Export Procedure (International Business)

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Introduction to Exports
To Export means to sell in another country. This involves complex procedures, including filing and exchange of documents, both in the country of Export (from where items are to be shipped/dispatched) and in the country of Import (where these items are to be discharged/delivered). The requirement of documentation arises due to the fact that the items that are exported are to be sold to some one who is thousands of miles away, speaking a different language, having different customs, preferences, currency and import regulations. In order to facilitate trade with other countries, certain sets of rules have been developed by the trading nations over the centuries, which are normally followed in foreign trade today. The International Trade is governed by rules made by the World Trade Organization (WTO). There are six steps in Export Procedure, these are following.

1. Evaluate Your Export Potential

Identify success factors within your domestic market and determine if the same factors, such as price or brand image, can be replicated in foreign markets. Explore expansion possibilities in the domestic market, whether or not to expand at all, or innovating new products for the domestic market.
Research Your Competitive Advantages Abroad:

Compare the product or service advantages and disadvantages with those of likely competitors. Some questions you should ask yourself in determining these advantages and disadvantages include: Can we sell the product abroad without changing its form or the manner in which it is marketed? Can we sell the same product but for a different use? Will we have to change product to make it export worthy? Should we develop a new product for targeted foreign markets?
Determine Your Financial Resources:

Once competitive advantages and the pros and cons of market expansion are determined, determine financial resources to support exporting. 2. Country/Market Research
Countries must be evaluated for their receptiveness to trade and investment.
Evaluate The Demographic/Physical Environment

Look at population size, growth, and density, urban and rural distribution, climate and weather variations, transportation and communication networks, and the use of electricity. A country with a growing population may be a suitable indicator, but you must also look at the ability of the population to purchase imports. If the populations

ability is widely dispersed, reaching consumers will be difficult. On the other hand, if the population is crowded into cities, reaching it will be easy; however, the costs of warehouse space in congested areas may be high.
Assess The Social/Cultural Environment

Research the literacy rate and education, health of a population, existence of a middle class, language issues, and cultural issues. For example, if people cannot read labels, then imported goods may have to rely on logos and symbols to create brand recognition and communication with customers.
Analyze The Political Environment

Governments may be hostile to foreigners, foreign goods, and foreign services. Understand the stability of government, attitudes to imports, attitudes towards your country, government involvement in business and trade, and attitudes towards economic growth.
Understand The Economic Environment

Know these economic indicators: GDP per capita growth, balance of payments, currency convertibility and controls, the inflation rate, and saving rate. Real GDP per growth is a good indicator of a countrys receptiveness to imports. You must also understand if the country has a balance of payments problem. If there is a problem, importing will not grow. Be wary if you cannot get your earnings converted into U.S. dollars, and if inflation reduces foreigners purchasing power between ordering and the time you are eventually paid. Some economic indicators that suggest a high demand for a short time period include a low savings rate, a trade deficit, and reduced importing. In these cases, you cannot count on long-term success in the country.
Collect Information About Market Access

Barriers to imports, ease of import process, legal protection for patents and trademarks, laws on profits and repatriation of profits, and regulations on labor employed by foreigners. Focus on the process of importing in a country. In countries such as Italy, France, Brazil, India, and China, which are hostile to imports, hassles and red tape sometimes create costly slowdowns for firms.
Know Your Product's Potential

Understand consumer characteristics/needs, availability of complementary products, and availability of suitable sales and support employees. Pinpoint needs for re-engineering. re-sizing, re-packaging, and changing material components.

3. Determine Entry Strategy and Pricing

You must decide on the price consumers are likely to pay for the product and work backwards to determine the price of your product to importers.
Determine Your Initial Goal In Exporting

Do you want to make a quick profit based on volume sales? Then price your product low. Do you want to establish an image of quality? Then consider pricing your product high. If your firm wants to follow a strategy of learning and long-term growth, then price your product low to a distributor or agent, which will teach you the facets of your new market.
Determine Your Price Based On The Following Criteria:

1. Channel Length:

Identify market channel lengths. If the path from the export firm is long for example, through an importer, primary wholesaler, secondary wholesaler, and a retailer to the customer- then your wholesale price must be lower than in the case of a shorter channel.
2. Market Demand:

How much of a demand is there for your product? Is there a large and emerging middle class that is able to buy your product? What are your competitors charging for this product and based on its attributes, can you charge a different price?
3. Risks Faced:

Your Company will have to analyze currency value changes and hedge against them. Impending dollar depreciation may allow the your export firm to gradually increase dollar prices. Country and political risks must be considered.
4. Costs:

Factor in your increased costs of product modification, shipping, insurance, tariffs, and taxes abroad.
5. Terms:

Included in the price should be your terms of shipping: CIF, FOB, CFR, FAS, etc

4. Plan an Operating Environment

You must decide on promotion and advertising activities and other customer communication issues. The operating environment that eventually emerges from planning depends on what your firm has identified as its critical success factors (e.g. price, service, brand, or company image) and on the marketing channels it uses.
Services And Support

In Asian countries, for example, American software sellers must establish elaborated pre- and post-sale customer training and support activities. Repair, maintenance, and spare parts issues must be dealt with.
Sales Force Training

The complexity of your product and the level of your service and support offerings will determine the extent of sales force training needed. Warehousing. 5. Decide On The Appropriate Export Procedure
Internal Export Departments

Most large companies have their own exporting department. Exporting details handled include transport analysis, shipping arrangements, documentation, customs, packing/labeling, cargo insurance, and consolidation.
External Export Services

Smaller companies often choose to engage freight forwarders or use export management software to guide them through the export procedure. Either freight forwarder services or export management software must be purchased

but represent far more economical options for smaller businesses that are unable to dedicate an entire department to the exporting process.
Freight Forwarders

1. Freight forwarders handle the export procedure for companies. You can find information and price quotes for freight forwarders on many Websites. These sites have useful information ranging from packaging materials to means of transportation to the latest tracking features.

www.interpool.com/tcl/resource.shtml http://www.freightnet.com/ http://www.justshipit.com/ http://www.freightcenter.com/ http://www.dggrpackaging.com/

Export Management Software

Export management software allows you to submit general information between numerous countries (which would have all different forms) in one universal form to submit. It then guides you through a series of questions in order to make sure you are not illegally exporting to certain countries or using inconsistent standards with other countries. The software may also produce a commercial invoice and related documents for you. Examples may be found online at Trade Solutions, Fountainhead, RSI, export software demo. 6. Arranging Financing Exporters must arrange for a method of payment and should consider the risk liability, who holds the market power, the level of trust in the relationship/outcome and an examination of the final export product.
Cash in Advance

Payment is to be made up front in cash. Cash in Advance is common when the product is in great demand, when the buyer has poor credit or when the importer's country is unstable.
Letters of Credit

Document issued by bank, usually at the request of a buyer, obligating the bank to honor the seller's draft. This is the most common method of payment for international exporting. There are two different forms of letter of credit: 1. Sight draft - an exporter's bank requests payment directly from the importer's to automatically transfer funds. 2. Time draft - an extension of credit to the importer. The importer can defer payment for a period of time. It is the bank's responsibility for collection and also their reputation on whether or not the payment will be made. There are also site and time versions of drafts for collection. This entails payment on maturity of draft or upon its presentation.
Open Account

Seller ships the products with an invoice and waits for payment. This is the cheapest method of payment, but also the riskiest. This method is most common and makes the most sense for intra-company shipments Companies may choose to finance their efforts through internal funding from profits or externally through investors, banks, and governments. There are two kinds of financing available for exporting. Working capital loans acquire supplies, develop overseas markets, or build inventories. Transaction loans support specific transactions. In order to acquire these loans, an exporter needs export credit insurance before a bank will provide any type of financing. Companies unable to secure financing from banks can turn to other financing options.

Boutiques: Private lenders called boutiques will back export deals deemed too risky by bankers. Although they appear to be an easy solution, they charge high service fees. Forfeiting: This is a sale by an exporter of a receivable to a forfeit company for a discounted payment. When dealing with some countries, exporters may have to fund the importer, especially in developing countries where interest rates are devastatingly high. If you can offer terms beyond 180 days, it may increase your business prospects. (e.g., Check out Mezra.com) Factoring: This is the sale of export receivables to a factoring firm, which will undertake collections. A company that handles factoring will transfer the invoice into the importer's currency, pay the exporter, and then collect the payment from the importer. Factoring is mostly used in developed countries where the risk is low and collection is high.

All of these methods of financing can be effective but you must analyze your exporting process and the importing country individually to determine the best fit for your company. Export Documentation Negotiating Your Contract And Meeting Its Terms

Contract - Offer - Acceptance Contract Terms under U.S. Law compared to the Vienna Convention (UN Convention on Contracts for International Sale of Goods) Determining Your Price

Selection Of Harmonized System Number And Tariff Consideration

Choosing a Schedule B Number Considerations to Reduce Your Foreign Purchaser's Tariff Liability (and Help You Get a Price Advantage) Dispute Resolution Other Contract Considerations

TRANSPORTING YOUR PRODUCTS

Freight Forwarders Ocean Carriers and Shipping Rates Air Carriers and Shipping Rates Surface (Truck and Rail) Insurance

FORMS OF PAYMENT

Letters of Credit pertaining to your Export Documents

Other Terms of Payment

Letters of Credit are very useful instruments in facilitating commercial relations between businessmen at various places. Letters of Credit state the limit of the credit and the time during which it is held at the disposal of the grantee, but they are neither negotiable nor transferable. Letters of Credit may be revocable. There are many kinds of Letters of Credit, such as Revolving Credit, Back to Back Credit, Claused Credit etc. Revocable And Irrevocable Letters Of Credit:

A Revocable Credit is one which the issuing banker can cancel at any time he chooses, but he will still be liable for bills negotiated before its cancellation. An Irrevocable Credit cannot be cancelled by the banker alone, and it will have to run its full course; but it can be cancelled if the beneficiary agrees to such cancellation. Confirmed And Unconfirmed Letters Of Credit: A confirmed credit contains a bankers written confirmation. When such a credit is advised to the beneficiary through another banker, it does not carry the confirmation or guarantee of the advising banker unless it is so stated. The terms of confirmed or irrevocable credit cannot be altered without the consent of all the parties thereto. An unconfirmed credit is one which does not carry a bankers confirmation. Revolving Credit: When the credit is issued for a fixed amount to be availed of within a fixed period, a fresh credit is necessary after the credit has been fully utilized. However, when the credit is so worded that the amount for which it is available automatically reverts to the original amount, it is termed as Revolving Credit. For instance, where the revolving credit is upto a limit of Rs. 100,000 and bill for Rs. 20,000 under the said credit is presented, the credit is automatically restored to its original amount Rs. 100,000 as soon as the bill is honoured. All letters of credit must have the following common points: 1. Name and address of beneficiary must be given in full. 2. The amount of the credit should be stated as to the currency in which it is available and whether it is available in one amount only or in several. 3. The tenor of the credit must clearly indicate the date on which the credit is to ease to be available. The place where it is effective and a final shipping date should also be inserted. 4. It should be made clear whether the drafts are to be drawn on the customer opening the credit or on the bank. It should also be sight or of a stated tenure. 5. The letter should clearly indicate that the credit is irrevocable, and the confirmation of the correspondent bank must be available to it. 6. Exact instructions must be given regarding the documents against which payment is to be made. If the bank is relyi9ng on the goods as security, it is essential that the documents should be in such a form as to make that security available. The supporting Bill of Lading should be clean on board and marked freight prepaid. The insurance policy should cover the C.I.F (Cost, Insurance and Freight) value of the goods. 7. The details of the goods covered by the credit should be kept to the minimum, because the more details in a credit run greater the risk of irregularities. 8. Instructions regarding part-shipment and transshipment should be fully stated in the credit. 9. Instructions should state whether the shipment is to be F.O.B (Free on Board), in which case the name of ports of loading and discharge must both be stated. In case of C.I.F., the port of destination should be clearly mentioned. 10. Instructions should be obtained from the customer whether the credit is to be advised by air-mail or cable, or by any other method.

Generally, the banks obtain these instructions on a form of application prescribed for the credit. This form should be signed as an agreement by a competent person. DOCUMENTATION FOR YOUR EXPORT SALE Commercial Documents
o o o o o o o

Commercial Invoice Packing List Air Waybill Dock Receipt, Warehouse Receipt Bills of Lading (Inland and Ocean) Insurance Certificate Shipper's Letter of Instructions (SLI)

Documents for Foreign Customs Clearance

Certificates of Origin Consular Invoice, Customs Invoice

United States Government Export Regulations

Export Administration Regulations Destination Control Statement Shipper's Export Declaration & Automated Export System Export License Applications and Record Keeping Ant boycott Regulations and Documentation

Controls Administered by the State Department and Other Agencies Export Procedure (For Afghanistan) Following is a stepwise guide for exporting goods to Afghanistan: 1. There is no banking system in place in Afghanistan and therefore for trade purposes the system of Hundi or Hawala comes into play. 2. All exports to Afghanistan are mostly undertaken against advance cash payment. However, some buyers are also using Dubai banking channel for remitting Foreign Currency as advance payments. 3. The importer contacts the local authorized dealer/bank of the exporter and deposits advance money in the account of the exporter. He also fills out a form V 19 (Annex 1) which is an undertaking on part of the importer and exporter of the transaction to be made. 4. The authorized dealer/bank, after verifying the documents pays the exporter in Pak Rupees (against dollars as deposited by the importer). 5. The exporter fills out another form V 18 (Annex 2) which includes details of the exporter, his contact address, goods to be exported etc. This form is reported by Authorised Dealer (A.D) to The State Bank of Pakistan for Exchange Return purposes.

6. A certificate of origin, verified from the Sarhad Chamber of Commerce and Industry is required that ensures that the exporter is a listed exporter and can undertake the transaction. 7. Once the payment has been received, in advance, the Form E (Annex 3) is certified and endorsement of advance payment is made by the bank. The shipping documents i.e. commercial invoice of goods and packaging list is prepared by the exporter. 8. After completion of documentary requirements, the goods are loaded in trucks and transported to the Pakistani border at Torkhum and Chaman. The Afghan authorities do not allow any transport company to operate its trucks in Afghanistan. All transportation companies operating in Afghanistan are Afghani. If a Pakistani transportation company has brought goods to the border, they are then reloaded into Afghani trucks that take on the goods further in Afghanistan. In order to simplify this, the Pakistani government has allowed Transportation companies from Afghanistan to operate in Pakistan. 9. Once the goods reach the Pak border, the Shipping Bill/Bill of Exports/Pakistan Good Declaration (PGD) of the consignment is submitted to the Deputy Superintendent (DS) customs for clearing. 10. After clearance from DS customs, the consignment is marked to the Inspector Customs who after examination gives his report on the shipping bill and marks the case again to DS. 11. After approval from DS the shipping bill is then again forwarded to the political agent and Khyber Rifles for further verification. 12. Once the goods have been cleared by officials at the Pakistan border, they are allowed to cross over into Afghanistan. 13. As the goods cross Pakistans border, all documents i.e. Copy of Truck Receipt, Shipping Bill, Commercial Invoice, Duplicate & Triplicate Form E are sent to the authorized dealer/bank by the exporter within 21 days from the date of Form E certification or 14 days from the date of shipment/dispatch of goods which ever is earlier. The A.D is to verify that Exports to Afghanistan Policy Planning & Strategy the export of goods has been made and the entire export transaction is complete. Finally the A.D issues EPRC (Export Proceeds Realization Certificate) to Exporter and also sends a copy of shipping documents to the State Bank of Pakistan so that they can close their books of account and the entire export process is documented there. Advantages of Exporting Through Proper Channel Afghanistan is in initial stages of reconstruction. There is no formal banking mechanism in the country and therefore most trade and investment takes place through informal modes/methods. The following are the advantages of exporting goods to Afghanistan using the formal channel of exports through land route: 1. Goods being exported can be insured against damage and other calamities 2. International arbitration available in cases of dispute. 3. Secure channel of trade. Required Documents (Pakistani Export Method) The following documents are required while undertaking exports in context of Pakistan: 1. Invoice

2. Form V 19 3. Form V 18 4. E-form (To claim duty drawbacks etc) 5. Packing list 6. Verified Certificate of Origin 7. Rahdaari Slip (Permission of passage of goods by Political Agent) For Further Details See Annexure. PROCEDURE OF EXPORTING (TEXTILE SECTOR) The growth quota of various products for exports to the US, European Union (EU), Canada and Turkey is auctioned at five centers, i.e. Finance and Trade Center auditorium, Karachi, and EPBs regional offices at Lahore, Faisalabad, Sialkot and Multan. The Export Promotion Bureau (EPB) has announced this procedure on March 11, 2003. According to the procedure, the following are eligible to offer bids in the auction: q Exporters having valid membership of respective textile association authorized to deal with the product/category. q The garment-manufacturing units, including those located in the Export Processing Zone. However , such units have to pay the premium through foreign exchange encasement certificates. The interested exporters are required to submit their bids for the auction in sealed covers, indicating the auction price for each textile quota product/category. Which are deposited in the sealed bid boxes placed at the Textile and Quota Management (TQM) Directorate of the EPB at Karachi, Lahore, Faisalabad, Sialkot and Multan. The bidders are allocated quantity asked for but unto the maximum of 15 percent quantity is less than a commercial lot, then the quantity unto a commercial lot is allocated. The exporters, who have purchased quota in an auction, are not entitled to any compensation in case it is decided to open a category for allocations on first-come first-served (FCFS) basis subsequently. The quantities are allocated to the bidders in open auction through sealed bids on the following basis: v The successful bidders are allocated quota in descending order of the auction price at their own bid price and quantities asked for, which can not exceed 15 percent of the quantities offered in the auction or in case the 15 percent quantity is less then one lot till the quantities are exhausted. v The successful bidder deposits the amount of the remaining 70 percent bid amount in the form of pay order/demand draft made out in the name of the Accounts Officer (Textiles), EPB, Karachi within 30 days from the date of receipt of approval letter from the EPB. v The exporters of Karachi deposit the pay order with prescribed challan at the National Bank of Pakistan, FTC branch. v In case of failure to deposit the remaining bid amount within the stipulated time, earnest money of 30 percent is forfeited. v In case of delay in payment, extension for payment of balance 70 percent up to 15 days are allowed against written request with a penalty at the rate of five percent balance payment. Further extension of 15 days, if requested is also

be allowed on written request at the rate of 10 percent of the balance unpaid amount. Quota allocated through auction can be transferable. ******

Sample Export Documents Annexure 1

Annexure 2

Annexure 3