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TRADE RELATED CONTRACTUAL MODE INVESTMENT ENTRY MODE [TRANSFER-RELATED MODE] Export Direct Investment Counter Trade Portfolio Investment * * * * Barter Counter Purchase Offset Buyback Leasing Foreign




Franchising Turnkey Project

The choice of entry mode for a business depends to a large extent on the degree of involvement that it wants to have. A business firm has to take several important decisions, before entering into a foreign market. International Entry Strategies concern o Where[Selection of Location],

o When [Timing of Entry], and o How [Entry Mode Selection]. International Companies should enter and invest in a foreign territory during International expansion. These Entry Strategies are much more important because they determine an MNEs o o o o Investment Environment, Operational Treatment, Resource Commitment, and Evolutionary Path.

An MNE seeking to enter into a Foreign Market, must make an important strategic decision concerning which entry mode to use. Entry modes are specific forms or ways of entering a target country to achieve strategic goals underlying international presence in that country. Generally, Entry Mode/Strategy Choices fall into the following THREE Categories: [a] Trade-Related, [b] Transfer-Related; and [c] Investment-Related

Along the above sequence, the levels of resource commitment, organizational control, involved/hidden risks and expected returns all increase as well. Within each category, these levels differ somewhat between specific modes.

TRADE-RELATED ENTRY MODES Trade Related Entry Modes include [a] Exporting [b] Sub-contracting; and [c] Counter Trade.


History The theory of international trade and commercial policy is one of the oldest branches of economic thought. Exporting is a major component of international trade, and the macroeconomic risks and benefits of exporting are regularly discussed and disputed by economists and others.

Two views concerning international trade present different perspectives. The first recognizes the benefits of international trade. The second concerns itself with the possibly that certain domestic industries (or laborers, or culture) could be harmed by foreign competition.

This term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country.

The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer". In International Trade, "exports" refers to selling goods and services produced in the home country to other markets.

Any good or commodity, transported from one country to another country in a legitimate fashion, typically for use in trade.

Export goods or services are provided to foreign consumers by domestic producers. Export of commercial quantities of goods normally requires involvement of the customs authorities in both the country of export and the country of import.

The advent of small trades over the internet such as through Amazon and e-Bay have largely by-passed the involvement of Customs in many countries because of the low individual values of these trades.

None-the-less, these small exports are still subject to legal restrictions applied by the country of export. An export's counterpart is an import.

Definition of Export "Foreign demand for goods produced by home country" In national accounts "exports" consist of transactions in goods and services (sales, barter, gifts or grants) from residents to non-residents. The exact definition of exports includes and excludes specific "borderline" cases. A general delimitation of exports in national accounts is given below: An export of a good occurs when there is a change of ownership from a resident to a non-resident; this does not necessarily imply that the good in question physically crosses the frontier. However, in specific cases national accounts impute changes of ownership even though in legal terms no change of ownership takes place (e.g. cross border financial leasing, cross border deliveries between affiliates of the same enterprise, goods crossing the border for significant processing to order or repair). Export of services consist of all services rendered by residents to non-residents. According to US Govt. Regulations: In national accounts, any direct purchases by nonresidents in the economic territory of a country are recorded as exports of services; therefore all expenditure by foreign tourists in the economic territory of a country is considered as part of the exports of services of that country.

A small fraction of the smuggled goods and illegal services may nevertheless be included in official trade statistics through dummy shipments or dummy declarations that serve to conceal the illegal nature of the activities.

Data, in any country, on International Trade in goods are mostly obtained through declarations to Customs Authorities. If a country applies the general trade system, all goods entering or leaving the country are recorded. Process Methods of export include a product or good or information being mailed, hand-delivered, shipped by air, shipped by vessel, uploaded to an internet site, or downloaded from an internet site. Exports also include the distribution of information that can be sent in the form of an email, an email attachment, a fax or can be shared during a telephone conversation.
EXPORT-ENTRY-MODE/STRATEGY: It is quite natural for most of the firms to get their start in International Expansion through exporting, in which the firm maintains its production facilities at Home and sells its products abroad. Through exporting, the firm gains valuable expertise about operating internationally and specific knowledge concerning the individual countries in which it operates. Export offers the advantage of not requiring a very substantial presence in foreign countries.

Generally, exporting is a type of international entry open to virtually any size or kind of firm, whereas other types of entry modes, as given above, tend to demand greater resources and involve more risks. Over a period of time, accumulated experience with exporting expertise, often prompts a firm to become more aggressive in exploiting new international exporting opportunities or to consider FDI in the country to which it previously exported. Visible Exports and Invisible Imports:

Firms may export or import either goods or services. Goods are tangible products which can be seen hence goods coming into the country are termed as Visible Imports and goods leaving the country are termed Visible Exports. The difference between the exports and imports is termed Trade Balance or Balance of Visible Items. Services exports and imports generate intangible nonproduct international earnings. A company or an individual earns through the export and import of services such as Banking, Insurance, Trade and Tourism related Services which are intangible and personalized. Countries such as Greece and Norway earn a significant amount of foreign exchange from Foreign Cargo carried on Ships owned by the Citizens of these countries. Similarly, tourism is a major foreign exchange earner for countries like Bahamas, India, China, Indonesia, Maruritius etc.

Export Management Company [EMC]: A firm can either export goods directly to foreign customers or buyers or through export intermediaries. Export intermediaries are third parties that specializein facilitating imports and exports. These intermediaries may offer limited services such as handling only transportation, documentation, and customs claims, or they perform more extensive services, including taking ownership of foreign-bound goods and/or assuming total responsibility for marketing and financing exports. Typical expert intermediaries such as Export Management Company [EMC] are intermediaries that act as its clients export department. Small firms may use an EMC to handle their foreign shipments, prepare export documents, and deal with Customs Office, Insurance Companies, and/or Commodity Inspection Agencies like EIC/EIAs. EMCs are generally knowledgeable about legal, financial, and logistical details of exporting and importing and thus free the exporter from having to develop such expertise inhouse. Terms of Sale by EMCs Managers involving in exporting must know the terms of sale or the terms of price. Terms of sale are conditions stipulating rights/responsibilities and costs/risks borne by the exporter and importer. These terms have been harmonized and defined by the International Chamber of Commerce as Standard, and thus

are widely used in Export Transactions. Major Terms of Price include: [a] FOB [Free on Board] [b] FAS [Free Along Side / Sp] [c] CIF [Cost, Insurance, and Freight] [d] C&F[Cost and Freight]

FOB is an initialism which pertains to the shipping of goods. Depending on specific usage, it may stand for Free On Board or Freight On Board. FOB specifies which party (buyer or seller) pays for which shipment and loading costs, and/or where responsibility for the goods is transferred. The last distinction is important for determining liability for goods lost or damaged in transit from the seller to the buyer. Precise meaning and usage of "FOB" can vary significantly. International shipments typically use "FOB" as defined by the Incoterm [International Commercial Terms] Standards, where it always stands for "Free On Board". Domestic shipments within the US or Canada often use a different meaning, specific to North America, which is inconsistent with the Incoterm standards. OR A term of price in which the seller covers all costs and risks upto the point whereby the goods are delivered on board the ship in a designated shipment [export] port, and the buyer bears all costs and risks from that point on. This means that the buyer is responsible for the insurance and freight expenses in transporting goods from the shipment port to the destination port.

"Free Alongside Ship" means that the seller fulfils his obligation to deliver when the goods have been placed alongside the vessel on the quay or in lighters [a flat-bottomed open cargo boat or barge, used especially for taking goods to or from a larger vessel when it is being loaded or unloaded] at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that moment. The FAS term requires the buyer to clear the goods for export. It should not be used when the buyer cannot carry out the export formalities either directly or indirectly. OR A term of price in which the seller covers all costs and risks up to the side of the ship in a designated shipment [export] port. The buyer bears all costs and risks thereafter.

CIF is a term of price in which the seller covers costs of the goods, insurance, and all transportation and miscellaneous charges to the named foreign port in the country of final destination. OR "Cost, Insurance and Freight" means that the seller delivers when the goods pass the ships rail in the port of shipment. In other words, the seller must pay the costs and freight necessary to bring the goods to the named port of destination. BUT the risk of loss of or damage to the goods, as well as any additional costs due to the events occurring after the time of delivery, are transferred from the seller to the buyer. However, in CIF the seller also has to procure marine insurance against the buyers risk of loss of or damage to the goods during the carriage. Consequently, the seller contracts

for insurance and pays the insurance premium. The buyer should note that under the CIF term, the seller is required to obtain insurance only on minimum cover . Should the buyer wish to have the protection of greater cover, he would either need to agree as much expressly with the seller or to make his own extra insurance arrangements. The CIF term requires the seller to clear the goods for export. This term can be used only for sea and inland waterway transport. If the parties do not intend to deliver the goods across the ships rail, the CIP term should be used.

Incoterms: CIP Carriage and Insurance Paid To

CIP Carriage and Insurance Paid to is an incoterm that is commonly confused with CIF. Too many companies are using CIF for air shipments and other modes of transport when what they really should be using is CIP. CIP, unlike CIF, can be used for any kind of shipment. CIP is very similar to CIF in that it includes insurance as well as cost and freight. In CIP, the seller/exporter arranges for the goods to be delivered to the named port of destination. Here, the sellers risks do not end until the moment the goods have been delivered to the carrier, but typically do not end until the carrier reaches the agreed destination. Because this incoterm can be used for any mode of transport, a carrier in this case could be a steamship line, a trucker, a railroad, or a freight forwarder.

The seller is responsible for all costs until the goods have been delivered to the named port of destination. In this case, the named port of destination is domestic to the buyer, meaning that the named port must be a port in the buyers country, however unlike other similar incoterms the named port of destination is not necessarily the final delivery point: it could be, but it could also be an agreed upon point at the port of destination. So if you were selling cherries to Thailand, for example, you would use the term CIP, Carriage and Insurance Paid to Laem Chabang Port, Thailand however Laem Chabang might or might not be the final delivery point at the port of destination. Under CIP terms, the sellers risks end the moment the goods are delivered to the carrier, but typically do not end until the carrier reaches the agreed destination. The seller is responsible for all costs up to the named port of destination : Sellers Responsibilities: 1) Produces the goods and commercial documents as required by the sales contract. 2) Arranges for export clearance and all export formalities. 3) Arranges and pays for all costs for the

transportation including insurance of the goods up to the agreed point in the named port of destination. 4) Assumes all risk to the goods (loss or damage) only up to the point they have been handed over to the carrier, typically, but not always, ending when the carrier reaches the agreed destination. 5) Seller must advise the buyer that the goods have been delivered to the carrier. 6) Seller has to provide the buyer with transport documents that will allow the buyer to take possession of the goods at the agreed point in the named port of destination.

Buyers Responsibilities: 1) Buyer must pay for the goods as per the sales contract. 2) Buyer must obtain all commercial documentation, licenses, and authorizations required for import and arrange for import clearance and formalities at own risk and cost. 3) Buyer takes delivery of the goods after they have been delivered by the seller to the agreed point in the named port of destination.

4) Buyer must assume all risks for the goods from the time the goods have been handed over to the carrier, typically, but not always, ending when the carrier reaches the agreed destination. SPECIAL NOTE: While the seller is obligated to insure the goods, the buyer may have a vested interest in the goods during the voyage. It may be a wise decision for the buyer to purchase additional insurance coverage in the case of a loss. 5) Buyer pays for all costs of transportation, import customs formalities and duty fees, and all other formalities and charges related to the transportation of the shipment from the time the goods have been delivered to the agreed point in the named port of destination. 6) Buyer would accept the sellers transport documents provided they conform with the sales contract and will allow the buyer to take possession of the goods after delivery to agreed point in the named port of destination.
C & F:
The seller/supplier agrees to contract the freight and pay cost and freight for loading the goods, cleared for export, on board a vessel and the charges to ship the goods to destination. The buyer bears the risk of goods from the time they

pass the ships rail at the port of shipment and pay for the insurance coverage, and for the unloading costs at the port of destination. OR
C & F is similar to CIF, except that the buyer purchases and bears the insurance.

Key Documents in Exporting: Export Managers should also be familiar with the key documentation in exporting. The universal key documents frequently used include [a] L/C [Letter of Credit] [b] B/L [Bill of Lading] [c] Bank Draft [d] Commercial Invoice [e] Packing List [f] Insurance Certificate [g] GSP [Generalized System of Preferences] otherwise called as Certificate of Origin.

[a] Letter of Credit [L/C]:

A Letter of Credit [L/C] is a contract between an importer and a bank that transfers liability for paying the exporter from the importer through the importers bank. OR A letter of credit is a document that a financial institution or similar party issues to a seller of goods or services which provides that the issuer will pay the seller for goods or services - the seller delivers to a third-party buyer. The issuer then seeks reimbursement from the buyer or from the buyer's bank. The document serves essentially as a guarantee to the seller that it will be paid by the issuer of the letter of credit regardless of whether the buyer ultimately fails to pay. In this way, the risk that the buyer will fail to pay is transferred from the seller to the Letter of Credit's issuer. Letters of credit are used primarily in International Trade for large transactions between a supplier in one country and a customer in another. In such cases, the International Chamber of Commerce Uniform Customs and Practice for Documentary Credits applies (UCP 600 being the latest version). The parties to a Letter of Credit are the supplier, usually called the beneficiary, the issuing bank, of whom the buyer is a client, and sometimes an advising bank, of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended or canceled without the consent of the beneficiary, issuing bank, and confirming bank, if any. In executing a transaction, letters of credit incorporate functions common to traveler's cheques.

Different types of Letter of Credit

It is said to the credit which buyer assigns is so that he imports a product to his own country and in general this credit is in another country and its value is export value. Revocable Letter of Credit In this type of credit buyer and the bank which has established the LC, are able to manipulate the letter of credits or make any kinds of corrections without informing the seller and getting permissions from him. This type of LC is not used a lot. 1. Irrevocable LC In this type of LC, any kinds of change and manipulations from the buyer part and the establisher bank require the permission and satisfaction of seller part. 2. Confirmed LC They are the guaranties that buyer will be given so that, the buyer will give the guaranty from his own bank to any other valid bank that the seller will desire it. 3. Unconfirmed LC This type of letter of credit, does not acquire the other bank's confirmation. 4. Transferrable LC It is said to the credit that the seller can give a part or parts of credit (Completely) to the person or persons he decides. This type of credit is a benefit for seller.

5. Untransferable LC

It is said to the credit that seller cannot give a part or completely right of assigned credit to somebody or to the persons he wants. In international commerce, it is required that the credit will be untransferable. 6. Usance LC It is kind of credit that won't be paid and assigned immediately after checking the valid documents but paying and assigning it requires an indicated duration which is accepted by both of the buyer and seller. In reality, buyer will give an opportunity by the seller to pay the required money after taking the related goods and selling them. At Sight LC It is a kind of credit that the announcer bank after observing the carriage documents from the seller and checking all the documents immediately pays the required money. Red Clause LC In this kind of credit assignment seller before sending the products can take the pre-paid and parts of the money from the bank. The first part of the credit is to attract the attention acceptor bank. The reason why it named so, is that the first time this credit is established by the assigner bank, to take the attention of the offered bank, the terms and conditions were written by red ink, from that time it became famous with that name.

[b] Bill of Lading [B/L]: A Bill of Lading [B/L] is a Document issued by a shipping

company or its agent as evidence of a contract for shipping the merchandise and as a claim to ownership of the goods. OR

A bill of lading (sometimes abbreviated as B/L or BOL) is a document issued by a carrier which details a shipment of merchandise and gives title of that shipment to a specified party. Bills of lading are one of three important documents used in international trade to help guarantee that exporters receive payment and importers receive merchandise. A straight bill of lading is used when payment has been made in advance of shipment and requires a carrier to deliver the merchandise to the appropriate party. An order bill of lading is used when shipping merchandise prior to payment, requiring a carrier to deliver the merchandise to the importer, and at the endorsement of the exporter the carrier may transfer title to the importer. Endorsed order bills of lading can be traded as a security or serve as collateral against debt obligations. Bills of lading have a number of additional attributes, such as on board, received-for-shipment, clean, and foul. An on-board bill of lading denotes that merchandise has been physically loaded onto a shipping vessel, such as a freighter or cargo plane. A received-for-shipment bill of lading denotes that merchandise has been received, but is not guaranteed to have already been loaded onto a shipping vessel. Such bills can be converted upon being loaded. A clean bill of lading denotes that merchandise is in good condition upon being received by the shipping carrier, while a foul bill of lading denotes that merchandise has incurred damage prior to being received by the shipping carrier. Letters of credit usually will not allow for foul bills of lading.

[c] Bank Draft:

A cashier's check (cashier's draft, teller's cheque, banker's cheque, bank cheque, bank draft or treasurer's cheque, official cheque) is

cheque, demand

a check guaranteed by a bank. They are treated as guaranteed funds and are usually cleared the next day. It is the customer's right to request "next-day availability" when depositing a cashier's check in person. Most banks do not clear them instantly. However, banks are permitted to take back money from a "cleared" check one or two weeks later if subsequent

processing finds it to be fraudulent. Because customers believe the checks have been found valid and have been converted to cash in hand, customers are readily defrauded by schemes that ask them to part with goods or a portion of the money if it is cleared in a timely manner.

Why might I need a bank draft? If you intend to make a large purchase such as a car, the seller may ask for the purchase price to be paid by bank draft. This can be useful because the person to whom it is made out has the advantage of knowing that it will almost certainly be paid. Provided the draft is genuine and has not been lost or stolen, payment will be guaranteed (if it is fraudulent or conterfeit it will not be paid). This is important if you are selling valuable goods or exchanging valuable documents e.g. cars or houses. What is a bank draft? It may look, at first glance, like a cheque but it is drawn on a banks head office. Be aware that: It may require two signatories (but not always, some require only one). These will generally be bank managers; The bank issuing the draft will have its name and possibly a hologram printed on the front or back of the draft; It can be for any amount; The customers name will not appear on the bank draft; The bank draft will be made out to the person who is to receive the money, not the customer.

How do I get a bank draft? A bank will issue a bank draft when asked by a customer (there may be a written application form which the customer will have to complete) and it will be used for pre-arranged transactions, e.g. car purchase, house purchase. The customer will be charged a fee. The fee can be found in the banks tariff of charges.

The bank which issues the bank draft will check that the customer has the necessary funds available to cover the amount of the bank draft. The customers account will be debited with the amount of the draft. The bank draft should not be altered or amended in any way. The bank may ensure that draft is crossed and the words account payee not negotiable are added.

If someone offers me a bank draft, what should I do? Bank drafts are cheques drawn by a bank usually on its own Head Office. Payment is guaranteed provided the draft is genuine and has not been lost or stolen. If it is fraudulent or conterfeit it will not be paid. Drafts go through the normal clearing process like any other cheque and if you are offered a bank draft in payment, don't release the goods until you are sure the draft is genuine and has been paid. If you are selling a car or similar expensive item, beware of the who turns up without notice after the banks have closed usually a Friday. If the "buyer" offers a bank draft, already made out in your name for the full asking price and wants to take the item straight away (usually he/she says that they live at the other end of the country and are travelling back home that night or the next day), it is highly likely that you could be the potential victim of a fraud attempt. Ask yourself whether the situation seems logical would you for instance go to the trouble of getting a bank draft to buy an item without even checking its condition or even whether it was still for sale? Better to have lost a sale rather than the item itself. There are alternative ways of transferring money, such as via CHAPS same-day electronic transfer of funds between UK banks. This may be more expensive though check with your bank first about cut-off times for receiving value on the same day. For more details see the information sheet on Understanding the Cheque Clearing Cycle (see link below).

Be aware that not all banks use identical wording and there may be small variations. If in doubt, check with your bank.

[d] Commercial Invoice:

A commercial invoice is a document used in foreign trade. It is used as a customs declaration provided by the person or corporation that is exporting an item across international borders. Although there is no standard format, the document must include a few specific pieces of information such as the parties involved in the shipping transaction, the goods being transported, the country of manufacture, and the Harmonized System codes for those goods. A commercial invoice must also include a statement certifying that the invoice is true, and a signature. A commercial invoice is used to calculate tariffs, international commercial terms (like the Cost in a CIF) and is commonly used for customs purposes. Commercial invoices are in European countries not normally for payment. The definitive invoice for payment usually has only the words "invoice". This invoice can also be used as a commercial invoice if additional information is disclosed.

[e] Packing List

A shipping list, packing list, waybill, packing slip (also known as a bill of parcel, unpacking note, packaging slip, (delivery) docket, delivery list, manifest or customer receipt),[1][2][3]is a shipping document that accompanies delivery packages, usually inside an attached shipping pouch or inside the package itself. It commonly includes an itemized detail of the package contents and does not include customer pricing. It serves to inform all parties, including transport agencies, government authorities, and customers, about the contents of the package. It helps them deal with the package accordingly.

A packing list accompanies the international shipment and is used to inform transportation companies about what they are moving as well as to allow the customer and others involved in the transaction to check what has been shipped against the proforma invoice. It is a good safeguard against shipping incorrect cargo! To prepare your packing list, delete all the prices on the invoice and double-check to see that the number of cases, weight (net, gross, metric) and measurements appear on the invoice. Then rename the document "PACKING LIST" in big, bold letters and you're all set. Never substitute a packing list for a commercial invoice. Your freight forwarder, customs broker, bank and customer should indicate how many copies they will need, and where each copy will need to be attached and distributed, some weeks in advance. I always make 3-4 extra copies for my file just in case. If you take care of your shipment documentation online, select the packing list option to download and, check with all parties involved in the international sale to determine if your packing list needs to be signed.

[f] Insurance Certificate: Definition:

A document issued by an insurance company/broker that is used to verify the existence of insurance coverage under specific conditions granted to listed individuals. More specifically, the document lists the effective date of the policy, the type of insurance coverage purchased, and the types and dollar amount of applicable liability. A certificate of insurance is often demanded in situations where liability and large losses are a concern. For example, a company wishes to hire a driver from a temp agency. The company will most likely ask the agency to show them a certificate of insurance that proves that certain liabilities will be covered by insurance in the event the driver causes problems, such as incurring damages from driving the companys vehicles.

CERTIFICATE OF INSURANCE: WHAT YOU SHOULD KNOW 1.Producer: The Producer is the insurance broker or agent representing the insured that procured the insurance coverage for the insured entity. 2. Insured: The Insured is the entity that has purchased the insurance coverages that are stated on the Certificate of Insurance and is considered the first named insured. 3. This Certificate is issued as a matter of information only and confers no rights upon the Certificate Holder. This Certificate does not amend, extend or alter the coverage afforded by the policies below: This statement expresses that the intent of a Certificate of Insurance is merely to show the Certificate Holder that the insured has purchased the insurance coverages stated on the Certificate. However, it also indicates that the Certificate Holder has no legal right to be covered by the insurance in place. The statement also indicates that regardless of what the Certificate states, the only coverage terms and conditions that are applicable are those stated on the actual insurance policies. The Certificate cannot legally change or alter the actual insurance policy. 4. Companies/Insurers Affording Coverage: This section is used to identify the insurance companies issuing the polices stated below and put an alphabetical identification on each insurance company to assist in determining what insurance company is issuing what policies. 5. Coverages: This statement conveys that the insurance policies listed below were issued to the insured and that all insurance provided to the insured is subject to the normal policy terms, exclusions and conditions. It also states that the limits of coverage shown may actually be lower due to claims already paid out during the stated policy period. 6. General Liability: General Liability is provided for protection from liability arising out of the insureds premises or operations, products and completed operations. 7.Commercial General Liability or CGL is the current proper name for General Liability coverage exposures arising out of a business operation. 8. Claims-made and Occurrence are two types of general liability coverage forms. The difference in the two forms is in the event that triggers coverage. In an occurrence form policy, coverage is provided for occurrences taking place during the policy period, regardless of when an actual claim is made or reported. With a claims-made policy, the occurrence must have taken place during the policy period and the claim must also be made or reported during the policy period for coverage to be afforded. 9. Policy Number should be stated to assist in accessing the needed coverage if a claim should arise [will apply for all the policies]

10. The Policy Effective and Expiration Dates inform you when a policy begins and ends. It is important to be sure that performance on the contract be within the policy period. 11. Medical Expenses (any one person) is a no fault medical expense coverage provided to third parties injured on premises you own, rent, or on ways next to these premises or injured because of your operations. 12. The General Aggregate is the most an insurance policy will pay in a given policy period, regardless of the number of insured or claims. 13. Fire Damage (any one fire) is the most the liability policy will pay for a fire that you are legally liable for in premises you lease or rent that are in your care, custody and control. 14. Automobile Liability: Coverage is provided for protection from liability arising out of negligent operation, maintenance or use of a covered auto, which results in bodily injury or property damage to a third party. 15. Garage Liability: Coverage provided to auto service facilities for damage to customer's vehicles in their care, custody and control. 16. Excess Liability: Liability coverage provided in addition to or on top of the primary general liability policy as stated in number 6. 17. Workers Compensation and Employers Liability: Coverage is provided to cover liability arising out of employee injuries/diseases occurring in the course and scope of their employment. 18. Certificate Holder: Entity to which the Certificate of Coverage is issued. To have access to the liability policies of the contractors, the Certificate Holder must also be named as an additional insured on the actual insurance policy. 19. Cancellation: This clause states the amount of written notice that the insurance companies will "endeavor" to provide to the Certificate Holder on cancellation of the policies. This section goes on to say that the insurance company will not be liable if the notice is not given. 20. Authorized Representative: The insurance company or producer/broker who has been authorized to sign the Certificate.

[g] Generalized System of Preferences [GSP]:

1. What is GSP?
The Generalised System of Preferences (known as GSP for short) is a scheme whereby a wide range of industrial and agricultural products originating in certain developing countries are given preferential access to the markets of the European Union. Preferential treatment is given in the form of reduced or zero rates of customs duties.

The GSP scheme is specifically designed to benefit certain developing countries and integrate them into the world economy.

2. What conditions must be met for obtaining preferential treatment?

Certain products on importation into the EU are eligible for reduced or zero rates of customs duties provided that they:

are eligible for preference under the GSP scheme; qualify as originating products under the rules of origin set down in the Community Customs Code Implementing Provisions. are accompanied by a valid Certificate of Origin Form A and relevant transport documents are transported directly from the GSP country to the EU (commonly referred to as the Direct Transport Rule).

3. What countries are eligible to benefit under GSP?

Three distinct categories of countries can benefit under the GSP scheme provided the goods are produced in accordance with the relevant rule of origin

Developing countries/territories enjoy preferential access to EU markets Least developed developing countries (LDDC) benefit from zero duty on import into the EU for all products of Chapters 01- 97 with the exception of Chapter 93. Special incentive arrangement for sustainable development and good governance GSP+

4. What goods are eligible for preference?

Details of eligible products have been given in the EU legislation governing the GSP scheme. Regulation No. 732/2008 as amended by Regulation No. 512/2011 applies GSP to 31 December 2013.

5. Where can I find out the preferential rates of duty available under the GSP scheme?
Rates of duty are available in the Taric database at: Lang=en&Screen=0&redirectionDate=20110530

6. How do goods qualify as originating products?

The concept of "originating product" forms the basis upon which preferential access is granted to products entering the EU under GSP. Products are considered as originating in two ways:

Products wholly obtained in a GSP country Products considered to be originating in a GSP country when the raw materials used are sufficiently worked or processed. The GSP scheme provides rules of origin to ensure that this condition is satisfied. Each product has a specific origin rule which can be found the Customs Code Implementing Provisions.

7. What is a Certificate of Origin Form A?

A Certificate of Origin Form A is the documentary evidence required to claim preferential treatment (reduced or zero rate of duty) on importation into the EU. The Form A is issued by the competent governmental authority in the exporting country and is provided by the exporter to the importer in the EU. It will normally accompany the goods. The Form A can only be issued when the goods to which it relates are originating products within the meaning of the GSP scheme.

8. Has a Form A a specific validity period?

Yes, the Form A must be submitted, to the customs authority of the importing Member State, within 10 months of the date of issue. However, the customs authority in the Member State may accept a Form A which has passed its expiry date where failure to observe the time limit is due to forced or exceptional circumstances.

9. What if a Form A is not issued at the time of exportation?

In exceptional circumstances, a Certificate of Origin Form A may be issued after the actual exportation of the goods to which it relates. In this case, the competent authority in the exporting country must endorse Box 4 of the Form A with the words "Issued Retrospectively".

10. What if a Form A is lost, destroyed or stolen?

In the event of theft, loss or destruction of a Form A, the exporter may apply to the competent authority for a duplicate to be issued. In this case, Box 4 of the duplicate Form A must bear the

endorsement "Duplicate", together with the date of issue and the serial number of the original certificate. The duplicate shall take effect from the date of the original.

11. When are Replacement Certificates of Origin Forms A issued?

On occasions where parts of a consignment of goods imported from a GSP country are destined for different Member States, a replacement Form A may be issued by the customs authority in the first Member State of entry into the EU.

12. What is the Direct Transport Rule/Non-Manipulation Rule?

This requires that the products declared for release for free circulation in the EU must be the same products as were exported from the GSP beneficiary country in which they are considered to originate. They must not have been altered, transformed in any way or subjected to operations other than operations to preserve them in good condition, prior to being declared for release for free circulation. Storage of products or consignments may take place where carried out under the responsibility of the exporter or of a subsequent holder of the goods and on the condition that the products remain under customs supervision in the country(ies) of transit.

13. What documentary evidence may be required to show Direct Transport/Non-Manipulation?

Goods will automatically be deemed to have met the non-manipulation requirement unless customs has reasonable doubts about compliance with the requirement. In such cases importers will be required to produce evidence of compliance. This may be given by any documentation which shows that the imported goods left the GSP country in which they are considered to originate and that they are the same goods as left that country. Customs will only ask for evidence of compliance with the non-manipulation requirement where they have doubts as to whether the goods are the same as those which left the GSP beneficiary country concerned, or doubts as to whether the goods left that country in the first place. The evidence which will be required must demonstrate that the goods imported are the same as those which left the GSP beneficiary country. It can for example, take the form of:

a purchase order/contract with the supplier in the GSP beneficiary country together with a transport/shipping document/contract - bill of lading - showing that the goods were loaded in and transported from the GSP beneficiary country concerned. If the goods

were transported from the beneficiary on for example, a feeder vessel and then consolidated with other consignments in a seaport en route to the EU there should be a transport document (bill of lading) for each leg of the journey. A document which simply covers the leg from the consolidating port to the EU will not suffice as it will not show that the goods left the GSP beneficiary country for which preference is being or has been claimed.

14. What evidence is required to comply with the direct transport rule for Chinese goods transiting through Hong Kong ?
Any of the following may be regarded as evidence of compliance with the direct transport rule where Chinese goods are transhipped via Hong Kong:

a Bill of Lading issued in China, which covers the transport through Hong Kong accompanied by a certificate of origin, Form A or a Form A endorsed by the China Inspection Company Limited (CICL) stamp in box 4,or a certificate of non-manipulation issued by the CICL when the Form A is sent directly to the EU by mail.

15. Are any countries excluded from GSP?

Certain countries have been excluded from the scheme due to trade developments. These include Singapore, Hong Kong and South Korea.

16. Are there any opportunities for EU exporters under GSP?

The scheme only provides preferential access on importation into the EU. It does not provide for preferential access into third country markets. However, it is possible for exporters to send raw materials and semi-finished products which originate in the EU to GSP countries under cumulation provisions. The cumulation provisions of the GSP enable originating materials exported from the EU to be regarded as materials originating in GSP countries when incorporated into a finished product there. The EU materials must be produced in accordance with the rules of origin laid down in the GSP scheme and must be accompanied by an EUR.1 certificate when exported.

The cumulation provisions encourage GSP countries to source raw materials in the EU as it makes it easier to satisfy origin criteria.

17. Is there any provision for regional cumulation in the GSP arrangements?
In certain circumstances, various beneficiary countries have been grouped together for the purposes of cumulation of origin under GSP. Cumulation is a term used to indicate the basis upon which a product may enjoy originating status, even though the normal origin rules would not confer origin on the basis of the work done in the country of last processing. Products manufactured in a beneficiary country which is a member of a regional group, may be further processed in another beneficiary country of the same group and will be treated as if they originate in the country of further manufacture. GSP Regional Groups:

Group I - Brunei-Darussalam, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, Vietnam. Group 2 - Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Peru, Venezuela. Group 3 - Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka. Group 4 - Argentina, Brazil, Paraguay, Uruguay.


Indirect export occurs when the exporting manufacturer uses independent organizations located in the producers country. In addition, the producer may have a dependent export organization (for example an Export Department) that works with the independent marketing organizations and co-ordinates the entire export effort.

In this situation the dependent organization does not actively engage in any international sales activates. There are two broad alternatives available to the manufacturer wanting to export indirectly: (1) Using International Marketing Organizations, and (2) Exporting through a Co-operative Organization. MARKETING ORGANIZATIONS: In export marketing, there are two basic types of independent wholesale marketing intermediaries: I. MERCHANTS, AND II. AGENT The basic distinction between the two is that the Merchant takes ownership of the products to be sold, while the Agent does not.



The domestic-based export merchant buys and sells on its own account. Generally engaged in both exporting and importing, it operates in a
manner similar to a regular domestic wholesaler. When this type of marketing organization is used in an export marketing channel, the marketing job for the manufacturer is reduced to essentially domestic marketing.

All aspects of the international marketing task are handled by this merchant, except for any needed modifications in such things as the product itself, its package, or in the quantity included in the unit package to meet any special needs of individual overseas markets. This also includes selecting the channels within foreign markets as well as activates relating to sales, marketing, merchandising, advertising, delivery, and services. The Export Merchant Company is free to choose what it will buy, where it will buy, and at what prices. The same freedom exists for sales. This type of company may have a far-flung organization that may include Branch Houses, Warehouses, Branch Offices, Docks, Transportation Facilities, Retail Establishments, and even Industrial Enterprises in Foreign Markets served. As a consequence, the Export Merchant is likely to be a powerful Commercial Organization, well able to exist without the co-operation of the products of any one manufacturer or any one group of manufacturers. In some instances this type of enterprise dominates the trade of certain localities or even certain nations.

Limitations: There are some potential limitations to using export merchants. Firstly, they may not be available for all markets. Export Merchants are principally interested in staple [main, principal] commodities, which are generally open-market items not subject to a high degree of identification by the producer; and they are reluctant to undertake the development details and expense of the introduction and sale of any article that approaches the status of a specialty and which might require a considerable amount of sales effort.

The Export Merchant, occupying so commanding a position, is usually unwilling to allow the manufacturer much more than a manufacturing profit on any merchandise. The Export Merchant feels that he or she meets any terms of payment the manufacturer demands; that he or she performs every function connected with marketing and selling; and, Finally, that he or she has all the manufacturers of a given line to choose from, since their importance in the market gives them command of the outlets for any products that they may care to sponsor. B] TRADING COMPANY In many countries Export Merchants known as Trading Companies are quite common. Different types of trading companies have been identified, as shown below:

Although international trading companies based in Brazil, Hong Kong, South Korea, Taiwan, Thailand, Turkey, and other countries, including some in Europe, have been active throughout the world, it is in Japan that the Trading Company concept has been applied most effectively and perhaps most uniquely. There are thousands of trading companies in Japan that are involved in exporting and importing, and the largest firms (varying in number from 9 to 17 depending upon source of estimate) are referred to as general trading companies or sogo shosha. This group of companies, which includes Mitsui & Co., Ltd., Mitsubishi Shoji Kaisha, Ltd., and Marubeni, handle a large share of Japans Exports and Imports.

While the Smaller Trading Companies usually limit their activities to Foreign Trade, the Larger General Trading Companies are also heavily involved in domestic distribution and other activities. The Japanese General Trading Companies are engaged in a far wider range of Commercial and Financial activities than simply trade and distribution. They also play a central role in such diverse areas as shipping, warehousing, finance, technology transfer, planning, resource development, construction and regional development (e.g., Turnky Projects), insurance, consulting, real estate, and deal making in general (including facilitating investment and joint venture of others). In fact, it is the range of Financial Services offered that is a major factor distinguishing General Trading Companies from others. These services include the guaranteeing of loans, the financing of both accounts receivable and payable, the issuing of promissory notes, major foreign exchange transactions, equity investment, and even direct loans. The sogo shosha differ from multinational corporations chiefly in that their wider-ranging investments are all in some way directly connected with trade, with the broad aim of stimulating international business. They also differ from other companies in that they are not necessarily user or manufacturer oriented. Rather, they are for supply/demand for goods or services, the sogo shosha look for ways to supply it, either taking the intermediary role in trade deals between a numbers of parties or independently directing the flow of trade. To an extent, these actions have been in response to the increased direct export activities of Japanese Manufacturers such as Toyota, Hitachi, and Sony. Some of the general trading companies, including C. Itoh & Co., Mitsubishi International Corporation, and Mitsui & Co., have established Global Sales Networks consisting of branch offices overseas or wholly owned subsidiaries. For example, in Canada and the United States, the subsidiary approach has often been used. C. Itoh America itself has more than 20 subsidiaries and

affiliates in the United States it imports Mazada and Isuzu automobiles, exports Beechcraft airplanes, and manufactures chain link fence and piping. As another example of the far-reaching impact of trading companies consider Jardine Matheson, the oldest trading company, or Hong, based in Hong Kong (but legally domiciled in Bermuda). The group of companies is all over Asia, engaging in such activites as trading per se [by itself, for itself], retailing, hotel development and management, vehicle distribution, merchant banking, and mutual fund management. Unlike Japan, in the past trading companies in Hong Kong have not been directly influenced by government policy. With Hong Kong now a Special Administrative Region (SAR) of China, Hong Kong-based trading companies, particularly the now foreign-owned ones such as Jardine Matheson, have to be sensitive to the effects that their decisions might have on the PRC government in Beijing. Operations in Hong Kong as well as China itself might be affected. China was upset by such actions prior to the handover on 30 June 1997 as Jardines moving its legal home to Bermuda and its delisting of its stock from the Hong Kong Stock Exchange and move to Singapore. One result has been the delays in projects. The situation for Jardine has improved since the Managing Director made a public apology in early 1997 that Jardine regretted any offense caused in China by its actions. Trading companies, whether the very largest from Japan or those increasingly emerging from such countries as South Korea, Brazil, countries within Europe or the United States, should be of concern to all export marketers. First, they may be necessary for market entry. This would include direct export by the export marketer as well as indirect export. It may be that in order to penetrate, say, the Japanese Market - the direct exporter would have to do business with a Japanese Importing Trading Company. Second, since trading companies appear throughout the world they may be competitors to the export marketer. It is quite obvious that a trading company can be a very formidable competitor.

Consequently, strategies may have to be changed in those markets where trading companies are major competitors. Ellis (2003) discusses how Trading Companies or what he calls International Trading Intermediaries contribute to the economic development of host countries. This applies to both new foreign markets and offshore sources of supply. Three distinct contributions are identified: The efficiency of distribution in an economy is improved by minimizing costs incurred in overcoming barriers to trade i.e., transaction costs are lowered. Productivity may be increased by opening new markets and finding new sources of supply. This creates international exchanges where none existed before. Marketing technology and credit may be introduced into local distribution a channel, which is known as a catalytic contribution. C] EXPORT DESK JOBBER: One type of Export Merchant often helpful to manufacturers deserves special note. This is the Export Desk Jobber, who, because of the method of operation, is also known as an Export Drop Shipper, and may be called a Cable Merchant.

Used primarily in the international sales of raw materials, the Desk Jobbers never see or physically acquire the goods that they buy and sell. In all other respects, however, the Desk Jobber operates as a regular export merchant, except that goods are typically owned for a very short time. The manufacturer using this type of export merchant comes a little closer to direct export in that he or she is responsible for the physical movement

(including documentations requirements) of his or her products to the Desk Jobbers Customer. For example, a company in the United States may negotiate a sale of mercury to a buyer in Japan from a supplier in Spain. Title moves from the Spanish supplier to the US firm and then to the Japaneses buyer. Actual shipment will be directly from Spain to Japan. Export Desk Jobbers are Specialists in knowing sources of supply and markets. They relieve the producer of the problem and risk of determining the reliability of the purchaser. However, they are not conducive to the establishment of continuous markets for a manufacturers product. They simply conduct business too quickly for there to be any permanent market relationship. HOME-COUNTRY BASED AGENTS: There are several distinct types of Wholesaler Agents located in the Country of Export who are potentially available as Members of a Manufacturers Export Marketing Channel. When such an agent is used, the manufacturer generally assumes all financial risks. A] Export Commission House: The Export Commission House (Export Buying Agent) is a representative of foreign buyers who resides in the exporters home country. As such, this type of agent is essentially the overseas customers hired purchasing agent in the exporters domestic market, operating on the basis of orders or indents (offers to purchase under conditions stipulated by the prospective buyer, including the price to be paid) received form these buyers. Since the Export Commission House acts in the interests of the buyer, it is the buyer who pays a commission.

The exporting manufacturer is not directly involved in determining the terms of purchase; these are worked out between the commission house and the overseas buyer. The Export Commission House essentially becomes a domestic buyer . It scans the market for the particular merchandise that it has been requested to buy. It sends out specifications to manufacturers inviting bids. Other conditions being equal, the lowest price gets the order and there is no sentimentality, friendship, or sales talk involved. From the exporters point of view, selling to Export Commission Houses represents an easy way to export. Prompt payment is usually guaranteed in the exporters home country, and the problem of physical movement of the goods is generally taken completely off its hands. There is very little credit risk and the exporter has only to fill the order, according to specifications. A major problem is that the exporter has little direct control over the international marketing of products.

B] Confirming House: The basic function of a Confirming House is to assist the Overseas Buyer by confirming, as a principal, orders already placed, so the exporter may receive payment from the confirming house when the goods are shipped.

Some exporters may believe that Confirming Houses should be classified as Financial Institutions and not as a type of Marketing Organizations. However, the Confirming House, even if it does, still performs all the functions. The Confirming House is not a common type of export enterprise everywhere in the world, but it is in Europe, particularly in the United Kingdom. The confirming house interposes its credit between the buyer in the importing country and the exporter or manufacturer in the exporting country. It finds its greatest usefulness in those markets where credit conditions are uncertain or where the cost of money is high. In addition to the payment aspects, the Confirming House may also be involved in making arrangements for the shipper. Typically, all contacts between buyer and exporter would go through the Confirming House. Due to the functions that it performs, its greatest users would be small and medium-sized companies.

C] Resident Buyer:
Similar in operation to the Export Commission House are resident buyers. Resident buyers represent all types of overseas buyers and are domiciled[resided] in the exporters home market.

These buyers represent foreign concerns that want to have close and continuous contact with their overseas source of supply, and are either sent to the market or are local people appointed as representative. Large retailers utilize this type of intermediary extensively. Thus, retailers such as Galeries Lafayette (France), Harrods (UK), and Nordstrom (US) do have Resident Buyers in the clothing centers of Italy, Hong Kong, China, and whereverelse clothing is produced. Although the Resident Buyer operates almost exactly like the Commission House, that is, the buyer places an order, specifies the terms of sales, handles all shipping matters and other details of the exporting process, and either pays cash or furnishes the manufacturer with a low-risk means of financing. Because Resident Buyers are permanently employed representatives of foreign buyers, the exporting manufacturer has a good chance to build up a steady and continuous business with foreign markets. One advantage of an importer utilizing a Resident Buyer and of the exporter dealing with such a buyer is that any problems that might arise due to language difficulties and cultural and business customs differences are minimized, if not eliminated. It is especially important for the buyers to be fluent in the language of the exporters country (or have translation help, which is not as desirable as first hand knowledge) and be familiar with the local culture and customs. A resident of the exporters country would have this knowledge.

APT EXAMPLE: To illustrate what can happen when language is not understood, a buyer from Italy, who felt she knew English fairly well, was sent to Britain to purchase clothing. She found some appropriate Sweaters at Bourne & Hollingsworth, and attempted to order four to five thousand pounds worth.

Upon her return to Italy, it became clear that a major misunderstanding had occurred that delivery of goods was made for fortyfive thousand pounds worth that which she had not actually ordered. D] Broker: Another type of home-country based agent is the export/import broker. The chief function of a broker is to bring a buyer and seller together. Thus the broker is a specialist in performing the contractual function, and does not actually handle the products sold or bought. For its services the broker is paid a commission by the principal. The broker commonly specializes in particular products or classes of products, usually staple primary commodities such as grains, lumber, rubber, fibers. Being a commodity specialist, there is a tendency to concentrate on just one many potential export marketers. This type of agent does not represent a practical alternative channel of distribution. The distinguishing characteristic of export brokers is that they may act as the agent for either the seller or the buyer. For example, an export broker in the lumber [heavy wood/timber] business may be contacted by a saw mill and asked if he or she can dispose of a quantity of lumber of a size and grade not readily salable domestically. The broker will then get in touch with potential foreign buyers with whom he or she is acquainted and either offer the lumber to them at a predetermined price or ask them to make an offer. When several foreign offers are received, the broker accepts the best offer or relays the information to the saw mill to ascertain whether the price is

acceptable. When the transaction is successfully concluded the saw mill pays the brokers fee. Alternatively, the broker may be contacted by a foreign buyer and asked to secure quotations on a quantity of a certain size and grade of lumber. Quotations are then sought from saw mills or any other suppliers based on the category of products, with which he or she is also acquainted. If the broker is not authorized to place the order with the mill making the best quotation, the prices are sent to the foreign buyer for determination whether the price is acceptable. When the transaction is concluded successfully, the foreign buyer pays the brokers fee.

Export Management Company [EMC]

Simply defined, an Export Management Company (EMC) is an International Sales Specialist who functions as the Exclusive Export Department for several allied but non-competing manufacturers. That is to say, an EMC may serve five sailboat parts manufacturers, each making a different part. For the individual manufacturer the EMC is to exporting what the sales agent is to domestic marketing. Being the Export Department of several manufacturers, the EMC conducts business in the name of each manufacturer that it represents. All correspondence with buyers and orders are subject to confirmation by the manufacturer. Different contractual arrangements with principals may be used. In actual operation, the EMC, in many instances, is perhaps more a Manufacturers Distributor or an Export Merchant than a Commission Representative since Export Managers often operate on a buy-and-sell rather than a commission basis.

Many still work on a straight commission basis, but the majority today do their own financing, assuming all credit risks abroad and paying the manufacturer cash for every order. Thus the EMC often takes over all the risks and problems of export and the manufacturer just fills the orders. BENEFITS: The possible benefits to a manufacturer of using an export management firm in the channel of distribution are many. In the first place, a tailor-made export department is obtained without adding any extra selling expense. Since this export department is fully functioning at the time that it is obtained, using the EMC is one of the quickest ways for a manufacturer to enter foreign markets, chooses the best type of channel within a n overseas market and usually does its own advertising and promotion. Also, the EMC may serve as a shipping and forwarding agent, and may furnish its principals with legal advice such as patent and trademark situations. Second, where a buyandsell arrangement is involved, the manufacturer receives financing assistance. Even without buy-and-sell, an EMC is able to collect and furnish credit information on foreign customers to their principals. Third, the EMC offers experience, which is important in export marketing since no two foreign markets are alike. Being in daily contact with varying conditions in different foreign markets, the EMC knows which markets are receptive to a manufacturers products and how to sell them in those markets.

Fourth, specialization can lead to significant benefits. Handling a wide line of related, but non-competing products can help the sales of each individual product. If a buyer is interested in buying one product there may also be a need for other related products. Since many buyers prefer to work with as few suppliers as possible, the buyer expects that a supplier can offer a line of products, where EMC plays vital role. Specialization, of course, exists in degrees. Thus, if an EMC represents too many manufacturers, selling efforts may, of necessity, be extensive rather than intensive. Another potential benefit may be derived through savings on shipping expenses. By consolidating orders from different manufacturers into one shipment, the EMC is a good way for a manufacturer to overcome any obstacle/barriers. In-a-nut-shell, it is very clear that using an Export Management Firm will perhaps be most advantageous to the Small and MediumSized Manufacturers / Enterprises. But, in general, however, these independent agents can provide valuable export marketing services to any manufacturer that either cannot afford to set up its own export marketing organization, that does not want to get involved in the more or less unique problems found in export marketing, or that wants to let someone help break it into the business. There are reasons for the small or inexperienced firm producing a branded or specialized product to seriously consider utilizing an EMC. Because, Export Sales Activities are handled by an expert.

Since expenses of export promotion are shared with other producers, they are not unduly burdensome to anyone, especially in the developmental stages of export business. Representing only a limited number of accounts, the EMC pays adequate attention to each account. Since they accept accounts only from producers of related types of products, the danger of promotion of competitors products is obviated. Small producers gain the prestige of association with related products. The experience and knowledge of the top officials of EMC provides the producer with immediate access to established foreign markets. It is also quite possible that often the EMC will assist their Principals in setting up such an export department.

Manufacturers Export Agent:

In contrast to an EMC, the Manufacturers Export Agent retains its own identity by operating in its own name. Also, the Manufacturers Export Agent is paid a straight commission and does not engage in buy-and-sell arrangements with the manufacturers represented. Because of these basic differences, the Manufacturers Export Agent does not offer a manufacturer all the services that an EMC does. Most notable in this case financial assistance. is the lack of advertising and

However, there are occasions when the Manufacturers Export Agent assumes foreign credit risks and charges a del credere commission [An extra commission is allowed for undertaking the risk of bad debts arising out of credit sales. This extra commission is termed del Credere Commission in addition to the regular commission].

With a del credere arrangement the export agent either guarantees payment for all orders sent to the manufacturer or finances the transaction. The manufacturers export agent may be most effectively used when the firm wants to sell small orders to overseas buyers, enter a new overseas market, or sell a product that is relatively new to consumers in overseas markets. Because this type of export agent retains its own identity, it usually desires to keep the foreign sales representative on a permanent basis. Thus producers are seldom encouraged to establish their own export departments.

Cooperative Exporting Organizations [CEO] represent a cross between indirect and direct export. There are two distinct types of Cooperative International Marketing Organizations: (1) Piggyback Marketing; and (2) Exporting Combinations.

PIGGYBACK MARKETING, also known as MOTHER HENNING, occurs when one manufacturer uses its foreign distribution facilities to sell another companys products alongside its own. There are alternative ways in which this can be handled. All types of products have been exported by this technique including textiles, industrial and electrical machinery and equipment, chemicals, consumer soft goods, and books. Piggyback Marketing is used for products from different companies that are noncompetitive (but related), complementary (allied), or unrelated.

The particular relationship depends to a large extent upon the motives of the large, already exporting companies. In the past, some companies such as General Electric and Borg-Warner in the United States have viewed piggybacking as a way of broadening the product lines that they can offer to foreign markets. They feel that marketing allied products helps them to market their own products. Other companies engage in this type of operation in order to bolster decreasing export sales. Pillsbury Company, for instance, first began to sell the products of other companies packaged foods, farm machinery when export sales of its flour began to decline. Finally, some companies actively seek out smaller manufacturers because piggybacking can be profitable. In general, the carriers compensation takes the form of a discount from the suppliers domestic distributor list price plus a markup.

The discount varies widely depending upon the product and the services provided by the carrier. Although the usual arrangement is for the larger company to buy the products-outright of the smaller company, the larger company may prefer to act as an agent and be compensated by a commission. Some companies engage in this practice, because of governments encouragement or regulations. For example, in the late 1980s, Rhone Poulenc, a French Chemical Company sold the products of hundreds of other companies through its extensive Global Sales Network. The French government encouraged this to assist smaller exporters that lacked abilities to do extensive exporting. Another example is Polymark Laundry Systems, which in the late 1980s marketed the products of many other companies in Poland. Polymark was licensed by the government and other firms did not find it worth the effort at the time to get the required government approvals.

There may be differences concerning which companys name the product will be sold under. Some companies have a policy of using either the actual manufacturers name or creating a private label but never their own name. Other exporting companies have the policy of using the corporate name that is best known, whether its own name or that of its supplier.

Piggyback marketing provides an easy, lowrisk way for a company to begin export marketing operations. It is especially well suited to manufacturers that are either too small to go directly into exports or which do not want to invest heavily in foreign marketing. As far as the smaller manufacturer is concerned, its transactions are domestic in nature. The larger firm can provide a wellestablished export department and export marketing channels geared to the needs of the smaller firm.


A manufacturer can export cooperatively by becoming a member of some type of exporting combination, which can be defined as a more or less formal association of independent and competitive business firms, with membership being voluntary, organized for purposes of selling to foreign markets. There are TWO basic Exporting Combinations: 1. general types of

Marketing Cooperative Associations of producers or merchandisers that engage in exporting members products; 2. Export cartels.

MARKETING CO-OPERATIVE ASSOCIATIONS: The first type of exporting combination is the normal Domestic Marketing Cooperative as is commonly found in certain primary product industries. Take for example - citrus fruits, nuts, and other types of agricultural products.

The export operations such organizations are essentially the same as the export operations of manufacturers and intermediaries. A producer normally cannot join the cooperative for the sole purpose of entering foreign markets. CARETLS: Out of more interest evinced by the manufacturer, there will be the possibility of becoming a member of an Export Cartel or cartel-type arrangement. A cartel is said to exist when two or more independent business firms in the same or affiliated fields of economic activity join together for the purpose of exerting control over a market.

More specifically, a cartel is a voluntary association of producers of a commodity or product organized for the purpose of coordinated marketing that is aimed at stabilizing or increasing the members profits.

A cartel may engage in price-fixing, restriction of production of shipments, division of

marketing territories, centralization of sales, or pooling of profits. Three Types of International Cartels can be distinguished: 1. The traditional international cartel is formed for the purpose of truly dominating a market for certain products. This type of cartel is perhaps the best illustrated by pre-World War II - Steel and Chemical Cartels in Germany and the more current Organization of Petroleum Exporting Countries as well as the marketing of diamonds by the De-Beers Central Selling Organization. 2. International Commodity Agreements such as exists in wheat and tin. These differ from the pure cartel in that both selling and buying countries are parties to the agreement. 3. Cartel-type organizations engaged solely in exporting that are formed, so that the individual members can compete more effectively in overseas markets. The Webb-Pomerene Associations in the United States are also of this type, as are certain cartels in Japan. Also, the same type of US export trading companies (perhaps with commercial bank participation) can be such a cartel. Our major concern is with the type of cartel formed solely for the purposes of export.

For a manufacturer, the cartel takes over all export responsibility. Also, there may be little or no direct competition from other domestic manufacturers. There are, however, certain limitations to this approach exporting. In the first place, the association may become ineffective because the members cannot agree on key matters. Thus cooperation may be missing. Second, if a manufacturers products are branded or trademarked there is a measurable risk that the independent identity of both the firm and its products might get lost along the way. Finally, related to the last limitation are the difficulties inherent in this type of arrangement of adequately representing individual interests. However, a single manufacturer does not have complete freedom of choice. Either an association must already exist or a manufacturer must find others willing to form one, something that is often difficult to do.

Direct exporting occurs when a manufacturer or exporter sells directly to an importer or buyer located in a foreign market area. Thus the actual transaction flow between nations is handled directly by a dependent organization of the manufacturer or a foreignbased marketing organization or customer. A manufacturer can export directly to a buyer located in a foreign market in many different ways. A manufacturer may use more than one ways to serve any specific foreign market. Perhaps the best example of this concerns the role played by the home-country based export department or division. Generally speaking, regardless of the method used, some type of home-country based department should exist. It should be borne in mind that Entry Modes should not be viewed as rigid. When conditions change, so should adapt the channel.

In a more general sense, the changing of export arrangements is evidence that export development occurs in stages, as given below:

STAGES OF EXPORT Export development can be viewed as occurring in stages. One such model consists of at least six sages, as follows: (1) No interest in Exporting, (2) Fill Unsolicited Order, (3) Explore Feasibility of Exporting, (4) Export on experimental basis to psychologically close country, (5) Experienced Exporter to country of stage 4, (6) Explore feasibility of Exporting to other countries. In stage 1, the management would not even fill an unsolicited order, whereas in the second stage, although an unsolicited order would be filled, there would be no attempts to explore exporting on a more formalized bases. It is at stage 3, which can be skipped if unsolicited orders are received and filled, that a formal

commitment considered.







At Stage 4 the model postulates[assumes, suggests, proposes] that it is most desirable to export the to countries that are psychologically close to the exporters own country. Such a country has the same culture, is at a similar stage of economic development, etc., as the exporters country. Thus Australia is psychologically closer to most UK firms than is Mexico, even though the latter is closer geographically. In stage 5, the exporter has become experienced in dealing with psychologically close countries and is now ready to expand to countries more psychologically distant (stage 6). The model would then progress, presumably ending with firm no longer being solely and exporter; some form(s) of overseas production base(s) would be integrated into the international operations. The experts who had tested/made research against this Model suggest that the export development process does indeed tend to proceed in stages; considerations that influence firms moving from one stage to the next tend to differ stage by stage. There is some evidence suggesting that for small and medium-sized companies export does

not necessarily follow mentioned above.




Rather, companies may be BORN GLOBAL in that their future involvement in export is to a large extent influenced by their behavior shortly after their establishment- i.e., their birth.

Home-country based department

The manufacturer who wants to engage in Direct Export will most likely have to establish some type of Export Department or Division in the Home Country. This dependent organization may either be involved directly in making export sales or serve as the Home-Based Export Marketing Department to co-ordinate and control the activities of other dependent organizations located in Foreign Markets.

There are basically Three Different Types of Home-Country Based Export Organizations:


The specific type that is appropriate for any manufacturer at a particular point in time depends upon such factors as the nature of the product, the size of the company, how long the company has been exporting, the expected potential volume of foreign sales, the corporate organizational structure, and the extent to which either existing company resources cab be allotted to export activities or additional needed resources cab be acquired. A] BUILT-IN DEPARTMENT: The Built-in Type of Export Organization is the simplest in structure and, thus, the easiest to establish. In its most simple form, this organization will consist of an Export Sales Manager with some clerical help. The primary job of the sales manager is to do the actual selling or direct it. Most other export marketing activities [e.g. advertising, logistics, credit, etc.] are performed by the regular domestic market-oriented departments of the company. Although the built-in arrangement is simple in structure, and flexible and economical in use, these features may be more apparent than real.

Many complications can arise when the Export Manager tries to co-ordinate the activities that must be performed by organizational units not under his or her direction. Since these other departments are usually oriented toward domestic marketing activities, there is the danger that they will view tasks associated with export marketing, as something to be done only when there is spare time available. In addition, these departments may not be knowledgeable in the special intricate details connected with exporting and must be willing and able to learn them. Such conditions may lead to unnecessary delays, disorganized and far from optimal export marketing program. Much of the success of this type of export organization depends upon the individual occupying the mangers job, and this persons ability to secure the cooperation of the other department managers. Under the right conditions, a substantial amount of foreign sales can be adequately handled by this type of organization. Despite this, for direct export, the built-in form is best suited relative to the other types of departments to a manufacturer operating under any of the following conditions:

Small in Size; New or relatively New to Export Marketing;

Expected Foreign Sales Volume (Turnover) is moderate to small; Management Philosophy not oriented toward growth of foreign business; Existing Marketing Resources Capacity not fully utilized in the Domestic Market; Either the company is unable to acquire additional resources or, if able to do so, key resources are not available. In addition, this type of arrangement is potentially very useful for coordinating the indirect export activities of a manufacturer using that method to serve foreign markets.

B] SEPARATE EXPORT DEPARTMENT: Although the built in type of organization may be adequate in the early stages of direct export market development, if sales continue to increase, a point will be reached where a more fully integrated organization is needed. One way to meet this need is to set up a Separate Export Department. In contrast to the built-in type, the Separate Export Department is a self-contained and largely self-sufficient unit in which most of the export activities are handled within the

department itself, making it a relatively complete export marketing department. The Separate Export Department may be structured internally upon the basis of function, geographic region, product, customer or some type of combination, depending largely upon hoe the export marketing task varies the most. Most of the conditions that may cause trouble in the built-in form are eliminated when a separate department is established. In the first place, there is no inherent possibility for clash between the international and domestic sides of the firm regarding the time to be spent by domestic marketing personnel on foreign business matters. There is, however, a chance for conflict regarding allocation of resources to each side of the business. Second, export operations can be conducted on a full-time basis by personnel knowledgeable and specifically committed to exporting. Finally, the Separate Export Department has a fairly high degree of flexibility in terms of where it is located.

A Builtin Export Department by its very nature must be located at the same place, as the export organization should be located not at the Headquarters of the Company but have its Export Department in Rotterdam, because of the need to keep close contact with the many Specialist Facilitating Agencies with which it must work banks, forwarders, consulates, and so on.

C] EXPORT SALES SUBSIDIARY: In attempting to diverse completely export marketing activities from domestic operations, some companies have established an Export Sales Subsidiary as a Separate Corporation. Although an Export Sales Subsidiary is wholly owned and controlled by the Parent Company, it is essentially a QuasiIndependent Firm. All authority and responsibility attached to export operations, including profit responsibility, may be assigned to one subunit of the Parent Manufacturing Firm. Thus, with this form of export organization, a manufacturer may be better able to ascertain the profitability of its foreign business. In addition, the chance of conflicting pressures arising from domes tic departments is minimized. In terms of its internal organization and the specific activities performed, the Sales Subsidiary differs very little from the Separate Export Department. There is, however, one major difference that can cause Top Management some concern. Being a Separate Corporation, the Export Sales Subsidiary must purchase from the Parent Manufacturer the products that it sells in Overseas Markets.

This means that the manufacturer must develop a system of Internal Transfer Pricing [to be discussed later by us]. There are numerous complexities and management problems associated with transfer pricing. Although the Export Sales Subsidiary, in many respects, is similar to the Export Department, there are important reasons, as given below, for its existence: Reasons for establishment of an Export Sales Subsidiary: [a] Unified Control: All authority relating to exporting is centered in one organization and not subject to conflicting pressures from various domestic departments. [b] Cost and profit control: Since all revenues and expenses are separated from the domestic organization, export costs and profits can be seen readily.

[c] Allocation of orders in Multiple Plant Enterprises: The subsidiary company can place an order with the most suitable plant more readily and can supervise traffic management responsibilities more effectively.

[d] Ease of Financing: Since the Subsidiary is a Separate Corporation, it is easier to ascertain its financial position. As a result, more financial institutions may come forward, willing to advance more funds for the purpose of Export.

[e] More complete line of products: Being a separate company, it can purchase products from outside sources to offer Overseas Buyers a more complete line. [f] Tax advantages. Corporate income tax laws in some countries may result in some savings in total corporate taxes. Thus, the Subsidiary Export Company can serve a variety of useful purposes.


A manufacturer that has been exporting direct through some form of home-country based department, possibly even in conjunction with foreign-based distributors or agents, may reach the point where it is believed necessary to have closer supervision over the sales made in a particular market area. In this kind of situation, the company can establish a Foreign Sales Branch. This is essentially what Aerotek International, a Producer of Hydraulic Hose Repair Systems used in Industrial Construction and Mining, did in the late 1990s when it replaced 50 of its Asian distributors with a company it established in Singapore. [Similarly, Toyoto, Hyundai, Benz Companies recently called for back their Automobiles for rectifying some major defects, through their Foreign Sales Branch]. A Foreign Sales Branch handles all of the Sales, Distribution and Promotional Work throughout a designated market area and sells primarily to Marketing Organizations (Wholesalers and Dealers) or, under certain conditions, Industrial Users. Thus, where used, the Foreign Sales Branch is the initial link in the Marketing Channel within a Foreign Market. Often there will be storage and warehousing facilities available so the branch can maintain an inventory of the product itself, replacement parts, maintenance supplies, or operating supplies. Whether a storage facility is used or not, Shipment may often be made direct from the Manufacturing Plant to the initial

buyer, especially when large purchases of high value are involved. Thus, the operating characteristics of a foreign sales branch are much the same as those of a Foreign Distributor except that the Manager is an Employee of the Company and is directly responsible to the Home Office. In fact, Foreign Sales Branches are often established after a market area has been developed and built up by Local Distributors and Agents. The point at which this transformation should occur is, when the Size of the Sales Volume (Turnover) justifies the cost involved in establishing and operating a Branch Office, and it is believed that this turnover level will be maintained or will grow over time. A Foreign Sales Branch may serve other useful purpose. In the first place, where it is desirable for the manufacturer to display part or all of its product line, the branch office can set aside facilities for this purpose. The value of this as a Marketing and Sales Promotion Tool is obvious. Secondly, for many manufacturers a more important use of a Branch Office can be as a Service Center. For various reasons, many Foreign Business Firms, particularly independent Marketing Organizations, are not willing or able to provide the service for products that might require it.

If it is not made available by the manufacturer, the buyer will have to do it himself. While some buyers, particularly those of industrial equipment, prefer to do their own servicing and only require that the necessary parts and supplies be readily available, other buyers consider service as something to be handled by the seller. Foreign Governmental Policy may exert an influence on the actual operations of a Sales Branch as well as on the decision to establish a branch. For example, adverse tax laws may exist and there may be problems involved in repatriating profits. This is particularly important when the sales branch is organized as a subsidiary. Equally troublesome, potentially, is the question of the personnel who staff the sales branch. In general, it is perhaps most desirable to have personnel, particularly at the managerial level, who have actually worked or been trained in the domestic organization. Ideally, these people should be nationals of the country in which the branch office is situated. In some countries the Government requires that a minimum proportion of branch office staff be citizens. One final comment is that operating a foreign sales branch is a very costly activity.

Consequently, this method of doing business overseas is usually best suited to the larger and financially established manufacturer, but there are numerous examples of smaller companies - for example Aerotek mentioned above, that successfully operate sales branches.

STORAGE [OR] WAREHOUSING FACILITIES: When it is necessary and profitable for a manufacturer to maintain an inventory in foreign markets, a storage or warehousing branch should be established. Such facilities may be part of a sales branch. If so connected, the buyer is afforded greater convenience and a potentially powerful marketing tool is created in that a greater volume of business may be generated than would be the case if storage facilities were absent. The same situation occurs when the warehousing branch is a separate entity, set up to fill orders made by foreign distributors or agents.

It is not necessary that a foreign storage or warehousing branch provide stocks for a single market area. In fact many manufacturers, as they increasingly apply the total cost concept to their physical distribution or logistics problems, are establishing such branches as central distribution points to serve a wide area. Where several market areas are to be served by a single storage or warehousing branch, it may be best for these facilities to be located in a free port or trade zone such as Hong Kong, New York, Rotterdam or Colon, Panama. But, locating in a free area, Customs procedures and regulations of the country where the free area is physically located do not apply.

FOREIGN SALES SUBSIDIARY The foreign-based sales subsidiary is a variation of the home-country based export sales subsidiary.

As such it operates much the same; it is also similar in operation to a foreign sales branch office. One major difference is the somewhat greater autonomy enjoyed by the foreign-based subsidiary because of its foreign incorporation and domicile. In addition, the foreign-based subsidiary in many cases has broader responsibilities and performs many activities beyond those of a foreign sales office. The foreign-based subsidiary is a flexible type of organization, and in terms of its physical facilities and operating activities beyond those of a foreign sales office. The foreign-based subsidiary is a flexible type of organization and in terms of its physical facilities and operating activities can include anything from a complete operation to a small officer set up merely to fulfill the residence requirements of the incorporation laws of the country in which it is incorporated. The subsidiary type of organization can be used for many different functions (business activities) in foreign markets. When organized as a sales subsidiary (or when sales activities are performed) all foreign orders are channeled through the subsidiary that then

sells to foreign buyers at normal wholesale or retail prices. The foreign sales subsidiary purchases the products to be sold from the parent company either at cost or some other price. This, of course, creates the problem of intra company transfer pricing. The reasons underlying the establishment of foreign-based sales subsidiaries as well as the reasons for choosing a particular country as the base for a subsidiary stem from two major sources: taxes and business practices. One of the major influences on the popularity of overseas-based subsidiaries has been potential tax advantages that can accrue to a company utilizing this form of organization in its international operations. This has been particularly important for companies headquartered in high tax countries. With proper planning, companies could establish subsidiaries in countries with low business income taxes and gain an advantage by not paying taxes in their home country on the foreign-generated income until such income was actually repatriated to them.

Of course, the precise tax advantages beyond tax deferral. These stem from the practice of the parent company having subsidiaries retain a large share of their profits and then using such funds for further expansion abroad either in the country in which the profits were generated or in other countries. This can be quite useful in areas such as the European Union. Taxes have not been the only reason for establishing foreign-based subsidiaries, nor have they even been the major reason in many instances. In selecting a foreign base, companies look for good banking connections, good operating conditions, a stable political situation, clarity in legal rulings, and proximity to markets. Other characteristics considered in selecting a base for a foreign subsidiary include such things as ease and simplicity of incorporation, restrictions concerning ownership and operation of a business, and availability of adequate local staff and clerical personnel. Thus, business motives are intermingled with those of tax.

TRAVELING SALESPERSON A Traveling Export Salesperson is one who resides in one country -often the home country of the employer and travels abroad to perform the sales duties. In contrast, a Resident Salesperson is sent out of the home country to live and work in a Foreign Market. There are many of the sales jobs ranging from socalled order-making to order-taking. If a company finds that the type of sales job that it needs to be done in a foreign market, it is not appreciable and not even would be economical to use Traveling Sales persons by spending exorbitant money.

On the other hand, where the sales job tends toward order- making using a competent and well trained salesperson may prove to be the best method. However, the frequency of Travelling by the Sales People in a foreign country, much depends upon the relative costs and returns in the form of sales generated.

There are three basic functions that all sales personnel operating in foreign markets must perform, although the relative importance of each will vary depending upon such things as the nature of the product to be sold and the nature of the market. In the first place, there is the actual selling activity to be performed the communication of product information to customers, and obtaining orders. Secondly, a salesperson is always deeply involved in customer relations. The sales force must, at all times, be concerned with maintaining and improving the companys position with customers and the general public.

Where customer relations are critically important, the use of a traveling salesperson is the best method of direct export. The reason is simply that there generally would not be enough customer contact. There is, however, one type of traveling salesperson whose main job is in the general area of customer relations. Sometimes called a DEMONSTRATOR OR TUTOR, this type of Traveling Salesperson works closely with foreign-based agents or distributors already representing his company.

Since the sales task primarily is to help agents and distributors do a better job, the Tutor or Demonstrator operates more or less as a Troubleshooter. The third function performed by the field sales force, one that has often been neglected, is that of information gatherer and communicator. The salesperson is managements front-line intelligence agent, and as such, is in a position to provide information on such things as what

competitors are doing, what customers are thinking, how products are performing, and what the future is of any given market. In addition, the salesperson is often able to supply information pertaining to particular customers, and perhaps other types of information that might be useful in planning advertising and trade promotion programs. To a large extent, the effectiveness of any salesperson in performing the above said three basic activities depends upon mutual trust. Obviously not all companies should be using traveling sales people. Although there are no ready answers to when they should be used, there are general criteria that can be evaluated and conditions that generally are most favorable to their use.

To a certain degree, the nature of the product has an influence. If the product is technical in nature and the prospective buyer needs detailed explanation and demonstration, a traveling salesperson may be able to do the required job.

In fact, some companies have technical experts employed in specific foreign markets for this very purpose. If, however, servicing is required and a supply of parts are necessary, the traveling salesperson is not as effective nor efficient for the best method of export, as the Company should engage the concerned Technical Expert. Another criterion concerns the Potential Sales Volume of a Market. Since a selling trip can cost a great deal, a minimum sales volume is a must for the use of traveling sales people to be more profitable. Also relevant is whether the sales volume is spread out over a year or is seasonal. If the sale of product[s] is/are seasonal in nature, then the company should use the traveling sales persons as potentially more profitable vehicles as possible by increasing the frequency till the end of the season. Thereafter, the company need not to worry about the sales volume in the slacken periods. Technology in the form of the Internet is playing an increasingly greater role in sales and is

affecting the role of the salesperson, especially the traveling salesperson. This is particularly Marketing. in the case for B-2-B

E-commerce, or Internet Marketing, has a growing global presence, and is being used to complement or replace salespersons. Using e-Commerce to replace a salesperson could be a mistake in situations where person-toperson interaction is crucial to a relationship, especially for the Small and Medium-Sized Enterprise. E-commerce is discussed further in section.


Amongst the various methods of Direct Export, use of dependent organizations distributors and agents is another way to boost the exports internationally. This method of exporting is distinguished from the method of indirect export using similar type of intermediaries in that when direct export is being conducted, the distributor or agent is foreign based. The terms distributor and agent are often used synonymously.

This is unfortunate because there are distinct differences. For instance, a distributor is a merchant and as such is a customer. Thus the distributor actually takes the title to the exporters goods, while the agent does not. In short, the distributor imports the products involved, whereas an agent leaves importation to the buyers whose orders have been passed on to the principal. A second major point of distinction arises through the method of compensation by which each is paid. The agent is usually paid on the basis of a commission while the distributors income comes from the margin taken as determined by the trade discount granted by the exporter. A third difference is that a distributor normally carries an inventory whereas an agent does not, except perhaps for showroom purposes. Root, one of the Experts in International/Global Marketing has suggested that selecting a foreign distributor or agent is a four-phased process, as follows: 1. Drawing up a profile (see Table 7.2) 2. Locating prospects; 3. Evaluating prospects; 4. Choosing the distributor or agent.

It has been suggested that there are at least six important selection criteria that are relevant for selecting foreign distributors: Distributors level of commitment on both product and market; Financial strength of a distributor; Marketing skills, including market knowledge; product-related factors such as the distributors product line and its compatibility, complementary nature, and quality; Planning abilities; The degree of Political Influence [especially in China]; Facilitating factors, such as field experts engaged, tie-ups with higher-ups at the international/global level, system of transportation, deployment of best fleet of vehicles, local and importers language capability so on and so forth.

Yeoh and Calantone the Experts in the International/Global Marketing through their recent research in International Marketing, indicates that Commitment and Financial Strength are the two most important criteria in the foreign distribution selection process.

When distributors and agents are selected by the exporting manufacturer a formal contract of agreement between the parties should be entered into. In most cases, the agent or distributor is a manufacturers exclusive representative in a given foreign market area and is the sole importer. As such, the agent or distributor is granted sole rights for the sale of the manufacturers products in the market area covered by the agreement. There are instances, however, where exclusive selling rights are not granted. For example, sales to foreign government agencies are often reserved for the manufacturer itself. In this type of situation the agent or distributor receives no compensation.

A second possible modification occurs when an agent is appointed as a general agent. In this case, the manufacturer can appoint other agents in the general agents market area. The general agent, however, is paid a commission less than what would normally be received The functions performed by distributors and agents are basically the same as those carried out by the domestic-based marketing agency of the same type or the manufacturers own foreign-based organizations.

However, some basic differences should be noted. First, since these foreign-based outlets are granted exclusive rights, there is every reason to expect that they will put extra effort into promoting the sale of a manufacturers products. If a product is of a type that may require service, the distributor stands ready to provide such service by having the proper facilities, welltrained personnel including field-experts and a complete stock of the necessary parts and materials.

In general, therefore, a manufacturer can usually expect better sales and related services from foreign-based outlets with exclusive market areas. The activities performed and operating characteristics of foreign-based distributors and agents will vary greatly, and depend upon such things as the nature of the products, the characteristics of the market area, the particular type of foreign-based outlet chosen and its operating philosophy, and the general operating situation of the manufacturer. In addition, for the agent approach, rather than any other method, the extent of success is largely relying on personalities and personal relationships. Although the exporter and its foreign distributor or agents are dependent upon each other, they are also separated by ownership, geography, culture, and law. The general advantages and disadvantages of using these marketing organizations do not vary greatly from those associated with their home-country based counterparts.

If a manufacturer is committed to direct export, then using exclusive agents or distributors is the easiest and least costly way of doing it. This method also appears to be the most capable of development of business for the manufacturer. For these reasons, those manufacturers who are new to direct export, often choose this way, particularly where only a moderate sales volume is expected in a market area. Many agents and distributors are so successful that they work themselves, despite the fact that there are well laid out manufacturers marketing channels. After crossing/passing the sales target in a foreign market to a certain level, the manufacturer may find it more effective and profitable to establish a sales branch or subsidiary. However, there are still good reasons why the manufacturer should not miss out their agents or distributors. It is because of the intimate knowledge of the market and dealers and access to various sources that may not be capable of being equated by the manufacturers foreign-based dependent organization.

In addition, an agent or distributor may have political influence that can be of benefit to a manufacturer. This may be particularly helpful in a country such as China. On the other hand, a manufacturer may not want to use an independent marketing organizations an exclusive distributor in a particular foreign market area. The possible reasons for this are many and varied, and may include such things as wanting to have complete control over the marketing channel between nations, and when there no availability of a firm capable of assuming all the duties of an exclusive distributor. In addition, for both agents and distributors, it may be more difficult to introduce the new products of an exporter into the foreign market in order to compete with the line of other products or Product Lines that they already handle for other companies Much difficulty will depend/prevail upon, based on the competitiveness of the new product(s) to those already handled by the intermediaries. In such cases, rather than entering into a contractual agreement, the manufacturer may

form a subsidiary to act as the sole importing distributor in a given foreign market area. This subsidiary may be wholly owned or jointly owned with nationals of the country involved. A closer and tighter form of long standing relationship between a manufacturer and its foreign representative, the exclusive distributor or agent leads to Franchise also. The distinguishing features of the franchise are that its manufacturers product is prepared for the market, it delegates to the holder the right to use the brand name and trademark of the manufacturers product for an unlimited period under stated conditions, and it is designed to be a long term arrangement. These privileges make necessary the extremely meticulous protection that the manufacturer must have in order to safeguard its profit, property, and rights. The franchisee holders business is characterized by a relatively small but exclusive territory. The best illustration of this type of representative in foreign markets is to be found in the non-alcoholic beverage industry, and includes companies such as CocaCola and PepsiCo where a major component of the product is exported by the manufacturer to the franchisee.


What is the meaning of Deemed Exports? A. Deemed Exports as defined in the Export and Import Polilcy, 1997-2002 means those transactions in which the goods supplied do not leave the country and the supplier in India receives the payment for the goods. It means the goods supplied need not go out of India to treat them as Deemed Export.

Q2. What are the different categories of supplies regarded as DEEMED EXPORTS? A. The following categories of supply of goods manufactured in India shall be regarded as deemed Exports under the Export and Import Policy 1997- 2002. a). Supply of goods against licenses issued under the Duty exemption Scheme: b) Supply of goods to Units located in Export Processing Zones (EPZs) or Software Technology Parks (STPs) or Electronic Hardware Technology Parks (EHTPs) or 100% Export Oriented Units (EOUs); c) Supply of Capital goods to holders of licenses issued under the Export Promotion Capital Goods (EPCG) Scheme; d) 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 or under limited tender system in accordance with the procedure of those agencies/funds, where the legal agreements provide for tender evaluation without including the Customs duty. e) Supply of capital goods and spares to fertilizer plants if the supply is made under the procedure of international competitive bidding.

f) Supply of goods to any Project or purpose in respect of which the Ministry of Finance, by; a notification permits the import of such goods at zero customs duty coupled with the extension of benefits to domestic supplies; g) Supply of goods to such projects in the Power, Oil and Gas sectors in respect of which the Ministry of Finance, by Notification, extends the benefits to domestic supplies. h) Supply of Marine Freight Containers by 100% EOU (Domestic freight containers-manufacturers) to shipping companies including Shipping Corporation of India provided the said containers are exported out of India within 6 months or such further period as permitted by customs.

Q3. A

What are the benefits available under Deemed Exports? Deemed Exports shall be eligible for the following benefits in respect of manufacture and supply of goods qualifying as Deemed Exports: a) Special Imprest Licence/Advance Intermediate License;. b) Deemed Exports Drawback Scheme i.e, on the Deemed Exports, Drawback at the rate fixed by the Ministry of Finance for the DGFT or his regional Officers pay the goods physically exported. c) Refund of terminal excise duty ie., Central Excise duty, if paid any, on the goods supplied under Deemed Exports is refunded by the DGFT or his regional Officers d) Special Import License at the rate of 6 per cent of the FOB value (excluding all taxes and levies)

e) If the supplier has made the supplies against Advance Release Order(ARO) or Back to Back Letter of Credit, he shall be entitled for the benefits of Deemed Exports Drawback Scheme, Refund or terminal excise duty and Special Imprest License f) In respect of supply of capital goods to EPCG license holder, the supplier shall be entitled to the benefits stated above except, however, that the benefit of Special Imprest License or Deemed Export Drawback Scheme shall be available only in case of supplies made to Zero duty EPCG license holder. Q4. What is the procedure for claiming the benefits of DEEMED EXPORTS? A. The Suppliers of the goods under Deemed Exports should make application to the regional licensing authority concerned claiming the benefits of Deemed Exports. The applications should be made in the forms given in Appendix 17 of Hand Book of Procedures of export and Import Policy, 1997-2002. along-with documents prescribed therein.


Counter Trade is a form of trade in which a seller and a buyer from different countries exchange merchandise with little or no cash or cash equivalents, changing hands. Because of this nature, it is also viewed as a form of flexible financing or payment in international trade. Informed estimates suggest that counter trade accounts for about 20 Percent of world trade. Countertrade has evolved into a diverse set of activities that can be categorized as four distinct types of trading arrangements.



Barter is the direct and simultaneous exchange of goods between two parties without a cash transaction. Barter trade occurs between individuals, between governments, between firms, or between a government and a firm, all from two different countries. Barter may be the oldest form of trade but ;it is certainly not history. For example, France shipped 138,067 tons of soft wheat to Cuba during the first quarter of 2001, half of which was through the wheat-for-sugar barter arrangement under which French trading companies purchase sugar and agricultural commodities from Alimport, Cubas government-run food trading company. Other examples of classical barter in the present century have been the exchange of Iranian oil for new Zealands lamb and of Argentine wheat for Peruvian iron pillets.


A counter purchase is a reciprocal buying agreement whereby one firm sells its products to another at one point in time and is compensated in the form of the others products at some future time (e.g., Russia purchased construction machinery from Japans Komatsu in return for Komatsus agreement to buy Siberian timber). Counter purchase is more flexible than barter in facilitating many transactions because the volume of trade does not have to

be equal, i.e, the dollar amount of goods exported need not be equal to the dollar amount of goods taken back. In this situation, two parties can either set up an escrow account or use cash to finally settle the differences. What is an Escrow Account? It is type of Account set up by a Lender to which the borrower makes monthly payments for such obligations as real estate taxes, homeowners insurance, and private mortgage insurance. The lender disburses these funds on behalf of the borrower as the bills become due. Unlike barter, which involves a single contract, a counter purchase agreement usually involves three separate contracts the sales contract, the purchase contract, and the protocol contract. The protocol contract serves as a protection contract, which explains what each party will do and what each party should expect.

An offset is an agreement whereby one party agrees to purchase goods and services with a specified percentage of its proceeds from an original sale.

Unlike counter-purchase whereby exchanged products are normally unrelated, products taken back in an offset are often the outputs processed by this party in the original contract. For example, the Shanghai aircraft Manufacturing Corp., China, may buy jets from Boeing using its proceeds from manufacturing the tail sections of the jets for Boeing. Offset is particularly popular in sales of expensive military equipment or high cost civilian infrastructure hardware. General Dynamics sold several hundred F-16 military jets to Belgium, Denmark, Norway, and the Netherlands by agreeing to allow those countries to offset the cost of the jets through coproduction agreements whereby 40 percent of the value of the aircraft was produced in these countries.

Finally, buyback (or compensation arrangement) occurs when a firm provides a local company with inputs for manufacturing products (mostly capital equipment) to be sold in international markets, and agrees to take a certain percentage of the output produced by the local firm as partial payment. A buyback agreement involves two contracts including the sales contract and the purchase contract. In a buyback arrangement, the equipment supplier gets a cash portion in addition to the goods.

For example, a steel producer might send its goods to a foreign company, which would use the steel to manufacture a product such as shelving. The steel producer would then buy back the shelves at a reduced price, in effect partially paying the manufacturer with the raw steel. Buybacks helps developing country producers upgrade technologies and machinery and ensure after sale service. Chinatex, a Shanghai based clothing manufacturer, and Japans Fukusuke Corpn., arranged a buyback whereby the later sold 10 knitting machines and raw materials the former in exchange for 1 million pairs of underwear to be produced on the knitting machines. Because the buyback links payment with output from the purchased goods, Chinatex benefited from Fukusukes instructions on how to use the equipment and its excellent aftersale services.

[C] Contractual Entry Modes/Transfer Related Entry Modes

Contractual or transfer-related entry modes are those associated with transfer of ownership or utilization of specified property (technology or assets) from one party to the other in exchange for royalty fees.

They differ from trade-related entry modes in that the user in a transferrelated mode buys certain rights of transacted property (e.g., use of technology) from the other party (owner). These modes are extensively employed in technology-related or intellectual/industrial property rights related transactions. This category includes the following entry modes:


1. INTERNATIONAL LEASING: International leasing is an entry mode in entry mode in which the foreign firm (lessor) out its new or used machines or equipment to the local company (often in a developing country). International lease arises largely because developing country manufacturers (lessee) do not have financial capability or lack foreign currency to pay for the equipment. In many cases, the leased equipment sits idle but is in good operational condition, thus having a market in developing countries.

In this mode, the foreign lessor retains ownership of the property throughout the lease period during which the local user pays a leasing fee. The major advantages of this mode for MNEs include quick access to the target market, efficient use of superfluous or outmoded, machinery and equipment, or accumulating experience in a foreign country. From the local firms perspective, this mode helps reduce the cost of using foreign machinery and equipment, mitigates operational and investment risks, and increase its knowledge and experience with foreign technologies and facilities. In the late 1970s, Japans Mitsubishi leased 100 new and used heavy trucks to Chinese companies in such industries as conduction, mining, and transportation. 2. INTERNATIONAL LICENSING: International licensing is an entry mode in which a firm transfers its intangible property such as expertise, know-how, blueprints, technology and manufacturing design to its own unit or to another firm for a specified period of time in exchange for a royalty fee.

The firm transferring the technology is known as the licensor and the firm to whom transfer is being made is known as the licensee. Licensing allows the licensee to produce and market a product similar to the one the licensor has already been producing in its home country without requiring the licensor to actually create a new operation abroad. Licensing may be of the following types:
Exclusive License an exclusive license is the right to produce or market a product using specific technology in a given geographical region only. Non exclusive License non exclusive license does give single firm exclusive rights to a technology. It may have to be shared with other firms in the region only. Cross licensing Cross Licensing is a reciprocal agreement in which intangible property is transferred between two parties. Thus both parties are simultaneously both the licensor and licensee. Generally, an MNE may use international licensing to: (1) Obtain extra income from technical expertise and services, spread around the costs of company research and development programs or maximize returns on research findings and accumulated expertise. (2) Retain established markets that have been dosed or threatened by trade restrictions, reach new markets not accessible by export from existing facilities, or expand into foreign markets quickly with minimum effort or risk. (3) Supplement limited domestic capacity and management resources for serving foreign markets, provide overseas sources of supply and services to important domestic customers, or develop market outlets for raw materials or components made by the domestic company.

(4) Build good will and acceptance for the companys other products or services, develop sources of raw materials or components for the companys other operations or pave the way for future investment; or (5) Discourage possible infringement, impairment, or loss of company patents or trade-marks, or acquire reciprocal benefits from foreign expertise, research, and technical services. Advantages 1. 2. A licensor can reap the benefits of exploiting innovative technology by expansion abroad without any additional investment. It involves less risk than entry through the investment mode. Even if market conditions become very adverse the maximum that the licensor stands to lose is his technical fee. The licensee also benefits through the technical collaboration as he is able to upgrade his technical capability and improve his competitiveness in the global market.


Disadvantages 1. Loss of quality control is a major disadvantage of this entry mode. It is often difficult for the licensor to maintain satisfactory control over the licensees manufacturing and marketing operations. This can result in damage to a licensors trademark and reputation. Moreover, a licensee overseas can also become a competitor to the licensor. - If the original licensing agreement does not stipulate the region within which the licensee may market the licensed product, the licensee may insist on marketing the product in third-country markets in competition with, the licensor.


- For example, in the 1960s, RCA licences its leading edge colour television technology to a number of Japanese companies including Matsushita and Sony. - RCA considered licensing as a good strategy for earning a return on its technical know how in the Japanese market without the costs and risks associated with FDI. - However, Matsushita and Sony quickly assimilated RCAs technology and used it to enter the US market and to compete directly against it. - As a result RCA is now a minor player in its home market, while Matsushita and Sony have a much bigger market share. 3. Further, a local licensee may benefit from improvements in its technology, which it then uses to enter the MNEs home market. A firms management and marketing know-how cannot be licensed like its technological know-how. While a firm may license its manufacturing process to a foreign firm it cannot do the same for the way it conducts business including how it manages its processes and markets its products. For example, Toyota is considered a business leader in the global auto industry due to its management and organisational know how which has been developed overt years. Competitive advantage which comes from skills which comes from skills which are embedded in the organisational culture are difficult to codify and capture in a licensing contract.

Thus, as Toyota moves away from its traditional exporting strategy it has adopted a strategy of FDI rather than licensing to penetrate foreign markets.

International franchising is an entry mode in which the foreign franchisor grants specified intangible property rights (e,g., trademark or brand name) to the local franchisee, who must follow strict and detailed rules as to how it does business. Compared to licensing, franchising involves longer commitments, offers greater control over overseas operations, and includes a broader package of rights and resources, which is why service MNEs such as KFC often elect franchising (whereas manufacturing firms often use licensing). Production equipment, managerial systems, operating procedures, access to advertising and promotional materials, loans, an financing may all be part of a franchise. The franchisee operates the procedures and methods of operation prescribed in the business system. The franchisor generally maintains the right to control the quality of products and services so that the franchisee cannot damage the companys image. In exchange for the franchise, the franchisor receives a royalty payment that amounts to a percentage of the franchisees revenues. Sometimes the franchisor mandates that the franchisee must buy equipment or key ingredients used in the product.

For example, Burger King and McDonalds require the franchisee to buy the companys cooking equipment, burgers, patties, and other products that bear the company name.


Franchising refers to a transfer of the total business function whereas licensing is a transfer of just a part of the business, including transfer of right to manufacture or distribute a single product or process. Franchising gives the company greater control over the sale of the product in the target market, since the franchiser has the right to revoke the franchise if the franchisee fails to abide with the stipulated rules and procedures. Licensing is common in manufacturing industries, whereas franchising is more common in service industries where the brand name is more important. Advantages 1. Franchising allows the franchiser to maintain consistency of its products in different markets. 2. It is a low risk and low cost mode of entry which ensures a quick global presence for the firm. 3. It provides a fast and easy avenue for leveraging assets such as a trademark of brand names for a global presence. For example, McDonalds has been able to build a global presence quickly and at relatively low cost and risk by using franchises. Disadvantages 1. The franchisee may harm the franchisers image by not upholding its standards. 2. Even if the franchiser is able to terminate the agreement, some franchisees still stay in business by slightly altering the franchisers brand name or trademark.

Turnkey projects also called Build-Operate-Transfer(BOT) is an investment in which a foreign investor assumes responsibility for the design and construction of an entire operation, and, upon completion of the project, turns the project over to the investor receives periodic payments that are normally guaranteed. BOT is especially useful for very large-scale, long-term infrastructure projects such as power-generation, airports, dams, expressways, chemical plants, and steel mills. Managing such complex projects requires special expertise. It is thus not surprising that most are administered by large construction firms such as Bechtel (the United States), Hyundai (Korea), or Friedrich Krupp (Germany), Aban Lloyd Shore Constructions etc. Large companies sometimes from a consortium and bid jointly for a large BOT Project. Irans first BOT Power Plant, the 900MW combined Cycle/Gas fired Parehsar Project, launched in 2001 through an international consortium consisting of Italys Germanys Dillinger Stahl (DSD),and Irans Mapna International. The foreign partnership has a 70 percent stake in the project. Like other big BOT projects, a part of the financing for this project was sourced from export credit agencies instituted by the German and Italian governments. The Iranian Government ensured the sovereign guarantees would be in place for repayment of loans and payment for electricity delivered locally.

The plant was commissioned in 2004 and would be operated by the consortium for 20 years, before handing over back to Irans State Power Company Tavanvir. Foreign businesses may set up BOT Project Firms by means of either equity or cooperative joint ventures with local partners. Because of their ability to provide foreign investors with returns in excess of their proportional contributions to the ventures total registered capital, contractual joint ventures have been the vehicles of choice for BOT infrastructure projects. For example, in 2001, Frankfurt Airport Corporation from Germany, was awarded by the Philippine Government a BOT Contract for the construction of the Third Passenger Terminal at the Ninoy Aquino International Airport. It then formed a Contractual Joint Venture, named Fraport, with Philippines International Airport Transport Company, to construct this Project.


In contrast to the preceding trade-related and transfer-related entry modes, investment related entry modes involve ownership of property, assets, projects, and businesses invested in a host country. Foreign investment takes two forms:

Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI). Foreign Direct Investment (FDI) refers to investment in the assets of a company for purpose of control. Accordingly, firms undertaking FDI will control overseas operations and economic activities. FDI-related entry modes are more sophisticated than trade and transferrelated choices. FDI-related modes underline the firms long-term strategic goals of international presence and require a continuous contribution and commitment or investments and operations abroad. The country making the FDI investment is called the home country and the country receiving FDI is called the host country.

Foreign portfolio Investment on the other hand is investment in financial instruments such as stocks and bonds through the stock exchange and other financial markets only to earn a return on the investment. To understand foreign portfolio investment, one must be familiar with portfolio theory. Portfolio theory describes the behaviour of individuals or firms which invest in large amounts of financial assets in search of the highest possible risk-adjusted net return. Fundamental to this theory is the idea that a guaranteed rate of return (say, 9 percent per year fixed over the next five years) is preferable to a rate of return which is higher on average but fluctuates over time (e.g., average 9.5percent per year but with high volatility dur8ing this fiveyear period).

The variability of the rate of return over time is referred to as the Financial Risk in portfolio investment. The key task of portfolio management is to reduce the variability (or risk) of a group of stocks so that the variability of the whole is less than that of its parts. If it is possible to identify some stocks whose yields will increase when the yields of others decrease, then, by including both types of securities in the portfolio, the portfolios overall variability will be reduced. This is why some people interpret this theory as putting eggs in different baskets rather than one basket. This logic also applies to the establishment of a conglomerate corporation that diversifies into many product lines rather than specializing in a single one.

Differences between FDI and FPI 1. FDI investment is done to gain controlling interest or ownership in a foreign company, whereas FPI as a mode of investment is only targeted at earning returns from the investment. 2. FDI is considered a more volatile and can exit easily since it is done through investment in the financial markets. 3. FDI brings with it the spill over effects of increased consumer welfare. FPI on the other hand helps to increase both the width and depth of host country financial markets and thereby contributes to financial development. PORTFOLIO INVESTMENT IN INDIA

The Indian stock market was opened up to FII investment in 1992-1993 and since then there has been a significant increase in the portfolio investment by FIIs. The decision to open the economy to portfolio investment rested on the following two considerations: 1. It was felt that the flow of foreign equity would help in developing the domestic equity market, by bringing in the worlds best practices and stimulating competition. 2. It was also hoped that foreign equity would act as a window the world and disseminate and spread knowledge about investment opportunities available in India. 3. The Regulations on Foreign Institutional Investors, which were notified on November 14,1995, contained various provisions relation to definition of FIIs, eligibility criteria, investment restrictions, procedures of registration and general obligations and responsibilities of FIIs.

According to the Regulation, FIIs may invest only in: a) Securities in the primary and secondary markets including shares, debentures and warrants of companies listed on a recognised stock exchange in India, and b) Units of schemes floated by domestic mutual funds including Unit Trust of India, whether listed on a recognised stock exchange or not. Joint ventures between a variety of domestic and foreign securities firms were approved in the stock broking, merchant banking, assets management and other non-bank financial services sectors. The overall effect of FII investment and financial joint ventures has been the introduction of international practices and systems to the Indian Securities industry.

FIIs were permitted to invest in a company up to an aggregate of 24 per cent of equity, which could be increased to 40 per cent subject to approval by the Board of Directors and Special Resolution of General Body. In 1996-1997, Government liberalised the FII investment policy, allowing them to invest in unlisted companies and in corporate and government securities. Euro/ADR Issues Since 1992-1993, Indian companies satisfying certain conditions, have been allowed to access foreign capital markets through Euro-issues of Global Depository Receipts (GDRs) and Foreign Currency Convertible Bonds (FCCBs). A Depository Receipt (DR) is basically a negotiable certificate, denominated in US dollars, that represents a non-US companys publiclytraded local currency (Indian Rupee) equity shares. DRs are created when the local currency shares of an Indian company (for example are delivered to the depositorys local custodian bank, against which the Depository Bank (such as the Bank of New York) issues DRs in US dollars. The Depository Receipts may trade freely in the overseas markets like any other dollar denominated security, either on a foreign stock exchange, or in the over-the counter market, or among a restricted group such as qualified institutional buyers. The prefix global implies that the ADRs are marketed globally rather than in a specific country or market. Companies with good track record of three years were permitted to avail of Euro-issues for approved purposes. According to the revised guidelines issued in November 1995 companies investing in infrastructure projects, including power, petroleum, exploration and refining, telecommunications, ports, roads and airports are exempted from the condition of three-year track record.

It is expected to help companies in the infrastructure sectors to access cheap overseas funds. Earlier companies had to keep the funds raised through Euro-issues in foreign currency deposits with banks and public financial institutions in India to be converted into Indian rupees as and when required for expenditure on approved end uses up to 25 per cent of the Euro-issue proceedings for meeting corporate restructuring and working capital requirements. Companies are permitted to raise funds through issue of Foreign Currency Convertible Bonds (FCCBs) and ADRs.

Table 2.1: portfolio controls in India A Chronology 14September 1992 FIIs permitted into the country. These included pension funds, mutual funds, endowments etc. proposing to invest in India as a based fund with at least 50 investors and no investor with more than 5%. Permitted access to primary and secondary market for securities and products sold by mutual funds with a minimum 70% investment in equities. Ceiling upon one FII of 5% ownership of any firm and a total of all FIIs at 24% November 1996 New concept of 100% debt FIIS permitted, which could invest in corporate bonds but not government bonds. 4 April 1997 Ceiling upon total ownership by all FIIs of local firms raised from 24% to 30% (required shareholder resolution) April 1998 FIIs permitted to invest in government bonds, subject to a ceiling on all FIIs together of $ 1billion. 11 June 1998 Ceiling upon ownership by one FII in one firm raised from 5% to 10%. FIIs allowed to partially hedge

currency exposure using the currency forward market. FIIs allowed to trade on the equity derivatives market in a limited way. August 1999 Requirement that FII must have at least 50 investors eased to 20 investors. February 2000 Foreign firms and individuals permitted access to Indian markets through FIIs as sub accounts. Local fund managers also permitted to do fund management for foreign firms and individuals through sub accounts. Requirement that no fund manger can have over 5% of the FII fund eased to 10%. 1 March 2000 Ceiling upon total ownership by all FIIs of local firms raised from 30% to 40% (required shareholder resolution) 8 March 2001 Ceiling upon total ownership by all FIIs of local firms raised from 40% to 49% (required shareholder resolution) 20 September Ceiling upon total ownership by all FIIs of local firms 2001 raised from 40% to the sectoral cap for the industry (required shareholder resolution) 8 January 2003 Limitations upon FIIs hedging using the currency forward market removed. December 2003 Twin approval for FIIs at both SEBI and RBI replaced by single approval at SEBI. November 2004 New ceiling placed upon total ownership by all FIIs of corporate bonds of $o.5 billion.

FACTORS DETERMINING ENTRY MODE To select an appropriate entry mode, MNEs should make sure they know all possible options for the entry into a target country before determining the best one. Once a foreign investor decides to that he wants to enter a foreign market his choice of entry mode will depend on a wide range of considerations. Broadly, these can be classified into country, industry, firm, and project factors. Country-Specific Factors

A number of host-country-specific factors have and impact on entry mode choice. 1. First, government FDI policies may directly or indirectly influence entry mode selection. The laws in some countries mandate that foreign firms must choose joint ventures, as opposed to wholly-owned subsidiaries, as an entry mode. 2. Second, infrastructure conditions affect the extent to which a MNE plans to commit distinctive resources to local operations, and the degree to which it perceives operational uncertainty and contextual unpredictability. These in turn influence the entry mode option. 3. Third, property right systems and other legal frameworks in a host country appear to be increasingly important to entry mode selection. Without sufficient legal protection, and MNEs property rights such as trademarks, brand names, expertise, patents, and copyrights will be exposed to possible infringement and piracy by local firms. In such circumstances, the MNE may have to use a high-control entry mode such as a wholly-owned subsidiary or dominant equity joint venture. 4. Fourth, host-country risks (e.g. price control, local content requirements), and transfer risks (e.g. currency inconvertibility, remittance control) may affect entry mode. Licensing and joint ventures may be favoured when country risk is high. 5. Finally, cultural distance between home and host countries influences foreign entry decision and process. The greater the perceived distance between home and host countries, the more likely it is that the MNE will favour licensing/franchising or a joint venture over a wholly-owned subsidiary. Industry-Specific Factors Several industry-specific factors are important considerations underlying entry mode selection. 1. First, entry barriers into a target industry in the host country constitute a significant impediment to entry mode selection. Contractual or equity joint ventures may be an effective vehicle to by pass these barriers.

2. Second, industrial uncertainty and complexity may lead MNEs to use high control or low commitment entry mode such as representative or branch offices, licensing, franchising, lossely structured cooperative joint ventures with little resource commitment, or minority equity joint ventures. 3. Last, availability and favourability of supply and distribution in the industry will determine the rationalization of value chain linkages needed for an MNEs local operations and the vertical integration of other units within the MNE network. When an MNE network. When an MNE relies more on local resource procurement and/or emphasizes the local market, it is more vulnerable to industrial linkages with suppliers and distributors. Entry modes involving partners are superior when the MNE needs but lacks such linkages in the host country.

Firm-Specific Factors Entry mode selection is contingent on several firm-specific traits as well. 1. First, a firms resource possession influences the firms ability to explore market potential and earn a competitive edge in the global marketplace. A firm that lacks distinctive resources (Technological, organizational, operational, and financial) but wishes to share in the risks associated with having them, is often compelled to enter the market through a joint venture associated with having them, is often compelled to enter the market through a joint ventures where its resource commitment will be minimized. 2. Second, the leakage risk of technologies may affect entry mode. If this is high, a wholly-owned subsidiary mode increases the firms ability to use and protect these technologies. 3. Third, a firms strategic goals for international expansion are one of the foremost determinants underlying entry mode selection. When an MNE attempts to pursue local market expansion, high commitment choices

such as cooperative or equity joint ventures, wholly-owned subsidiaries, and umbrella companies are preferable because they enable the firm to a have deeper, more diverse involvement with indigenous market, creating more opportunities to accumulate countryspecific experience. If an MBE aims only to exploit factor endowment advantages, low commitment entry modes such as subcontracting, compensation trade, coproduction, cooperative arrangement, and minority equity joint venture may be superior to other options because risks and cost are low. 4. Finally, international or host country experience influences entry mode selection. MNEs with little or mo experience with international or hostcountry business may prefer low control/low resource commitment entry modes such as export, subcontracting, international leasing or franchising, or counter trade. In contrast, MNEs with significant multinational experience prefer high control/high resource commitment entry modes such as cooperative or equity joint ventures, whollyowned subsidiaries, and umbrella investment companies. Project-Specific Factors In the course of entry more selection, MNEs also need to consider some attributes of the project itself. 1. First, firms may shy away from a wholly-owned entry mode in favour of a joint venture when the project size is large. A large investment implies higher start-up, switching, and exit costs, thus involving higher financial and operational risks. 2. Second, project orientation influences an MNEs resource dispersal and entry mode. MNEs investing in import-substitution projects may be inclined to establish partnerships with local government agencies or state-owned enterprises holding monopoly positions because this type of FDI project is vulnerable to host government control. If a project is local market-oriented, the MNE may choose the cooperative or equity joint venture mode, because the local partner can provide distinctive supply and distribution channels, governmental networks, and culture specific business knowledge and experience. If a project is technologically advanced the firm may opt for a wholly owned

subsidiary mode to protect its expertise, or a joint venture mode if it needs complementary technologies or knowledge from a partner firm. Finally, when a project is infrastructure-oriented, the MNE may apply the build-operate-transfer mode If it plans on having only a short-term run, or a majority joint venture mode if it has a long-term strategic plan and I willing take risks. 3. Finally, the availability of proper local partners for a particular project may affect an MNEs entry ability and choice. An MNEs ability to establish a joint venture or any other form of non-integrated entry mode depends upon the availability of capable, trustworthy partners. In the absence of acceptable local partners, the MNE may be forced to start a wholly-owned subsidiary. @@@@@@@@@@

WHAT ARE WHITE GOODS? White goods are household items of two distinctly different groups. Household linens are most commonly referred to

as white goods, but this term can also refer to major household appliances, such as the stove and refrigerator, which are often factory-finished in white enamel. It is common to refer to all household linens as white goods, hence the ever-popular department store white sale. Linens Many people are familiar with department store white sales. These sales are given this name because they place their inventory of white goods such as sheets, towels, bedspreads, pillowcases and other linens on sale. This type of goods encompasses nearly every common household item made of fabric. Originally, these items were made of white cotton or linen fabric. Although modern white sales do not limit their repertoire [RANGE, LIST, STOCK, COLLECTION, SELECTION, CATALOGUE, GAMUT, INVENTORY] of goods to those that are white, the name has stuck. Appliances White goods also can be the household appliances that accomplish everyday housekeeping tasks, whether active or

passive. This type of goods typically includes all the large, typically electrical appliances in the home. A refrigerator, stove, washer, dryer and dishwasher can all be called white goods. Other appliances such as hot water heaters and air conditioners also are included in this category. The proper and environmentally friendly disposal of these appliances is sometimes called white goods recycling. @@@@@@@@ WHAT IS CUTTING-EDGE TECHNOLOGY? Definition What does Cutting Edge Technology mean? Cutting edge technology refers to technological devices, techniques or achievements that employ the most current and high-level IT developments. In other words, technology being used at the frontiers of knowledge. Leading and innovative IT industry organizations are often referred to as "cutting edge." Cutting edge is also known as leading edge or state-of-theart technology.

Techopedia explains Cutting Edge Technology:

Cutting edge technology refers to current and fully developed technology features, unlike bleeding edge technology, which is so new that it poses unreliability risks to users. As a term, cutting edge technology is somewhat ambiguous and often used in the context of marketing. Bleeding edge technology Bleeding edge technology is a category of technologies incorporating those so new that they could have a high risk of being unreliable and lead adopters to incur greater expense in order to make use of them. The term bleeding edge was formed as an allusion [reference, mention, hint, suggestion, quotation, citation] to the similar terms "leading edge" and "cutting edge".

It tends to imply even greater advancement, albeit at an increased risk of "metaphorically [figuratively, symbolically] cutting until bleeding" because of the unreliability of the software or other technology. The phrase was originally coined in an article entitled "Rumors of the Future and the Digital Circus" by Jack Dale, published in Editor & Publisher Magazine, February 12, 1994. By its nature, a proportion of bleeding edge technology will make it into the mainstream. For example, electronic mail (e-

mail) was once considered to be bleeding edge. Also, e-books, although developed for decades, were formerly more difficult to sell. Criteria A technology may be considered bleeding edge where it contains a degree of risk, or, more generally, there is a significant downside to early adoption, such as:

Lack of consensus competing ways of doing new things exist and there is little to no indication in which direction the market will go. By its very nature, consumers and firms will be unfamiliar with the product and its relationship to existing technologies, leading to rapid changes in what is considered best practice as more becomes known about the technology's qualities. Lack of testing The technology may be unreliable, or simply untested. Industry resistance to change trade journals and industry leaders have spoken against a new technology or product but some organizations are trying to implement it anyway because they are convinced it is technically superior.