assistance to Indian Companies
EXIM bank provides loans to Indian exporters in the
following manner
(a) Financial assistance on deferred payment terms.
(b) Consultancy & Technology services.
(c) Pre-shipment credit.
(d) Facilities for export oriented units.
(e) Facilities for deemed export.
(f) Overseas investment financing.
2. Financial Assistance to Foreign Government and Business
Firms
EXIM bank also provides loans to foreign governments,
companies and financial institutions in the following ways.
(a) Overseas buyers credit
(b) Lines of credit to foreign governments.
(c) Relending facility to banks overseas.
3. Financial Assistance to Indian Commercial Banks
EXIM bank provides loans to Indian commercial banks as
shown below.
(a) Export bills rediscounting
(b) Refinance of export credit

169

ii)

NON-FUND BASED ASSISTANCES

Non-fund based assistances provides cover assistance,

retent on money, guarantees etc,
1. Guarantees and Bonds
EXIM bank provides non-fund based assistance in the form
of guarantees in the nature of bid bonds, performance guarantee
etc. These guarantees are provided together with commercial
banks.
2. Advisory and Other Services
EXIM bank adviser Indian companies, in executing contract
abroad, and on sources of overseas financing. It advises Indian
exporters on global exchange control practices. EXIM bank offers
financial and advisory services to Indian construction projects
abroad; it advises small scale manufacturers on export markets and
product areas. EXIM bank provides access to euro financing
sources and global credit sources to Indian exporters. It assists the
exporters under forfeiting scheme.
EXIM bank also provides advisory services relating to
marketing research, merchant banking, foreign exchange, risk
syndication, dissemination of information through publications.
CHECK YOUR PROGRESS:
1. Fill in the blanks:
a. Pre-shipment finance popularly known as ----------------------.
b. EXIM Bank was established by an Act ----------.
c. Post-shipment finance is provided to meet working capital
requirements after --------------------------------.
d. Commercial banks services are divided into two categories as;
--------------------------and------------------------2. Define the following terms:
a. Pre-shipment finance
b. Post-shipment finance
c. Fund Based Assistance
d. Non-Fund Based Assistance
3. Enlist the features of Pre-shipment finance.
4. Draw the chart showing functions of EXIM Bank.

11.7 SMALL INDUXTRIES DEVELOPMENT BANK OF

INDIA (SIDBI)

170

11.7.1

MEANING

Small industries development bank of India (SIDBI) was

established in April, 1990 under an act of parliament, the Small
Industries Development Bank of India Act, 1989, as a wholly owned
subsidiary of Industrial Development Bank of India, the premier
development bank in the country.

11.7.2 OBJECTIVES
The main objectives of SIDBI are as follows
(a)

To serve as the principal financial institution for promotion,

financing and development of small scale sector.

(b)

To coordinate the functions of the institutions engaged in

promoting, financing of developing small scale sector.

11.7.3 FUNCTIONS
The main functions of SIDBI are as followsSIDBI provides various schemes for the promotion, finance
and development of units in the small scale sector and in the tiny
sector. The various schemes are broadly classified into three
groups.
Schemes of SIDBI

Refinance
Assistance

Direct
Assistance

Bills
schemes

I) REFINANCE ASSISTANCE
1) Seed capital scheme
SFCS/SIDCS provide seed capital to promoters of SSI units.
The SFC/SIDC can then obtain refinance from SIDBI. This scheme
enables the entrepreneurs to meet promoters contribution towards
equity.
2) Equipment Refinance Scheme

171
SFVS/SIDCS provide equipment refinance to SSI units to
purchase equipment for the purpose of expansion and
modernization. The SFC/SIDC can then obtain refinance from
SIDBI, if so required.
3) Tourism Related Finance Scheme
SFCS/SIDCS provide finance to entrepreneurs foresting up
tourism related activities, such as development of amusement
parks, cultural centers, restaurants, etc. The SFC/SIDC can then
obtain refinance from SIDBI.
II) DIRECT ASSISTANCE
1) Project Finance Scheme
SIDBI provides direct finance to SSI units for setting up new
projects. Preference is given to those units with export orientation,
import substitution, hitech and those promoted by entrepreneurs
with good track record.
The project cost should not be less than Rs. 75 lakh and the
debt equity ratio not to exceed 2:1
2) ISO 9000 Scheme
SIDBI provides direct finance to obtain ISO 9000
certification. The objectives are to promote quality systems in SSI
units, with a view to strengthen their marketing and export
capabilities.
3) Equipment finance Scheme
SIDBI provides direct finance to SSI units for the purchase of
equipment, required for the purpose of expansion and
modernization.
III) BILLS SCHEMES
1) Direct Discounting Scheme (DDS)
SIDBI directly discounts bills regarding sale of equipments
where period of bill is 5 years and minimum transaction is Rs. 1
lakh. The same scheme is applicable in sale of components where
period of bill does not exceed 90 days.
2) Bills Rediscounting Scheme (BRS)
Under the scheme, SIDBI rediscounting the bills which were
earlier discounted by commercial banks.

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11.8 EXPOR CREDIT GUARANTEE CORPORATION

OF INDIA LTD. (ECGC)
11.8.1

MEANING

In order to provide export credit and insurance support to

Indian exporters, the GOI has set up the export risk insurance
corporation (ERIC) in July, 1957. It is now known as ECGC of India
ltd.
ECGC is a company wholly owned by the GOI. It functions
under the administrative control of the ministry of commerce and is
managed by a board of directors representing government,
banking, insurance, trade and industry.
11.8.2

OBJECTIVES
The main objectives of ECGC are as follows

1. ECGC is designed to protect exporters from the consequences

of payment risks both political and commercial.
2. It helps exporters to expand their overseas business without
fear of loss.
3. It enables exporters to get timely and liberal/bank finance.
4. It provides to banks financial guarantees to safe guard their
interests.
5. It enables exporters and importers to take calculated risks in
business.
11.8.3

FUNCTIONS

1. It helps exporters in obtaining financial assistance from

commercial banks and other financial institutions on the strength
of its policies and guarantee.
2. It helps in collecting and disseminating information regarding
credit worthiness of overseas buyers.
3. It helps in developing and diversifying exports.
4. It insures the exporters against credit risks and guarantees
payments.
5. It charges lower rates of premium to enable exporters to
effectively compete in international markets.
6. It provides risk coverage against political and commercial risks.

173
7. It provides services which are not available from commercial
insurance companies.
11.8.4

POLICIES ISSUED BY THE ECGC

ECGC issues various policies and guarantees which are as

follows
1) Standard Policies
Standard policies issued to exporters to protect them against
payment risks involved in exports on short term credit.
2) Specific Policies
Specific policies designed to protect Indian firms against
payment risk involved in (a) Exports on deferred terms of payment
(b) Services rendered to foreign parties, and (c) Construction
works and turnkey projects undertaken abroad.
3) Financial Guarantees
Financial guarantees issued to banks in India to protect them
from risks of loss involved in their extending financial support to
exporters at pre-shipment and post-shipment stages.
4) Special Scheme
Special schemes such as transfer guarantee mean to protect
banks which add confirmation to letters of credit opened by foreign
banks, insurance cover for buyers credit.

11.9 FORFEITING SCHEME OF EXIM BANK

11.9.1

MEANING

The word Forfeiting is derived from the French word

Forfait which means Surrender of rights. It is the non-recourse
discounting of export receivables. In a forfeiting transaction, the
exporter surrenders, without recourse to him, his right to claim
payment of goods delivered to the importer. This is in return for
immediate cash payment form the forfeiter. As a result of this, an
Indian exporter can convert credit sale unit cash sale.
11.9.2

ROLE OF EXIM BANK IN FORFAITING

The EXIM bank is authorized by the RBI since February,

1992, to facilitate export financing through forfeiting. The EXIM
bank acts as intermediary between an Indian exporter and a

174
forfeiting agency abroad. Forfeiting is a mechanism of financing
exports in the following ways.
a)
b)
c)
d)
e)
f)

By discounting export receivables (bills)

Exports evidenced by bills of exchange or promissory notes.
Without recourse to the exporter.
Bills having medium to long term maturities.
Discounting at fixed rate of discount.
Financing up to 100% of the contract value.

11.9.3

BENEFITS OF
EXPORTER

FOREAITING

SCHEME

TO

THE

1. The exporter can improve his liquidity position as the credit

sales are converted into a cash transaction.
2. There are no chances of commercial risks as the exporter
forfeits his right to receive payment without recourse to him, to
the forfeiting agency. The exporter need not face the problem of
political risks.
3. The exporter can obtain finance up to 100% of the export value.
4. Forfeiting does away with the export credit insurance.
5. Export is free from the burden of credit administration and
collection problem of export proceeds.
11.9.4 PROCEDURE INVOLVED IN FORFEITING SCHEME
The procedure involved in the forfeiting scheme is as follows
1. Negotiations with Overseas Buyer
The exporter negotiates with the prospective buyer with
respect to the basic contract price and terms of credit such as
period of credit, rate of interest etc.
2. Obtaining Indicative Discounting Quote
The exporter submits to the EXIM bank the relevant details
such as the name and country of the overseas buyer, nature of
goods to be exported, terms of credit and name and address of the
buyers bankers. He then requests the EXIM bank for and indicative
discounting quote. The EXIM bank obtains from the overseas
forfeiting agency the indicative quote of forfeiting discount together
with the commitment fee and other charges.
3. Finalising the Contract

175
On receipt of the indicative quote form the forfeiting agency,
the exporter finalises the terms of contract with the overseas buyer.
4. Obtaining Firm Forfeiting Quote
On receipt of the indicative quote from the EXIM bank, the
exporter has to finalise the terms of contract with the overseas
buyer and then approach the EXIM bank of obtaining a final quote.

5. Obtaining Availsed Promissory Notes/Bills of Exchange

The exporter requests the importer to issue availsed
(guaranteed by a bank) promissory notes in his favour. The
promissory notes are endorsed with the words. Without recourse
by the exporter. Alternatively the exporter may draw bills of
exchange on the importer. The bills are sent along with the shipping
documents through the buyers bankers for acceptance.
6. Submission of Notes/Bills of EXIM Bank
The exporter hands over the avalised promissory notes or
accepted bills of exchange to his bankers. The bankers in turm
hands them over to the EXIM bank.
7. Forwarding of Notes/Bills to forfaiting agency
The EXIM bank verified the promissory note or bills and then
forwards it to the forfeiting agency for discounting purpose.
8. Collection of Amount
The EXIM bank then makes arrangement to collect the
discounted proceeds of promissory notes or bills from the overseas
forfeiting agency. The EXIM bank then credits the proceeds to the
exporter through his bankers.
On the due of the promissory notes/bills the forfeiting agency
makes arrangement to realize the payment from the overseas
buyer.

11.10 METHODS OF PAYMENT/TERMS OF PAYMENT

11.10.1

INTRODUCTION

There are different methods of payments in export trade.

The mode and manner of payment are decided by the parties to a
foreign trade transaction. Banks play the most important role in this

176
regard. The seller has to make sure that the sales proceed is
credited in his account with in 180 days from the date of shipment
of goods.
11.10.2

METHODS OF SECURING PAYMENTS IN AN

EXPORT TRADE

There are several methods of securing payment of export

proceeds, some of which are as follows
1) Open Account
Open account is also called trade credit. Under this method,
there is an understanding between the seller and the buyer on the
terms of credit and rate of interest on the outstanding amount. This
facility is extended by the seller to his overseas buyer only when he
is confident of the buyers integrity to honour his commitments.
An advantage of this method is that the seller is relived of
the botheration of drawing and discounting bills of exchange. But it
can be adopted only when the parties are well known to each other
and there are cross dealings between them so that the accounts
are at least partly squared up.
2) Advance Payment
Under advance payment, the buyer is supposed to make the
payment in advance. If this term of payment is offered, there is
absolute safety of getting payment. This method may work when
the buyer is completely dominated by the exporter and the buyer is
interested in getting the goods. It is customary on the part of the
exporter to demand a certain percentage of the value of goods in
advance especially when the goods manufactured are against
certain specifications of the buyer.
3. Payment against Shipment on Consignment
The exporter supplies the goods to the overseas consignee
or agent, without actually giving up the title. Payment is made only
when the goods are ultimately sold by the overseas consignee to
other parties.
This method is costly, because of commission to be paid to
the consignee, apart from other charges and at the same time it is
very risk. The consignee may return the goods back if remained
unsold and even the consignee may not clear off the dues in time.
The price to be realized also uncertain as it depends on market
conditions in the buyers country.

177
However, this method offers an advantage to the buyer as
the buyer can examine the goods before purchasing and the seller
may get a higher price if the buyer is satisfied about the quality.
In India prior approval is required to be taken from the
exchange control department of RBI for shipment on consignment
basis.
4. Documentary Bills
When relevant documents of the title of the goods are also
sent along with the foreign bill of exchange it is called documentary
bill. Which are of two types i.e. (a) Documents Against Payments
(D/P) and (b) Documents Against Acceptance (D/A).
(a) Documents against Payment (D/A)
The documents are released to the importer against
payment this method indicates that the payment is made against
sight draft. Necessary arrangements will have to be made to store
the goods, if a delay in payment
(b) Documents Against Acceptance (D/A)
The documents are released against acceptance of the time
draft i.e. credit is allowed for a certain period, say 90 days.
However, the exporter need not wait for payment till the bill is met
on due date, as he can discount the bill the negotiating bank and
can avail of funds immediately after shipment of goods.
5. Letter of Credit (L/C)
When the exporter draws a bill of exchange on the importer
he faces the risk of violation of the contract by the importer. A
superior method of settlement of debt for the exporter is that if he
exports the goods as per the contract and produces evidence to
that effect, he would receive payment without default.
Letter of credit is an authorization issued by the opening
bank to the negotiation banks that if the exporter presents the
relevant set of documents, make the payment.
Letter of credit defined as an undertaking by importers bank
stating that payment will be made to the exporter if the required
documents are presented to the bank within the validity of the letter
of credit.
CHECK YOUR PROGRESS
1. Define the following terms:

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a. Letter of credit
b. Open account
c. Forfeiting scheme

11.11 FACTORS DETERMINING PAYMENT TERMS

The following factors may affect the methods of payment or
payment terms subject to conditions of RBI.
1) Nature of Product
The terms of credit or the method of payment depends upon
the nature of goods. For example, perishable goods would not
justify a longer credit term. In case of capital goods the exporter
may allow deferred payment terms.
2) Credit Worthiness of the Buyer
The method of payment may also depend on the
creditworthiness of the buyer. If the importer enjoys a sound
creditworthiness, then the exporter may accept the method of
Documents Against Acceptance.
3) Economic Situation in the Importers Country
If the economic conditions are poor in the importers country,
then the exporter may not like to offer longer period terms.
4) Size of the Order
The exporter also has to consider the size of the order. If the
order is substantial, then the exporter may receive the money in
installment, and as such longer credit period can be given. The
exporter may agree toe Documents Against Acceptance method.
5) Competitors Credit Terms
The exporters also have to find out the credit terms offered
by the competitors. If they allow a longer period of credit, the
exporter may also follow the same.
6) Financial Position of the Exporter
If the exporters financial position is sound, the exporter may
offer a longer credit term to the importer.
7) Exchange and Import Controls in the Importing Country

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The exporter has to find out whether the importer has
complied with the exchange and import controls. If there are no
problems in respect of exchange ad import controls, exporter may
give a longer credit period.
8) Relations
The exporter may consider trading relations with the
importer. If the exporter has good relations, then he may provide
longer credit terms.

11.12
11.12.1

LETTER OF CREDIT
MEANING

Letter of credit has become the most popular from in recent

times. As it is more secured as compared to other methods of
payments.
Letter of credit is as authorization issued by the opening
bank to the negotiation bank that if the exporter presents the
relevant set of documents, make the payment.
11.12.2

PROCEDURE FOR OPENING LETTER OF CREDIT

The following are the steps in the process of opening of a

letter of credit.
1) Exporters Request
The exporter requests the importer to issue L/C in his favour.
L/C is the most secured form of the payment in foreign trade.
2) Importers Request to his Bank
The importer requests his bank to open a L/C. He may either
pay the amount of credit in advance or may request the bank to
open credit in his current account with the bank.
3) Issue of L/C
The issuing bank issues the L/C and forwards it to its
correspondent bank with a request to inform the beneficiary that the
L/C has been opened. The issuing bank may also request the

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advising bank to add its confirmation to the L/C, if so required by
the beneficiary.
4) Receipt of L/C
The exporter takes in his possession the L/C. He should see
to it that the L/C is confirmed
5) Shipment of Goods
Then the exporter supplies the goods and presents the full
set of documents along with the draft to the negotiating bank.

6) Scruting of Documents
The negotiating bank then scrutinizes the documents and if
they are in order makes the payment to the exporter.
7) Realisation of payment
The issuing bank will reimburse the amount (which is paid to
the exporter) to the negotiating bank.
8) Documents to importer
The issuing bank in turn presents the documents to the
importer and debits his account for the corresponding amount.
11.12.3 PARTIES INVOLVED IN LETTER OF CREDIT
The following parties involved in L/C are as follows
1) Opener
The importer or the buyer at whose instance and whose
behalf the letter of credit is opened.
2) Beneficiary
The seller or the exporter who is entitled to receive payment
under the L/C.
3) Opening/Issuing Bank
The importers bank which opens the L/C.
4) Negotiating Bank

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This is the exporter bank in his country expressly nominated
by the opening bank to make payment to the beneficiary on
fulfillment of terms and conditions stipulated in the L/C.
5) Advising Bank
This is the foreign correspondent of the opening or issuing
bank which advises the letter of credit to the seller duly
authenticated otherwise.
6) Confirming Bank
Bank in exporters country which guarantees the credit on
the request of the opening bank.
11.12.4
TYPES OF LETTER OF CREDIT
There are several types of letter of credit, which are stated
as follows.
1. Revocable L/C
Revocable L/C is one which can be cancelled or
any time without notice to the beneficiary. In this type
issuing bank reserves the right to withdraw, cancel of
credit, at any time. It might be revoked before the
dispatched.

modified at
of L/C, the
modify the
goods are

The major weakness of revocable L/C is that it may b e

cancelled or modified without prior permission of the beneficiary by
the issuing bank. This type of L/C is not very popular.
2. Irrevocable L/C
This type of L/C is preferred to revocable letter of credit. In
this type, once the L/C is accepted by the exporter, it can not be
cancelled or modified by the buyer of issuing bank without prior
permission of the beneficiary and other parties involved such as
confirming bank. Exporters normally insist on irrevocable letter of
credit because it does not have ht inherent weakness of revocable
letter of credit.
3. Confirmed L/C
When it is necessary for an irrevocable credit to be
confirmed for the beneficiary by another bank, arrangements bank
adds its confirmation on receiving necessary authorization from the
issuing bank, it binds itself to negotiate documents there under.

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4. Unconfirmed L/C
As the name indicates, Unconfirmed L/C is one to which
confirmation is not added by the advising bank. There fore, the
bank does not accept the liability to make payment. The risk of nonpayment is high.
5. With Recourse L/C
In this type, the exporter is held liable to the
paying/negotiating bank, if the draft/bill drawn against L/C is not
honored by the importer issuing bank. The negotiating bank can
make the exporter to pay the amount along with the interest, which
it has already paid to the beneficiary.
6. Without Recourse L/C
It is popularly known as sans recourse L/C. this L/C is
without the condition. In case the bill is not honoured by the
importer and the negotiating bank has already paid to the exporter,
the negotiating bank cannot ask the exporter, to refund the amount.
The negotiating bank can take recourse to the opening bank and
the opening bank can demand money from the importer. This is
generally an irrevocable L/C which projects the interests of the
exporter. Hence an irrevocable, Without recourse and confirmed
L/C is the most secured L/C.
7. Revolving Letter of Credit
The importer opens a L/C with substantial amount for a
specific period in favour of the exporter. The exporter can make
one or more shipments and withdraw payment against the original
L/C. when the amount and restores the balance. This L/C is
suitable when there is regular flow of trade activities between the
importer and exporter.
8. Transferable L/C
A transferable L/C is one which contains an express
provision that the benefits under it may be transferred either fully or
partly to one or more parties. In our country, such L/C can be
transferred only once and that too within the country.
9. Red Clause L/C
It is a special clause incorporated in red ink in the
documentary credit, which authories the negotiating bank ot grant
advances, on the receipt of full set of shipping documents. The

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exporter receives payments from his bank on the submission of
shipping documents.
10. Back-to Back L/C
It is a domestic L/C. it is an ancillary credit created by a bank
based on a confirmed export L/C received by the direct exporters.
The direct exporter keeps the original L/C with the negotiating or
some other bank in India, as a security, and obtains another L/C in
favour of domestic supplier. Through this route the domestic
supplier gains direct access to a pre-shipment loan based on the
receipt of domestic or back-to-back L/C.

11. Travellers L/C

This type of L/C is issued to a person who plans to visit
foreign countries. Up to the amount mentioned in L/C, the person
can draw cheques which the banks will honour. It is of great
convenience for the person because he can draw several cheques
up to the amount mentioned in L/C.
12. Clean L/C
A clean L/C is one in which payment is made to the
beneficiary against a clean draft. The bank does not put any
condition as regards to the acceptance and payment of bills.
13. Stand by L/C
This type of L/C differs from other types in that the buyer and
seller hope it will never be drawn upon. They are often used as
security for open account trading where the seller requires some
king of back-up in the event of the buyer not paying for the goods.
They normally require the issuing bank to make payment to the
seller upon presentation of documents evidencing non-payment by
the importer.
They are also commonly used in some countries as a
substitute for a bank guarantee which, due to the regulations in that
country, is not generally acceptable.
14. Documentary L/C
Most of the L/Cs are documentary L/Cs. Payment is being
made by the bank against delivery of the full set of documents as
laid down by the terms of credit. The important documents required

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To be submitted by the exporter under documentary L/C.
15. Green Clause L/C
The green clause L/C addition to permitting packing credit
advance also provides for the storing facilities at the part of
shipment. Green L/Cs are extensively used in Australian wool
credits.
16. Fixed L/C
A fixed L/C is one which is issued for a fixed period and fixed
amount. The exporter can draw the bills up to the given amount
with in the given period, the L/C stands terminated when the
amount is used up with in the given period.
11.12.5

ADVANTAGES OF LETTER OF CREDIT

Letter of credit is beneficial to the exporter and importer.

These are as follows.
A) ADVANGAGES OF THE EXPORTER
A letter of credit offers a number of advantages or benefits to
the exporter.
1) No Blocking of Funds
Once the exporter fulfills all the conditions of L/C and
presents the documents for negotiation to his bankers, he receives
payment as per the terms of L/C. the exporter is entitled to receive
the full payments of the exports.
2) Clearance of Import Regulations
When the opening bank issues the L/C indicates that the
importer has fulfilled ass provisions of exchange control regulations
in his country. Transfer of funds will not create a problem from the
exchange control authorities.
3) Free from Liability
In case of confirmed L/C and without recourse clause, the
liability of the exporter comes to an end as soon as he hands over
the relevant documents to the bank.
4) Pre-shipment Finance

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In India, pre-shipment finance is granted by commercial
bank on the strength of L/C received by the exporter from the
importers bank.
5) Non-refusal by Importer
The importer may refuse to take possession of goods and
make and make payment in case of D/P, and D/A bills of exchange,
but is difficult for him to refuse to take possession of goods and
make payment against bills dawn under letter of credit.
6) No Bad Debts
As the payment is guarantee by the opening bank, the
exporter is free from the problem of bad debt. In case the exporter
holds a confirmed L/C, there is double guarantee by the opening
bank and the confirming bank.
B) ADVANTAGES OF THE IMPORTER
Letter of credit is beneficial to the importer. These are as
follows
1) Better Terms of Trade
The opening bank provides credit facility to the importer.
This helps the importer to obtain better terms of trade from the
foreign supplier.
2) Certainty of Shipment of Goods
The exporter can not get any benefit under the letter of credit
without shipping the goods and submitting documents to the bank,
therefore, the importer is certain to get the supply.
3) Overdraft Facility
When the importer falls short of payments, he can take
possession of the documents against overdraft facility.
4) Funds are not blocked
There is no need for the importer to block his funds by
making advance payment to the exporter.
5) Delivery on Time
The importer can obtain required documents on time under
the terms of L/C. Thus he can get the delivery of goods on time.

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6) Better Relations
L/C creates a better relationship between the buyer and the
seller as all the terms are specified and both parties are protected.
11.12.6 LIMITATIONS OF LETTER OF CREDIT
The main problems or limitations of L/C are as follows
1) Short Life
Every letter of credit has validity period carries short life. It
does not give sufficient time to the exporter for shipment of goods
and submission of documents.

2) Problem of Weight Units

Weights and measures are different in different countries.
Thus disparity often arises through misinterpretation of weight units.
3) Insurance Problem
The letter of credit may indicate a brad coverage of marine
risk where as under writers may view them as less risky. Hence
underwriters may like to go for limited coverage of risk.
4) Packing Material Consideration
When the importer places an order, he specifies in the letter
of credit the type of packing material that the exporter should
provide. If the exporter uses some other packing materials without
the permission, of exporter can take objection.
5) Luck of Safety
In case of revocable L/C opening bank can cancel or modify
the L/C without prior permission of the beneficiary. This creates the
problem of safe of payment.
6) Delayed Payments
The exporter collects payments from the negotiating bank no
sooner he submits the documents. When payment is delayed by
the opening bank, the exporter has to pay heavy interest on the
advances.

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7) Problem of discrepancy
If the exporter does not submit the documents as demanded
by the importer, it is called discrepancy in documents. Because of
discrepancy the importer either can delay or with hold payment.

11.13 SUMMARY
Exporters need finance at both the steps i.e. at pre-shipment
and at post-shipment. Pre-shipment finance is an advance credit
facility contained by an exporter from a bank or financial institution.
Post-shipment Finance is needed after making the shipment
and before realization of payment from overseas buyers. Postshipment finance is provided to meet working capital requirements
after the actual shipment of goods.
Commercial banks provide financial assistance both at preshipment as well as post-shipment levels to exporters not only on
priority basis but also on liberal terms. Commercial banks services
are divided into: Fund Based Assistance (Financial Services) and
Non-Fund Based Assistance (Non-Financial Assistance).
The EXIM bank of India was established by an act of
parliament, for the purpose of financing, facilitating and promoting
foreign trade. This bank was mainly created for the purpose of
financing medium and long term loans to exporters there by
promoting the countrys foreign trade.
The main objectives of SIDBI are: to serve as the principal
financial institution for promotion,
financing and development of
small scale sector and to coordinate the functions of the institutions
engaged in promoting, financing of developing small scale sector.
The Export Risk Insurance Corporation (ERIC) which is now
known as ECGC of India ltd., was introduced to provide export
credit and insurance support to Indian exporters.
Forfeiting means Surrender of rights. In a forfeiting
transaction, the exporter surrenders, without recourse to him, his
right to claim payment of goods delivered to the importer.
There are different methods of payment in export trade such
as: Open account, Advance payment, Payment against shipment
on consignment, Documentary bill, and Letter of credit.
Credit terms are decided after taking into consideration the
factors like: nature of product, credit worthiness of the buyer,
economic situation in the country of importer, size of order,

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competitors credit terms, financial position of the exporter and
relations.

11.14 QUESTIONS FOR SELF-ASSESSMENT

1. What is export finance? Explain the types of export finance?
2. Discuss the features of pre-shipment finance?
3. Explain the features of post-shipment finance?
4. Enumerate the role of commercial banks in export financing?
5. Discuss the role of EXIM bank in promoting exports?
6. Explain the forfeiting scheme of EXIM bank?
7. What is the role of SIDBI in export marketing?

8. Explain the standard and specific policies of ECGC?

9. Discuss the financial guarantees issued by ECGC?
10. What are the various methods of payment in international
marketing? Discuss?
11. Discuss the various terms of payment in export marketing?
12. Explain the factors determining payment terms?
13. What are the parties involved in letter of credit?
14. Explain the procedure for opening letter of credit?
15. Discuss the various types of letter of credit?
16. Evaluate the procedure to obtain export finance?
17. Explain the advantages of letter of credit to the exporter?

vvvv

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12
EXPORT PROCEDURE
Unit Structure
12.0
12.1
12.2
12.3
12.4
12.5
12.6
12.7
12.8
12.9
12.10

Objectives
Introduction
Stages in Export Procedure
Excise clearance procedure
Role of custom House Agents
Shipping and custom formalities
Marine Insurance
Negotiation of Export Documents
Realization of export proceeds
ISO 9000 certification
Distinguish between pre-shipment
procedure
12.11 Summary
12.12 Questions for self-Assessment

and

post-shipment

12.0 OBJECTIVES
After studying this chapter the students should be able to :
Elaborate the stages in export procedure.
Describe the excise clearance procedure
Understand the role of custom House Agents
Explain shipping and custom formalities.
Know about the marine insurance
Understand negotiation of export documents and realization
of export proceeds.
Know ISO certification and its procedure for obtaining ISO
certification.
Make a comparative study of pre-shipment and postshipment procedure.

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12.1 INTRODUCTION
Export procedure refers to the execution of an order
received from an overseas buyer and includes everything that the
exporter is required to do right from the receipt of a confirmed order
up to the realization, o/s final payment. It is not difficult to receive
an export order but extremely difficult to successfully and
satisfactorily execute the same. This is because exporting goods
overseas involves same definite procedure and is covered by legal
restrictions.
Export trade is governed by legal controls and therefore,
every function of it is carried out under definite procedures. The
various procedures that are followed in the export of goods facilitate
execution of export in a systematic manner.
Export market is not merely an extension of domestic
market. Apart from the basic principles of sound business in
domestic as well as foreign market, selling abroad requires
specialized knowledge regarding certain matters such as detailed
market surveys, shipping, marine insurance, customs and foreign
exchange formalities, etc.

12.2 STAGES IN EXPORT PROCEDURE

Export procedure involves a number of steps. The various
steps can be classified into four stages
EXPORT PROCEDURE

Stage I
Preliminary
Stage

Stage II
Pre-shipment
stage

Stage III
Shipment
Stage

Stage IV
Post-shipment
Stage

12.2.1 PRELIMINARY STAGE

1) Organizing
The exporter should have an organization to look after
exports. Exporters may set up a complete new organization or add
on export section to an existing one. At this stage the exporter may
take a decision to select the right product sell abroad.

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2) Registering with various Authorities

The exporter should register his organizations with various
authorities. These are as follows:
a) Income Tax Authorities to obtain permanent Account
Number (PAN).
b) Jt. DGFT to obtain Importers exporters code Number
(IEC No.)
c) EPC to obtain Registration cum membership
certificate (RCMC)
d) Other authorities, such as FIEO, sales Tax authorities,
chambers of commerce etc.
3) Appointing Agent / Distributors
It is advisable to appoint agents or distributors in the
selected overseas markets. The exporter may also open branches
or sales divisions or depute permanent representative abroad.
4) Approaching Foreign Buyers
The overseas agents / representatives approach foreign
buyers with a quotation. The foreign buyer, if satisfied with the
quotation and after clarifications, if any, will place an order with the
exporter.
12.2.2

PRE-SHIPMENT STAGE

1) Confirmation of order
When the buyer is satisfied with the terms and conditions of
the seller, he will place either a formal or confirmed order along with
a signed copy of the contract. The exporter should acknowledge
and confirm the receipt of such order.
2) Obtaining Letter of credit
Together with the acknowledgement letter confirming the
receipt of an export order, the exporter may send a formal request
to the importer to open a letter of credit in his favour.
3) Obtaining pre-shipment Finance
As soon as the exporter receives a confirmed order and the
L/C, he should approach his bank for securing pre-shipment
finance to meet his working capital requirements.
4) Obtaining Export Licence, if necessarys
Export control is exercised to a limited extent in India. The
problem of obtaining export licence arises only in the case of a few
controlled items. Otherwise, export business has been delined.

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5) Production and Procurement of goods

Soon after securing the pre-shipment advance from bank,
the exporter has to arrange for production and procurement of
goods for shipment. A manufacturer exporter himself undertakes
the entire process of production.
6) Packing and Marketing
After procuring the goods meant for export, the exporter has
to arrange for proper packing and marking of the goods. Packaging
must ensure proper protection of the goods. The packing material
should be selected after considering the distance to be covered,
mode of transportation, types of handling of the goods at ports etc.
7) Pre-shipment Inspection
If the export cargo is subject to qualify control and preshipment inspection, the exporter should get in touch with EIA to
obtain Inspection certificate.
8) Central Excise Clearance
Goods meant for export are exempted from the payment of
excise duty. Excise clearance is obtained by two methods
a)Export Under Rebate and
b) Export Under Bond.
9) ECGC cover
The exporter must take appropriate policy to protect him
from credit risk.
10) Marine Insurance policy
In order to protect the cargo from perils on high sea, the
exporter has to obtain marine insurance policy. Payment of
insurance premium depends on the type of price quotation
accepted by the importer.
11) Appointment of clearing and Forwarding Agent
It is always advisable to appoint C & F agent to look after
forwarding work which includes booking of shipping space,
preparing and submitting various documents to customs.
12.2.3

SHIPMENT STAGE

1) Reservation of space in the ship

The exporter has to contact the shipping company well in
advance for booking the required space in the vessel for shipment
of his consignment. He has to provide necessary information as
regards date of shipment, gross and net weight of each package,
particulars of the importer and that of his own, arrival and departure
date of the vessel etc. when shipping company accepts the

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exporters request, the company or its agent issues shipping
order.
2) Preparation and processing of shipping documents
When goods reach the port of shipment, the exporter has to
arrange for preparation of a complete set of documents to be
passed on to the forwarding agent.
3) Physical Examination of goods at the port
The C & F agent obtains the carting order from the Port
Trust to Cart the goods inside the docks. He then approaches the
custom Examiner, who may physically inspect the goods. The
custom Examiner then given Let Export order.
4) Loading of goods
The duplicate copy of shipping bill which is endorsed by the
custom Examiner is handed over to the custom preventive officer,
who endorses it with Let ship order. The goods are then loaded on
board the ship, for which Mates Receipt is issued by the mate of
the ship. The Mates Receipt is handed over to the shipping
company to obtain Bill of Lading.
12.2.4

POST-SHIPMENT STAGE

1) Dispatch of Documents
Dispatch of documents by C & F Agent to the exporter. The
details and the mode of dispatch of the shipping documents are
specified in the L/C. negotiating, in this sense, implies mailing of
dispatching a set of documents to ensure that the importer or his
agent receives the same in time so that he can delivery of the
exported goods.
2) Shipmea font advice to importer
After the shipment of goods, the exporter has to sent
suitable intimation to the importer for his information. By this
intimation, the date of shipment, the name of the vessel, date on
which the goods will reach the destination should be informed to
the importer. A copy of non-negotiable bill of lading is also sent for
information. The importer gets the remaining documents through
his bank.
3) Presentation of Documents to the Bank
A complete set of documents is submitted by the exporter to
his bank for the purpose of negotiating the same and obtaining
export proceeds in time. The bank then sends the same documents
to the exporter.
4) Realization of export proceeds
The exporter then proceeds to claim export incentives on the
basis of bank certificate. The bank certificate gives description of

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the product, its value, the rate of conversion, the details of invoice
etc. The exporter is entitled to various incentives such as IPRS,
DBK and other incentives, it applicable.
5) Follow-up of Export sales
A good exporter should always have a follow-up after sales
i.e. he should provide necessary after sale service, find out buyers
opinion towards the product and so an, which will help to generate
more sales in the international market.

12.3 EXCISE CLEARANCE PROCEDURE

Excise duty is a levy imposed by the Central Government on
goods manufactured in India. This duty is usually collected on
goods at source i.e. before they are removed from the factory.
Export goods are totally exempted from central excide duty.
However, necessary clearance has to be obtained in either of the
following two ways: a) Export under bond and b) Export under
Rebate.
a) Export under bond
Under this system, the exporter need not pay any amount of
duty but export the goods under a bond supported by a bank
guarantee, for a sum equivalent to excise duty chargeable on such
goods. As this system amounts to a running bond account, the
bond is arranged for a suitably large amount with the approval of
the Excise Authorities so that several consignments may be
exported under the same bond without frequent renewals.
b) Export under Rebate
Under this system, the manufacturer / exporter initially pays
the duty and then claims its refund after shipment of the goods.
PROCEDURE FOR EXCISE CLEARANCE
The common procedure of excise clearance under bond
and under rebate is as follows
1) Preparing of Invoice
The expert goods have to be cleared from the factory under
invoice. The invoice contains details like name of the exporter,
value of goods, excise duty chargeable, etc. The invoice is to be
prepared in triplicate. In case of export under Bond, the invoice
should be marked as For Export without payment of duty. In
addition to the invoice, a prescribed form ARE-1 has to be filled in
by exporter.
2) Filling up of ARE-1 Form

195
The exporter has to fill up ARE-1 form in five copies. Which
can be used at the time of claiming other export incentives? The
ARE-1 copies have distinct colour for the purpose of verification
and processing.
Original copy
white
Duplicate copy
Buff
Triplicate copy
pink
Quadruplicate copy
Green
Quintuplicate copy
Blue
3) Application to Assistant collector
The exporter now has to remove the goods from the
factory/warehouse premises for which he has to apply to Assistant
collector of central Excise.
4) Instruction to Range Superintendent
The ACCE will instruct the Range Superintendent of Central
Excise under whose Jurisdiction the factory is located.
5) Appointment of Inspector
In order to comply with excise duty clearance, the Range
Superintendent will appoint an inspector. The inspector will clear
the goods either at the factory or at the port.
6) Processing of ARE-1 Form
The excise Officer / Inspector will make endorsement on all
copies of ARE-1. The handling of ARE-1 Form is done as follows.
a) The fifth (blue) copy is returned to the exporter.
b) The fourth (green) copy is sent by Excise Authorities to the
chief Accounts officer of central Excise.
c) The third (pink) copy is sent to maritime collector of central
Excise at the part of shipment.
d) The original (white) and the duplicate (buff) copies are
returned to the exporter.
e) The exporter hands over the original and the duplicate
copies to the customs Authorities.
f) The customs preventive officer sends the original to the
maritime collector (MCCF) and the duplicate copy is returned
to the exporter or his agent.
7) Refund of Excise Duty
The exporter has to apply to maritime collector of Central
Excise (MCCF) after the shipment of goods along with the duplicate
copy of AR-4. If MCCE is satisfied, it will instruct the Refund
Section to prepare cheque and hand it over to the exporter.

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CHECK YOUR PROGRESS:

1. Draw the chart showing Export procedure.
2. Enlist the points included in the Pre-shipment stage.
3. Explain the following points in the common procedure of
excise clearance:
a. Preparing of invoice
b. Appointment of inspector
c. Refund of excise duty
4. State the distinct colours and name of the copy of ARE-1
form.

12.4 ROLE OF CUSTOM HOUSE AGENTS

Custom Agents are the agents who look after the customs
and forwarding formalities relating to export of goods. The custom
House Agent provides a variety of services, which are complex in
nature. The following are the most important among them.
1) Obtaining Shipping order
The CHA may obtain shipping order from the shipping
company. The shipping order enables booking of space on the
ship. At time, the importer does the booking of space on the ship.
2) Arrangement for Internal Transport
The CHA arranges for the transportation of goods from the
exporters factory or warehouse to the docks or the airport.
3) Preparing of shipping Bill
Preparing of shipping bill based on the details mentioned in
various documents given to him by exporter, the custom House
Agent prepares the shipping bill in 5 copies. The shipping bill is
required for customs clearance.
4) Submission of Documents to customs
The CHA submits the relevant documents along with five
copies of the shipping bill to the customs house for verification.
5) Obtaining carting order
The CHA obtains a carting order from the port trust
authorities. The carting order is required for moving goods inside
the docks.
6) Storing of goods

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After obtaining carting order the goods are physically moved
into the port area and stored in appropriate shades. This is required
for the purpose of examination of goods.
7) Obtaining Let Export order
The CHA gets the goods examined by the customs examiner
and gets the Let Export order from the customs examines who
duly endorses it on duplicate copy of shipping bill.
8) Obtaining Let Ship order
The agent shows the Let Export order to the customs
preventive officer before loading goods on the ship. After checking
the goods if satisfied, he issues a let ship order i.e. permission to
load goods on the ship.
9) Loading of goods
Loading of goods then the CHA makes arrangement for
loading of goods on the ship and after the goods are loaded the
mate of the ship issues a mate receipt to the port superintendent.
10) Obtaining Bill of Lading
The CHA surrenders the mate receipt to the shipping
company and obtains the Bill of Lading. The Shipping company
issues two or three negotiable and two or three non-negotiable
copies of the Bill of Lading. It is an important document required
further by the importer for customs clearance at the port of
destination in importers country.

12.5 SHIPPING AND CUSTOM FORMALITIES

The shipment of export cargo has to be made with prior
permission of and under the close supervision of the custom
authorities. They cannot be loaded on board the ship unless a
formal permission is obtained from the custom authorities. The
custom authorities grant this permission only when it is being
satisfied that the goods being exported are of the same type and
value as have been declared by the exporter or his C & F agent,
and that the duty has been properly determined and paid, if any.
The custom procedure can be briefly explained as follows.
1) Submission of Documents
For customs clearance of cargo, the exporter or his agent
has to submit five copies of shipping bill along with necessary
documents such as
Letter of credit or confirmed export order.
Commercial invoice.
Packing list.

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Certificate of origin.
G. R. Form
ARE-1 Form.
Original copy of certification inspection.
(Wherever necessary)
Marine insurance policy.
2) Verification of documents
The customs appraiser verifies the details mentioned in each
document and ensures that all formalities have been complied with
by the exporter. It satisfied; he issues A Shipping Bill Number
which is very important from the exporters point of view.
3) Carting order
The custom house agent of the exporter approaches the
superintendent of the concerned port trust for obtaining a carting
order. After obtaining the carting order, the cargo is physically
moved inside the docks, which is basically the permission to move
cargo inside the docks. The carting order is issued by means of an
endorsement on the duplicate copy of the shipping bill.
4) Storing the goods in the sheds
After securing the carting order, the goods are moved inside
the docks. The goods are then stored in the sheds at the docks.
5) Examination of goods
The customs examiner examines the goods and gets the
package sealed in his presence. If satisfied the examiner grants
permission for the loading of the goods onto the ship in the form of
a Let Export order. The same procedure is now processed
through Electronic Data Interchange (EDI) system.
6) Obtaining Let ship order
The custom House Agent submits the duplicate copy of the
shipping bill along with other documents to customs preventive
offices. If the customs preventive officer finds that every thing is in
order he endorses the duplicate copy of shipping bill with Let ship
order.
7) Loading of goods
After obtaining the Let ship order the goods are loaded on
the ship for which the mate of the ship issues a Mates Receipt to
the superintendent of the port. Thats how the mates receipt
reaches the office of the port trust.
8) Payment of port dues
The Agent of the exporter then pays the required port dues
and collects the mates receipt.

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9) Obtaining Bill of lading
As the final step, the agent of the exporter submits the
mates receipt to the shipping company on whose ship the goods
are loaded. The shipping company issues a bill of lading. Normally
the bill of lading is issued in two or three negotiable and nonnegotiable copies, as they are required on various occasions later
on.

12.6 MARINE INSURANCE

12.6.1 MEANING
Marine Insurance is a contract under which the insurer
undertakes to indemnity the insured against losses, caused due the
perils of the sea.
Here perils of the sea include
Sinking of ship, Damage to the ship and cargo due to
dashing of the waves, Dashing of the ships on the rocks, Fire or
explosion on the ship, spoilage of cargo to sea water, Destruction
of the ship and cargo by the crew or captain of the ship, piracy and
such other risks.
Section 3 of the Marine Insurance Act, 1963 defines a
contract of marine insurance as an insurance cover for marine
cargo, air cargo and post parcels. Thus, marine insurance is used
to cover transportation by any of the following modes of transit
singly or jointly
a) Sea, air or land
b) Inland water voyages
c) Rail / road
d) Air
e) Post
It provides insurance or protection to goods in transit and
also extends to storage of goods provided such storage is
incidental to transportation.
12.6.2
PROCEDURE
INSURANCE POLICY

FOR

OBTAINING

MARINE

The following is the procedure for obtaining marine

insurance policy.
1) Selection of Insurance Company
The exporter needs to select the insurance firm to obtain
marine insurance policy. General insurance business in India is the
monopoly of General Insurance Corporation (GIC) of India and its
four subsidiaries. However, if an exporter intends to insure with a

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foreign company, then prior permission of the RBI must be
obtained.

2) Type of policy
There are various types of marine insurance policies issued
by the GIC to suit the requirements of the exporters. The exporter
should decide the appropriate type of policy taking in to
consideration his requirements. Such as Time policy, Voyage
policy mixed policy etc.
3) Proposal Form
To obtain a marine insurance policy, there is a need to fill up
the proposal form. Complete, correct and clear information must be
mentioned in the proposal form. Any misrepresentation or nondisclosure will render the contract null and void.
4) Verification of proposal form
The insurance company verifies the proposal form and
checks the relevant details. If it is satisfied, it accepts the proposal
form.
5) Payment of premium
The insurance premium charges may vary from company to
company and country to country. Payment on marine insurance
policy can be made in rupees provided exporter certifies that
insurance charges on the shipment in question have to be borne by
him.
6) Insurance policy
After making payment of insurance, the insurance company
issues the insurance policy which contains the following
a) The name and address of the insurance company.
b) The name and address of the insured.
c) A description of the risks covered.
d) A description of the goods insured.
e) The sum insured.
f) The date of issue, and the period of the policy.
g) The places where claims are payable together with details of
the agent to whom claims may be directed.
h) Any other details, as applicable.
7) Filing of claim
If the goods are damaged in transit, the exporter may file
acclaim for damages or loss with the insurance firm. The claim

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must be submitted in prescribed form supported by relevant
documents.

8) Claim Amount
The insurance firm verifies the claim of the exporter.
Normally, investigation is done in respect of the claim. If the
insurance firm is satisfied with the claim, it sanctions the claim
amount to the exporter.

12.7 NEGOTIATION OF EXPORT DOCUMENTS

The submission of the full set of shipping documents to the
bank for realization of payments is called negotiation of documents.
Payments from overseas buyer in respect of export proceed
must be realized only through the negotiating bank.
1) Negotiation of Documents
The exporter must submit shipping documents to his bank
for negotiation within 21 days of the date of shipment of goods
(subject to certain exceptions). Full value of export should be
realized within 180 days from the date of shipment. Where it is not
possible to realize the sale proceeds within the prescribed period,
the exporter must secure prior permission from the RBI. The
following constitute full set of shipping documents.
Commercial invoice, original L/C, customs invoice, certificate
of origin, insurance policy, packing list, foreign exchange
declaration form, Bank certificate etc.
2) Letter of Indemnity
If the documents submitted are not according to the
requirements of L/C, the bank normally refuses to negotiate the
same. In such a case, the exporter should execute a letter of
indemnity or request the bank to obtain special Authority to pay
from the bank of the importer which has advised the L/C.
3) Dispatch of documents
Before the transmission of documents for negotiation the
bank examines them thoroughly with reference to the terms and
condition of the buyers order, L/C and the laws relating to foreign
exchange control. It after scrutiny, the documents are in order, the
bank dispatches them to its overseas branch / correspondent as
early as possible.
4) Declaration of Export

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Every exporter before export of goods outside India should
furnish in prescribed forms such as full value of export of goods, if
the full value is unascertained at the time of exports, the prevailing
market value or the value which will be realized.
5) Declaration Forms
The main declaration forms are as follows:
a) G R Form: G R Form is exchange from submitted to customs
authorities at the port of shipment.
b) D P Form: Exports to all countries other than Nepal and
Bhutan by parcel post be declared on P P Form, which is
prepared in duplicate. At first, this form must be presented to
the bank for counter signature.
c) VP/COD Form: This is used in case of exports to all
countries by parcel post under arrangements to realize
exports proceeds through post either by value payable post
system or cash on delivery system.
CHECK YOUR PROGGRESS:
1. Define the following terms
a. Custom house agents
b. Marine insurance
c. Negotiation of documents
2. Enlist the points explaining the role of Custom house. agents
3. Explain the following points of shipping and custom
formalities:
a. Submission of documents
b. Storing the goods in sheds
c. Obtaining Let ship order
d. Loading of goods
e. Obtaining Bill of loading

12.8 REALIZATION OF EXPORT PROCEEDS

Payment against exports should be realized only through an
authorized dealer. No payment can be received even through bank
drafts and cheques, unless exempted otherwise by RBI.
The following are the steps in realizing export proceeds.
1) Approaching a Bank
After dispatch of goods, either by sea, or by air, the exporter
should approach his bank with a formal request to realize sale
proceeds from the foreign buyer.

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It is obligatory to submit the shipping documents to an
authorized dealer with 21 days of the date of shipment. In India, the
exporters have to realize the full value of exports within 180 days
from the date of shipment.
2) Submission of documents to the bank
The exporter should submit the various documents such as
Bill of Exchange, Full set of bill of Lading, commercial invoice
copies, certificate of origin, Insurance policy, Inspection certificate,
packing list, G R Bank certificate and other certificate.
3) Verification of documents
The bank will verify the documents to find whether the
required documents are in order, whether the required documents
are attested by customs and other.
4) Letter of Indemnity
The exporter can collect advance payment from his banker
by signing a letter of indemnity. The understanding is in case the
buyers bank does not release the payment, the exporter will refund
the money with accrued interests to the bank.
5) Discounting of Bills
The bank may discount or purchase the bills drawn against
L/C amount, and make immediate payment to the exporter, if so
required.
6) Despatch of documents
The details and the mode of dispatch of the shipping
documents are specified in the L/C. negotiating, in this sense,
implies mailing or dispatching a set of documents to ensure that the
importer or his agent receives the same in time so that he can
present them to the port authorities and claim delivery of the
exported goods.
7) Method of Realization
For the purpose of receiving payments against exports,
countries have been divided into two groups i.e. a) Asian clearing
union It includes Bangladesh, Burma, Pakistan, Iran and SriLanka
and make a payment in Indian Rupees or any permitted currency b)
External Group In includes rest all countries and make payment
in any permitted currency.
8) Processing of G R Form
When the negotiating bank has received payment from
abroad, it will record it on the duplicate copy of GR and forward it to
RBI. The original copy of GR was already sent to RBI by the
customs when goods were shipped. Now RBI will tally the
informations in the original and duplicate copy of GR. When they

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are found to be alright, the transaction is treated closed because
the required foreign exchange payment has already been received.

12.9 ISO 9000 CERTIFICATION

12.9.1 MEANING
International organization for standardization (ISO) is an
international body representing more than 120 countries including
India, Bureau of Indian standards (BIS) is the Indian representative
to ISO. The objective of ISO is to facilitate the development of
international standards in order to reduce the barriers effect of
different national standards on international trade of goods and
services. ISO is a non-governmental organization. ISO prepares
and publishes a large number of new and revised international
standards annually. Meaning of ISO 9000.
Quality standard recognized at the global level is called ISO
9000.
ISO 9000 provides common standards of products and
services worldwide. ISO 9000 is essentially a mark of quality
assurance. It is adopted by more than 120 countries. The
developed nations prefer to import from the exporters who have
obtained ISO 9000 certification for their products. Indian companies
with ISO 9000 certification do maintain good quality standards and
in their case quality inspection from EIC is not required.
ISO 9000 is a series of five international standards an quality
management. The series consists of ISO 9000, ISO 9001, ISO
9002, ISO 9003 and ISO 9004. These are as follows.
12.9.2

STANDARDS

ISO 9001-

Consists of 20 elements covering design,

development, production, installation and servicing. It
is the most comprehensive standard.
ISO 9002 - Same as 9001 without design and service,
ISO 9003 - Consists of 12 elements covering final inspection and
testing for laboratories, ware houses etc.
12.9.3

GUIDELINES

ISO 9000 - It is used to find out which of the three standards is

applicable.
ISO 9004 - It interprets the standards and provides suggestions
which are not mandatory.

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12.9.4

IMPORTANCE / ADVANTAGES OF ISO 9000

The importance / advantages of ISO 9000 certification

benefit the company both internally as well as externally.
INTERNAL BENEFITS
1) Improvement in Efficiency
ISOI 9000 certification leads to improved efficiency, which in
turn results in higher returns at lower costs.
2) Lower Rejects
ISO 9000 certified firm follows high quality standards where
rejections would be either nil or very low.
3) Better Relation
As an ISO 9000 certified firm works in a systematic way with
clear-cut policies and procedures, there would be no scope for
disharmony. This result in better relations between the
management and the employees.
4) Team work
There would also be better team work among the employees
of different departments because of harmony and goods relations
among people of all cadres in the organization.
5) Optimum Utilization of Resources
Due to clear policies and plans in the organization, there
would be minimum wastage and optimum utilization of available
resources, both material and human.
6) Motivate personnel
The internal environment in an ISO 9000 certified firm is
harmonious and more over employees get properly remunerated.
Given the right type of incentives employees would be well
motivated.
EXTERNAL BENEFITS
1) Customer Satisfaction
There can be customer satisfaction. This is because, the
customers are provided with better quality goods and at right
prices. This is because of higher efficiency of the firm.
2) Corporate Image

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Firms obtaining ISO 9000 certification earns a good
corporate image in the domestic as well as international markets.
The customers, suppliers, investors and other trust ISO 9000
certified firms.
3) Improved competitiveness
ISO 9000 firms have a higher competitive strength and
hence can successfully face stiff competition in the international
market. This is due to improved efficiency and better marketing
practices.
4) Increase in sales
Due to better products, reasonable prices and higher
consumer satisfaction, there would be increased sales consistently.
5) Better Brand Image
As quality goods are sold at right prices backed with right
promotional efforts, helps the firms products enjoy a better brand
image in the market.
12.9.5
PROCEDURE
CERTIFICATION

FOR

OBTAINING

ISO

An Indian company can obtain ISO 9000 certification from

foreign accredited agency or from Bureau of Indian Standards
(BIS). The Indian exporters normally obtain ISO 9000 certification
from a foreign accredited agency because of reputation of foreign
agencies in the world markets.
The following is the procedure to obtain ISO 9000
certification.
1) Assessment of existing quality procedure
The company willing to go for ISO 9000 certification should
start with assessing the level of existing quality procedure, and take
stock of the situation, so that it can equip itself to go for ISO 9000
certification. For this purpose, the ISO steering team can be
appointed to evaluate the existing quality procedures.
2) Initiating corrective Action
If the company finds deficiencies in the existing quality
procedures, then there is a need to correct or overcome such
deficiencies. Such correction is required so as to conform to ISO
series standards.
3) Preparation of Quality assurance programme
The company should prepare a quality assurance
programme which refers to observance of quality control at various
areas, training of employees and education to top management.
The object to maintain high quality standard.

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4) Preparation of Quality Manual

It is a manual containing guidelines to the employees of the
firm so as to maintain quality standard.
5) Selection of certification agency
The company has to select an agency that can provide ISO
9000 certification. The company may select Bureau of Indian
Standards (BIS) or a foreign agency. Normally foreign agencies are
selected as certification agencies because a foreign agencies carry
more weight in international markets.
6) Pre-inspection meeting
The representatives of the firm will have a pre-insection
meeting with the registration of the agency. The purpose is to
analyze and appraise the quality standards being followed by the
firm.
7) Preliminary visit
The accredited agency pays a preliminary visit to the firm.
The purpose of the visit is to find out any commission or variations
and to suggest corrective measures.
8) Actual assessment visit
It is a detailed visit involving assessment of how effectively
the systems are functioning. It any deficiencies are found, the firm
is given time to rectify the same.
9) Certification
If the assessment agency is satisfied with the quality
systems followed by the firm, then the firm is granted ISO 9000
certification.
10) Surveillance
The accredited agency may take periodic surveillance
programmes to ensure that the certified firm is maintaining quality
systems. In case it finds that the firm failed to maintain quality finds
that the firm failed to maintain quality system, certification may be
cancelled or suspended.

12.10

DISTINGUISH BETWEEN PRE-SHIPMENT

PROCEDURE
AND
POST-SHIPMENT
PROCEDURE

Pre-shipment procedure
Post-shipment procedure
1) Meaning
It refers to the procedure
It refers to the procedure involved after shipment of
involved before shipment of goods.
goods.

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2) Registration
This stage involves registration
of the export firm with various
authorities.
3) Getting export-order
During this stage exporter gets
the export order to supply
goods.
4) Letter of credit / Bill of
exchange
During this stage exporter
obtains letter of credit from the
importer.
5) Types of credit
During this stage exporter goes
for pre-shipment finance to
meet
working
capital
requirements before shipment
of goods
6) Documents
During this stage various
documents such as invoice
packing list, etc are prepared
7) Customs House Agent
During this stage customs
house agent is appointed to
look after customs formalities.
8) Customs Formalities
During this stage a number of
customs formalities are to be
fulfilled.
9) Number of activities
There are a number of activities
involved during this stage.

10) Time element

This stage is lengthy and time
consuming
11) Realization of export
procedure
During this stage there is no
question of realization of export
proceeds as the export process
is not completed.
12) Realization of export
incentives

This stage is post registration

stage, hence there is no need
for registration with any
authority.
During this stage exporter
actually executes the export
order by exporting goods as
per export order.

During this stage exporter

draws a bill of exchange
against letter of credit.
During this stage exporter
goes for post-shipment credit
to meet working capital needs
arising after shipment of
goods.
During this stage various
documents are submitted to
various authorities and to the
importer.
During this stage customs
house agent is paid for the
services offered by him.
During this stage there are no
customs formalities to be
fulfilled.
When compared to preshipment stage the number of
activities during this stage is
less.
This stage is relatively less
time consuming.

During this stage the proceeds

of exports are realized as
export process is completed.

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During this stage the question
of realizing incentives does not
arise as the export process is
not complete.

During this stage the exporter

tries to realize various export
incentives like DBK Excise
refund etc.

12.11 SUMMARY
Export trade is governed by legal controls and therefore
every function of it is carried out under definite procedure. The
several steps in the procedure are classified into four stages as:
Preliminary stage, Pre-shipment stage, Shipment step and Postshipment stage.
Excise duty is a levy imposed by the Central Government on
goods manufactured in India. The general procedure for excise
clearance is: Preparing of invoice, Filling of ARE-1 form, applying to
assistant collector, Instructions to range superintendent,
Appointment of inspector, Processing of ARE-1 form, and Refund
of Excise duty.
The agents looking after the customs and forwarding
formalities relating to export of goods are called as Custom Agents.
Variety of services has been provided by these agents such as:
Obtaining shipping order, Arrangement for internal transport,
preparing of shipping bill, submission of documents to customs,
obtaining carting order, storing of goods, obtaining let export order,
obtaining let ship order, loading of goods, obtaining bill of loading.
While exporting exporter has to complete the shipping and
custom formalities. The procedure includes the steps like:
submission of documents, verification of documents, carting order,
storing the goods in the sheds, examination of goods, obtaining let
ship order, loading of goods, payment of port dues, obtaining bill
of loading.
Marin insurance provides insurance or protection to goods in
transit. For obtaining Marine insurance policy to follow a particular
procedure becomes compulsory. It includes the steps like:
selecting the insurance firm and type of policy, filling up the
proposal form, verification of proposal form, payment of premium,
issuing the insurance policy, filing a claim for damages, sanctioning
the claim amount to the exporter.
Negotiation of export documents means submission of all
shipping documents to the bank for realization of payment. The
export payment should be realized only through the dealer after
completing proper procedure i. e. approaching a bank, submission
of documents to the bank, verification of documents, letter of

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indemnity, discounting of bills, dispatch of documents, processing
of G R form.
International organization for standardization (ISO) is an
international body representing more than 120 countries. The
objective of ISO is to facilitate the development of international
standards in order to reduce the barriers effect of different
national standards on international trade of goods and services.

12.12 QUESTIONS FOR SELF-ASSESSMENT

1. What are the various stages in Export Procedure?
2. Explain the Excise Clearance Procedure in exports.
3. Examine the Role of custom House Agents.
4. Discuss the shipping and custom Formalities.
5. Enumerate the procedure to obtain marine insurance policy
in exports.
6. Evaluate the negotiation of export Documents.
7. Discuss the procedure involved in Realization of Export
Proceeds.
8. What is ISO Certification & Explain its importance?
9. Explain the procedure for obtaining ISO certification.
10. Distinguish
procedure.

between

pre-shipment

and

post-shipment

vvvv

13

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EXPORT DOCUMENTATION
Unit Structure
13.0
13.1
13.2
13.3
13.4
13.5
13.6
13.7
13.8
13.9
13.10
13.11
13.12
13.13

Objectives
Introduction
Commercial Invoice
Shipping Bill
Certificate of origin
Consular Invoice
Mates Receipt
Bill of lading
GR Form
Distinguish between Commercial Invoice V/s consular
Invoice
Distinguish between Certificate of origin V/s consular Invoice
Distinguish between Mates Receipt V/s Bill of Lading
Summary
Questions for self-Assessment

13.0 OBJECTIVES
After studying this chapter the students should be able to
Understand the main documents used in export trade and
their importance.
Make a comparative study of
Commercial invoice V/s consular Invoice
Certificate of origin V/s consular Invoice
Mates Receipt V/s Bill of Lading.
Define the export documents.

13.1 INTRODUCTION
Every export shipment must be accompanied by a number
of document. They are extremely important in overseas trade. In
the absence of shipping documents, a foreign buyer may find it
difficult to clear the goods, or he may be required to pay import duty
at higher rate. It is necessary that the buyer and the seller must
decide their documentary requirements as a part of sales contract.
In fact the buyer lists out his documentary requirements in the letter
of credit. it is the duty of the seller to go through carefully the types

212
of documents required by the overseas buyer and arrange them
accordingly. He is also obliged to arrange necessary documents as
required by foreign exchange and customs authorities in his
country.
An exporter is required to submit a full set of shipping
documents to his bank for negotiation. He is obliged to arrange
shipping necessary documents required by the customs authorities
in his country and also the documents required by the country of
buyer. The documentary requirement of the buyer is usually
contained in the letter of credit. Exporter is required to submit
necessary documents called full set of shipping documents to his
bank within 21 days from the date of shipment of goods.

13.2 COMMERCIAL INVOICE

13.2.1 MEANING
Commercial invoice is the statement of account sent by the
seller to the buyer and is prepared on sellers letter-head. It is an
exporters bill for the goods shipped.
Commercial invoice is the basic document in an export
transaction. All other documents are prepared with the help of
information contained in commercial invoice. It contains such
information as description of goods, price charged, term of
shipment and the marks and numbers on the packages containing
the merchandise. It is the sellers bill for the goods which contains
complete particulars about the consignment.
The commercial invoice should contain:
a) The name and address of the exporter and the importer.
b) The description of goods like quality, quantity, weight etc.
c) The value of goods, less discounts, if any.
d) The net amount payable by the importer.
e) Terms and conditions for sale.
f) The signature of the exporter.
Other details of shipment to be included as
g) Name of the ship
h) Letter of credit number.
i) Import-Export licence number of the export.
j) Bill of lading number.
k) Packaging specification and marketings there on
l) Identification marks on the package.
m) Shipping bill number and date.

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n) Shipping terms and conditions.
o) Freight charges and Marine Insurance premium.
p) Any other details if required.
13.2.2 IMPORTANCE OF COMMERCIAL INVOICE
The commercial invoice is important both to the exporter and
to the importer.
Importance to the Exporter
1) Payment collection
Commercial invoice is the exporters bill which the importer
has to pay. It enables the exporter to collect payment from the
importer.
2) Quality Control Inspection
A copy of commercial invoice is required to be submitted to
Export Inspection Agency (EIA).
3) Customs Clearance
A copy of commercial invoice is required to submit to
customs for customs clearance at the post of shipment.
4) Documentary Proof
It can act as a documentary proof in case of disputes
between the exporter and importer regarding the amount payable
by the importer and such other aspect.
5) Preparation of other documents
Commercial invoice helps to the exporter on his agent to
prepare other documents based on the commercial invoice, such
as shipping bill.
6) Claiming of Incentives
A copy of commercial invoice is required by the exporter to
claim incentives like DBK, Excise Refund, etc.
7) Recording and Filing
A copy of commercial invoice is required by the exporter for
the purpose of recording and filing for future reference.

Importance to the Importer

1) Payment of customs duty

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A copy of commercial invoice helps to the importer to pay
customs duty at the port of destination.
2) Payment to Exporter
Commercial invoice helps to know the exact amount that is
to be paid to the exporter.
3) Obtaining Loan
A copy of commercial invoice may be required to obtain loan
from the bank against the import of goods.
4) Preferential Tariffs
Commercial invoice is useful for the collection of tariff
concession, if available.
5) Recording and Filing
A copy of commercial invoice is required for future reference.
6) Customs clearance
A copy of commercial invoice is required by the importer for
the purpose of customs clearance at the port of destination.

13.3 SHIPPING BILL

13.3.1 MEANING
Shipping Bill is the main documents on the basis of which
the customs permission for export is given. It is a multi-purpose
documents used as application for export of goods, as dock challan
and for claiming duty drawback and other export incentives.
The shipping bill contains description of goods and other
particulars such as.
a) Name, address and IEC number of the exporter.
b) Name of the ship or the vessel.
c) Name of the agent
d) Description of goods
e) Details of packages and marketing there on.
f) Value of the goods.
g) The port at which goods are to be discharged.
h) Other details, if applicable.
Shipping bill is the main customs document. It is required by
the customs authorities for granting permission for the shipment of
goods.

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a)
b)
c)
d)
e)

The shipping bill is generally prepared in five copies

Customs copy
Drawback copy
Export Promotion copy
Port Trust copy
Exports copy

13.3.2 TYPES OF SHIPPING BILLS

Generally there are five types of shipping bill. These are as
follows.
1) Free Shipping Bill
Free shipping bill is used for goods which neither attracts
any duty nor is entitled to duty drawback on their exportation.
2) Dutiable Shipping Bill
Dutiable shipping bill is used in case of goods subject to
export duty.
3) Drawback Shipping Bill
Drawback shipping bill is used in case of goods which are
entitled to drawback (refund of customs duty)
4) Shipping bill for shipment Ex-bond
It is used in case of imported goods meant for re-exports and
which are kept in bond.
5) Coastal shipping bill
It is used in case of shipments which are moved from one
port of another by sea in India. It not an export document.
Generally, the format of shipping bill in case of export by air
and by sea is more or less the same, except colour of the form may
be different.
13.3.3

IMPORTANCE OF SHIPPING BILL

The importance of shipping bill to the exporter can be stated
as follows
1) Customs clearance
Shipping bills is required by the custom authorities for
clearance of goods. The custom authorities endorse the duplicate
copy of the shipping bill with let export order and let ship order.

2) Obtaining Incentives

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Shipping bill endorsed by the customs enables the exporter
to obtain export incentives, such as excise refund and duty
drawback.
3) Loading of goods
When the customs preventive officer provides duplicate copy
of the shipping bill to the agent of the shipping company,
permission to load the goods or Cargo is given.
4) Appraising value of goods
Shipping bill helps the customs to appraise the value of
goods that are to be exported.
5) Recording and Filing
A copy of shipping bill is required by the exporter for the
purpose of recording and filing for future reference.

13.4 CERTIFICATE OF ORIGIN

13.4.1 MEANING
Certain countries require their importers to obtain certificate
of origin from the exporter, certifying the origin of goods, without
which clearance of imported goods is refused. This certificate may
form a part of the commercial invoice itself. This certificate is issued
by the chamber of commerce or Trade Association or some other
competent authority.
Some countries, such as countries in the Middle East and
Gulf insist an certificate of origin attested by their consulate
stationed in India.
Certificate of origin (COO) declares that the goods which are
being exported are manufactured in a specific country.
Contents of the certificate of origin
a) Description, quantity and value of goods.
b) Number of packages and markings there on.
c) Declaration by the shipper
d) Certificate by the issuing authority.
13.4.2 TYPES OF CERTIFICATE OF ORIGIN
The certificate of origin is of three types such as
1) Certificates for clearance
These certificates are required by all countries for clearance
of goods by the importers. They are generally issued by trade
associations and the chambers of commerce. The exporter gives

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details in the prescribed form, submits a copy of the commercial
invoice and pays required fees. On the basis of all these
documents, the chamber of commerce issues certificate of origin.
2) Certificates for availing concessions under GSP
These certificates are required for availing concessions
available under Generalized System of Preferences (GSP). Such
certificates are to be obtained in triplicate. In India, certain agencies
such as Export Inspection Council, central silk board, Jute
Commissioner, etc. are authorized to issue certificates under GSP.
3) Certificate for availing concessions under common wealth
preference (CWP)
The prescribed form of such certificate of origin is available
with the organizations mentioned above. These organizations are
their regional offices have been authorized by the Govt. of India to
issue certificate of origin required in respect of exports to the
preference giving countries under CWP.
13.4.3 IMPORTANCE OF CERTIFICATE OF ORIGIN
I) Importance of COO to the exporter
a) It acts as a proof that the goods are of Indian origin.
b) It helps to clear the goods from the customs of exporters
country.
II) Importance of COO to the Importer
a) An importer gets quick delivery of goods from the customs.
b) An importer can claim special concession as regards
payment of tariff.
c) An importer gets adequate proof about the origin of goods.

13.5 CONSULAR INVOICE

13.5.1 MEANING
Sometimes, the importer requires the invoice to be certified
by the consulate of his own country stationed at the exporters
country. The certified copy of the commercial invoice is called
consular invoice.
Consular invoice is issued by the council of the importing
country stationed in the exporting county. This is obtained by the
exporter to ensure prompt clearance of the goods on the arrival of
the ship. It is necessary to convince the customs authorities
desiring to open the packages and scrutinize the goods for the
purpose of calculating customs duty. If this is done a considerable
delay will be put many hardship. To avoid this, consular invoice is

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obtained by applying to the concerned consulate on a prescribed
form. It is generally prepared in triplicate one copy is sent to the
customs authorities of the importing country and the third copy is
given to the exporter to enable him forward to the importer along
with other documents.
Consular invoice is a certificate issued by the Trade
Consulate of the importers country stating that goods of particular
value are being imported from a particular country by a particular
importer.
13.5.2 IMPORTANCE
I) Importance of Consular Invoice to the Exporter
a) It facilitates easy clearance of goods from the customs.
b) When the invoice is signed by the consulate of the importing
country, it is an assurance to the exporter this his goods will
enter into the buyers country without any difficulty.
c) The interest of the exporter is well protected. He can realize
foreign exchange against shipment without problem.
II) Importance of consular Invoice to the importer
a) The importer gets quick delivery of goods and that too
without opening the containers for verification purpose.
b) Goods are delivered quickly after the calculation of duty as
per the consular invoice received.
c) The importer is rest assured that banned goods are not sent.
III) Importance of consular invoice to the customs office.
a) The work of customs authorities become easy and quick.
Goods are cleared quickly.
b) Duty calculation is possible on the basis of consular invoice
received. This means the physical verification is not
required.
c) No need to open the cargo to calculate of value of goods.
d) Loss of time and re-packing of the goods are avoided.

13.6 MATES RECEIPT

13.6.1 MEANING
When the cargo is loaded on the ship the commanding
officer of the ship will issue a receipt called the Mate Receipt. The
Mate Receipt is first handed over to the port authorities. Port Trust

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Docks will accept the necessary charges on goods shipped at the
dock, and will hand over the mate receipt to the exporter or his
agent.
The exporter or his agent will have to make an application in
the prescribed from to the Manager, Mumbai Port Trust Docks to
accept payment of wharf age and demurrage and other charges on
the goods to be shipped. This application contains such detailed
information as, name of vessel, name of agent, owner of vessel,
nationality of flag of vessel, port of destination of goods, country to
which goods are consigned, marks and numbers, description of
goods, packages, weight, wharf age, other charges and so on.
Mates receipt issued by the mate or master of the vessel in
which the goods are shipped for onward Journey to specific post of
destination. It is issued by the mate after cargo is loaded on the
ship. It is a prima facie evidence that goods are loaded in the
vessel.
13.6.2 TYPES OF MATES RECEIPT
Mates receipt is of two types
a) Clean receipt
Clean receipt indicates that goods have been property
packed and there is no defect of any kind in the packing.
b) Qualified receipt
Qualified receipt mean packing is defective and that shipping
company will not be responsible for damages of any kind.
The exporter should get a clean receipt to avoid further
complications.
13.6.3 IMPORTANCE OF MATES RECEIPT
The importance of mates receipt can be summarized as
under.
1. Mates receipt serves as an acknowledgement of the cargo
loaded on the ship.
2. It further enables the shipping company to issue the bill of
lading.
3. It enables the exporter or his agent to pay port trust dues.
4. it is only after presenting the mates receipt to the customs
preventive officer that he records the certificate of shipment
on all copies of shipping bill and other documents.

13.7 BILL OF LADING

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13.7.1 MEANING
A bill of lading is a document issued by the shipping
company upon shipment of the goods. It is a contract between the
shipper (exporter) and the shipping company for the carriage of
goods to the port of destination. It is a document title to goods and
as such required by the importer to clear the goods at the port of
destination.
Bill of Lading is a document of title to the goods. It is issued
by the shipping company and serves as a receipt from the shipping
company which undertaken to deliver the goods at agreed
destination on payment of freight.
A Bill of Lading contains are the following.
a) The name of the shipping company.
b) The name and address of the shipper exporter.
c) The name and address of the importer / agent.
d) The name of the ship.
e) Voyage number and date.
f) The name of the ports of shipment and discharge.
g) Quality, quantity, marks and other description.
h) The number of packages.
i) Whether freight paid or payable.
j) The number of original issued.
k) The date of loading of goods on the ship.
l) The signature of the issuing authority.
In short, bill of lading is a contract between the shipper and
the shipping company for the carriage of goods to the port of
destination. It is an acknowledgement indicating that the goods
accepted for transportation are in order and in good condition.
13.7.2 TYPES OF BILL OF LADING
The important types of Bill of Lading are as follows.
1) Clean Bill of Lading
A clean bill of lading is one which does not contain any
indication that the goods were defective when boarded on ship.
2) Clause BL
It bears some adverse remarks when goods are not properly
packed and show signs of damage. The shipping company puts
adverse remark for example goods damaged.
3) State BL

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If the bill of lading is held to long and not presented to the
bank / consignee soon after it is given by the shipping company, it
is called state bill of lading.
4) Freight paid BL
This bill of lading is issued when the exporter has paid for
the freight charges. The words freight paid are mentioned on the
bill of lading.
5) Freight collects BL
When the export contract is on F. O. B. terms and when
freight is not paid by the exporter, it is called freight collect bill of
lading.
6) To order BL
This bill of lading is issued in the order of a certain person.
Title to the goods is given by possession of bill of lading.
7) Straight BL
In this importer / consignee / agent is named in the bill of
lading, it is called straight bill of lading.
8) On Board & Received BL
A bill of lading issued after the goods are loaded on the
vessel is called on board bill of lading.
9) Container BL
When containers are used in international trade, the shipping
company issues container bill of lading. Such a bill covers a
particular container from one port to another.
13.7.3 IMPORTANCE OF BILL OF LADING:
I) Importance of BL to the Exporter
a) Bill of lading is a legal document. In the event of dispute it
can be presented in a court of law.
b) It is a contract of transportation.
c) It is an acknowledgement of the receipt of the goods on
board the ship.
d) It enables the exporter to send a shipment advice to the
buyer.
e) It helps the exporter to file claim of compensation, if goods
are damaged in transit.
f) It helps the exporter to calculate exact amount of freight
while submitting CIF quotation.
II) Importance of BL to the Importer

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a) It is a document title of goods; as such he can claim the
possession.
b) It is a semi-negotiable document i.e. its ownership can be
transferred by endorsement and delivery.
c) It enables him to pay proper freight amount under FOB
contract.
III) Importance of BL to the shipping company
a) It helps the shipping company to collect the freight from the
shipper or the importer.
b) It protects the shipping company in sense that goods
damaged before loading on the ship is shown in bill of
lading.
CHECK YOUR PROGRESS:
1. Fill in the blanks:
a. A bill of lading does not containing any indication that the
goods were defective when boarded is called as ----------.
b. The words ---------------is mentioned on the Freight paid bill of
lading.
c. In this importer / consignee / agent is named in the----------bill of lading.
d. -------------------------- indicates that goods have been property
packed and there is no defect of any kind in the packing.
e. Certificates for clearance are generally issued by -------------------------and ----------------------------.
f. The certified copy of the -------------------is called consular
invoice.
2. Define the following terms
a. Clause Bill of lading
b. State bill of lading
c. On board bill of lading
d. Container bill of lading
e. Qualified mate receipt
f. Consular invoice
g. Certificate of origin
3. Enlist the important types of Bill of Lading

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13.8 GR (GUARANTEED REMITTANCES) FORM

13.8.1 MEANING
This is prepared the duplicate in case of all shipments other
than Nepal and Bhutan and submitted to customs Authorities at the
part of shipment.
The GR formality is to be completed as per the rules of RBI.
The GR form is a declaration form, wherein, the exporter
guarantees to realize the full value of export proceeds within a
stipulated period, which is normally 180 days from the date of
exports.
GR Form is an exchange control document which is to be
submitted to the Reserve Bank of India after clearance from the
customs Authorities, contents of the GR Form.
a) Name of the exporter
b) Name of the negotiation bank.
c) Currency in which payment will be received.
d) Currency in which payment will be received.
e) Name of buyers country.
f) Port of origin.
g) Port of destination
h) Commission or discount payable on export.
i) Quality, quantity and value of export.
13.8.2 PREPARATION OF GR FORM
a) GR Form is used for declaring exports to all countries other
than Nepal and Bhutan. It is to be completed in duplicate.
b) GR Form is used to declare receipt of foreign exchange.
c) All entries should be made in the currency of the invoice.
d) Banks name concerned with the realization of export
proceeds should be noted clearly.
e) The code number of exporter should be noted correctly and
clauses which are not applicable should be scored out.
13.8.3 PROCESSING OF GR FORM
After examination of the particulars in the form, customs will
certify the export value on both the copies of GR Forms. Original
copy is sent to the RBI by customs and the second copy is handed
over to the exporter. The exporter hands over the duplicate copy of

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GR Form to his bank. After the proceeds are realized, the bank
sends the duplicate copy of GR to RBI.

13.9

DISTINGUISH BETWEEN COMMERCIAL

INVOICE AND CONSULAR INVOICE
Commercial Invoice

1) Meaning
Commercial invoice is the
statement of account of sale
rendered by the seller to the
buyer and it is prepared by
seller on his letter head. It is
nothing but exporter bill for
shipment of goods.

Consular Invoice
Consular
invoice
is
a
certificate issued by the Trade
consulate of the importers
country stationed in the
exporters country stating that
goods of particular value are
imported from a particular
country by particular importer.

2) Purpose
Its basic purpose is to inform Its basic purpose is prompt
details of goods supplied and clearance through customs at
the amount payable by the port of destination.
importer to exporter.
3) Status
It is a fundamental document
and it is rightly called
horoscope of export trade
transaction.
It
provides
information
required
for
preparing
other
export
documents.

It is a secondary document.
The preparation of this
document
depends
upon
requirement of buyer. It is
needed only when duty is
being charged on the basis of
value of goods.

4) Fee
Seller does not charge fee for Consul of the concerned
preparing this document.
country charges nominal fee
for preparing this document.
5) Contents
It contains the terms and It
only
contains
details
conditions of sale as well as regarding value of goods
particulars of goods.
being imported from certain
country.

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13.10 DISTINGUISH BETWEEN CERTIFICATE OF

ORIGIN AND CONSULAR INVOICE
Certificate of Origin

Consular Invoice

1) Meaning
The certificate of origin states
that the goods which are
being
exported
have
originated
in
a
specific
country.

Consular
invoice
is
a
certificate issued by the Trade
consulate of the importers
country stationed in the
exporters country stating that
goods of particular value are
being
imported
from
a
particular
country
by
a
particular importer.

2) Purpose
The certificate of origin is
necessary
for
taking
advantage of a preferential
tariff or to ensure that the
goods produced in a particular
country are not banned from
import
in
the
country
concerned.

This document is required

only for prompt clearance and
avoiding
the
trouble
of
opening
packages
and
repacking
them
for
determining value.

3) Legalisation
No legalization is required in This document has to be
case of the certificate of origin. properly
legalized
by
presenting it to the consul of
the
importing
country
stationed in the exporting
country.
4) Issuing Authority
The certificate of origin is
issued by the chambers of
commerce, EPC or Authorized
Trade Association.

Consular invoice is issued

only by the Trade consulate of
the
importers
country
stationed in the exporters
country.

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13.11 DISTINGUISH BETWEEN MATES RECEIPT AND

BILL OF LADING
Mates Receipt

Bill of Lading

1) Meaning
Mates receipt is a receipt
issued by the mate i.e. master
of the vessel after cargo is
loaded in the ship.

Bill of lading is the official

receipt issued by the shipping
company. This bill officially
acknowledges the receipt of
goods for transportation.

2) Types
It is generally two types i.e.
clean mates receipt and the
other is claused mates
receipt.

It is of several types, such as

clean BL, claused BL, state
BL, Freight, paid BL, Freight
collect BL.

3) Negotiability
Mates receipt is not a Bill of lading is a negotiable
negotiable document and as documents and as such it has
such it does not have any title title of goods.
to goods.
4) Importers Need
The copy of mates Receipt is Bill of lading is essential to the
not required by importer.
importer.
5) Number of copies
It can be prepared in three
copies, one for the mate for
his records, the second copy
is sent to the shipping
company and the third is
handed over to the exporter.

It is prepared in set with 2

negotiable copies and several
non-negotiable copies, only
the negotiable copies have
title to goods and nonnegotiable copies are used for
record purpose.

6) Signed by
Mate receipt is signed by the It is signed by the shipping
mate of the ship
company or its agent.

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13.12 SUMMARY
Commercial invoice is an exporters bill for the goods
shipped. It contains such information as description of goods, price
charged, term of shipment and the marks and numbers on the
packages containing the merchandise. It is the sellers bill for the
goods which contains complete particulars about the consignment.
Shipping Bill is the main documents on the basis of which
the customs permission for export is given.
Certificate of origin is the document certifying the origin of
goods, without which clearance of imported goods is refused.
Certificate of Origin contents description, quantity and value of
goods, number of packages and markings there on, declaration by
the shipper, certificate by the issuing authority.
Consular invoice is a certificate issued by the Trade
Consulate of the importers country stating that goods of particular
value are being imported from a particular country by a particular
importer.
After loading the cargo on the ship the commanding officer
of the ship issues a receipt called the Mate Receipt. It is a prima
facie evidence that goods are loaded in the vessel.
Bill of Lading is issued by the shipping company and serves
as a receipt from the shipping company which undertaken to deliver
the goods at agreed destination on payment of freight. It is an
acknowledgement indicating that the goods accepted for
transportation are in order and in good condition.
The GR form is a declaration form, wherein, the exporter
guarantees to realize the full value of export proceeds within a
stipulated period, which is normally 180 days from the date of
exports.

13.13 QUESTIONS FOR SELF-ASSESSMENT

1. Explain in brief the main documents required by custom
authorities at the port of shipment.
2. Discuss the importance of the following documents
a) Certificate of origin
b) Bill of Lading
c) Shipping Bill
d) Consular Invoice

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3. Write short notes on the following documents
a) Commercial Invoice
b) Bill of Lading
c) Shipping Bill
d) Certificate of origin
e) Consular Invoice
f) Mates Receipt
4. Distinguish between the following
a) Commercial Invoice Vs Consular Invoice
b) Certificate of origin Vs Consular Invoice
c) Mates Receipt Vs Bill of Lading
5. Explain the checklist for submitting documents to authorized
dealer for negotiation of export bills.

vvvv

14
EXPORT ASSISTANCE AND INCENTIVES
Unit Structure
14.0
14.1
14.2
14.3
14.4
14.5
14.6

Objectives
Introduction
Main Export Incentives
Duty Drawback (DBK)
EPCG Scheme
Marketing Development Assistance (MDA)
Market Access Initiative (MAI)

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14.7
14.8
14.9
14.10
14.11
14.12

DEPB Scheme
Deemed Exports
ASIDE Scheme
State level export promotion committee (SLEPC)
Summary
Questions for Self-Assessment

14.0 OBJECTIVES
After detailed study of this chapter the students should be
able to.
Understand the main export incentives
Elaborate the term DBK
Know in detailed EPCG, DEPB, and ASIDE Schemes.
Explain Marketing Development Assistance and market
Access Initiative.
Know deemed exports.

14.1 INTRODUCTION
Export assistance and incentives is a financial help given by
the Government to Indian exporters to improve their ability to
compete in foreign markets. Indian exporters can survive provided
they can produce good quality goods at reasonable cost. In the
domestic market practically everything is highly taxed. We can
export our goods but not taxes. The exporters need various
concessions and rebates to make the price competitive.

14.2 MAIN EXPORT INCENTIVES

The main export incentives are as follows.
1) Export Promotion Capital Goods Scheme
The scheme allow import of new capital goods at 5%
customs duty subject to an export equivalent to 5 times. CIF value
of capital goods to be fulfilled over a period of 8 years. Both new
and second hand capital goods can be imported.
2) Duty Drawback (DBK)
The exporters are entitled to claim the refund of the customs
duty paid on the imported materials and components. DBK also
involves refund of central excise duty paid on indigenous materials
used in the manufacture of the finished goods. Such refunds are
described as drawback.

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3) Exemption from Excise Duty
Finished goods, when exported are exempted from payment
of excise duty. Exemption can be made in two ways i.e. Export
under rebate and Export under bond.
In case of export under rebate, the exporter has to initially
pay the duty which he can claim refund at a later stage.
In case of export under bond, goods can be exported without
prior payment of duty but an indemnity bond is executed in favour
of excise authorities.
4) Exemption from VAT
Export goods are also exempted from the payment of sales
tax. Necessary documents are to be provided to the sales tax
authorities, giving proof of export, in order to claim sales tax
exemption.
5) Marketing Development Assistance
Large exporters such as export houses, trading houses, star
trading houses and SSTH are given marketing development
assistance which ranges between 25% to 60% of the actual
expenditure incurred MDA is provided in respect of conducting
market surveys, advertising and publicity abroad, opening
showrooms in India and abroad, etc.

6) Octroi and Rail Freight Refund

The exporters can claim Octroi refund from local authorities.
Octroi is the levy imposed by local authorities like Municipal
Corporation on goods entering from outside the local area
jurisdiction. The exporters can also claim railway freight refund paid
on transportation of goods by railways from the place of production
to the ports or docks.
7) Exemption from Income Tax
Out Government has provided income tax relief to all
exporters. Under section 80 HHC, exporters are given 100%
exemption from the payment of income tax on export profits.
Similarly, FTZs / EPZs and 100% EOUs enjoy a five year tax
holiday.
8) Duty Free Credit
Exporters get duty free credit on various items depending on
the FOB value of goods. For example, under Vishesh Krishi Gram
Udyog Yojana, exporters get 5% duty free credit on FOB value of
exports. Also service provides are eligible for duty free credit of

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10% of FOB earned by them under the Served from India
scheme.
9) Special Incentives to SEZ Units
The SEZ units are given special incentives to boost export
performance. For example a five year tax holiday is given to SEZ
units. The SEZ units are also given extension in credit realization
from 180 days to 360 days.
10) Market Access Initiative
Under this scheme, Govt. provides financial assistance to
undertake market studies, and marketing development activities in
respect of certain Focus Products and Focus Markets. The
assistance is provided to various agencies such as Departments of
Central and State Governments, Export promotion Councils,
Individual exporters and others. The amount of assistance ranges
from 25% to 100% of the total cost depending upon the activity and
the implementation agency.

14.3 DUTY DRAWBACK

14.3.1 MEANING
Duty Drawback means refund of custom duties paid on the
import of raw materials components and packing material. DBK
also involves refund of central excise duties paid on indigenous
material used in the manufacture of export products.
The Duty Drawback scheme has been introduced to
compensate the exporters for the additional costs in form of taxes
that he has to bear, apart from the actual cost of the import.
Therefore, the Central excise and customs duty paid on the
imported items are reimbursed to the exporter to give him the
opportunity of making his products competitive in the international
markets.
14.3.2 Duty back is available on the following items.
a) Raw materials and components used in the process of
manufacture.
b) Materials used in the manufacture of raw materials and
components used on the manufacture of finished products.
c) Irrecoverable wastages which arises in the process of
manufacturing.
d) Material used for packing the finished export products.
e) Finished products.

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14.3.3 DBK is not admissible
If the
a) Amount of drawback entitlement is less than Rs. 50/-.
b) Goods have been taken into use after manufacture except
tea chest used as packing materials for export of blended
tea.
c) Goods are produced using imported materials or excisable
materials in respect of which duties have not been paid.
d) Products manufactured by 100% EOUs and units located in
FTZs / EPZs.
e) Amount of drawback is less than 2% of net FOB value of
exports.
f) Goods exported to Nepal, Bhutan, Tibet and SingKiang.
14.3.4 Procedure to claim DBK.
Whom to Apply
The application need to be made to the nearest customs
House.
When to Apply
Application must be made within a period of 60 days from
the date of obtaining Let Export Order from the customs
examiner.

What Documents Required

The application must be supported by the following
documents.
a) Non-negotiable copy of Bill of Lading.
b) A copy of duty drawback
c) A copy of commercial invoice.
d) A copy of special brand rate letter, if required
e) Other required documents.
14.3.5 Rate of DBK
There are two rates of duty drawback
a) All Industry Rates
All Industry Rates are declared by the Government of India
from time to time. These rates are applicable to all units in the
industry. For example, if the govt. declares 20% DBK for textiles
then all units in the textile industry can get 20% DBK.
b) Special Brand Rates
Special Brand Rates are provided by the Govt. on the
special application made by a particular unit.

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14.4 EXPORT PROMOTION CAPITAL GOODS (EPCG)

SCHEME
Under the Export Promotion Capital Goods (EPCG) scheme,
the import of capital goods at 5% customs duty is allowed subject to
an export obligation equivalent to 5 times CIF value of capital
goods to be fulfilled over a period of 8 years. In case of EPCG
licenses for Rs. 100 crore or more the same export obligation can
be fulfilled over a period of 12 years.
14.4.1

Conditions

Import of capital goods is subject to actual user condition till

the export obligation is achieved. Under this scheme, exporters are
allowed to import both new and second hand capital goods with
residual life of ten years. The import of second hand capital goods
under the scheme is subject to certain conditions.
Capital goods means, plant, machinery, Equipment, Packing
machinery and equipment, Quality and pollution control, Testing
instruments, Power generation sets, Machine tools, Refrigeration
equipments, Research and development etc.
14.4.2

Who are eligible?

EPCG scheme is available both for manufacturing and

service sectors including manufacturer exporters; merchant
exporters tied to supporting manufacturers are eligible to import
capital goods, also service providers such as hotels, hospitals,
travel and tour operators etc. are eligible.
14.4.3

Features of EPCG Scheme

a) The EPCG licence holder can buy capital goods from

domestic manufactures.
b) Whatever capital goods are imported, it is subject to actual
user conditions.
c) In order to know about the progress of business, the EPCG
lincence holder has to submit a report of his export every six
months.
d) In order to continue to get the benefit of EPCG Scheme, the
licence holder must fulfill the export obligations.
e) When export obligation is fulfilled, the EPCG licence holder
must submit a consolidated statement of exports.
f) The EPCG licence holder will submit a certificate from his
banker when payment is received from abroad.

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g) EPCG is a facility given to the exporters to improve their
business.
h) In order to get registered for EPCG facility, the exporter has
to apply to Director General of foreign Trade (DGRT) with
application fee and relevant documents.

14.5 MARKETING
(MDA)
14.5.1

DEVELOPMENT

ASSISTANCE

PURPOSE

The Government of India established the MDA fund in 1963

with a view to promote exports along with marketing of Indian
products and commodities abroad. It is utilized for the following
purposes.
a) Market research, commodity research, area survey and
research.
b) Product promotion and commodity development.
c) Export publicity and dissemination of information.
d) Participation in trade fairs and exhibitions.
e) Trade delegations and study items.
f) Establishment of offices, branches and godowns abroad.
g) Grant-in-aid to Export Promotion councils and other
approved organizations for the development of exports and
the promotion of foreign trade.
h) Any other scheme which is calculated generally to promote
the development of markets for Indian products and
commodities abroad.
14.5.2

AMOUNT OF ASSISTANCE

The amount of assistance is normally 50% of the actual

expenditure. However, 60% of the actual expenditure may be
considered in respect of small scale units.
14.5.3

Beneficiaries

The expenditure controlled by the MDA committee and

assistance is provided under the following sub-heads.
a) Grant in aid to Export Promotion and Market Development
Organization.
MDA grant is available to 20 export promotion councils,
grantee institutions, approval organizations such as FIEO, IIFT,

235
Indian Institutes of packaging, Indian Council of Arbitration and
Indian Diamond Institutes, recognized exporters such as Trading
Houses, Star Trading Houses and Export Houses. The budget
provision for MDA for all organizations are approved by the MDA
committee
b) Disbursing Authorities
i.
Ministry of commerce for opening of foreign offices,
warehouses, after sales service centers and R & D facilities.
ii.
FIFO to promote participation in exhibitions and fairs
abroad, advertising in foreign media and road shows
abroad.

14.6 MARKET ACCESS INITIATIVE (MAI)

The Government of India has initiated a scheme called
Market Access Initiative (MAI) to promote Indias exports on a
sustained basis. This scheme is based on focus product and focus
market concept.
14.6.1

The Focus product scheme

It provides incentives to exporters of products which have

high employment potential in rural and Semi-urban areas. The
incentives include duty free credit of 2% of the FOB value of export
turnover of notified products such as value added fish and leather
products, stationary items, fireworks, sports goods, handloom and
handicraft items.
14.6.2

The Focus market scheme

Its aims at offsetting the high freight cost and other

disabilities faced by exporters in exporting to certain international
markets. The markets include Algeria, Nigeria, Tanzania, Kenya,
South Africa, Vietnam, Cambodia, Australia, New Zealand, Latin
American markets, etc. the exporters get 3% duty free credit of
FOB value of exports on all products to the notified areas.
14.6.3

Beneficiaries of Assistance

The assistance is provided to the following agencies

a) Departments of Central and State Governments.
b) Organizations of Central and State Governments.
c) Indian commercial missions abroad.
d) Export promotion councils.
e) Commodity Boards.

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f) Registered Trade Promotion Organization such as ITPO
g) Recognized Apex Trade Bodies.
h) Recognized Industrial clusters
i) Individual Exporters for Pharma products registration and
testing charges for engineering products abroad.
14.6.4

Components of Assistance

a) Conducting marketing studies.

b) Establishing showrooms and warehousing facilities in target
markets.
c) Participation in international trade fairs, seminars, sales
promotion campaigns, etc.
d) Transport subsidy for select agricultural products.
e) Launching export potential products.
14.6.5

Amount of Assistance

All export promotion activities can get financial assistance

from the Govt. ranging from 25% to 199% of the total cost
depending upon the activity and the implementing agency.

CHECK YOUR PROGRESS:

1. Enlist the main export incentives.
2. Define the following terms:
a. Duty drawback
b. Export promotion capital goods scheme
c. Marketing development assistance
d. Export assistance and incentives
3. Give the full forms of
a. DBK
b. EPCG
c. MDA
d. MAI
4. Fill in the blanks
a. ----------------scheme is based on focus product and focus
market concept.
b. The expenditure controlled by the MDA committee and
assistance is provided under the sub-heads namely ------------and-------------------------------.

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c. Under ------------- scheme, exporters are allowed to import
both new and second hand capital goods.
d. For DBK application must be made within a period of 60
days from the date of obtaining ----------------------.

14.7 DUTY ENTITLEMENT PASS BOOK (DEPB)

SCHEME
The value based advance licensing scheme and the old
pass book scheme have been replaced by a new scheme called
the DEPB scheme in the EXIM policy 1997-2002. The DEPB
scheme is likely to be withdrawn after May 2009.
Under the Duty Entitlement Passbook (DEPB) scheme an
exporter is eligible to claim credit at a specified percentage of FOB
value of exports. The credit shall be available against such export
products and at such rate as may be specified by the DGET.
14.7.1 Applications
The application for obtaining credit should be filed within a
period of six months from the date of exports or within three months
from the date of realization. The DEPB shall be issued with single
part of registration i.e. the port from where the exports were made.
No exports shall be allowed under DEPB scheme unless the DEPB
rate of the concerned export product is notified.
14.7.2 Validity
Duty Entitlement pass book scheme shall be valid for 12
months from the date of its issue.
14.7.3 Eligibility
Merchant exporter and manufacturer exporter are eligible
for DEPB.
14.7.4 Types
DEPB is of two types these one as follows
a) Pre-export basis
DEPB on pre-export basis aims to provide the facility to
eligible exporters to import inputs which are required for production.
b) Post export basis
DEPB on post export basis will be granted against exports
already made and will be transferable.

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The credit of DEPB on pre-export basis will be granted at the
rate of 5% of the average export performance during the three
preceding licensing years.

14.8 DEEMED EXPORTS

14.8.1 MEANING
Deemed exports are not physical exports. It involves those
transactions of goods within the country as specified by the
Government of India. In other words goods supplied do not leave
the country and the payments for such goods are made in India, by
the recipient of the goods. The deemed exports treated as exports
for certain facilities and benefits under the EXIM policy.
Deemed exports refers to those transactions in which the
goods supplied do not leave the country and the payment for such
goods are made in India by the recipient of the goods in Indian
rupees. Demand exports are not physical exports.
14.8.2 CATEGORIES OF DEEMED EXPORTERS
a) Supply of goods against duty free licenses issued under the
Duty Exemption Scheme.
b) Supply of goods to units located in EPZs or EHTPs or STPs
or to 100% EOUS.
c) Supply of capital goods to holders of licenses under the
EPCG scheme.
d) Supply of goods to the power, oil and gas sectors duty
approved by Ministry of finance.
e) Supply of goods to any project approved by ministry of
finance which permits import of such goods at zero customs
duty.
f) Supply of capital goods and spares to fertilise plants if the
supply is made under the procedure of international
competitive bidding.
g) Supply of goods to projects financed by multilateral or
bilateral agencies / funds as notified by the Department of
Economic Affairs, Ministry of Finance under international
competitive bidding.
14.8.3 BENEFITS TO DEEMED EXPORTERS
a) The supplier can claim special Import License at the rate of
6% of FOB value.

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b) The supplier can claim duty drawback.
c) The supplier can claim refund or excise duty paid on raw
materials which are used in the production of end products.
d) The supplier can claim special Import License / Advance
Intermediate License.
e) The supplier can import duty free specified inputs. In order to
claim Deemed Export Benefits, the supplier is required to
produce documentary evidence about realization of export
proceeds through banks.
f) The benefit of deemed exports is also available in respect of
supplies of capital goods and spares to fertilizer plants
completed during the Ninth plan period.

14.9 ASSISTANCE
TO
STATES
INFRASTRUCTURE
DEVELOPMENT
EXPORTS (ASIDE) SCHEME

FOR
FOR

ASIDE Scheme was announced in March, 2002. It was titled

as Assistance to state for Development of Export Infrastructure
and Allied Activities. For convenience, it can be referred as
Assistance to states for Infrastructure Development for Exports.
14.9.1 Purpose of ASIDE Scheme
This scheme is designed to encourage state Government to
participate in the promotion of exports from their respective states.
Under this scheme, financial assistance is provided by central
Government to State Governments for the development of
infrastructure and allied activities related to exports.
14.9.2 Criteria for Allocation of Funds
The funds are allocated to the state on twin criteria of gross
exports and the rate of growth of exports. The financial outlay of the
scheme has two components.
a) State component, where 80% of the funds are allocated to
the states / UTs on the basis of approved criteria.
b) Central component, where 20% to be retained by central
Govt. for meeting the requirements of inter-state projects,
capital outlays of EPZs, activities relating to promotion of
exports from the North Eastern Region (NER). The Central
Govt. will also retain an amount allocated to states but
remained unutilized in the previous years, if any and spend
that amount for export promotion and development activities.
Special importance to North Eastern Region (NER)

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A minimum of 10% of the scheme outlay is reserved for
North Eastern Region and Sikkim; this would enable the
development of NER and Sikkim in the area of exports.
Private Participation
To encourage private participation in the development of
export related infrastructure, state Govt. Are to identify projects with
private participation by giving them additional incentives.

14.10 STATE LEVEL EXPORT PROMOTION

COMMITTEE (SLEPC)
Every state / UT shall have a SLEPC, headed by Chief
Secretary of the state. SLEPC will scrutinize and approve the
projects and monitor the implementation of the scheme in the state.
Activities
The State Govt. shall utilize the funds for the development of
infrastructure such as
a) Roads connecting production centers with the ports or
docks.
b) Setting up of Inland container Depots and container Freight
stations.
c) Certain of New State Level Export Promotion industrial parks
/ zones.
d) Equity Participation in infrastructure projects.
e) Development of minor ports and Jetties.
f) Assistance in setting up of common effluent treatment
facilities.
g) Stabilizing power supply.
h) Any other activity as notified by Dept. of commerce from time
to time.

14.11 SUMMERY
Export assistance and incentives is a financial help given by
the Government to Indian exporters to improve their ability to
compete in foreign markets. I t includes EPCG scheme, DDK,
Exemption from excise duty and VAT and income tax, MDA, Octroi
and rail freight refund, Duty free credit, special incentives to SEZ
units, MAI etc.
Duty Drawback means refund of custom duties and central
excise duties paid. Therefore, the Central excise and customs duty

241
paid on the imported items are reimbursed to the exporter to give
him the opportunity of making his products competitive in the
international markets.
Under the Export Promotion Capital Goods (EPCG) scheme,
the import of capital goods at 5% customs duty is allowed subject to
an export obligation equivalent to 5 times CIF value of capital
goods to be fulfilled over a period of 8 years. EPCG scheme is
available both for manufacturing and service sectors.
The Focus product scheme provides incentives to exporters
of products which have high employment potential in rural and
Semi-urban areas.
The Focus market scheme aims at offsetting the high freight cost
and other disabilities faced by exporters in exporting to certain
international markets.
DEPB is the new face of the Value Based Advance
Licensing scheme and the old Pass Book Scheme in the EXIM
policy 1997-2002. Under the Duty Entitlement Passbook (DEPB)
scheme an exporter is eligible to claim credit at a specified
percentage of FOB value of exports.
Deemed exports are not physical exports. It involves those
transactions of goods within the country as specified by the
Government of India. The deemed exports treated as exports for
certain facilities and benefits under the EXIM policy.

14.12 QUESTIONS FOR SELF-ASSESSMENT

1)

Discuss the incentives available to Indian Exporters.

2)

Write short notes on

a. Duty drawback
b. EPCG scheme
c. MDA scheme
d. MAI scheme
e. DEPB scheme
f. Deemed Exports
g. ASIDE scheme

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vvvv

15
OBJECTIVES QUESTIONS CONCEPT
ABBREVIATIONS
Objectives:
The basic purpose of this chapter is to give an appropriate
meaning of the term, so as to understand and make easy to learn
very effectively.
Objective Questions Concepts:
1) Ad-Valorem Duty
Ad-Valorem duties are imposed at a fixed percentage on the
value of a commodity imported. Here, value of the commodity
imported is taken as a base for the calculation of duty.
2) Anti-dumping Duty
At present, certain exporters resot to dumping of goods at
very low price, even below the domestic cost of production. The
main purpose is to capture a large market share and to create
adverse effect on competitors through the price war. To offset antidumping effect, importing countries additional levy or duty called as
anti-dumping duty.
3) ARE-1 Form
The exporter has to fill up ARE-1 form
following different colours
Original copy
Duplicate copy
Triplicate copy
Quadruplicate (Fourth) copy
Quintuplicate (fifth) copy
4) Back to Back letter of credit

in five copies of the

white
Buff
pink
Green
Blue

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It is an ancillary credit granted by a bank in India against the
security of original L/C, which the exporter has received from the
importers bank.
5) Bilateral Trade Agreement -It refers to a trade agreement between two countries.
Countries enter into trade agreement for tariff concessions, or in
any other respect for promoting the trade among the contracting
parties. Trade agreement between more than two countries is
called multilateral trade agreement.
6) Bill of Lading
Bill of Lading is a document of title to the goods. It is issued
by the shipping company and serves as a receipt from the shipping
company which undertakes to deliver the goods at agreed
destination on payment of freight.
7) Blanket permit
Large export organizations like export houses and all forms
of trading houses are given the facility of blanket exchange permit,
under which lump sum foreign exchange is provided to meet
expenses abroad.
8) Banding
It is process of assigning a brand name to a product. The
main purpose of brand is to enable the target customers to identify
the brand and to get familiar with it.
9) Brand Piracy
Brand Piracy refers to counter feiting popular brand names
in foreign markets. The brand piracy is common in case of
consumer goods.
10) Break even point
It is that point where the total revenue intersects with total
cost is called break-even-point.
11) Canalization of Export
It means exports to be undertaken only by the canalizing
agency such as MMTC. NAFED etc. in respect of certain specified
items under the EXIM policy.
12) Carting order
Carting order is issued by superintendent of port Trust. It is
the permission given by the port trust authorities to get the goods
inside the docks.
13) Certificate of origin

244
Certificate of origin declares that the goods which are being
exported are manufactured in specific country.
14) CIF Quotation
CIF refers to cost, insurance and freight. It includes all costs
and expenses till the goods are loaded on the ship plus payment of
insurance premium and freight charges.
15) Confirmation of letter of credit
Confirmation of letter of credit means giving a guarantee
from a local bank in respect of the letter of credit.
16) Core Product
Core product is the primary level of a product. It constitutes
the primary service or benefit that a customer is looking for.
17) Consular Invoice
Consular invoice is a certificate issued by the Trade
consulate of the importers country stating that goods of particular
value are being imported from a particular country by a particular
importer.
18) Deemed Exports
Deemed exports are supplies made within India, and treated
as exports for the purpose of certain benefits. It includes supply of
goods to units in SEZ, 100% EOUs, EHTP/STP etc.
19) Deferred Payment Terms
Deferred credit means the exporter receives the payment in
installment over a period of time. It is offered in case of sale of
capital goods. The period of credit if exceeds over 180 days is
called as deferred credit or deferred payment terms.
20) Direct Exporting
Direct exporting means the manufacturer exporter directly
exports the goods without the help of intermediaries.
21) Discounting of Bills
It means encashing the bills proceeds before the maturity
date at a discount. The bank advances the amount of the bill after
deducting the discount charges.
22) Documents Against Acceptance
It is one type of documentary bills. Under DA bills, the
documents will be handed over to the importer against the
acceptance of bill of exchange.
23) Documents Against Payment

245
It is one type of documentary bills. Under DP, the documents
are to be handed over to the importer against payment of bill of
exchange.
24) Dollar Denominated Credit
The exporter gets post shipment credit is denominated in
foreign currency and the exporters pay interest at rates applicable
to the foreign currency i.e. dollar.
25) Dumping-It is a method of selling goods in the market at a low price,
even below the cost of production. Dumping can take place in the
domestic as well as in the export markets.
26) Duty Drawback-It refers to the exporter is eligible to get refund of custom
duty and excise duty paid on materials, components and
consumable utilized in the manufacture of finished goods.
27) ECGC-ECGF stands for Export Credit Guarantee Corporation of
India Limited. The two main objects of ECGC are
a) To protect the exporters against credit risks, i.e., nonrepayment by buyers.
b) To protect the banks against loses due to non-repayment of
loans by the exporters.
28) 100% EOUs
100% Export Oriented Units manufacture the goods purely
for export purpose. However, they can sell upto 50% of the
production in local area, subject to payment of duties.
29) EPC
It refers to Export Promotion Council. It is an export
promotion organization. It assists member exporters in their
marketing activities. In India, there are 23 EPCs which includes.
Apparel EPC, Cashew EPC, Basic chemicals EPC,
Engineering EPC, Carpets EPC, Gems & Jewellery EPC etc.
30) EPCG
EPCG stands for Export Promotion Capital Goods Scheme.
Under this scheme the import of capital goods at 5% customs duty
is allowed subject to an export obligation.
31) EPZ
EPZ stands for Export Processing Zones. A free trade zone
is an area near a sea / air port where firms can import goods duty

246
free if they are to be re-exported or used in the manufacture of
goods for export.
32) Export marketing
Export marketing includes the management of marketing
activities for product which cross the national boundaries of a
country.

33) Export or Perish-Export or Perish this slogan was coined by Late Mr. J
Nehru in early 1960s. this slogan places lot of emphasis on export
earnings. This slogan states that if a nation increases its exports, it
will prosper, or otherwise it will perish or face economic crisis. In
order to over come foreign exchange crisis, Mr. Nehru coined the
slogan Export or Perish.
34) Export obligation
Export obligation means the obligation to export compulsorily
by a certain firm which has undertaken certain imports under
concessions in import duty.
35) Export Promotion
It refers to export marketing efforts undertaken to promote
the sale of goods and services in overseas markets.
36) Export Under Bond
Export under bond is a system of excise clearance. Under
this system exporter can remove goods for export from his factory
or warehouse, without the payment of excise duty. However he has
to submit a bond supported by a bank guarantee, in favour of the
excise authorities for a sum equivalent to the amount of excise
chargeable on such goods.
37) FOB Price
Under the FOB contract, the seller quotes a price which
includes all the expenses incurred until the goods are actually
delivered on board the ship at the port of shipment.
38) Foreign Trade (EXIM) Policy
The FTP or EXIM policy provides guidelines regarding
export or import of goods and services. The FTP is reviewed every
year in m/April, at present FTP 2004-09 is in force.
39) Forfeiting scheme
This scheme was introduced by EXIM Bank in 1992. In
forfeiting transaction, the exporter forfeits his right to receive or

247
claim payment of export goods delivered to an importer, in return
for immediate cash payment from the forfeiting agency.
40) GATS-GATS stand for General Agreement a Trade in services. It is
one agreements signed by the members of the WTO. Under GATS,
the member nations of WTO should open up the services sector to
foreign firms so as to generate competition in the interest of
customers.

41) GSP
GSP stands for generalized system of preferences. The
developed countries provide tariff concessions on the imports of
developing countries. Therefore developing countries are in a better
position to export more to developed nations.
42) G R Form
G R Form is an exchange control document which is to be
submitted to the Reserve Bank of India after clearance from the
customs Authorities within 180 days.
43) IEC Number
IEC stands for importers exporters code number. It is
issued by it. Directorate General of Foreign Trade. It refers to
export import registration. In India, it is compulsory to obtain IEC
number.
44) IIFT
IIFT stands for Indian Institute of Foreign Trade it provides
training facilities to export personnel.
45) INCO Terms
INCO refers to International commercial terms in respect of
price quotations. The terms specify the exporters and importers
obligations under various pricing quotations such as FOB, CXF,
and CIF and so on. The obligations are universally accepted by
importers and exporters.
46) Indirect Exporting
Indirect exporting refers to exporting with the help of
intermediaries such as merchant exporters and star export houses.
47) International Dumping
It refers to the practice of selling goods in other countries at
a very low price, which is much below cost of production.
48) IRMAC

248
IRMAC stands for Industrial Raw Material Assistance
Centre. Under this scheme, large exporterss such as export
houses import raw materials in bulk and distribute them in required
quantity to manufacturers, suppliers or actual users.
49) ISO-9000
ISO - 9000 series of standard is evolved by the International
Standards is evolved by the series is a set of five individual, but
related international standards. These are ISO-9000. ISO-9001,
9002, 9003 and ISO -9004. The main purpose of these standards is
to bring internationally uniform standards on quality management
and quality assurance.
50) Letter of credit
Letter of credit means an undertaking given by the importers
bank to make payment to the exporter within the terms and
conditions of the letter of credit.
51) Let export order
The customs examiner at the port of shipment issues let
export order after physically examining the goods. It is a formal
permission to export the goods.
52) Let Ship order
The Customs preventive officer at the docks issues Let Ship
order. It is a permission to ship the goods.
53) LIBOR-LIBOR stands for London Inter Bank offer Rate. It is short
term borrowing rate among London banks. LIBOR is a benchmark
for pricing Euro Loans.
54) Lines of credit
It is a special scheme introduced by EXIM Bank provides
loans to foreign financial institutions so that they provide loans to
overseas buyers to buy Indian capital goods. The main objective is
to promote exports of Indian capital goods.
55) Market Penetration pricing strategy
A pricing strategy in which exporter introduces the product
into the market charging very low price initially. The purpose is to
capture the largest market possible and drive away competitors.
56) Mates Receipt-Mates receipt is issued by the mate or master of the vessel
in which the goods are shipped for onward journey to specific port
of destination.
57) MFN Clause

249
MFN stands for most favored nation principle. Under this
clause, if a country provides tariff concessions to one member of
GATT (WTO), then automatically such concessions are applicable
to all other member countries.
58) MMTC
The minerals and metals Trading Corporation of India Ltd.
(MMTC) was established by the GOI in Oct. 1963. it is a canalizing
agency which deals with export of minerals and metals.
59) MNC-MNC stands for Multinational Corporation. It is a corporation
that controls production and distribution facilities in more than one
country. In other words, a country that undertakes business
activities in more than one country is called MNC.
60) MODVAT-MODVAT stands for modified value Added Tax, New it has
been replaced by CENVAT.
61) Negative List of Exports
Negative list of exports means a list of items the export of
which is not allowed freely. It includes
Prohibited items, such as birds, animals and plants.
Restricted items, such as cattle, camels, chemical fertilizers
Canalized items, such as Gum Karaya, Niger seeds,
petroleum products etc.
62) Non-Tariff Barriers-Non-Tariff barriers are also called quantitative restrictions.
They restrict the quantity of goods to be imported / exported.
63) OGL-Open General License means the list which contains those
items which can be imported or exported without restrictions. Items
covered by an OGL can be exported or imported freely without any
licencing formalities to or from all permitted nations.
64) Overseas Buyers credit
It is a special scheme introduced by EXIM Bank of India.
Under this scheme, EXIM Bank provides loans to overseas buyers
to buy Indian capital goods. The loans are provided at international
rate of interest. The main objective is to promote the exports of
Indian capital goods.
65) Packing Credit
Packing credit is also known as pre-shipment finance. It
refers to the credit provided to the exporter to meet working capital
requirements before the shipment of goods such as payment of

250
wages, purchase of raw material, payment of recurring factory
expenses etc.
66) Penetration pricing strategy
A pricing strategy in which exporter introduces the product
into the market charging very low price initially. The purpose is to
capture the largest-market possible and drive away competitors.
67) Post-shipment credit
Post-shipment credit refers to the credit provided to the
exporter after the shipment of goods for meeting working capital
requirements. It fulfils the shortage of finance between the date
shipment and actual receipt of payment from the importer.
68) Price Quotation
It refers to the terms and conditions agreed between the
seller and the buyer. It provided the buyers and sellers obligations.
There are several price quotations such as FOB, C & F, CIF etc.
69) Probe Pricing
It is a pricing strategy, where the exporter fixes a high price,
when a new product is launched in the market. The main objective
is to probe or judge the customers reactions towards the price.
70) Product
According to Philip kotler
Product is anything that can be offered to a market for
attention, acquisition or consumption that might satisfy a want or
need
71) Product Adaptation
Product adaptation refers to modifying the product as per the
needs and requirements of the consumers in foreign markets.
72) Product Life cycle
Products pass through a life cycle. Normally, the product
passes through four phases or stages. They are a) Introduction
stage b) Growth stage c) Maturity state and d) Decline stage.
73) Product mix
It refers to a set of products offered for sale by a company.
For example a product mix may consist of food items, footwear,
fashion wear etc.
74) Product Positioning
Product positioning defined as an effort aimed at creating
and maintaining in the mind of target customers the intended image
for the product or brand, relative to other brands so that they will
perceive the product as possessing the attributes they want.

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75) Product standardization
Product standardization means introducing the product in the
market without any change.
76) Proforma Invoice
Proforma invoice is a quotation given in the form of a regular
invoice. It is sent as a reply to an inquiry.
77) RCMC
RCMC stands for Registration cum membership certificate.
It is issued by the export promotion council and Federation of
Indian exporting organization.
78) SAARC Countries
SAARC stands for South Asian Association for Regional
Cooperation. There for seven members of SAARC which includes
India, Pakistan, ShriLanka, Bangladesh, Bhutan, Maldives and
Nepal? This group aims of regional cooperation as far as trade is
concerned. In 2007, Afghanistan joined the group as the 8 th
member.
79) Seed Capital
Seed capital is promoters contribution towards equity. The
seed capital is provided by financial institutions like state Financial
Corporations.
80) Services Exports
It refers to marketing of services in other countries. The
services
exports
include
banking,
transport,
travel,
communications, insurance, software etc.
81) SEZ
SEZ stands for Special Economic Zone. It is a specifically
delineated duty free area and shall be deemed to be foreign
territory for the purposes of trade operations and duties and tariffs.
81) Shipping Bill
Shipping bill is the main customs document. It is required by
the customs authorities for granting permission for the shipment of
goods.
82) Shipping order
Shipping order issued by the shipping company reserving
berth or space for loading the goods on the ship.
83) Skimming pricing strategy
It refers to introducing the product with high pricing and
heavy promotional expenditure in order to skim the cream or to

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make as much profits as possible in the initial stages of product
introduction.
84) Specific Tariff Duty
Specific Tariff duty is one type of customs duty. It is charged
on the physical characteristics of goods such volume, weight, size,
design model etc.
85) State Bill of Loading
It is one type of bill of loading. If the bill of loading is held too
long and not presented to the bank / consignee soon after it is
given by the shipping company it is called state bill of loading.

86) Star Export Houses

The concept of star Trading House was introduced in 1990.
There are registered merchant exporters. They are also one of the
status holders.
87) Tariff BarrierIt refers to taxes or duties imposed on export items.
Normally, tariff barriers are imposed on imports. Tariff barriers
restrict the free flow of goods and services between nations.
88) Time draft and sight Draft
Time draft means the payment will be made against the draft
or bill of exchange after a certain period of time. Sight draft means
the payment needs to be made immediately against the draft or bill
of exchange.
89) Trading Bloc
Trading Bloc is a group of countries, which come together to
increase trade and development. It reduces or removes trade
barrier on member nations. Some of the examples - NAFTA,
ASEAN, EU etc.
90) TRIMS
TRIMS is the Trade Related Investment Measures
Agreement which was introduced by the WTO to protect
international trade from trade related investment measures that
countries adopt to protect their domestic trade.
91) TRIPs
TRIPs is the agreement on Trade Related Aspects of
Intellectual Property Rights under the WTO. It sets out the minimum
standards of intellectual property rights protection that all WTO
members must include in then national policies to protect
international trade.

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92) UNCTAD--UNCTAD stands for United Nations conference on Trade
and Development. Its members consist of developed and
developing nations. The main objective of UNCTAD is to promote
trade and development of less developed countries.
93) VAT
It is stands for value Added Tax. It is charged at the time of
production and at every stage of exchange. Thus it is a multi-point
tax.
94) WTO
WTO stands for World Trade Organization. It came into
existence in 1995 by replacing GATT. The main objective of WTO
is to increase world trade and employment by reducing / eliminating
tariff and non-tariff-barriers.
ABBREVIATIONS
ACC
ACU
ADB
ADS
AEPC
AEZs
APEDA

Assistant collector of central Excise.

Asian clearing union.
Asian Development Bank
Aligned Documentation System.
Apparel Export Promotion Council.
Agricultural Export zones.
Agricultural & processed Food Products export
Development Authority.
ASEAN
Association of South East Asian Nations.
ASIDE
Assis to states for Infrastructure Development for
Exports.
ASSOCHAM Association of Indian chambers of commerce.
BIFT
Board for industrial and Financial Reconstruction
of India.
BIS
Bureau of Indian standards
BIPs
Bio Technology parks
C&F
Cost and Freight
CAPEXIL
Chemicals and Allied products Export Promotion
council.
CIF
Cost, Insurance and Freight
CIP
Carriage and Insurance paid to
CSEZ
Cochin Special Economic Zone
CCIC
Central cottage industries Corporation
CWP
Common Wealth Preference

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DBK
DDP
DEQ
DES
DGFT
DGTD
DTA
ECD
ECGC
EDI
EEC
EEFC
EEPC
EHTPs
EIA
EIC
EME
EOUs
EPC
EPCG
EPZ
EU
EXIM Bank
FEDAI
FEMA
FICCI
FIEO
FOB
FOR
FOT
FIZs
GATS
GATT
GSIP
GSP
HHEC

Duty Drawback
Delivery Duty paid
Delivery Ex-Quay.
Delivered Ex-ship
Director General for Foreign Trade
Director General of Technical Development
Domestic Tariff Areas.
Exchange control Department
Export Credit Guarantee Corporation of India Ltd.
Electronic Data Interchange
European Economic Community
Exchange Earners Foreign currency Account.
Engineering Export Promotion Council
Electronic Hardware Technology Parks
Export Inspection Agency
Export Inspection Council
Entrepreneur Merchant Exporter.
Export Oriented Units
Export Promotion Council
Export Promotion Capital Goods Scheme.
Export Processing Zone
European Union
Export Import Bank of India
Foreign Exchange Dealers Association of India.
Foreign Exchange management Act 1999
Federation of Indian chambers of commerce and
industry
Federation of Indian Export organization
Free on Board
Free on Rail
Free on Truck
Free Trade Zones
General Agreement on Trade in Services
General Agreement on Tariffs and Trade
Global system of Trade Preferences among
Developing countries.
Generalised System of Preferences.
Handicrafts and Handloom Exports Corporation

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IBEC
IBRD
ICA
ICC
IDA
IDBI
IIFT
IIP
IMC
IRMAC
ITPO
KSEZ
L/C
LAFTA
LDCs
LIBOR
MAI
MDA
MDF
MSEZ
MFN
MITCO
MMTC
MPEDA
MSSIDC
NAFED
NAFTA
NSEZ
NHDC
NPC
OECD
OPEC
OGL
PSCFC
RCMC

International Bank for Economic Co-operation

International Bank for Reconstruction and
Development (World Bank)
Indian council of Arbitration.
International chamber of commerce
International Development Association
Industrial Development Bank of India
Indian Institute of Foreign Trade
Indian Institute of Packaging
Indian merchants chamber
Industrial Raw Materials Assistance centre
Indian Trade Promotion Organization
Kandla Special Economic Zone
Letter of Credit
Latin American Free Trade Area
Less Developed Countries
London Inter Bank offered Rate
Market Access Initiative
Marketing Development Assistance (scheme)
Marketing Development Fund
Madras Special Economic Zone
Most Favoured Nation (clause of GATT)
Mica Trading corporation
Minerals and Metals Trading corporation
Marine Products Export Development Authority
Maharashtra State Small Industries Development
Corporation
National Agricultural Federation of India Ltd.
North American Free Trade Agreement.
Noida Special Economic zone
National Handloom Development Corporation
National Productivity council
Organization For Economic Cooperation and
Development
Organization of Petroleum Exporting countries
Open General Licence
Post Shipment Credit Denominateal in Foreign
currency
Registration-cum-membership certificate

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SAARC
SAFTA
SAPTA
SEEPZ
SEZ
SIL
SIDBI
SSEZ
SSTH
STC
STCL
STPs
TRIFED
TRIPs
TRIMS
TTCI
UNCTAD
UNIDO
VABAL
VAT
VEPZ
VKGUY
WTC
WTO
WWEPC

South Asian Association for Regional Cooperation

South Asian Free Trade Agreement
South Asian Preferential Trade Agreement
Santacruz Electronics Export Processing Zone
Special Economics Zone
Special Import Licence
Small Industries Development Bank of India
Surat Special Economic zone
Super star Trading House
State Trading Corporation of India
Spices Trading Corporation Limited
Software Technology Parks
Tribal Co-operative Marketing Federation of India
Ltd.
Trade Related Intellectual Property Rights
Trade Related Investment measures
Tea Trading Corporation of India
United Nations Conference on Trade and
Development
United
Nations
Industrial
Development
organization
Value Based Advanced Licence
Value Added Tax
Visakapatnam Export Processing Zone
Vishesh Krishi Gram Udyog Yojana
World Trade Centre
World Trade Organization
Wool and Woollen Export Promotion Council.

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QUESTION PAPER

257
Q. 1

Explain the following terms / concepts in about 30 words

(any eight) : (16)

a) Composition of Export Trade

b) Dumping
c) Prohibited Items
d) EPC
e) C. I. F. Quotation
f) Warehousing
g) Letter of Credit
h) Mates Receipt
i) Let Ship Order
j) Product Promotion
k) Towns of Export Excellence
l) Give the full form of :
i) OPEC
Q. 2

ii) IIFT

Answer any two from the following :

(16)

a) Define and explain the term Export Marketing. What are its
features?
b) Discuss the causes for the poor share of India's export trade.
c) Distinguish between Tariff and Non-tariff barriers.
d) What are the effects of Trading Blocs on international trade?
Q. 3

Answer the two from the following :

(16)

a) What are the steps involved in the new product development

process?
b) Discuss the role of MPEDA in export promotion.
c) What is ITPO? What are its functions?
d) Write a detailed note on FTP 2009-14.

Q. 4

Answer any two from the following :

(16)

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a) From the following data, calculate the minimum FOB price to
be quoted by an exporter in US $ = Rs. 45/-.
Cost of Raw Material

Rs. 2,50,000

Cost of Labour

Rs. 35,000

Packaging Charges

Rs. 25,000

Profit Contribution

10% on FOB cost

Duty Drawback

10% on FOB price..

b) Read the case and answer the following questions :

Glow Hair is one of the Mumbais leading hair care
company offering everything needed for beautiful hair; such
as hair colour, shampoos, conditioners, permanent waves,
and styling products. These products are sold solely to
beautiful salons in the major cities of India.
In 2000, Glow Hair introduced its product in U.S.A. for the
first time. Glow Hair followed its Indian distribution method of
distributing the goods through direct sales to the clients i.e.
beauty salons.
Glow Hair has its own sales force which visits the salons all
over the cities to collect orders and also give fundamental
training in the use of the hair care products.
Likewise Glow Hair established offices In California and
hired sales force to call on prospective buyers. Glow Hair
became instant success in California area, but it proved
difficult to service prospective customers in rest of U. S. A.
Glow Hair tried until 2010 to service US customers directly
as in India, but realized that the Indian distribution methods
were not adequate for the US markets.
Q. 1 What is the reasons for the success of Glow Hair in Indian
Market?
Q. 2 If you are the export marketing manager of Glow Hair for US
Market, what changes in distribution system would you
recommend?
c) What is skimming pricing strategy? What are its advantages
and limitations?
d) Explain the features of post-shipment credit.

Q. 5

Answer any two from the following :

(16)

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a) Explain the Registration procedure to be followed by an
exporter.
b) Explain the Excise clearance procedure relating to export
trade.
c) Explain any four incentives offered to an Indian exporter.
d) Write importance of :
i) Shipping Bill

ii) GR Form

SECTION II (Only for IDOL Students)

Q. 6

Write Short Notes (any 4 FROM 6)

(20)

Covering the entire Syllabus.

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Syllabus
Export Marketing (under the Applied Component Group
Subjects) for Implementation from the Academic Year 2011-12
I.

Introduction to Export Marketing

Meaning and features of Export Marketing- Importance of Exports

for a nation and a firm- Difference between domestic marketing and
export marketing- Motivations for export marketing Present
problems faced by Indian exporters- Trends in World Trade- the
sunrise exports, review of Services Export, Composition and
Direction of Indias Export trade since 2000, - Reasons for Indias
poor share in world trade.
II.

International Marketing

Meaning, trade barriers tariffs WTO and its implications on

International Marketing with reference to agreements: TRIPs,
TRIMs, GATS, Agreements on Agriculture and its implications on
developing Nations Regional Economic Groupings- Implications
of Trade blocs for International Marketing- Major regional economic
groupings-EU, NAFTA, ASEAN, SAARC- Global System of Trade
Preferences among Developing Countries (GSTP)
III.

Preliminaries for Starting Export Business

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Overseas market research-Identifying foreign markets- factors for
selecting foreign markets- Product planning strategies for exportsNew product development Process- International Product Life
cycle-Methods of entry in foreign markets- Channels of Distribution
in export markets- Warehousing and its Case Studies.
IV.

Export Marketing and Promotional Organisations in India

Export Marketing Organisations- Export Promotion OrganisationsExport Promotion Councils- Commodity Boards- MPEDA- APEDAFIEO- IIFT- National Council for trade Information (NCTI)- ITPOEIC- TIP- ICA- Department of Commercial Intelligence and
Statistics- Directorate General of Foreign Trade- Chamber of
Commerce- STPs- EOUs- SEZs- Sales in DTA- Incentives to units
in SEZs- Contribution of SEZs in indias exports.
V.

Foreign Trade Policy (FTP)

Main objectives- Highlights of FTP 2009-2014- Special Focus

Initiatives- Towns of Export Excellence- Eligibility Criteria for Export
Houses / Star Export Houses / Trading Houses / Star Trading
Houses / Premier Trading Houses- Privileges of Export and Trading
House Status Holders- Negative list of exports.
VI. Export Pricing
Factors determining export price- Basic data required for export
pricing decisions, Marginal cost pricing-Export Pricing StrategiesMain Export Pricing Quotations- Break even point- Simple problems
on FOE Pricing
VII. Export FinanceMeaning and types of export finance- Features of Pre-shipment and
Post-shipment finance- Role of Commercial banks, EXIM bank,
SIDBI and ECGC in Export Finance- Forfating scheme of EXIM
bank- Methods of payment used in international trade- Terms of
Payment and factors determining payment terms- Letter of CreditProcedure for opening L/C, Parties involvea, Important Types of
L/C. (10 Lectures)
VIII. Export Procedure
Stages in export procedure- Excise clearance procedure- Role of
Custom House Agents (CHA)- Shipping and Customs formalitiesMarine Insurance- Negotiation of Export Documents- Realisation of
Export Proceeds- ISO Certification- Procedure for obtaining ISO
Certification.
IX.

Export Documentation

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Main documents used in export trade and their importance in export
trade- Commercial Invoice- Shipping Bill- Certificate of OriginConsular Invoice- Mates Receipt- Bill of Lading- GR Form.
X.

Export Assistance and Incentives

Main export incentives extended to Indian exporters by the Indian

government- Duty Drawback- EPCG Scheme- MDA- MAI- DEPB
Scheme- Deemed Exports- ASIDE-Other incentives available to
Indian exporters.
Suggested ReferencesInternational Marketing- P K Vasudeva- Excel Books, New Delhi.
International Marketing Management- An Indian Perspective- R. L.
Varshney & B. Bhattacharya, Sultan Chand & Sons, New Delhi.
Foreign Trade Policy 2009-14, Government of India, Ministry of
Commerce and Industry.

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Pattern of Question Paper
For College students, 80 Marks Theory Examination (To Attempt
Section I only) for Two and a Half Hour duration and 20 Marks
Project work and Viva or Presentation.
For Students of IDE, 100 Marks Theory Examination (To Attempt
Section I and Section II) for Three Hours duration.
SECTION I
N.B. Attempt All Questions.
1.

Explain the meaning of the following Terms / Concepts in

about 30 words (Any Eight)
(Twelve Terms / Concepts from the entire syllabus)

2.

Answer the following:

(Any Two from Four Questions, from Modules I and II)

3.

Answer the following :

(Any Two from Four Questions, from Modules III, IV and V in
the Ratio of 1:2:1)

4.

Attempt any Two from the following :

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A)

Simple Problem on Calculation of Minimum FOB Price

(From Modules VI)

B) One Case Study with Two Questions (relating to

Modules III)
C) One Question (from Modules VI)
D) One Question (from Modules VII)
5.

Answer the following :

(Any Two from Four Questions, from Modules VIII, IX and X in the
Ratio of 2:1:1)
SECTION II
(Only for Students of IDE and College Students who took
admission in T. Y. B. Com Class during the Academic Year
2005-06 or Earlier)
i.

Attempt any Four from Six Short Notes (covering the entire
syllabus)

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Reference Books:
International marketing and Foreign Trade Pankaj Mehra, Alfa
Publication, New Delhi.
International marketing P. K. Vasudeva Excel books, New
Delhi.
Indias Export policy Trends and prospects Pushpa Tarafdar,
Deep & Deep Publications Pvt. Ltd. New Delhi.
International marketing management An Indian Perspective R.
L. Varshney & B. Bhattacharya, Sultan Chand & Sons New Delhi.
International Marketing P. Saravanavel, Himalaya Publishing
House, Delhi.
International Marketing S. Yuvaraj, Vrinda Publications Pvt. Ltd.
Delhi
Foreign Trade Policy 2009-14, Government of India, Ministry of
Commerce and industry.
Internet Marketing Carolyn F. Siegel Houghten Mifflin company
Boston, New York.

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