Que-1. Define the scope of international marketing? describe the significance of international marketing in the era of globalization.? Ans.

International marketing (IM) or global marketing refers to marketing carried out by companies overseas or across national borderlines. This strategy uses an extension of the techniques used in the home country of a firm. It refers to the firm-level marketing practices across the border including market identification and targeting, entry mode selection, marketing mix, and strategic decisions to compete in international markets. According to the American Marketing Association (AMA) "international marketing is the multinational process of planning and executing the conception, pricing, promotion and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives." In contrast to the definition of marketing only the word multinational has been added. In simple words international marketing is the application of marketing principles to across national boundaries. However, there is a crossover between what is commonly expressed as international marketing and global marketing, which is a similar term. Kotler defines marketing as 'human activity directed at satisfying needs and wants through exchange process.' International marketing can be defined as "marketing carried on across national boundaries". International marketing has also been defined as ' the performance of business activities that direct the flow of goods and services to consumers or users in more than in one nation'. It is different from domestic marketing in as much as the exchange takes place beyond the frontiers, thereby involving different markets and consumers who might have different needs, wants and behavioral attributes. Scope of International Marketing: Though international marketing is in essence export marketing, it has a broader connotation in marketing literature. It also means entry into international markets by: Opening a branch/ subsidiary abroad for processing, packaging, assembly or even complete manufacturing through direct investment. Negotiating licensing/ franching arrangements whereby foreign enterprises are granted the right to use the exporting company's know-how's, viz., patents, processes or trademarks with or without financial investment. Establishing joint ventures in foreign countries for manufacturing and or marketing and Offering consultancy services and undertaking turnkey projects broad. Depending upon the degree of firms involvement, there may be several variations of these arrangement It is necessary to know the concepts of "controllable" and "uncontrollable factors"in international marketing.There are some factors which can be controlled by themanagement may not be able to haves any control over them. Now let us discuss thesefactors as follows:

Controllable Factors: Control will have to be defined with reference to a company's management Thecompany is in a position to control and design marketing mix elements i.e. product, price, export to any place by choosing any distribution channels and follow any promotional methods. Uncontrollable Factors: There are some factors on which the company can not have any control.Such uncontrollable factors in international marketing are described here. SOCIAL FACTORS: The social/cultural environment of a nation/market may profoundly influencebusiness in different ways and dimensions.The attitude of workers, lab our-managementrelations, government-business relations, entrepreneurial nature and attitude, politicalphilosophies and systems, legal environment, business ethics, governance, governmentpolicies etc. could have a social influence of themManagement may undergo a socialtransformation,for example , a number of family owned business groups in India haveushered in professional management. The need for good corporate governance is gettingmore and more recognition. In short, the type of products to be manufactured and marketed, the marketingstrategies to be employed, the way the business should be organized and governed, thevalues and norms it should adhere to, are all influenced by social structure and the cultureof a society. The tastes and preferences, purpose of consumption, method ofconsumption, occasion of consumption, quantity of consumption, values associated withconsumption, etc of a product may show wide variations between cultures. Because of cultural differences, a promotion strategy that is very effective in onemarket may utterly fail in another, or may even result in social or legal reprisals.Etiquettes differ from culture to culture.The ways of meeting and greeting people,expression of appreciation or disapproval, methods of showing respect, ways ofconducting meetings and functions, table manners etc. vary quite widely betweencultures.So familiarity with cultural is necessary for success. The other social factors which influences the international marketing inclusive of National legal regime Political and Financial system

 Marketing infrastructure Language, Religion andClimate POLITICAL and GOVERNMENT FACTORS: The following political and government factors must be taken into consideration by an international marketer while planning to entry any market abroad: Consistency of government policies. The nature of political relationship between the target country and exporter's country. The presence or absence of controls on foreign exchange, imports, prices,etc., in the target country. Legal restrictions on foreign investments and the patent ability of the product in the target market. The company has no control over all the above factors mentioned and hence the exporter has to adjust him to these factors. ECONOMIC FACTORS: I.Commercial policy variables e.g. tariffs, quotas, licensing or any other non-tariff barriers. II.Currency restrictions - depending on the policy of the central bank of the country. III.Internal demand management policies and instruments followed by the country. The exporters have to be thorough with the above policies and adjust them accordingly. DEMOGRAPHIC FACTORS: Demographic factors such as size of the population, population growth rates, agecomposition, ethic composition, family size, family life cycle, income levels, have verysignificant implications for business. The demographic environment differs from countryto country and from place to place within the same country or region.Further, it maychange significantly over time. Because of the diversity of the demographic environmentcompanies are sometimes compelled to adopt different strategies within the same market Act of enemies The exporters have to face these risks in the international markets.These risks can be covered by taking insurance policies from the ECGC and General Insurance. CONCEPT OF GLOBALIZATION "Globalization means the production and distribution of products and services of ahomogeneous type and quality on a world wide basis. Globalization also meansglobalizing the marketing, production, investment, technology and other activities. Howdo these happen? Globalization does not take place in singly instance. It takes placegradually through and evolutionary approach.

FEATURES OF GLOBALIZATION Operating and planning to expand business throughout the world. Erasing the differences between domestic market and foreign market. Buying and selling goods and services from/to any country in the world. Establishing manufacturing and distribution facilities in any part of the world based on the feasibility and viability rather than national consideration. Product planning and development are based on market consideration of the entire world. Sourcing of factors of production and inputs like raw materials, machinery, finance, technology, human resources, managerial skills from the entire globe. Global orientation in strategies, organizational structure, organizational culture and managerial expertise. Setting the mind and attitude to view the entire globe as a single market. ESSENTIAL CONDITIONS FOR GLOBLAIZA Act of enemies The exporters have to face these risks in the international markets.These risks can be covered by taking insurance policies from the ECGC and General Insurance. CONCEPT OF GLOBALIZATION "Globalization means the production and distribution of products and services of ahomogeneous type and quality on a world wide basis. Globalization also meansglobalizing the marketing, production, investment, technology and other activities. Howdo these happen? Globalization does not take place in singly instance. It takes placegradually through and evolutionary approach. FEATURES OF GLOBALIZATION Operating and planning to expand business throughout the world. Erasing the differences between domestic market and foreign market. Buying and selling goods and services from/to any country in the world. Establishing manufacturing and distribution facilities in any part of the world based on the feasibility and viability rather than national consideration. Product planning and development are based on market consideration of the entire world.

Sourcing of factors of production and inputs like raw materials, machinery, finance, technology, human resources, managerial skills from the entire globe. Global orientation in strategies, organizational structure, organizational culture and managerial expertise. Setting the mind and attitude to view the entire globe as a single market. ESSENTIAL CONDITIONS FOR GLOBLAIZATION BUSINESS FREEDOM: There should not be unnecessary government restrictions which come in the way ofglobalization, like import restriction restrictions on sourcing finance or other factors frobroad foreign investments etc. FACILITIES: The extent to which an enterprise can develop globally from home country base depends on the facilities available like the infrastructural facilitie GOVERNMENT SUPPORT: Although unnecessary government interference is a hindrance to globalization,government support can encourage globalization.Government support may take theform of policy and procedural reforms, development of common facilities likeinfrastructural facilities, R and D support, financial market reforms and so on. RESOURCES: Resources is one of the important factors which often decides the ability of a firm to globalize.Resourceful companies may find it easier to thrust ahead in the global market. COMPETITIVENESS: The competitive advantage of the company is a very important determinant of success inglobal business.A firm may derive competitive advantage from any one or more of thefactors such as low costs and price, product quality product, product differentiation,technological superiority, after sales service, marketing strength etc. ORIENTATION: A global orientation on the part of the business firms and suitable globalization strategies are essential for globalization. PROS AND CONS OF GLOBALIZATION ADVANTAGES: Free Flow of Capital: Globalization helps for free the flow of capital from one country tothe other.It helps the investors to get a fair interest rate or dividend and the globalcompanies to

acquire finance at lower cost of capital. Further Globalization increasescapital flows from surplus countries to the needy countries, which in turn increases theglobal investment. Free flow of Technology:Globalization helps for the flow of technology from advancedcountries to the developing countries.It helps the developing countries to implementnew technology. Increase in Industrialization: Free flow of capital along with the technology enables the developing countries to boost-up industrialization in their countrie It helps the developing countries to implementnew technology. Increase in Industrialization: Free flow of capital along with the technology enables the developing countries to boost-up industrialization in their countries

Spread up Production facilities throughout the Globe:Globalization of production, leadsto spread up manufacturing facilities in all the global countries depending upon thelocational various favorable production factors. Balanced development of world economies:With the flow of capital, technology andlocating manufacturing facilities in developing countries, the developing countriesindustrialize their economies.This in turn leads to the balanced development of all thecountries. Increase in Production and Consumption:Increased industrialization in the globe leadsincrease in production and thus results in balanced industrial development along withincrease in income which enhances the levels of consumption. Lower prices with high quality:Indian consumers have already been getting the productsof high quality at lower prices.Increased industrialization spread up of technology,increased production and consumption level enable the companies to produce and sell theproducts of high quality t lower prices. Cultural exchange and demand for variety of products:Globalization reduces thephysical distance among the countries and enables people of different countries to acquirethe culture of other countries.The cultural exchange, in turn makes the people to demandfor a variety of products which are being consumed in other countries. For example,demand for American Pizza in India and Masala dosa and Hyderabad Briyani and Indianstyled garments in USA and Europe. Increase in Employment and Income: Globalization results in shift of manufacturingfacilities to the low wage developing countries.As such, it reduces job opportunities inadvanced countries and alternatively creates job opportunities in developing countries.Higher Standards of Living:

Further, globalization reduces prices and thereby enhancesconsumption and living standards of people in all the countries of the world. Increase in the Welfare and Prosperity: The balanced industrial, social and economicdevelopment of the world nations consequent upon the globalization along with thewelfare measures provided by the governments lead to increase in the welfare of thepeople and prosperity of the world countries.

ROLE OF EXPORT CREDIT GUARANTEE CORPORATION (ECGC) The risk element in export business is greater than the risk involved in domestictradebecause the two parties of the export contract (exporter and importer) belong todifferent countries.In the context of growing competition no exporter can managewithout selling goods on credit.Giving credit poses two problems to an exporter: -He should have enough money to offer credit to his overseas buyers and -He should be prepared to take the credit risks. Exporting on credit is not without risk.The overseas buyer may default; hemay go bankrupt; there may be earthquake or typhoon, a war in his country, which maywreck his fortunes. The ECGC, a Government of India undertaking, covers the exportsagainst these risks.The ECGC also provides guarantees to the financing banks to enablethem to provide adequate finance to the exporters. COVERS ISSUED BY ECGC: The covers issued by ECGC may be divided broadly into four groups as follows: a) Standard policies issued to exporters to protect them against the risk of not receiving payments while trading with overseas buyers on short term credit. b)Specific policies designed to protect Indian Firms against the risk of not receiving payments in respect of -Export on deferred payment terms -Services rendered to foreign parties and -Construction work-undertaken abroad. c)Financial guarantees issued to banks against risks involved in providing credit to exporters; and d)Special schemes viz: Transfer Guarantee, Insurance cover for buyer's credit, Line of credit, Joint ventures and overseas investment. A. RISKS COVERED UNDER STANDARD POLICIES: Under its policies to protect the exporters against overseas credit risks, ECGCbears the main brunt of the risks and pays the exporter 90 per cent of his loss on accountof commercial and political risks. -He should be prepared to take the credit risks.

Exporting on credit is not without risk.The overseas buyer may default; hemay go bankrupt; there may be earthquake or typhoon, a war in his country, which maywreck his fortunes. The ECGC, a Government of India undertaking, covers the exportsagainst these risks.The ECGC also provides guarantees to the financing banks to enablethem to provide adequate finance to the exporters. COVERS ISSUED BY ECGC: The covers issued by ECGC may be divided broadly into four groups as follows: a) Standard policies issued to exporters to protect them against the risk of not receiving payments while trading with overseas buyers on short term credit. b)Specific policies designed to protect Indian Firms against the risk of not receiving payments in respect of -Export on deferred payment terms -Services rendered to foreign parties and -Construction work-undertaken abroad. c)Financial guarantees issued to banks against risks involved in providing credit to exporters; and d)Special schemes viz: Transfer Guarantee, Insurance cover for buyer's credit, Line of credit, Joint ventures and overseas investment. A. RISKS COVERED UNDER STANDARD POLICIES: Under its policies to protect the exporters against overseas credit risks, ECGCbears the main brunt of the risks and pays the exporter 90 per cent of his loss on accountof commercial and political risks. Commercial Risk: a.The insolvency of the buyer b.The buyer's protracted default to pay c.In some special circumstances specified in the policy, buyer's failure to accept the goods, when non-acceptance is not due to the exporter's actions. Political Risk: a.Restriction on remittance in the buyer's countryor any government action which may block orpayment to the exporter b.War, revolution or civil disturbances in the buyer's country c.Cancellation of export license or imposition of new export licensing restrictions in India (under contracts policy) d.New import licensing restrictions or cancellation of a valid import license in the buyer's country: e.Additional handling transport or insurance charges due to interruption or diversion of voyage which cannot be recovered from the buyer: and f.Any other cause of loss occurring outside India, not normally insured by

commercial insurers. And beyond the control of both the exporter and the buyer. RISKS NOT COVERED ECGC, however, does not cover risks of loss due to: a. Commercial disputes, including quality disputes raised by the buyer unless the exporter obtains a decree from a competent court of law in buyer's country in his favour. b. Causes inherent in the nature of goods: c.Buyer's failure to obtain import or exchange authorization from the appropriate authority: d.Insolvency or default of any agent of the exporter or of the collecting banks: .e.g. Loss or damage to goods which can be covered by general insurers: f.Flucturations in exchange rates (except under Exchange Fluctuation Risk over Schemes)and g.Failure of the exporter to fulfill the term of contract or negligence on his part B. SPECIFIC POLICIES Contracts for exportof capital goods or projects for construction works and forrendering services abroad are insured by ECGC on case to case basis under specificpolicies.Special mention may be made of the services policy to protect Indian firmsagainst payment for their services policy to protect Indian firms against payment for theirservices policy o protect Indian firms against payment for their services and theconstruction works policy to cover all payments that fall due to a contractor underacomposite contract for execution of services as well as supply of material. C.SMALL EXPORTER'S POLICY The small exporter's policy is basically the Standard Policy, incorporating certainimprovements in terms of cover, in order to encourage small exporters to obtain andoperate the policy.It will be issued to exporters whose anticipated export turnover forthe next 12months does not exceed Rs.25 lakes. The premium payable for a smallexporter's policy is less than the standard policy. D. FINANCIAL GUARANTEE TO BANKS Timely and adequate credit facilities, at the pre-shipment as well as post-shipmentstage. Are essential for exporters to realize their full export potential.Exporters my not,however, be able to obtain such facilities from their bankers for several reasons. TheExport Credit Guarantee Corporation, (ECGC) has designed a scheme of Guarantees toBanks with a view to enhancing the credit worthiness of the exporter so that they wouldbe able to secure better and large facilities from their bankers. To meet the varying needs of exporters. The Corporation has evolved the following types of Guarantees;

1.Packing Credit Guarantee: 2.Export Production Finance Guarantee; Post-shipment Export Credit Guarantee: 4.Export Finance Guarantee 5.Export Performance Guarantee: 6.Export Finance (Overseas lending ) Guarantee 1.PACKING CREDIT GUARANTEE Any loan given to an exporter for the manufacture processing, purchasing orpacking of goods meant for export against a firm order or letter of credit qualifiesfor packing Credit Guarantee. The Guarantee is issued for a period of 12 months against a proposal madefor the purpose and covers all the advances that may be made by the banks duringthe period to a given exporter within an approved limit. To banks, which undertake to obtain cover for packing credit advances, granted to all its customers on an all India basis. 2.EXPORT PRODUCTION FINANCE GUARANTEE The purpose of this Guarantee is to enable banks to sanction advances atthe pre-shipment stage to the full extent of cost of production when it exceeds theFOB value of the contract/order, the difference representing incentives receivable.The extent of cover and the premium rate are the same as packing CreditGuarantee. Banks having WTPCG are eligible for concessionary premium rateand higher percentage cover. 3.POST -SHIPMENT EXPORT CREDIT GUARANTEE Post-shipment finance given to exporters by banks through purchase,negotiations or discount of export bills or advances against such bills qualifies for theGuarantee.It is necessary however, that the exporter concerned should hold suitablepolicy of ECGC to cover the overseas Credit risks. The Premium rate for this Guarantee is 7 paise per Rs. 100/-per month The percentage of loss covered under the individual post-shipment Guarantee is 75% 4.EXPORT FINANCE GUARANTEE This guarantee covers post-shipment advance granted by banks to exporters against export incentives receivable in the form of duty drawback, etc. The Premium rate for this Guarantee is 7paise per Rs. 100 per month andthe cover is 75 percent. Banks having WTPSG are eligible for concessional rate ofpremium and higher percentage of cover. 5.EXPORT PERFORMANCE GUARANTEE

Exporters are often called upon to execute bonds duly guaranteed by Indian banksat various stages of export business. An exporter who desires to quote for aforeign tender may have to furnish a bank guarantee for the bidbond. If he winsthe contract, he may have to furnish bank guarantees to foreign buyers to ensuredue performance or against advancepayment or in lieu ofretention money or toa foreign bank in case he has to raise overseas finance for his contract. 6.EXPORT FINANCE (OVERSEAS LENDING) GUARANTEE If a bank financing an overseas project provides a foreign currency loan to thecontractor, it can protect itself from the risk of non-payment by the contractor byobtaining Export Finance Guarantee. Premium rate will be 0.09% per annum for 75% cover and 1.08% per annum for 90% cover.Premium is payable in Indian Rupees. Claims under the guarantee will alsobein Indian rupees. EXPORTASSISTANCEAND EXPORT PROMOTION MEASURES Export assistance has become an important tool in any developing country to motivatethe manufacturer and businessmen to enter the international market.Mostdevelopingcountries have resortedto a number of export promotion measures.India has also beenproviding export assistance for the past about forty years.From 1922, export incentivesystem in India has been made very simple.There are essentially three major incentives,available to exporters. These are (i)Market-based Exchange Rate:Since March 1993 the exchange rate of the rupee is fully determined by the demand and supply condition in the market as the rupee wasmade fully convertible for export-import transactions in March 1993. Under theLibralised Exchange Rate Management System (LERMS) exporters will get benefit whenrupee depreciates while importers will lose.When rupee appreciates the balance ofbenefits will the just the reverse. (ii) Fiscal concession:The different types of fiscal concessions are as follows: In the computation of total income Sec.80. HHC of the Income Tax Act allows adeduction ofthe whole of the profit derived from the export of goods or merchandise.This benefit is also available to supporting manufacturers exporting through Export/Trading Houses provided that the amount of deduction claimed is retained as a reservefor the purpose of the business of the assessee.However, the budget for the year 2000 2001 has reduced this exemption by 20% every year to be phased out in five years. - Exemption from taxation of the profits from over seas projects to the extent of 50 percent. -Exemption from taxation 50 per cent of royalty, commission, fees or any similar payment obtained from the exports of technical know-how and technical services.

- A 10 year tax holiday for 100per cent export oriented units and for units located in Free trade zone/Export processing zones. -Concessional rate of customs duty on imports of selected items of machinery for export production under EPCG scheme.

(iii)Facilities available under the Export-Import Policy for Export: a. EPCG Scheme b. Duty Exemption Scheme c. Export Houses/Trading Houses d. Export processing Zones e.100 % Export oriented units (iv)Other facilities available to exporters: In addition to the above mentioned incentives, the Central Government is offering the following facility to exporters. (a)Duty Drawback: This is a refund of import duty or excise duty paid on the raw materials and components, which have gone into the production of exported products. (b)Rebate of excise duty: If the goods exported attract central excise duty either the duty is exempted or refunded if already paid Export Finance: Exporters are allowed to get export finance both pre-shipment and post shipment credit at concessional rate of interest. (d)Insurance of credit risk: The ECGC is willing to cover 90% of the political andcommercial risks of export operations.The commercial banks which give credit toexporters can also get guarantee from ECGC.

(e)Deemed exports;Certain transactions in which goods supplied do not leave thecountry and the payment for the goods which is received by the suppliers sin India havebeen treated as deemed exports and are entitled some benefits such as duty exemption inrespect of deemed export categories, deemed export drawback, refund of terminal exciseduty, special import license, etc

EPRG FRAMEWORK Depending on the kind and degree of its involvement in foreign marketing, a firm has to re-orient and re-organise its activities to cope with the different levels of operational responsibilities inherent in such involvement. To throw some light on this

issue, some guidelines are available from what is called the EPRG framework . The EPRG framework attempts to identify four broad types of orientation of a firm towards internationalization of its operations. These are: Ethnocentrism, Polycentrism, Regiocentrism and Geocentrism (EPRG). Ethnocentric Orientation The ethnocentric orientation of a firm considers that the product, marketing strategies and techniques applicable in the home market are equally applicable in the overseas markets as well. Foreign markets are looked upon merely as an extension of the home market. In such a firm all foreign marketing operations are planned and carried out from the home base. with little or no difference in product formulation and specifications, pricing strategy, distribution and promotional measures in the home and overseas markets. The firm generally depends on its foreign agents and expo r timport merchants fo r its export sales. Polycentric Orientation When a firm adopts polycentric approach to overseas marketing it attempts to

organize its international marketing activities on country-by-country basis. Each country is treated as a separate market entity and individual strategies are worked out accordingly. Local assembly or production facilities and marketing organizations are created or serving the market needs in each country. Polycentrism could be most suitable for firms seriously committed to international marketing and have the resources for investing abroad for fuller long-term penetration into chosen overseas market. Regiocentric Orientation In regiocentric approach, the firm adopts a regional marketing policy covering a group of countries which have comparable market characteristics. The operational strategies are formulated on the basis of the entire region rather than individual countries and production and distribution facilities are created to serve the whole region with effective economy of operations and closer control and coordination. Geocentric Orientation In geocentric orientation, the firm adopts a worldwide approach to marketing and its operations become truly global in character. In a global enterprise, the management establishes manufacturing and processing activities at specific points around the world in order to serve the various national or regional markets through a

complicated but well-coordinated system of productive and distributive network. There are close similarities between regiocentric and geocentric approaches to international marketing, except perhaps that the geocentric orientation calls for a much greater scale of operation, coordination and organizational set-up in order to cater to markets of heterogenous characteristics which are usually more pronounced in geocentrism compared with regiocentrism. Car manufacturers, led by Ford, are adopting just such an approach on a worldwide basis. For example the name Ford is the same worldwide. The logo is the same. Ford's light blue colour is the same LETTER OF CREDIT A letter of credit is a document containing the guarantee of a bank to honourdrafts drawn on it by an exporter, under certain conditions and up to certain amounts,provided that the beneficiary fulfils the stipulated conditions. The letter of credit offersadvantages to both the seller and buyer. As far as the seller is concerned, a letter of creditensures him payment for the goods he sells, provided, of course, that he follows theinstructions. Though the buyer has to have the botheration of arranging for the letter ofcredit, it may enable him to obtain more liberal discounts and a lower price from theseller.Further, the buyer is assured that the shipment will be made by the date specifiedin the letter of credit, or else the credit will expire. PARTIES TO THE LETTER OF CREDIT: 1.The Opener: The opener is the buyer(importer). The letter of credit is opened at the initiative and request of the buyer. 2.The Issuer: The issuer, also called the opening or issuing bank, is the bank in the importer's country issuing the letter of credit at the request of the importer. 3.The Beneficiary: The beneficiary is the party in whose favour the credit is issued; that is the beneficiary is the seller or exporter. 4.The confirming Bank: The confirming bank is a bank in the exporter'scountry, which guarantees the credit at the request of the issuing bank.Theconfirming bank undertakes all the obligations of the issuing bank as aprimary party to the credit, and even if the issuing bank fails during thecurrency of the credit, the confirming bank is obliged to honour its commitment.

5.The Notifying Bank: The notifying bank is the bank, which, at the request ofthe issuing bank, notifies the beneficiary that the credit has been opened in hisfavour. If the letter of credit is confirmed, the confirming the bank advises thebeneficiary accordingly. 6.The Paying Bank: The paying bank is the bank on which the draft or bill ofthe exchange is to be drawn under the commercial credit. The paying bankmay be the issuing bank, the confirming bank or the notifying bank. 7.The Negotiating Bank: The negotiating bank is the bank, which pays oraccepts the drafts of the exporter. If no paying bank is specified in the credit,the beneficiary may go the any bank and present the draft and relateddocuments under the credit; and if the bank agrees to negotiate the documents,it becomes the negotiating bank. KINDS OF LETTER OF CREDIT 1.Clean Letter of Credit: This kind of letter of credit may be negotiated against a clean draft. A clean draft is a draft without any documents attached to it. 2.Documentary Letter of Credit: Under this, the draft must be accompanied by the documents specified in the letter of credit. 3.Assignable Credit; Under this kind of L/C, the beneficiary may assign his rights toanother beneficiary, either within a stated period or before the expiry date of the credit. 4. Non-Assignable Credit: As opposed to the assignable credit, the named beneficiary of a non-assignable L/C cannot transfer his rights to another party. 5.Cash credit; under the cash credit, the exporter may draw a sight draft on thebank. The great advantage of this type of credit, therefore, is that the beneficiarywill receive cash for his draft as soon as the goods are ready for shipment and therelevant documents in proper order are represented to the bank. 6.Acceptance Credit: Under this arrangement, the bank merely 'accepts' the draftsdrawn by the exporter. After the bank has accepted it, the draft becomes a bankacceptance, which may be readily discounted or sold by the exporter to theaccepting bank, to other banks or to exchange dealers. 7.Revocable credit: The revocable letter of credit may be revoked or cancelled atany time without the consent of, and without notice to, the beneficiary. As therevocable L/C does not adequately protect the beneficiary on the basis of this typeof L/C are not common.

8.Irrevocable Credit: An irrevocable L/C is one, which cannot be revoked, amendedor modified by the issuing bank without the express consent of all the partiesconcerned. 9.Confirmed Credit: If a bank in the beneficiary country confirms the L/C, itbecomes a confirmed credit. In this case, the bank issuing the L/C sends it throughits branch or correspondent bank located in the beneficiary's country with therequest to add its confirmation to the credit. 10. Back-to-Back Credit: A back-to back credit is essentially a secondary credit,opened by a bank on behalf of the beneficiary of an original credit, in favour of adomestic supplier. The original credit backs another credit and facilitates thepurchase of the goods from a local supplier by the beneficiary of the original L/C. 11. Revolving Credit: A revolving credit is designed to obviate the need forestablishing new credit for each shipment when the transactions are more or lesscontinuous. Under the revolving credit, provision may be made for makingavailable the credit again as soon as the importer reimburses the issuing bank withthe drafts already negotiated by the paying bank. 12. Red Clause Credit: The red clause L/C enables the beneficiary to draw apredetermined value of the L/C as its established. The red clause is an authority tothe negotiating bank to make advances to the beneficiary for the purpose ofpurchasing the relevant merchandise. The conditions on which such advancesmay be made are incorporated in the L/C. STEPS IN THE OPERATION OF LETTER OF CREDIT: In Letter of credit, normally four parties are involved, viz, the applicant for thecredit (importer), the beneficiary of the credit (exporter), the issuing bank and theadvising bank incase of unconfirmed credit or the confirming bank in case of confirmedcredit.The step-by-step procedure involved can be discussed by taking an example. M/S Rainbow limited. Chennai has secured a contract for the supply of 200ceiling fans to a Nigerian importer.It has been decided that the terms of payment will bea confirmed irrevocable letter of credit. The total value of the contract is Rs.2, 00,000.Once the contract is duly signed the Nigerian bank then sends instructions to itscorrespondent bank to the credit and the advice the Rainbow limited accordingly. Onreceipt of this advice from the local correspondent bank in India, the Rainbow limited.,makes the shipment of he cling fns and gets

the shipping documents and other relateddocuments. He presents these to the correspondent bank, which scrutinizes the