Mba 506

Punj ab Tec hni c al Uni ver si t y
World over distance Education is fast growing mode of education because of the unique benefits
it provides to the learners. Universities are now able to reach the community which has for so
long been deprived or higher education due to various reasons including social, economic and
geographical considerations. Distance Education provides them a second chance to upgrade their
technical skills and qualifications.
Some of the important considerations in initiating distance education in a country like India, has
been the concern of the government in increasing access and reach of higher education to a larger
student community. As such, only 6-8% of students in India take up higher education and more
than 92% drop out before reaching 10+2 level. Further, avenues for upgrading qualifications,
while at work, is limited and also modular programs for gaining latest skills through continuing
education programs is extremely poor. In such a system, distance education programs provide
the much needed avenue for:
Increasing access and reach of higher education:
Equity and affordability of higher education to weaker and disadvantaged sections of the
society;
Increased opportunity for upgrading, retraining and personal enrichment of latest
knowledge and know-how;
Capacity building for national interests.
One of use important aspects of any distance education program is the learning resources.
Learning material provided to the learner must be innovative, thought provoking,
comprehensive and must be tailor-made for self-learning. It has been a continuous process for the
University in improving the quality of the learning material through well designed course
materials in the SIM format (self-instructional material). While designing the material, the
university has researched the methods and process of some of the best institutions in the world
imparting distance education.
About t he Uni ver si t y
Punjab Technical University (PTU) was set up by the Government of Punjab in 1997 through a
state Legislative ACT. PTU started with a modest beginning in 1997, when University had only
nine Engineering and thirteen Management colleges affiliated to it. PTU now has affiliated 43

Engineering colleges, 56 colleges imparting Management and Computer Application courses, 20
institutions imparting pharmacy education, 6 Architecture institutions, 2 Hotel Management and
12 Regional Centres for imparting M. Tech and Ph. D Programs in different branches of
Engineering and Management. During a short span of nine years, the University has undertaken
many innovative programs. The major development during this period is that University has
restructured its degree program and upgraded syllabi of the course in such a way as to increase
the employability of the student and also to make them self-reliant by imparting Higher
Technical Education. We at Punjab Technical University are propelled by the vision and wisdom
of our leaders and are striving hard to discharge our duties for the overall improvement of
quality of education that we provide.
During a short span of nine years, the University has faced various challenges but has always
kept the interest of students as the paramount concern. During the past couple of years, the
University has undertaken many new initiatives to revitalize the educational programs imparted
with the colleges and Regional centers.
Though knowledge and skills are the key factors in increasing the employability and competitive
edge of students in the emerging global environment, an environment of economic growth and
opportunity is necessary to promote the demand for such trained and professional manpower.
The University is participating in the process of technological growth and development in
shaping the human resource for economic development of the nation.
Keeping the above facts in mind Punjab Technical University, initiated the distance education
program and started offering various job oriented technical courses in disciplines like information
technology, management, Hotel Management, paramedical, Media Technologies and Fashion
Technology since July 2001. The program was initiated with the aim of fulfilling the mandate of
the ACT for providing continuing education to the disadvantaged economically backward
sections of society as well as working professionals for skill up-gradation.
The University has over the years initiated various quality improvement initiatives in running its
distance education program to deliver quality education with a flexible approach of education
delivery. This program also takes care of the overall personality development of the students.
Presently, PTU has more than 60 courses under distance education stream in more than 700
learning centers across the country.

About Di st anc e Educ at i on Pr ogr am of PTU
Over the past few years, the distance education program of PTU has gained wide publicity and
acceptance due to certain quality features which were introduced to increase the effectiveness of
learning methodologies. The last comprehensive syllabus review was carried out in the year 2004-
05 and the new revised syllabus was implemented from September 2005. The syllabus once
reviewed is frozen for a period of 3 years and changes, if any, shall be taken up in the year 2008.
Various innovative initiatives have been taken, which has increased the popularity of the
program. Some of these initiatives are enumerated below:
1. Making a pyramid system for almost all courses, in which a student gets flexibility of
continuing higher education in his own pace and per his convenience. Suitable credits are
imparted for courses taken during re-entry into the pyramid as a lateral entry student.
2. Relaxed entry qualifications ensure that students get enough freedom to choose their
course and the basics necessary for completing the course is taught at the first semester
level.
3. A comprehensive course on Communications and Soft Skills is compulsory for all
students, which ensures that students learn some basic skills for increasing their
employability and competing in the globalized environment.
4. Learning materials and books have been remodeled in the self-Instructional Material
format, which ensures easy dissemination of skills and self-learning. These SIMs are given
in addition to the class notes, work modules and weekly quizzes.
5. Students are allowed to take a minimum of 240 hours of instruction during the semester,
which includes small group interaction with faculty and teaching practical skills in a
personalized manner.
6. Minimum standards have been laid out for the learning centers, and a full time counselor
and core faculty is available to help the student anytime.
7. There is a wide network of Regional Learning and Facilitation Centers (RLFC) catering to
each zone, which is available for student queries, placement support, examination related
queries and day-to-day logistic support. Students need not visit the University for any of
their problems and they can approach the RLFC for taking care of their needs.
8. Various facilities like Free Waiver for physically challenged students, Scholarship scheme
by the government for SC/ST candidates, free bus passes for PRTC buses are available to
students of the University.
The university continuously aims for higher objectives to achieve and the success always gears us
for achieving the improbable. The PTU distance education fraternity has grown more than 200%
during the past two years and the students have now started moving all across the country and
abroad after completing their skill training with us.
We wish you a marvelous learning experience in the next few years of association with us!

DR. R. P. SINGH
Dean
Distance Education

Dr . S. K. Sal w an
Vi c e Chanc el l or
Dr. S. K. Salwan is an eminent scientist, visionary and an experienced administrator. He is a
doctorate in mechanical engineering from the IIT, Mumbai. Dr. Salwan brings with him 14 years
of teaching and research experience. He is credited with establishing the Department of Design
Engineering at the institute of Armament Technology, Pune. He was the founder-member of the
integrated guided missile programme of defence research under His Excellency Honorable Dr.
A.P.J. Abdul Kalam. He also established the high technology missile center, RCI at Hyderabad.
He has been instrumental in implementing the Rs 1000-crore National Range for Testing Missiles
and Weapon Systems at Chandipore, Balance in a record time of three years. He was director of
the Armament Research and Development Establishment, Pune. Dr. Salwan has been part of
many high level defence delegations to various countries. He was Advisor (Strategic project) and
Emeritus Scientist at the DRDO. Dr. Salwan has won various awards, including the Scientist of
the Year 1994; the Rajiv Ratan Award, 1995, and a Vashisht Sewa Medal 1996, the Technology
Assimilation and Transfer Trophy, 1997 and the Punj Pani Award in Punjab for 2006.

Dr . R.P. Si ngh
Dean, Di st anc e Educ at i on
Dr. R.P. Singh is a doctorate in physics from Canada and has been a gold medallist of Banaras
Hindu University in M.Sc. Dr. Singh took over the Department of Distance Education in
November 2004 and since then the University has embarked on various innovations in Distance
Education.
Due to combined efforts of the department, the RLFCs and Centers, and with active support of
the Distance Education Council headed by Dr. O.P. Bajpai, Director University College of
Engineering Kurukshetra University the distance education program of PTU is now a structured
system which empowers the learner with requisite skills and knowledge which can enhance their
employability in the global market. Dr. R. P. Singh is promoting distance education at the
national level also and is a founder member of Education Promotion Society of India and is
member of various committees which explores innovative ways of learning for the disadvantages
sections of society. The basic aim of the distance education programs has been to assimilate all
sections of society including women by increasing the access. Reach, equity and affordability of
higher education in the country.

INTERNATIONAL MARKETING

MBA-506

This SIM has been prepared exclusively under the guidance of Punjab Technical University (PTU)
and reviewed by experts and approved by the concerned statutory Board of Studies (BOS). It
conforms to the syllabi and contents as approved by the BOS of PTU.

Copyright PK Vasudeva, 2008

No part of this publication which is material protected by this copyright notice may be
reproduced or transmitted or utilized or stored in any form or by any means now known or
hereinafter invented, electronic, digital or mechanical, including photocopying, scanning,
recording or by any information storage or retrieval system, without prior written permission
from the publisher.

Information contained in this book has been published by Excel Books Pvt. Ltd. and has been
obtained by its authors from sources believed to be reliable and are correct to the best of their
knowledge. However, the publisher and its author shall in no event be liable for any errors,
omissions or damages arising out of use of this information and specifically disclaim any implied
warranties or merchantability or fitness for any particular use.

Published by Anurag Jain for Excel Books Pvt. Ltd., A-45, Naraina, Phase-I, New Delhi-110 028
Tel: 25795793, 25795794 email: eb@excelbooks.com

PTU DEP SYLLABI -BOOK MAPPI NG TABLE
MBA-506 I NTERNATI ONAL MARKETI NG
Syllabi Mapping in Book
Section I
Meaning and scope of international marketing, difference
between domestic and international marketing. Direction &
composition of Indian exports.
International marketing tactics, reasons for entering export
marketing and organisation of an export department.

Indian export and import policy export promotion
organizations, export incentives.

Section II
International economic environment, world trade tariff and non-
tariff restrictions, role of WTO and trading blocks, international
monetary system.
The procedure and practices of processing of an export order,
producing for exports, export quality control; export finance,
shipment and procedures thereof.

Section III
Export documents, processing of an export order, organisation
and structure of export and import houses.
The selection of export markets, planning of export marketing
strategy-product, pricing, promotion, and distribution channel.

International marketing research.

Unit 1: Introduction to
International Marketing
(Page 3-10)
Unit 2: International
Marketing Process
(Page 11-26)
Unit 6: Export Documentation
(Page 119-145)
Unit 7: Export Market and
Export Marketing Process
(Page 147-178)
Unit 3: Indias Export Import
Policy
(Page 27-56)
Unit 4: International
Economic Environment
(Page 59-88)
Unit 5: Procedure and Practices
of Export
(Page 89-115)
Unit 8: International Marketing
Research
(Page 179-188)

Contents
Section-I
UNIT 1 INTRODUCTION TO INTERNATIONAL MARKETING 3
Introduction
Meaning of International Marketing
Scope of International Marketing
Difference Between Domestic & International Marketing
Direction of Indian Exports
Composition of Indian Exports
Summary
Keywords
Review Questions
Further Readings
UNIT 2 INTERNATIONAL MARKETING PROCESS 11
Introduction
International Marketing Tactics
Reasons of Entering Export Marketing
Organisation of an Export Department
Summary
Keywords
Review Questions
Further Readings
UNIT 3 INDIAS EXPORT IMPORT POLICY 27
Introduction
A Brief Description of EXIM Policy of India
Export Promotion Organization
Export Incentives
Summary
Keywords
Review Questions
Further Readings
Section-II
UNIT 4 INTERNATIONAL ECONOMIC ENVIRONMENT 59
Introduction
Globalisation
Tariff and Non-tariff Barriers
World Trade Organisation (WTO)
Regional Trading Blocks

International Monetary System
Summary
Keywords
Review Questions
Further Readings
UNIT 5 PROCEDURE AND PRACTICES OF EXPORT 89
Introduction
Producing for Exports
Export Quality Control
Recognition to Inspection Agencies
Export Finance
Shipment and Procedure Thereof
Summary
Keywords
Review Questions
Further Readings
Section-III
UNIT 6 EXPORT DOCUMENTATION 119
Introduction
Export Documentation Requirements in India
Bill of Lading/Airway Bill/Combined Transport Document
Processing of an Export Order
Organisation & Structure of Export & Import Houses
Summary
Keywords
Review Questions
Further Readings
UNIT 7 EXPORT MARKET & EXPORT MARKETING PROCESS 147
Introduction
The selection of Export Market
Planning and Strategy of Export Marketing
Product Planning
Export Pricing
Export Promotion
International Distribution Channel
Summary
Keywords
Review Questions
Further Readings
UNIT 8 INTERNATIONAL MARKETING RESEARCH 179
Introduction
The Scope of International Marketing Research

Research of Industry, Market Characteristics and Market Trends
The International Marketing Research Process
Summary
Keywords
Review Questions
Further Readings

Unit 1
Introduction to International Marketing
Unit 2
International Marketing Process
Unit 3
Indias Export Import Policy

SECTION-I

Introduction to
Notes
Punjab Technical University 3
Uni t 1 I nt r oduc t i on t o
I nt er nat i onal
Mar k et i ng
Unit Structure
Introduction
Meaning of International Marketing
Scope of International Marketing
Difference Between Domestic & International Marketing
Direction of Indian Exports
Composition of Indian Exports
Summary
Keywords
Review Questions
Further Readings
Learning Objectives
At the conclusion of this unit you should be able to:
Describe the meaning and scope of international marketing
Distinguish between domestic and international marketing
Understand the trends of direction and composition of Indian exports
I nt r oduc t i on
Countries use trade to speed up their economic growth. The increasing importance of
international marketing is the outcome of current changing structure of competition,
and changing demand patterns in markets across the world. Whether business like it
or not, protectionism of markets is disappearing from large number of countries.
Domestic market, large or small, now has to be shared with variety of offerings and
their marketers. Companies are unavoidably involved with foreign customers,
competitors, and suppliers within their own domestic markets. For almost all players,
large or small, it has become necessary to seek foreign markets for their products and
services to survive and grow.
With the opening up of economies, increasing level of incomes, barrier-less
communications and travel, and technological advances, people in a large number of
countries throughout the world want the same things. They want modern appliances,
fast-food restaurants, latest in fashions, ever increasing convenience in life, high
quality services and so on. As a result of these powerful shifts in trends, organisations
must be prepared to be competitive in an increasingly interdependent global
environment. Whether a firm chooses to compete directly or not it gets affected by
other foreign competitors who do. For a company producing refrigerators or
traditional Rajasthani Namkeen, there seems to be no way out but to compete in the
global market. Businesses are able to communicate throughout the world at the speed
of sound using data, text, voice, or image.

Notes
4 Self-Instructional Material
Meani ng of I nt er nat i onal Mar k et i ng
The study of international marketing will not be complete unless we have an
understanding of what marketing is and how it operates in an international context.
There have been large numbers of definitions of marketing which are currently in use.
But most of these definitions are convergent because all of them define marketing in
almost the same way. Hence, any definition of marketing should be acceptable as long
as it captures the essential idea and as long as the strength and the weaknesses of the
definition are acknowledged.
Marketing can be conceived as an integral part of two processes, viz. technical and
social. So far as the technical process is concerned, domestic and international
marketing are identical. The technical process includes non-human factors such as
produce, price, cost, brand, etc. The basic principles regarding these variables are of
universal applicability. But the social aspect of marketing is unique in any given
stratum, because it involves human elements, namely, the behaviour pattern of
consumers and the given characteristics of human society such as customs, attitudes,
values, etc. It is obvious from this that marketing, as a social process, will be different
in varying environments and international marketing, to the extent that it is
visualised as a social process, will be different from domestic marketing.
According to Phillips Kotlar, marketing is analysing, organising, planning and
controlling of the firms customers impinging resources, policies, activities with a
view to satisfying the needs and wants of a chosen customer group at a profit. Thus,
it differs from trading which includes the activities of merchandising (buying and
selling), physical distribution (transportation and warehousing) and facilitation
(financing, risk bearing, standardisation, pricing, advertising and sales promotion and
marketing research). In other words, marketing is an act or operation or service by
which the original product and final consumer are linked together. In between these
two points producer and consumer every activity facilitating the movement of
goods and services, including market and market research, may be covered under this
term.
We are more concerned here with international marketing, which means marketing
activity carried on across national boundaries. Thus, international marketing includes
activities that direct the flow of goods from one country to the users of another
country. A definition adopted by the American Marketing Association (AMA) is more
appropriate to define international marketing. According to AMA, international
marketing is the multinational process of planning and executing the conception,
pricing, promotion and distribution of ideal goods and services to create exchanges
that satisfy individual and organisational objectives. In this definition, the word
multinational has been added to the definition of marketing given by other experts.
This word implies that marketing activities are undertaken in several countries and
that such activities should somehow be coordinated across nations.
This definition is not completely free of limitations. By placing individual objectives at
one end of the definition and organisational objectives at the other, the definition
stresses a relationship between a consumer and an organisation. It excludes industrial
marketing, which involves a transaction between two organisations. In the world of
international marketing, governments, quasi-government agencies and profit seeking
and non-profit entities are frequently buyers. Companies such as Boeing, BHEL and
Hindustan Earth Movers, for example, have nothing to do with consumer products.
The definition thus fails to do justice to the significance of industrial purchases.
The definition of international marketing has various connotations. Firstly, it makes it
clear that what is to be exchanged is not restricted to tangible products but can
include concepts and services as well. When the United Nations promotes such
concepts as birth control and breast-feeding, this should be viewed as international

Introduction to
Notes
marketing. Figure 1.1 shows an international effort to fight AIDS. Likewise services or
intangible products are just as relevant to the definition as airline flights, financial
services, advertising services, management consulting services, marketing research
and so on as they play a very significant role in affecting trade balance.

World AIDS Day, Birth
Control, Breast-feeding,
No-smoking, etc.

Safe Sex
Concepts and Services

Figure 1.1: Safe Sex Concept and Services
Secondly, the definition removes the implication that international marketing applies
only to market or business transactions. International non-profit marketing, which has
received only scant attention, should not be overlooked. The marketing of
governments and religions underscores this point. The governments are very active in
marketing in order to attract foreign investments. The US is using a variety of local
and international media (including CNN International and BBC World Television
Network) to announce the arrival of newly designed $100 bills which would not
involve any devaluation and that there would never be any recall of the old bills.
Religion is also a big business, though most people prefer not to view it that way.
Religion has been marketed internationally for centuries. Tercentenary of the birth of
Khalsa (300 years of Sikh religion) was celebrated at Anandpur Sahib in 1999 where a
large number of NRIs and foreigners contributed to its success. The religious
messages were flashed on the Internet all over the world.
Thirdly, the definition recognises that it is improper for a firm to create a product first
and then look for a place to sell it. Actually the needs and the wants of the consumers
should first be ascertained through market research and then the new product should
be produced accordingly. Suzuki-Maruti has understood the needs of the Indian
consumers for a small car; hence it has become the leader in the car industry though
other car manufacturers are also following a similar international marketing strategy.
Fourthly, the definition acknowledges that place (distribution) is just part of the
marketing mix and that the distance between the markets makes it neither more nor
less important than the other parts of the mix. Thus, it is improper for any firm to
regard their international function as simply as export available products from one
country to another.
Finally, the multinational process implies that the international marketing process
is not a mere repetition of using identical strategies abroad. The 4 Ps of marketing
(product, place, promotion and price) must be integrated and coordinated across
countries in order to bring about the most effective marketing mix. In some cases, the
mix may have to be adjusted for a particular market for a better impact. For example,
Coca Cola and Pepsi Cola Inc. have created new slogans for marketing in India and
new chips that differ both in taste and texture from their American version. The
Whirlpool Corporation has been able to use more standardised models of washing
machines and refrigerators to break down national traditions.

Notes
Sc ope of I nt er nat i onal Mar k et i ng
The foundation for a successful international marketing programme is a sound
understanding of the marketing discipline. Marketing is the process of focusing the
resources and objectives of an organisation on environmental needs and
opportunities. The first and the most fundamental fact about marketing is that it is a
universal discipline. The marketing discipline is equally applicable from China to
India, United States to Japan and Australia to Zanzibar. Marketing is a set of concepts,
tools, theories, practices and procedures and experience.
Although the marketing discipline is universal markets and customers are quite
differentiative. This means that marketing practices must vary from country to
country. Each person is unique and each country is unique. This reality of differences
means that we cannot always directly apply experience from one country to another.
If the customers, competitors, channels of distribution and available media are
different, it may be necessary to change our marketing plan.
The scope of international marketing is to have a borderless world like the
multinational companies Coca Cola, Pepsi, MacDonald, Gillette and so on. Their
products and body marketing mix elements are both international and local in nature.
A central issue in international marketing is how to tailor the international marketing
concept to fit a particular product or business.
Di f f er enc e Bet w een Domest i c & I nt er nat i onal
Mar k et i ng
The striking difference between international and domestic marketing lies in the
environment in which the two take place. The important points of difference between
the two are:
1. Sovereign Political Entities. Each country is a sovereign political entity and,
therefore, they impose several restrictions for import and export of goods and
services in order to safeguard their national interests. The traders, in
international marketing, have to observe such restrictions. These restrictions
may fall in any of the following categories.
i. Tariffs and customs duties are imposed on import and export of
goods and services in order to make them costly in the importing
country and not to ban their entry into the country completely. In the
post-war period, because of the efforts of General Agreement on
Tariffs and Trade (GATT), there has been a significant reduction in
tariffs globally and on a regional basis due to the emergence of
regional economic groupings.
ii. Quantitative restrictions are also imposed with an intention to restrict
trade in some specific commodities. The major objective behind the
restriction is the protection of home industries from competition with
foreign commodities.
iii. Exchange control is another restriction imposed by almost every
sovereign state. The government, in some cases, does not ban the
entry of goods in the country but the importer is not allowed the
necessary foreign exchange to make payment for goods imported.
But, in some cases, exchange control and quantitative controls are put
together along with the grant of import licence.

Introduction to
Notes
iv. Imposition of more local taxes on imported goods with an object to
make the imported goods costly is one of the restrictions in
international marketing.
2. Different Legal System. Different countries operate under different legal
systems and they all differ from each other. Most countries follow the English
Common Law as modified from time to time. Japan and Latin American
countries are important exceptions to this rule. The existence of different legal
systems makes the task of businessmen more difficult as they are not sure as
to which particular system will apply to their transactions. This difficulty
does not arise in domestic trade, as laws are the same for the whole country.
3. Different Monetary Systems. Each country has its own monetary system and
the exchange rates for each countrys currency are fixed under the rules
framed by the International Monetary Fund (IMF) and, therefore, they are
more or less fixed. However, in recent years, the exchange rates have been
fluctuating and are being determined by demand and supply forces. Some
countries operate multiple rates i.e. different rates are applicable to different
transactions.
4. Lower Mobility of Factors of Production. Mobility of different factors of
production is less between nations than in the country itself. However, with
the advent of air transport, the mobility of labour has increased manifold.
Similarly, the development of international banking has increased the
mobility of capital and labour. In spite of these developments, the mobility of
labour and capital is not as much as it is within the country itself.
5. Differences in Market Characteristics. Market characteristics in each segment
are different, i.e. demand pattern, channels of distribution, methods of
promotion, etc. are quite different from market to market. If we treat each
country as a separate market, we can assume different market characteristics
there. These differences are accentuated due to the existence of government
controls and regulations. However, this is a difference of degree only. Even in
one single country, for example India and America, these differences in
market patterns may be found from state to state.
6. Differences in Procedure and Documentation. The laws of countries and
customs of trade in each country demand different procedures and
documentary requirements for the import and export of the goods and
services. Traders residing in the territory have to comply with these
regulations and customs if they want to import and export goods and
services.
As there are differences in legal and monetary systems, in government regulations
and controls, in market characteristics, in mobility of factors of production and in
procedures, practices and documentation in foreign trade, the two marketing systems
international and domestic are quite different. As each country has to protect its
own interests political, financial and social it has to put certain restrictions on
foreign trade. Restrictions are also there in domestic marketing, but the procedures,
systems and the rules and regulations are applicable equally in all parts of the country
and these are well known to the traders concerned.
Di r ec t i on of I ndi an Ex por t s
OECD has been a destination of a major portion of Indias exports. In 1960-61,
OECDs share in Indias total exports was around 66 per cent but its share has
declined to 44.2 per cent in 2005-06. The share OPEC has increased to 14.8 per cent in
1960-61. Presently, Asian countrys share in Indias exports is around 30 per cent

Notes
During the beginning of planning in the country, UK was the largest importer of
Indian exports. Presently, US has become the largest trading partner of India.
Rec ent Tr ends
In terms of export destination, US continued to be the principal destination
accounting for 16.8 per cent of Indias total exports in 2005-06 followed by UAE with
8.4 per cent share, China with 6.5 per cent share, Singapore (5.4 per cent) and
UK 5 per cent . Regionwise, Asia and ASEAN countries have emerged as major export
destinations. During recent years, Indias exports to Africa, Asia and ASEAN posted
strong growth, while exports to Europe and America registered Moderate growth.
The direction of Indias Foreign Trade with various countries over the world in the
recent years are as follows:
Exports: (Rs. Crores)
Region Export
April-March
2004-05 2005-06
West Europe 19501.2 24563
East Europe 178.98 178.98
CIS and BALTIC States 1088.61 1232.42
Russia 631.26 729.89
Asia and Oceania 39994.39 48222.08
Africa 5572 7138.66
America 16812.43 21193.2
Latin American Countries 2160.63 2955.96
Composi t i on of I ndi an Ex por t s
The importance of agriculture and allied products in Indias exports has declined over
the years and that of manufactured products has increased substantially. During the
initial period of planning, jute and tea respectively were the most important export
items. But their shares in Indias export have declined continuously. The export of
engineering products rose substantially. In recent years engineering goods have
occupied the second or third place in Indias export earnings. For last three years
engineering goods occupied the first place in Indias exports followed by gems and
jewellery.
The importance of export readymade garments has increased in recent years. It
occupied second or third place in Indias total exports.
Rec ent Tr ends
With a share of 23 per cent of Indias merchandise exports, engineering sector is the
largest contributor to such exports well ahead of gems & jewellery. There has also
been a spurt in Engineering Process Outsourcing (EPO) from giant automotive and
aerospace companies like Ford Motor Company, General Motors, Boeing and Airbus.
Similarly, a number of semi-conductor manufacturing, and mobile handset vendors
have been outsourcing some of their work to India. EPO as grown at a compound
annual rate of 37 per cent between 2003 and 2006, and has the potential to reach a
level of US$ 10-20 billion in the next five years from the present level of US$3.5 billion.
Such EPOs have a beneficial impact on engineering goods exports in the medium

Introduction to
Notes
term. India, with its low cost labour and talented manpower, has the potential of
being the major hub of engineering goods both for direct exports and development of
engineering process outsourcing services.
Gems & jewellery, contributing about 15 per cent of Indias total commodity exports,
is an important item in Indias export basket. While India has emerged a s one of the
key players in gems & jewellery exports on the basis of its traditional strength in
craftsmanship and its share in the US$146 billion global business in 2005 was around
11 per cent. of late, there has been a deceleration in export growth in this sector.
Table 1.1: Commodity composition of Exports
Commodity Group Percentage share Growth Reate
April-October April-October
2004-05 2005-06 2005-06 2006-07 2004-05 2005-06 2005-06 2006-07

i. Primary Product
Agriculture & allied
Ores & minerals
ii. Manufactured goods
Textile incl. RMG
Gems & jewellery
Engineering goods
chemical & related
pdcts. Leather &
manufactures
Handicrafts (incl.
Carpet handmade)
iii. Petroleum, crude &
products (Incl. Coal)
16.0
10.5
5.5
74.2
14.9
16.5
20.7
12.2
2.9

1.2

8.5

15.4
10.2
5.2
72.0
14.5
15.1
20.7
11.6
2.6

1.2
11.5
14.9
9.9
5.0
73.5
11.0
16.8
20.6
11.3
2.1

1.3
11.0
13.9
9.9
4.0
69.0
9.8
12.9
22.5
10.4

1.8

1.0
16.3
36.2
11.7
136.5
24.9
5.3
30.2
40.2
33.9
12.0

-7.0
91.2
18.9
19.8
17.4
19.6
20.4
12.8
23.4
17.3
11.1

30.2
66.2
38.6
28.9
63.2
30.1
20.2
29.6
36.8
27.9

21.9

37.4
67.7
17.3
25.4
1.1
17.6
11.7
-4.4
37.0
14.8
5.7

-7.3
85.3
Total exports 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
. In US $ terms
Source: DGCI&S, Kolkata
St udent Ac t i vi t y
International marketing has become indispensable in the economic
development of a developing country. Comment with respect to the Indian
situation.
Summar y
International Marketing includes activities that direct the flow of goods from one
country to the users of another country. According to American Marketing
Association, International marketing is the multinational process of planning and
executing the conception, pricing, promotion and distribution of ideal goods and
services to create exchanges that satisfy individual and organizational objectives.
The Scope of international marketing is to have a borderless world. A central issue in
international marketing is how to tailor the international marketing concept to fit a
particular product or business.
In terms of export destination, US continued to be the principal destination followed
by UAE and China. Regionwise, Asia and ASEAN Countries have emerged as major
export destinations in recent years.

Notes
For last few years engineering goods occupied the first place in Indias exports
followed by gems and jewellery. Readymade garments have also emerged as one of
the leading export items.
Keyw or ds
International Marketing: Activities that direct the flow of goods and services from
one county to the other.
Competitive Advantage: A total offer, vis--vis relevant competition that is more
attractive to customers.
Export Marketing: It is the activity of exporting goods and services to the foreign
countries and related matters.
Revi ew Quest i ons
1. How does international marketing differ from domestic marketing?
2. What are the various points that you would consider before entering the
foreign market?
3. Describe the change that have taken place in Indias composition and
direction of trade.
Fur t her Readi ngs
P.K . Vasudeva, International Marketing, Excel Books, New Delhi, 2006
Cateora and Graham, International Marketing, McGraw Hill, 2007

Process
Notes
Uni t 2 I nt er nat i onal
Mar k et i ng
Pr oc ess
Unit Structure
Introduction
International Marketing Tactics
Reasons of Entering Export Marketing
Organisation of an Export Department
Summary
Keywords
Review Questions
Further Readings
Learning Objectives
Describe the ways, firms enter into international market
Know why firms enter into export market
Explain the organizational structure of an export department
I nt r oduc t i on
Certain firms start their business as international firms because their mission is to be
involved in international business activities. A number of other firms, however, may
have begun as domestic firms concentrating on their own domestic market before
shifting focus to international markets.
The importance of international marketing is neither understood nor appreciated by
consumers though they are carrying out international marketing daily. Government
officials, especially bureaucrats, seem to always point a negative aspect of
international business. Many of their charges on international marketing are
imaginary than real. Hence, it is essential that the benefits of international marketing
be explicitly discussed.
I nt er nat i onal Mar k et i ng Tac t i c s
Marketing can be conceived as an integral part of two processes, technical and social.
So far as the technical aspect is concerned, international and domestic marketing are
identical. Technical aspect includes non-human factors in marketing such as product,
price, brand, packaging, warehousing costs, etc. and the basic principles regarding
these variables have universal applicability. The social aspect, on the other hand, is
unique in any given stratum as it involves human elements, namely, the behavioural
pattern of the consumers and the characteristics of the society such as customs,
attitudes, values, etc. Thus, international marketing is identical to domestic marketing

Notes
as far as technical aspect is concerned but when it is visualised as a social process, if
differs from domestic marketing.
I nt er nat i onal Mar k et Segment at i on
Market segmentation is the process of subdividing a market into distinct subsets of
customers that behave in the same way or have similar needs. Each subset may
conceivable be chosen as a market target to be reached with a distinctive marketing
strategy. The process begins with a basis of segmentation - 'a product specific factor
that reflects differences in customers' requirements or responsiveness to marketing
variables (possibilities are purchase behaviour, usage, benefits sought, intentions,
preference, or loyalty).
International market segmentation is the process of dividing the world market into
distinct subsets of customers that behave in the same way or have similar needs, or, as
one author put it, it is "the process of identifying specific segments- whether they be
country group who are likely to exhibit similar buying behaviour." Interest in
international market segmentation dates back several decades. In the late 1960s, one
observer suggested that the European market could be divided into three broad
categories - international sophisticate, semi sophisticate, and provincial-solely on the
basis of consumers' presumed receptivity to a common advertising approach.
Another writer suggested that some themes (e.g. the desire to be beautiful, the desire
to be healthy and free of pain, the love of mother and child) were universal and could
be used in advertising around the globe.
In the 1980s, Professor Theodore Levitt advanced the thesis that consumers in
different countries increasingly seek variety and that the same new segments are
likely to show up in multiple national markets. Thus, ethnic or regional foods such as
Sushi, Greek salad, or Hamburgers might be in demand anywhere in the world. Levitt
described this trend as the "pluralisation of consumption" and "segment simultaneity"
that provides an opportunity for marketers to pursue a segment on an international
scale.
Today, international companies (and the advertising agencies that serve them) are
likely to segment world markets according to one or more key criteria: Geography,
demographics (including national income and size of population), psychographics
(values attitudes, and lifestyles), behavioral characteristics, and benefits sought. It is
also possible to cluster different national markets in terms of their environments (e.g.
the presence or absence of government regulation in a particular industry) to establish
groupings. Another powerful tool for international segmentation is horizontal
segmentation by user category.
Geogr aphi c Segment at i on
Geographic segmentation is dividing the world into geographic subsets. The
advantage of geography is proximity: Markets in geographic segments are closer to
each other and easier to visit on the same trip or to call on during the same time
window. Geographic segmentation also has major limitations: The mere fact that
markets are in the same world geographic region does not meant that they are similar.
Japan and Vietnam are both in East Asia, but one is a high-income, postindustrial
society and the other is an emerging, less developed, preindustrial society. The
differences in the markets in these two countries overwhelm their similarities. Simon
found in his sample of "hidden champions" that geography was ranked lowest as a
basis for market segmentation (see Figure 2.1).

Process
Notes
0
0.5
1
1.5
2
2.5
3
3.5
4
Region
Quality
Price Level
Product/Technology
Customer Group
Application

Source: Hermann Simon, Hidden Champions: Lessons from 500 of the World's Best Unknown Companies
(Boston, MA: Harvard Business School Press, 1996), p.45. Copyright 1996 by Harvard Business School
Publishing Corporation. Reprinted by permission of Harvard Business School Press.
Figure 2.1: Importance of Market Definition Criteria
Demogr aphi c Segment at i on
Demographic segmentation is based on measurable characteristics of population such
as age, gender, income, education, and occupation. A number of demographic trends-
aging population, fewer children, more women working outside the home, and
higher incomes and living standards - suggest the emergence of international
segments.
For most consumer and industrial products, national income is the single most
important segmentation variable and indicator of market potential. Annual per capita
income varies widely in world markets, from a low of $81 in the Congo to a high of
$38.587 in Luxemburg. The World Bank segments countries into high income, upper
middle income, lower middle income, and low income.
The U.S. market, with per capita income of $29,953 more than $8.3 trillion in 2000
national income, and a population of more than 275 million people, is enormous.
Little wonder, then, that Americans are a favorite target market! Despite having
comparable per capita incomes, other industrialized countries are nevertheless quite
small in terms of total annual income. In Sweden, for example, per capita gross
national product (GNP) is $24,487; however, Sweden's smaller population of 9 million
means that annual national income is only about $220 billion. About 73 percent of
world GNP is located in the Triad. Thus, by segmenting in terms of a single
demographic variable - income - a company could reach the most affluent markets by
targeting three regions; the European Union, North America, and Japan.
Many international companies also realize that for products with a low enough price -
for example, cigarettes, soft drinks, and some packaged goods - population is a more
important segmentation variable than income. Thus, China and India, with respective
populations of 1.3 billion and 1.0 billion, might represent attractive target markets. In
a country such as China, where per capita GNP is only $930, the marketing challenge
is to successfully serve the existing mass market for inexpensive consumer products.
Procter & Gamble, Unilever, Kao, Johnson & Johnson, and other packaged goods
companies are targeting and developing the China market, lured in part by the
possibility that as many as 100 million Chinese customers are affluent enough to
spend say, 14 cents for a single use pouch of shampoo.

Notes
Segments decisions can be complicated by the fact that the national income figures
such as those cited previously for China and India are averages. There are also large
fast-growing, high-income segments in both of these countries. In India, for example,
100 million people can be classified as "upper middle class", with average incomes of
more than $1,400. Pinning down a demographic segment may require additional
information; India's middle class has been estimated to be as low as a few million and
as high as 250 million to 300 million people. If middle class is defined as "persons who
own a refrigerator," the figure would be 30 million people. If television ownership
were used as a benchmark, the middle class would be 100 million to 125 million
people. The important lesson for international marketers is to beware of the
misleading effect of averages, which distort the true market conditions in emerging
markets.
Note also that the average income figures quoted here do not reflect the standard of
living in these countries. In order to really understand the standard of living in a
country, it is necessary to determine the purchasing power of the local currency. In
low income countries, the actual purchasing power of the local currency is much
higher than that implied by exchange values. In India, for example, the author's
colleague recently returned from a trip during which he received a slight cut on his
forehead from a taxi trunk lid. He decided to visit a doctor to get a tetanus shot and,
because he knew that malaria was a hazard in India, he requested a prescription and a
one-month supply of malaria pills. He did this, and the bill from the doctor for the
shot, the pills, and the prescription was 30 rupees or US $1.00.
Age is another useful demographic variable. One international segment based on
demographics is international teenagers - young people between the age of 12 and 19.
Teens, by virtue of their interest in fashion, music, and a youthful lifestyle, exhibit
consumption behaviour that is remarkably consistent across borders. Young
consumers may not yet have conformed to cultural norms - indeed, they may be
rebelling against them. This fact, combined with shared universal needs, desires, and
fantasies (for name brands, novelty, entertainment, and trendy and image-oriented
products), make it possible to reach the international teen segment with a unified
marketing program. This segment is attractive both in terms of its size (about 1.3
billion) and its multibillion-dollar purchasing power, Coco-Cola, Benetton, Swatch,
and Sony are some of the companies pursuing the international teenage segment. The
international telecommunications revolution is a critical driving force behind the
emergence of this segment. International media such as MTV are perfect vehicles for
reaching this segment. Satellites such as AsiaSatI are beaming Western programming
and commercials to millions of viewers in China, India, and other countries.
Another international segment is the so-called elite: older, more affluent consumers
who are well traveled and have the money to spend on prestigious products with an
image of exclusivity. This segment's needs and wants are spread over various product
categories: durable goods (luxury automobiles); nondurables (upscale beverages such
as rare wines and champagne); and financial services (American Express gold and
platinum cards). Technological change in telecommunications makes it easier to reach
the international elite segment. International telemarketing is a viable option today as
AT&T International 800 services are available in more than 40 countries. Increased
reliance on catalog marketing by upscale retailers such as Harrods, Laura Ashley, and
Ferragamo has also yielded impressive results.
Psyc hogr aphi c Segment at i on
Psychographic segmentation involves grouping people in terms of their attitudes,
values, and lifestyles. Data are obtained from questionnaires that require respondents
to indicate the extent to which they agree or disagree with a series of statements. In
the United States, psychographics is primarily associated with SRI International, a

Process
Notes
market research organisation whose original VALS and updated VALS 2 analyses of
U.S. consumers are widely known.
Porsche AG, the German sports-car maker, turned to psychographics after watching
worldwide sales decline from 50,000 units in 1986 to about 14,000 in 1993. Its U.S.
subsidiary, Porsche Cars North America, already had a clear demographic profile of
its customers: 40+-year-old male college graduates whose annual income exceeded
$200,000. A psychographic study showed that, demographics aside, Porsche buyers
could be divided into five distinct categories (see Table 2.1). Top Guns, for example,
buy Porsches and expect to be noticed; for Proud Patrons and Fantasists, on the other
hand, such conspicuous consumption is irrelevant. Porsche will use the profiles to
develop advertising tailored to each type. Notes Richard Ford, Porsche vice president
of sales and marketing, "We were selling to people whose profiles were diametrically
opposed. You wouldn't want to tell an elitist how good he looks in the car or how fast
be cold go." Results have been promising; Porsche's U.S. sales improved nearly 50
percent in 1994."
One early application of psychographics outside the United States focused on value
orientations of consumers in the United Kingdom, France, and Germany. Although
the study was limited in scope, the researcher concluded that "the underlying values
structures in each country appeared to bear sufficient similarity to warrant a common
overall communications strategy." SRI International has recently conducted
psychographic analyses of the Japanese market; Broader-scope studies have been
undertaken by several international advertising agencies, including Backer,
Spielvogel & Bat Worldwide (BSB), Darcy Massius Benton & Bowles (DMBB), and
Young & Rubican (Y & R). These analyses offer a detailed understanding of various
segments, including the international teenager and international elite discussed
earlier.
Table 2.1: Psychographic Profiles of Porsche's American Customers
Category All Owners Description
Top Guns 27% Driven and ambitious: Care about power and control;
expect
to be noticed.
Elitists 24% Old money; a car-even an expensive one - is just a car, not
An extension of one's personality.
Proud Patrons 23% Ownership is what counts; a car is a trophy, a reward for
working hard; being noticed doesn't matter.
Bon Vivants 17% Cosmopolitan jet setters and thrill seekers; car heightens
Excitement.
Fantasists 9% Car represents a form of escape; don't care about
Impressing others; may even feel guilty about owning car.
Behavi our al Segment at i on
Behavioural segmentation focuses on whether people buy and use a product, as well
as how often and how much they use it. Consumers can be categorized in terms of
usage rates - for example, heavy, medium, light, and nonuser. Consumers can also be
segmented according to user status: potential users, nonusers, ex-users, regulars, first-
timers, and users of competitors' products. Although bottled water may be considered
a luxury product in some high-income markets, Nestle is marketing bottled water in
Pakistan where there is a huge market of nonusers who, despite their low income, are
willing to pay 18 rupees a bottle for clean water because of the widespread presence

Notes
of arsenic poisoning in well water and the pollution of surface water. Tobacco
companies are targeting China because the Chinese are heavy smokers.
Financial institutions have to consider many different pieces of information regarding
consumer behaviour toward saving and spending money. Japan has the highest
number of cash dispensers, 1,115 per 1 million population, followed by Switzerland,
Canada, and the United States where the average is slightly higher than 600. The
average dollar amount withdrawn also varies considerably. In Japan, the average
withdrawal is $289. This is followed by Switzerland at $187 and Italy at $185. The
United States is far down the list with $68 as the average withdrawal. Japanese people
tend to carry around a lot more cash than people in other countries.
Benef i t Segment at i on
International benefit segmentation focuses on the numerator of the value equation -
the B in V=B/P. This approach can achieve excellent results by virtue of marketer's
superior understanding of the problem a product solves or the benefit it offers,
regardless of geography. For example, Nestle discovered that cat owners' attitudes
toward feeding their pets are the same everywhere. In response, a Pan-European
campaign was created for Friskies dry cat food. The appeal was that dry cat food
better suits a cat's universally recognised independent nature.
Ver t i c al Ver sus Hor i zont al Segment at i on
Vertical segmentation is based on product category or modality and price points. For
example, in medical imaging there is X-ray, computed axial tomography (CAT) scan,
magnetic resonance imaging (MRI), and so on. Each modality has its own price
points. These price points were the traditional way of segmenting the medical
imaging market. One company decided to take a different approach and segment the
same market by the health care delivery system: National research and teaching
hospitals, government hospitals, and so on. It then rolled out a campaign that was
regional, national, and finally International, which was tailored for each different
types of health care delivery. This horizontal segmentation approach worked as well
in markets outside the home-country launch market as it did in the home country.
Mar k et i ng Pr oc ess
International marketing should be considered a special case of domestic marketing. It
has earlier been explained that there is very little difference between domestic and
international marketing. Only thing is that the word multinational has been added in
the international marketing process. Otherwise, the marketing mix is the same for
both. With improvements in information technology, the international markets have
become easily accessible and the whole world has become a small global village.
Transnational Corporations (TNCs) are incorporated or unincorporated enterprises
comprising parent enterprises and their foreign affiliates. A parent enterprise is
defined as an enterprise that controls assets of other entities in countries other than its
home country, usually by owing a certain equity capital stake. An equity capital stake
of 10% or more of the ordinary shares or voting power for an incorporated enterprise,
or its equivalent for an unincorporated enterprise, is normally considered as the
threshold for the control of assets. A foreign affiliate is an incorporated or
unincorporated enterprise in which an investor, who is a resident in another
economy, owns a stake that permits a lasting interest in the management of that
enterprise (an equity stake of 10% for an incorporated enterprise, or its equivalent for
an unincorporated enterprise). In WIR, subsidiary enterprises, associate enterprises
and branches - defined below - are all referred to as foreign affiliate or affiliates.

Process
Notes
A subsidiary is an incorporated enterprise in the host country in which
another entity directly owns more than a half of the shareholder's voting
power, and has the right to appoint or remove a majority of the members of
the administrative, management or supervisory body.
An associate is an incorporated enterprise in the host country in which an
investor owns a total of at least 10%, but not more than half, of the
shareholders' voting power.
A branch is a wholly or jointly owned unincorporated enterprise in the host
country which is one of the following: (i) a permanent establishment or office
of the foreign investor; (ii) an unincorporated partnership or joint venture
between the foreign direct investor and one or more third parties; (iii) land,
structures (except structures owned by government entities), and/or
immovable equipment and objects directly owned by a foreign resident; or
(iv) mobile equipment (such as ships, aircraft, gas or oil-drilling rigs)
operating within a country, other than that of the foreign investor, for at least
one year.
Gl obal Mar k et i ng
Companies sometimes assume that what works in their home country will work in
another country. They take the same product, same advertising campaign, even the
same brand names and packaging, and with virtually no chance to try to market it the
same way in another country.
The result in many cases is failure. Why? Well, the assumption that one approach
works everywhere fails to consider differences that exist between countries and
cultures. While many companies who sell internationally are successful following a
standardized marketing strategy it is a mistake to assume this approach will work
without sufficient research that addresses this question.
Possibly the most challenging concept in marketing deals with understanding why
buyers do what they do (or don't do). But such knowledge is critical for marketers
since having a strong understanding of buyer behaviour will help shed light on what
is important to the customer and also suggest the important influences on customer
decision-making. Using this information, marketers can create marketing programs
that they believe will be of interest to customers.
The Gl obal Segment
The global segment includes relevant new global markets and existing ones that are
changing, important international political events, and critical cultural and
institutional characteristics of relevant global markets. Although the previous
segments should be analyzed in terms of their domestic and global implications, some
additional specific global factors should be analyzed as well.
Firms must also attempt to identify critical new global markets and/or those that are
changing. It is clear that many global markets are fast becoming border-less and
integrated. For example, firms may examine emerging markets such as those in South
American countries or markets in newly industrialized countries such as in Asia (e.g.,
South Korea, Taiwan) for new opportunities. They should also be cognizant of the
potential threats from these countries.
Newly industrialized countries, such as South Korea, have significant buying power
but also have globally competitive firms. Based on significance support and economic
planning from the government, the predominant goal of major South Korean firms is
growth.

Notes
Thus, many South Korean firms place less emphasis on earning net profits and more
on attaining major growth goals through their strategic actions. An example of this is
shown by Samsung's new venture into passenger-car production, partially because of
executives' concerns at being ranked number two in size to Hyundai.
Although Samsung is predicted to invest approximately up to $150 million in the
development of a 100 seat jetliner, $3 billion to build semiconductor manufacturing
plants in North America, Europe, and Southeast Asia, and $2 to $3 billion to establish
a hypermedia city of offices, shops, entertainment centers, and housing in downtown
Seoul by 2000. Recently, Samsung invested approximately $9.92 billion in expansion
opportunities.
Firms must also have a reasonable understanding of the different cultural and
institutional attributes of global markets in which they operate or hope to operate. For
example, a firms operating in South Korea must understand the value placed on
hierarchical order, formality, self-control, and on duty rather than rights.
Furthermore, Korean ideology places emphasis on communitarians, a characteristic if
many Asian country, Korea approach differs from that of Japan and China with its
focus on Inhwa or harmony.
Inhwa is based on a respect of hierarchical relationships and obedience to authority.
Alternatively, the approach in China is focused on Guanxi or personal relationships
and in Japan on Wa or group harmony and social cohesion. The institutional context
of Korea suggests a major emphasis on centralized planning by the government. The
emphasis placed on growth by many South Korean firms is the result of a government
policy to promote economic growth in South Korea.
The cultural and institutional contexts in which firms must operate in global markets
can be critical. For example, in India there is a current nationalist campaign led to the
recent closing of a statement was the KFC outlet was closed for health reasons after an
inspection, executives of several U.S. food companies blamed political posturing
related to an upcoming election.
Also, those who oppose KFC's opening are often those who lobby against meat eating.
KFC was one of the first major fast food giants to open a facility in India.
Furthermore, it has been quite successful in Asia with more than 2,200 restaurants
operating in that region of the world. Still, even a firm that has been as successful as
KFC must carefully and thoroughly analyze the institutional and cultural
environments of its global markets.
The takeover of Hong Kong, China offers potential opportunities but also threats to a
number of firms with domestic headquarters outside its borders. Even more so with
Hong Kong now a part of China, its growing economic prowess makes its firms
potentially significant competitors, particularly in labour-intensive industries. As a
result, firms operating in such industries worldwide must view the development of
Chinese entrepreneurial operations as an environmental threat.
P&G owes its success to being an early mover in China, and its aggressiveness has
paid dividends. It has been successful even though its prices are sometimes 300
percent greater than local brands. The development of the Chinese economy is one
that must be analyzed carefully by firms operating in many industries regardless of
their home country.
A key objective of analyzing the general environment is identification of anticipated
significant changes and trends among external elements. With a focus on the future,
the analysis of the general environment allows firms to identify opportunities and
threats. Also critical to a firm's future operations in an understanding of its industry
environment and its competitors, which are considered next.

Process
Notes
Management Or i ent at i ons
The form and substance of a companys response to global market opportunities
depend greatly on the managements assumptions or beliefs both conscious and
unconscious about the nature of the world. The worldview of a companys
personnel can be described as ethnocentric, polycentric, regiocentric and geocentric.
Management of a company with a prevailing ethnocentric orientation may
consciously make a decision to move in the direction of geocentricism. The
orientations collectively known as the EPRG framework are summarised in
Figure 2.2.
Table 2.2: The Largest Corporations by Market Value (US $ Millions)

Rank
1997 1996 Company (Country) Market Value
1 1 General Electric (US) $214,454
2 2 Royal Dutch/Shell
( / )
177,537
3 3 Coca-Cola (US) 167,334
4 4 Nippon Telegraph & Telephone
( )
152,784
5 5 Exxon (US) 152,706
6 12 Microsoft (US) 151,438
7 10 Merck (US) 124,936
8 14 Intel (US) 116,144
9 7 Toyota Motor
( )
111,924
10 8 Philip Morris (US) 107,778
11 34/52 Novartis (Switzerland) 99,031
12 15 Procter & Gamble (US) 95,677
13 6 Bank of Tokyo-Mitsubishi
( )
93,712
14 16 International Business Machines
( S)
89,570
15 13 Johnson & Johnson (US) 85,740
16 11 Roche-Holding
(S )
85,403
17 31 Bristol-Myers Squibb (US) 80,989
18 29 Pfizer (US) 77,152
19 19 Wal-Mart Stores (US) 76,603
20 25 Glaxo Wellcome (UK) 73,574
21 26 DuPont (US) 70,983
22 22 British Petroleum (UK) 70,710
23 30 American International Group
( S)
70,139
24 - Deutsche Telekom (Germany) 66,041
25 59 Eli Lilly (US) 60,710

Source: The Worlds 100 Largest Public Companies, The Wall Street Journal, 18 September 1997, p. R25.
Data reflects market value on December 31,1996.
Ethnocentric
A person who assumes that his or her home country is superior compared to the rest
of the world is said to have an ethnocentric orientation. The personnel of such a
company see only similarities in markets and assume that the products and practices
that succeed in the home country will, due to their demonstrated superiority, be
successful anywhere. At some companies, the ethnocentric orientation means that
opportunities outside the home country are ignored. Such companies are sometimes
called domestic companies. Ethnocentric companies that do conduct business outside
the home country can be described as international companies; they adhere to the
notion that the products that succeed in the home country are superior and, therefore,
can be sold everywhere without adaptation.

Notes
In the ethnocentric international company, foreign operations are viewed as being
secondary or subordinate to domestic ones. An ethnocentric company operates under
the assumption that tried and true headquarters knowledge and organisational
capabilities can be applied in other parts of the world. This can sometimes work to a
companys advantage. For a manufacturing firm, ethnocentrism means that foreign
markets are viewed as a means of disposing off surplus domestic production. Plans
for overseas markets are developed utilising policies and procedures identical to
those employed at home. No systematic marketing research is conducted outside the
home country, and no major modifications are made to products. Even if consumer
needs or wants, in international markets, differ from those in the home country, those
differences are ignored at headquarters.

Ethnocentricity
Home country is
superior; sees
similarities in foreign
countries
Polycentric
Each host country is unique;
sees differences in foreign
countries
Regiocentric
Sees similarities and differences in a world region; is
ethnocentric or polycentric in its view of the rest of the
world.
Geocentric
World view; sees similarities
and differences in home and
host countries

Figure 2.2: Orientations of Management and Companies
Nissans ethnocentric orientation was quite apparent during its first few years of
exporting cars and trucks to the United States. Designed for mild Japanese winters,
the vehicles were difficult to start in many parts of the United States during the cold
winter months. In northern Japan, many car owners would put blankets over the
hoods of their cars. Tokyos assumption was that Americans would do the same
thing. Until the 1980s, Eli Lilly and Company operated as an ethnocentric company in
which activity outside the United States was tightly controlled by headquarters and
focused on selling products originally developed for the US market.
Fifty years ago, most business enterprises and especially those located in a large
country like the United States could operate quite successfully with an ethnocentric
orientation. Today, however, ethnocentrism is one of the biggest internal threats a
company faces.
Polycentric
The polycentric orientation is the opposite of ethnocentrism. The term polycentric
describes managements often unconscious belief or assumption that each country in
which a company does business is unique. This assumption lays the groundwork for
each subsidiary to develop its own unique business and marketing strategies in order
to succeed; the term multinational company is often used to describe such a structure.
Until recently, Citicorps executives offered this description of the company: We
were like a medieval state. There was the king and his court and they were in charge,
right? No. It was the land barons who were in charge. The king and his court might
declare this or that, but the land barons went and did their thing. Realising that the
financial services industry is globalising, CEO John Reed is attempting to achieve a

Process
Notes
higher degree of integration between Citicorps operating units. Like Jack Welch at
GE, Reed is moving to instill a geocentric orientation throughout his company.
Regiocentric and Geocentric Orientations
In a company with a regiocentric orientation, management views regions as unique
and seeks to develop an integrated regional strategy. For example, a US company that
focuses on the countries included in the North American Free Trade Agreement
(NAFTA) the United States, Canada, and Mexico has a regiocentric orientation.
Similarly, a European companies that focuses its attention on Europe is regiocentric. A
company with a geocentric orientation views the entire world as a potential market
and strives to develop integrated world market strategies. A company whose
management has a regiocentric or geocentric orientation is sometimes known as a
global or transnational company.
The geocentric orientation represents a synthesis of ethnocentrism and polycentrism;
it is a world view that sees similarities and differences in markets and countries,
and seeks to create a global strategy that is fully responsive to local needs and wants.
A regiocentric manager might be said to have a world view on a regional scale; the
world outside the region of interest will be viewed with an ethnocentric or a
polycentric orientation, or a combination of the two. Jack Welchs quote at the
beginning of this chapter that globalisation must be taken for granted implies that
at least some company managers must have geocentric orientation. However, recent
research suggests that many companies are seeking to strengthen their regional
competitiveness rather than moving directly to develop global responses to changes
in the competitive environment.
The ethnocentric company is centralised in its marketing management, the polycentric
company is decentralised, and the regiocentric and geocentric companies are
integrated on a regional and global scale, respectively. A crucial difference between
the orientations is the underlying assumption for each. The ethnocentric orientation is
based on a belief in home country superiority. The underlying assumption of the
polycentric approach is that there are so many differences in cultural, economic, and
marketing conditions in the world that it is impossible and futile to attempt to transfer
experience across national boundaries.
There is a likelihood that the geocentric company does not identify itself with any
particular country. Therefore, it is difficult to determine the firms home country
except the location of its headquarter and its corporate registration.
The case of European Silicon Structures illustrates the practice of geocentric
marketing. In order to attract customers around the continent, the company has
decided to become a company without a country. Although incorporated in
Luxembourg, the firms headquarter is in Munich. The company has its research
facilities in England and a factory in Southern France and its board of directors, eight
of them, come from seven different countries.
There is evidence that geocentricity and a companies international practices are
related. There is a study by Stephen J Kobrien who employed the geocentric scale to
measure the human resources managers mind-set concerning the impact of
nationality on the selection of career managers. The index of a geocentric mind-set
was found to be significantly related to the per cent of sales and employees abroad as
well as the number of countries with manufacturing operations.
The study of ethnocentrism, polycentrism, regiocentrism and geocentrism (EPRG)
framework found that firms exhibiting an ethnocentric orientation emphasize the
home market and export to psychologically close markets. In addition, these firms
believe that marketing adaptation is not necessary. In contrast, polycentric,
regiocentric and geocentric firms export to psychologically distant markets.

Notes
Design strategies for global market place for a company marketing Indian
handicrafts.
Reasons of Ent er i ng Ex por t Mar k et i ng
Many businesses are forced into international selling due to the competitive
environment. While it might be wonderful to stay the same size and just focus on
quality, the problem is that the competitive environment creates situations where
your competition continues to grow - so, if you do not grow and expand you will lose
customers.
Your former customers will move to larger vendors that can offer lower prices
(because they sourced components internationally and can offer economy of scale).
The main purpose of business is to make money for the people who own the business.
All other objectives are secondary to achieving this goal- it may sound heartless, but it
is the essence of capitalism.
Achieving this goal obviously means making enough money to stay in business
several years in order to pay back any money you borrowed to get started, and make
enough money that it is worth your while to have developed the endeavour.
Therefore managers seek to increase or to stabilize profits, which partly depends on
foreign sales and foreign resources. Business cannot stay the same size - if your
business does not grow, the competitors will grow, and soon you will lose your
customers to competitors who grew, and had more selection, or made cheaper
products.
So, you have to grow because the nature of the competitive environment will not let
you stay the same size.
There are 4 major operating objectives that may cause companies to develop
International Business
1. To expand sales
2. To acquire resources
3. To diversify sources of sales
4. To diversify sources of supplies
Over al l gener al r easons f or I nt er nat i onal Busi ness gr ow t h
Technology
increasing use of technology in manufacturing
increasing use of technology in the process of consuming products 0
increasing use of technology in delivering products
transportation technology, packaging technology etc.
Government trade policies liberalized (made less
restrictive)
recognition that trade increases standard of living
access to more products enhances lifestyles

Process
Notes
trade increases technological opportunities
trade increases chance more people in the society can make money
Development of institutions to support and facilitate International Business like the
TWO, IMF, OECD etc. So this leaves companies with the challenge of why go
international. Sometimes they think of the situations (mentioned above) and decide,
in a proactive way, that they should start exporting, or importing in order to be more
competitive.
Sometimes they don't have a specific corporate direction to go international, it just
happens because they are forced into it and they are reacting to some competitive or
economic or technical pressure.
So we describe these two directions as being Proactive or Reactive.
Reactive - from reaction, to receive information, then act
Reactive reasons for going international include:
Market: the company is responding to demand it discovers in another location it
could make this discovery by accident, or by having an affiliated company give them
a tip.
Competitive Environment: it sees competitors going to a particular place for example
when Honda set up shop in Ohio, some other Japanese auto parts companies also
moved to Ohio to continue supplying Honda.
Political Environment changes: regulations environmental regulations or changes in
work/safety regulations may cause the company to go overseas to a less restrictive
location some Asian companies (selling in to the U.S. market) have moved
manufacturing and assembly operations from the southern U.S. to Mexico where
pollution and labour regulations are not so restrictive as in the U.S.
Ec onomi c Envi r onment c hanges
costs of production at home increase, forcing the company to find a cheaper
place to produce chance occurrence
sometimes a company goes international for the most simple reason, the CEO
went some place on vacation and thought it would be a good place to do
business, or a friend made a suggestion to a senior executive about an
opportunity, so the company seizes on it to do something
you would be surprised how often it is chance occurrence that causes
someone to get on a airplane and go somewhere - and, keep in mind, most
int'l business is done by companies with less than 50 people
Proactive: means to act in advance, to anticipate something happening, and plan for
the situation. Companies who are proactive in international business are, in most
cases, better positioned than companies that simply react. If you simply react you
might make a mistake and not do things properly because you are stressed for time,
money or manpower.
Proactive reasons for going international include
(i) Strategically seeking out advantages
(ii) Launch an offensive into a new market before competitor does (e.g. like Pepsi
into Russia, before Coke)
(iii) Incentives sometimes the host government will offer special tax breaks to
entice an investment
(iv) Lower costs of labour, production and energy less stringent rules and
regulations effecting pollution and labour.

Notes
What are the various factors that you would consider before entering the
foreign market ?

Or gani sat i on of an Ex por t Depar t ment
Every company wishing to consolidate its export activity has to create its own foreign
trade department so it can handle the different tasks that enable its continued
presence in international markets. As sales are solely the result of a marketing policy,
the export department might be described as an instrument that carries out all the
tasks generated by international marketing policies of the company. The export
department has very definite goals: to perform all tasks related to international sales.
Upon analyzing the export activities of the companies that have experienced stable
growth in their exports, one observes that, historically, their international contacts
started out sporadically and only later started to consolidate. That was when they
made the decision to expand their the international trading staff to penetrate other
markets to a greater extent and better.
When interviewing companies with consolidated foreign departments, we discover
that their reasons for creating the export structures have nothing to do with academic
reasoning, instead the reasons were:
Excess production.
Given the high stocks, the need to increase sales quickly, at all costs.
This in turn resulted from insufficient penetration of the domestic market, product
quality problems, pricing, even distribution problems or lack of promotion. We note
that companies which are large in terms of their sales, number of employees, or own
resources, export greater volumes of goods. There are many common elements in the
paths taken by various companies to create an Export Department.
The organization of a firm and how its products are sold overseas are related to and
depend on several factors including the size of the company, productive capacity,
types of products, degree of processing, previous exporting experience, and business
conditions overseas. "In-house" organization of the business involves direct selling of
products by the producer to the foreign importer. The producer is usually responsible
for shipping the product overseas.
Traditional and customary marketing and business practices in a foreign country will
dictate how the products will be sold. Depending on the country, direct selling may
involve working with foreign sales representatives, agents, or distributors. For
example, agents are very active in the wood products trade in the United Kingdom
and other European countries. In Japan, trading companies are the primary contacts.
"In-house" organization will provide the company greater control over the export
marketing procedures for the firm's products. In general, there are higher start-up
costs and fewer economies of scale under this organizational structure than with the
others described below.
Ex por t Management Compani es (EMC' s or agent s)
EMCs are generally small, closely held companies which represent manufacturers in
export marketing. The EMC may represent a number of small, unrelated companies
and provide benefits (economies of scare) relating to foreign sales, marketing
missions, and scheduling or shipping products for export. The EMC often retains the
identity of the manufacturer when dealing with foreign importers, whereas agents
work under their own names.

Process
Notes
Ex por t Tr adi ng Compani es (ETC' s)
The largest domestic obstacles to exporting-lack of knowledge of foreign marketing,
limited credit facilities, and legal restrictions in cooperating with other U.S.
companies (antitrust violations)-may be overcome by forming an export trading
company (ETC). ETCs may assume the risks involved with international trade by
taking title to the products and assuming responsibility for marketing and selling the
products overseas.
Ex por t Mer c hant s (EM' s)
Similar to an ETC, an export merchant (EM) may take title to a producer's goods and
be responsible for selling to the foreign importer. The advantages of using an export
merchant include:
1. Products are sold to an export merchant domestically. Producers do not need
to be familiar with foreign business practices-this is the responsibility of the
EM.
2. The EM may handle all intermediate processing and handling functions, such
as pressure treatments or kiln-drying of lumber prior to export.
3. The EM may serve as a "sorter" or distribution yard for lumber and other
products. This permits lumber to be regarded specifically for export and
specialty markets. Lower volume, high-quality products may become more
marketable as a result of using an EM.
4. EMs may become familiar with the operation of mills and producers and may
provide valuable assistance in producing products for the export market.
Summar y
Certain firms start their business as international firms because their mission is to be
involved in international business activities. A number of other firms, however, may
have begun as domestic firms concentrating on their own domestic market before
shifting focus to international markets.
International marketing is the process of focusing the resources and objectives of a
company on marketing opportunities at international level. Companies are engaged
in international marketing for two reasons: firstly, to take advantage of opportunities
of growth and expansion, and secondly, to eventually lose their domestic markets
because they will be pushed aside by stronger and more competitive international
competitors. This chapter presents the theory and practice of applying the universal
discipline of marketing to the international opportunities found in the world markets.
An ethnocentric orientation characterises domestic and international companies that
pursue marketing opportunities outside the home market by extending various
elements of the marketing mix. A polycentric world view predominates at a
multinational company, where country managers operating autonomously adapt the
marketing mix. Managers at international and transnational companies are
regiocentric or geocentric in their orientation and pursue both extension and
adaptation strategies in international markets.
Keyw or ds
Multinational Marketing: It is the marketing activity of MNCs, done through direct
investment and asset creation across geographic boundaries.
International Market Segmentation: The process of dividing the world market into
distinct subsets of customers that behave in the same way or have similar needs.

Notes
Global Marketing: The performance of business activities that direct the flow of goods
and services to consumers or users in more than one nation.
Ethnocentric Orientation: A person who assumes that his or her home country is
superior compared to the rest of the world is said to have an ethnocentric orientation.
Polycentric Orientation: Managements belief that each country in which a company
does business is unique.
Regiocentric Orientation: Managements view that each region is unique and seeks to
develop an integrated regional strategy.
Geocentric Orientation: It represents a synthesis of ethnocentrism and polycentrism.
Revi ew Quest i ons
1. What are the basic economic reasons which might influence a firms decision
or motivate a firm to plunge into international marketing?
2. International Marketing has become indispensable in the economic
development of a developing country. Comment with respect to the Indian
situation.
3. Why is the task of the international marketer more complex and difficult than
that of the domestic marketer?
4. Distinguish among (a) domestic marketing (b) foreign marketing (c)
comparative marketing (d) international trade (e) international marketing (f)
multinational marketing (g) global marketing and (h) world marketing.
5. Distinguish among (a) ethnocentricity (b) polycentricity and (c) geocentricity.
Fur t her Readi ngs

Notes
Uni t 3 I ndi as Ex por t
I mpor t Pol i c y
Unit Structure
Introduction
A Brief Description of EXIM Policy of India
Export Promotion Organization
Export Incentives
Summary
Keywords
Review Questions
Further Readings
Learning Objectives
Describe the changing pattern of EXIM Policy
Understand various export promotion measures
Explain new EXIM Policy
I nt r oduc t i on
Indian foreign trade under colonial rule was controlled by the British for their own
interests. After independence, the then government incorporated the Import and
Export (Control) Act, 1947 with the objective of regulating imports and exports At
that Time the Indian economy was affected by scarcity. To safeguard the domestic
industry and to restrict the export of essential goods, it was essential to regulate
international trade.
In subsequent years, import substitute and protection of domestic industry became
the main thrust of the Exim policy for most of the period during 1950-51 to 1990-91. It
was in 1991 that the Indian export end import policy saw a drastic change in the form
of liberalization.
A Br i ef Desc r i pt i on of EXI M Pol i c y of I ndi a
Indian foreign trade under colonial rule was controlled by the British for their own
interests. After independence, the then government incorporated the Import and
Export (Control) Act, 1947 with the objective of regulating imports and exports. At
that time the Indian economy was affected by scarcity. To safeguard the domestic
industry and to restrict the export of essential goods, it was essential to regulate
international trade.
The National Planning Commission (NPC) has said, "The objective of the country as a
whole was the attainment as far as possible, of national sufficiency. International
trade was certainly to be included but we were anxious to avoid being drawn into the
whirlpool of economic imperialism."
So in subsequent years, import substitution and protection of domestic industry
became the main thrust of the Exim policy for most of the period during 1950-51 to

Notes
1990-91. It was in 1991 that the Indian Exim policy saw a drastic change in the form of
liberalisation.
I mpor t Pol i c y: Pr i or t o 1991
In the pre-reform period Indian import policy had two constituents:
Import Restrictions
Import Substitution
1. Import Restrictions: In the initial phases of development, India had to import
capital equipment, machinery, spare parts, industrial raw material etc. From
time to time it had to import food grains too, but because of stagnant exports,
government had to decide to import curtail. Import was classified under the
categories of: - Banned items, restricted items, canalized items and items
under OGL (Open General License.). Severe restrictions were imposed on
imports of not-essential goods. High import tariffs were used to control
import.
2. Import Substitution: Import substitution means reducing the dependability
on imports i.e. to produce goods that we are importing. Two broad objectives
of the programme of import substitution in India were:
a. to save scarce foreign for the import of more important goods,
b. to achieve self -reliance in the production of as many goods as
possible.
EXI M Pol i c y of I ndi a: A Br i ef Per spec t i ve of Changes
Till 1950-56 there was no clear exim policy and no import restrictions of any kind. In
the second half of the decade (1956-61), the government imposed quantitative
restrictions on imports and efforts were made to enhance exports. Export
subsidisation was introduced in 1962, primarily to offset the penalties that
quantitative restrictions imposed. To intensify exports, the currency was devaluated
in 1966. At the end of the sixties and mid seventies export subsidies were reinstated
and augmented and import policy became very restrictive and complex.
To bring stability to the policy and to reduce uncertainties, the government
announced its EXIM policy in 1985 for three years, without any major deviation from
the earlier policy. But it did represent some simplification as the number of items in
the category of Open General License (OGL) for capital goods import increased from
nil in 1975 to over 1,100 items in 1988.
Several exports incentives were introduced or expanded, especially after 1985.
Exporters were given Replenishment (REP) licenses for amounts that were about
twice their imports needs. These REP licenses allowed the holder to even import items
in the restricted list. These REP were freely tradable in the market. Export profits were
exempted from tax, and interest rate on income tax was reduced. Duty-free import of
capital goods was allowed in selected export industries.
With an objective of improving the balance of payment position of the country, the
EXIM policy of 1990 introduced more liberalised steps: The OGL list was expanded
and a scheme of automatic licensing was introduced under which up to 10 % of the
value of previous year's license could be imports.
A scheme of Star Trading House was introduced for exports with average annual net
foreign exchange earnings of Rs. 75 crore in the preceding three licensing years of the
base period. Star Trading Houses are eligible for the grant for special additional

Notes
licenses calculated at the rate of 15% of net foreign exchange earned in the preceding
year.
Under the Duty Exemption Scheme, a blanket advance licensing has been introduced
for manufacturers with a minimum foreign exchange earnings of Rs. 10 crore in the
previous three years.
It was since 1991 that radical changes and reforms were introduced in the EXIM
policy. There has been steady curtailment of import tariffs and liberalisation of
quantitative restrictions. The rupee has been made almost fully convertible on the
current account.
New Tr ade Pol i c y (1991)
The new policy substantially eliminates licensing, quantitative restrictions, and other
regulatory and discretionary controls. The main features of the new trade policy are:
1. Free Import and Export: The new trade policy made major changes in the
import licensing system by replacing a large part of administered licensing of
imports by import entitlements linked to export earnings. The system of
advance license, designed to provide exporters with duty free access to
inputs, was strengthened further by simplifying and speeding up the process
of issuing these licenses.
The procedure of import of capital goods was simplified following the
Industrial Policy of 1991. New units and units undergoing substantial
expansion would be automatically granted licenses for import of capital
goods without any clearance from the indigenous availability angle, provided
their import is fully covered by foreign equity or the import requirement was
up to 25% of the value of plant and machinery subject to a maximum of Rs. 2
crore.
Import of OGL capital goods, non-OGL capital goods and restricted goods
would be allowed without a specific license, provided clearance was given by
the RBI and foreign exchange, because their imports are fully covered by
foreign equity.
2. Rationalisation of Tariff Structure: On the recommendation of Chelliah
committee, import duty was drastically reduced to establish parity in prices
of goods produced domestically and internationally. The 1993-94 Budget
reduced the maximum rate of duty on all goods from 110% to 85%, except for
few goods, which was further reduced to 40% in 1998-99 and further to 35%
in 2000-01.
3. Decanalisation: The new trade policy aimed at progressive decanalisation.
The government decontrolled 116 items allowing their exports without any
licensing formalities. Another 29 items were shifted to OGL. It also
decanalised 16 export items and 20 import items including new print, non-
ferrous metals, natural rubber, intermediate and raw material for fertilizers.
However, 8 items (petroleum products, fertilizers, etc.) remained canalised.
4. Exchange Rate Reforms: The government devalued the rupee in July 1991,
which led to depreciation in the value of the rupee against the five major
international currencies by roughly 22%. It also made the rupee convertible:
a. Partial Convertibility of Rupee: In Budget 1992-93, the finance
minister announced Liberalised Exchanged Rate Systems (LERMS)
under which 40% of the foreign exchange receipts were to be
exchanged through the RBI at the official exchange rate and rest was

Notes
allowed to be converted at market exchange rate. The official
exchange rate was lower than the market exchange rate.
b. Fully Convertible on Current Account: The rupee was made fully
convertible. Current account convertibility means the freedom to buy
or sell foreign exchange for the following international transactions:
(a) all payment due in connection with foreign trade, current
business, and normal short-term banking and credit facilities (b)
payment due as interest on loans and as net income from other
investments (c) payments of moderate amount of amortisation of
loans or for depreciation of direct investment and (d) moderate
remittances for family living expenses.
5. Phased Manufacturing Programme: PMP, according to which organisations
were required to substitute all the imported parts with Indian parts in a
specified period, was abolished.
6. Trading House: The 1991, the policy allowed export houses and trading
houses to import a wide range of items. The government also permitted the
setting up of trading houses with 51% foreign equity for the purpose of
promoting exports. Under the 1992-97 trade policy, export houses and trading
houses were provided the benefit of self-certification under the advance
license system, which permits duty free imports for exports.
7. EOU/EPZ/EHTP/STP: The units undertaking to export their entire production
of goods may be set up at Export Processing Zones (EPZ), Electronic
Hardware Technology Park (EHTP), Software Technology Park (STP) and
Export-Oriented Units. EPZs are special enclaves separated from domestic
tariff area (DTA) by fiscal barriers and are intended to provide an
internationally competitive duty free environment for export production at
low cost. Units in these areas also enjoy tax holidays and duty free imports.
Besides all these, various concessions and exemptions were granted during the
nineties to liberalise imports and promote exports. Liberalisation also allowed FDI in
many sectors. Foreign companies are allowed to open branch offices, foreign
technology agreements were allowed, and the Foreign Investment Promotion board
(FIPB) was established to process and give speedy approvals for foreign investment
proposals. Automatic approval was allowed for technical collaboration and foreign
equity participation up to 51% in Indian companies in 34% high priority industries.
In totality, we followed a policy of globalisation after 1991 as far as foreign trade is
concerned. This may seem like a threat to the domestic industry, but it only helped
Indian industry. Now, domestic industry has to face competition at an international
level, which only improves their competitive position. It also allows them to import
raw material and machines that improve the quality of their products and reduce the
cost.
Because of the abolition of phased manufacturing programme (PMP), the domestic
industry now doesn't have to go for Indianisation. It reduces their cost and releases
the R&D budget for something new instead of investing on that which is available in
the international market at competitive prices.
Ex por t Pr omot i on Or gani zat i on
After independence a number of councils and organizations were set up in order to
promote exports from India.

Notes
Aut onomous Bodi es
Export Promotion Councils
There are at present eleven Export Promotion Councils under the administrative
control of the Department of Commerce and nine export promotion councils related
to textile sector under the administrative control of Ministry of Textiles. These
Councils are registered as non -profit organisations under the Companies
Act/Societies Registration Act. The Export Promotion Councils perform both
advisory and executive functions. These Councils are also the registering authorities
under the Export Import Policy, 1997-2002.These Councils have been assigned the role
and functions under the said Policy.
The Committee constituted to look into the aspects of rationalization of election
procedure of the Export Promotion Councils(EPCs) and the criteria to be adopted for
their restructuring so that they retain their relevance to the national export effort in
the context of globalisation and economic liberalization, has made recommendations
to streamline and strengthening the functioning of the EPCs. The Government has
since accepted the recommendations of the Committee and issued Model Bye-Laws
and guidelines to all EPCs for adoption.
Commodity Boards
There are five statutory Commodity Boards under the Department of Commerce.
These Boards are responsible for production, development and export of tea, coffee,
rubber, spices and tobacco.
Export Inspection Council, New Delhi
The EIC, an autonomous body, is responsible for the enforcement of quality standards
and compulsory pre-shipment inspection of the various commodities meant for
export and notified under the Export (Quality Control & Inspection) Act, 1963. It was
set up under Section (3) of the Export (Inspection and Quality Control) Act, 1963. It is
headed by a Director. EIC is assisted in its functions by the Export Inspection
Agencies(EIAs) located at Chennai, Delhi, Kochi, Kolkata and Mumbai alongwith a
network of 42 sub-offices and laboratories to back up the pre-shipment inspection and
certification activities.
Indian Institute of Foreign Trade, New Delhi
The IIFT, registered under the Societies Registration Act 1860 as Society, is headed by
the Director General. The Institute became functional on 1st April, 1964. It is engaged
in the following activities:
Training of personnel in modern techniques of international trade;
Conducting Market research in problems of foreign trade;
Organisation of marketing research, area surveys, commodity surveys,
market surveys; and
Dissemination of information arising from its activities relating to research
and market studies.
The IIFT has been accorded the "Deemed To Be University" status by the Ministry of
Human Resource Development and the University Grants Commission(UGC) with
effect from 20th May, 2002.

Notes
Indian Institute of Packaging, Mumbai
The IIP is registered under the Societies Registration Act 1860. It was established in
the year 1966 jointly by the Ministry of Commerce (now Department of Commerce)
and the Packing and Allied Industries of the country. The Institute is headed by a
Director. It is located at Mumbai. The main aim of the Institute is to undertake
research in raw materials for the packaging industry, to organise training
programmes on packaging technology and to stimulate the need for good packaging
etc.
Marine Products Export Development Authority, Cochin
The MPEDA was set up under Section (4) of MPEDA Act, 1972 and became functional
from 20th April, 1972. It is a statutory body functioning under the Department of
Commerce. The MPEDA, a statutory body, is responsible for development of the
marine products industry with special reference to exports. It is headed by a
Chairman. It has its headquarters at Kochi and has a number of Regional and Sub-
Regional Offices. Besides, it has Trade Promotion Offices at Tokyo and New York.
Agricultural and processed Food Products Export Development Authority, New
Delhi The APEDA was set up by an Act of Parliament of 1986 and came into being on
13th February 1986. The APEDA is also a statutory body which is entrusted with the
tasks of agricultural exports, including the export of processed foods in value added
form. It is headed by a Chairman. The Headquarter is located at New Delhi and it has
a number of Regional Offices.
Ot her Or gani sat i ons
Federation of Indian Export Organisations
The FIEO, New Delhi is an apex body of various export promotion organisations and
institutions. It was set up in 1965 and it registered under the Societies Registration
Act, 1860. It also functions as a primary servicing agency to provide integrated
assistance to Government recognised Export Houses / Trading Houses and acts as a
Central Co-ordinating Agency in respect of export promotional efforts in the field of
consultancy services in the country. FIEO organises seminars and sends Trade
Delegations to overseas markets for export promotion. The Federation brings out
`FIEO News; a monthly publication for the use of its member exporters and
importers.
Indian Council of Arbitration, New Delhi
The ICA set up under the Societies Registration Act, promotes arbitration as a means
of settling commercial disputes and popularises the concept of arbitration among the
traders, particularly those engaged in international trade. The Council, a non-profit
service organisation, is a grantee institution of the Department of Commerce and is
eligible for assistance under the Market Development Assistance (MDA) Scheme of
the Department. The main objectives of the Council are to promote the knowledge
and use of arbitration and provide arbitration facilities for amicable and quick
settlement of commercial disputes with a view to maintaining the smooth flow of
trade, particularly, export trade on a sustained and enduring basis.
Indian Diamond Institute, Surat
The IDI is registered under the Societies Registration Act. It was established in 1978
with the objective of strengthening and improving the availability of trained

Notes
manpower for the gems & jewellery industry by conducting various Diploma/Post
Graduate Diploma level courses in this field.
National Centre for Trade Information
National Centre for Trade Information(NCTI) is a joint venture of India Trade
Promotion Organisation (ITPO) and National Informatics Centre (NIC) under the
aegis of Ministry of Commerce. It has been incorporated and registered as a company
under Section 25 of Indian Companies Act, 1956. The company has a Board of
Directors for administration of its affairs, which include representatives from National
Informatics Centre, India Trade Promotion Organisation, Apex chamber of
Commerce/ Industry/ Trade, Export Promotion Councils and Commodity Boards
etc. .NCTI is setup to synergies the efforts of different organisations engaged in
collection, processing and dissemination of trade and investment information.
National Numbering Organisation (EAN-India)
EAN - India is a society registered under the Societies Registration Act with objectives
of promoting Article Numbering, Bar Coding and EDI in Indian trade and industries.
It is managed by a board of management comprising of representatives of the
Ministry of Commerce, APEDA, ASSOCHEM, BIS, CII, FICCI, FIEO, Spices Board,
Indian Merchant Chamber, Mumbai and Indian Institute of Packaging, Mumbai. It is
a member of EAN International based at Brussels.
Publ i c Sec t or Under t ak i ngs
The following trading/service public sector undertakings are functioning under the
administrative control of the Department of Commerce.
St at e Tr adi ng Cor por at i on (STC)
The State Trading Corporation of India Ltd. (STC) is a premier international trading
house owned by the Government of India. Having been set up in 1956, the
Corporation has developed vast expertise in handling bulk international trade.
Though, dealing largely with the East European countries during the early years of its
formation, today it trades with almost all the countries of the world.
By virtue of infrastructure and experience possessed by the Corporation, it plays an
important role in arranging import of essential items into India and developing
exports of a large number of items from India. It exports a large number of items
ranging from agricultural commodities to manufactured products from India to all
parts of the world. Because of Corporation's in depth knowledge about the Indian
market, STC is able to supply quality products at most competitive prices and ensure
that the goods reach the foreign buyer within the prescribed delivery schedule. It also
imports bulk commodities for Indian consumer as per demand in the domestic
market.
The eventful track record of more than 51 years has helped STC to gear itself to face
the fierce competitive challenges, seize business initiatives and build on its core
competencies.
With a global vision in effective management, result oriented approach, strong belief
in productivity and accountability, STC is future ready to take advantage of the
opportunities in the 21st century and help propel India towards the new frontiers in
world trade.

Notes
MMTC: Established in 1963, MMTC, one of the two highest foreign exchange earner
for India, is a leading international trading company with a turnover of over US$ 5
billion. It is the largest international trading company of India and the first Public
Sector Enterprise to be accorded the status of "FIVE STAR EXPORT HOUSE" by Govt.
of India for long standing contribution to exports. MMTC is the largest non-oil
importer in India. MMTC's diverse trade activities encompass Third Country Trade,
Joint Ventures, Link Deals - all modern day tools of international trading. Its vast
international trade network, which includes a wholly owned international subsidiary
in Singapore, spans almost in all countries in Asia, Europe, Africa, Oceania and
Americas, giving MMTC a global market coverage.
ECGC: Export Credit Guarantee Corporation of India Limited, was established in the
year 1957 by the Government of India to strengthen the export promotion drive by
covering the risk of exporting on credit.
Being essentially an export promotion organization, it functions under the
administrative control of the Ministry of Commerce & Industry, Department of
Commerce, Government of India. It is managed by a Board of Directors comprising
representatives of the Government, Reserve Bank of India, banking, insurance and
exporting community.
ECGC is the fifth largest credit insurer of the world in terms of coverage of national
exports. The present paid-up capital of the company is Rs.800 crores and authorized
capital Rs.1000 crores.
I ndi a Tr ade Pr omot i on Or gani sat i on (I TPO)
Indian Trade Promotion Organisation (ITPO), New Delhi, is the premier trade
promotion agency of India and provides a broad spectrum of services to trade and
industry so as to promote export. With Headquarters at Pragati Maidan, a modern
exhibition complex spread over 150 acres in New Delhi and regional offices at
Bangalore, Chennai, Kolkata and Mumbai, ITPO ensures a representative
participation of trade and industry from different regions of the country at its events
in India and abroad.
Find and mention the names of various commodity boards and export promotion
councils.

Ex por t I nc ent i ves
Ex por t Pr omot i on Capi t al Goods Sc heme (EPCG)
The scheme allows import of capital goods for pre production, production and post
production (including CKD/SKD thereof as well as computer software systems) at 5%
Customs duty subject to an export obligation equivalent to 8 times of duty saved on
capital goods imported under EPCG scheme to be fulfilled over a period of 8 years
reckoned from the date of issuance of licence. In the case of agro units, import of
capital goods at 5% Customs duty is allowed subject to a fulfillment of an export
obligation equivalent to 6 times the duty saved (on capital goods imported under the
Scheme) over a period of 12 years from the date of issue of licence. However for SSI
units, import of capital goods at 5% Customs duty is allowed subject to a fulfillment
of an export obligation equivalent to 6 times the duty saved (on capital goods
imported under the Scheme) over a period of 8 years from the date of issue of licence
provided the landed CIF value of such imported Capital Goods under the Scheme

Notes
does not exceed rupees. Twenty Five Lakhs and the total investment in plant and
machinery after such imports does not exceed the SSI limit.
However, in respect of EPCG licences with a duty saved of Rs. 100 crore or more, the
same export obligation, as the case may be shall be required to be fulfilled over a
period of 12 years.
In case CVD is paid in cash on imports under EPCG, the incidence of CVD would not
be taken for computation on net duty saved provided the same is not Cenvated.
The capital goods shall include spares (including refurbished/ reconditioned spares),
tools, jigs, fixtures, dies and moulds, EPCG licence may also be issued for import of
components of such capital goods required assembly or manufacturer of capital goods
by the licence holder.
Second hand capital goods without any restriction on age may also be imported
under the EPCG scheme.
However, import of motor cars, sports utility vehicles/ all purpose vehicles shall be
allowed only to hotels, travel agents, tour operators or tour transport operators and
companies owning/operating gold resorts whose total foreign exchange earning in
current and preceding three licensing years is Rs. 1.5 crores. However, the parts of
motorcars, sports utility vehicles/ all purpose vehicles such as chassis etc. cannot be
imported under the EPCG Scheme.
Import of Restricted items of imports mentioned under ITC (HS) shall only be
allowed to be imported under the Scheme after approval from the Import Licensing
Committee.
Spares (including refurbished/ reconditioned spares), tools, spare refractories,
catalyst and consumable for the existing plant and machinery imported/ to be
imported under the Scheme shall also be allowed subject to an export obligation
equivalent to 8 times of duty saved to be fulfilled over a period of 8 years reckoned
from the date of issuance of licence.
An EPCG licence can also be issued for import of capital goods under the Scheme for
Project Imports notified by the Central Board of Excise and Customs under S. No. 441
of Customs Exemption Notification No. 21/2002, dated 01.03.2002 wherein the basic
customs duty on imports is 10% with a CVD of 16%. The export obligation for such
EPCG licences would be eight times the duty saved. The duty saved would be the
difference between the effective duty under the aforesaid Customs Notification and
the concessional duty under the EPCG Scheme.
To create modern infrastructure in the retail sector, concessional duty benefits under
EPCG scheme shall be extended for import of capital goods required by retailers
having minimum area of 1000 sq. meters. The retailer shall fulfill the export
obligation i.e. 8 times the duty saved in 8 years.
The EPCG scheme covers manufacturer exporters with or without supporting
manufacturer(s)/vendor(s), merchant exporter tied to supporting manufacturer(s)
and service providers.
Import of capital goods shall be subject to Actual User condition till the export
obligation is completed.
The following conditions shall apply to the fulfillment of the export obligation: -
(i) The export obligation shall be fulfilled by the export of goods capable of being
manufactured or produced by the use of the capital goods imported under
the scheme.
The export obligation may also be fulfilled by the export of same goods, for
which EPCG licence has been obtained, manufactured or produced in

Notes
different manufacturing units of the licence holder/specified supporting
manufacturer (s). When capital Goods are imported for pre/ post-production
or licence is taken for import of spares, the license holder shall fulfill the
export obligation by export of products manufactured from the plant/project
to which the pre/ post-production capital goods/ spares are related.
The import of capital goods for creating storage and distribution facilities for
products manufactured or services rendered for export by the EPCG licence
holder would be permitted under the EPCG Scheme. The export obligation
under the scheme shall be, over and above, the average level of exports
achieved by him in the preceding three licensing years for same and similar
products within the overall export obligation period including extended
period, if any except for categories mentioned in Handbook (Vol. 1).
Alternatively, export obligation may also be fulfilled by exports of other
good(s) manufactured or service(s) provided by the same firm/ company or
group company/managed hotel which has the EPCG licence.
However, in such cases, the additional export obligation imposed under
EPCG scheme shall be over and above the average exports achieved by the
unit/ company/group company/managed hotel in preceding three years for
both the original and the substitute product(s)/ service(s) even in cases where
the average is exempt for the substitute product(s)/service(s) as given in para
5.7.6 of the Handbook (Vol. 1).
The incremental exports to be fulfilled by the licence holder for fulfilling the
remaining export obligation can include ay combination of exports of the
original product/ service and the substitute product(s)/service(s). The
exporter of goods can opt to get the export obligation for the export of
services and vice versa.
The licencee can also opt for the re-fixation of the balance export obligation
based on 8 times of the duty saved amount for the CIF value in proportion to
the balance Export obligation under the scheme. The guidelines for the re-
fixation of export obligation is given in para 5.19 of the Handbook (Vol. 1).
The aforesaid facilities shall only be available to manufacturer
exporters/service provider on all the licences where export obligation period
including extended export obligation period is valid on the date of
application. In this regard, exports made only on or after submission of
application for alternate item and/ or re-fixation of the export obligation
based on duty saved amount will be taken into account for fulfillment of
export obligation.
(ii) The export obligation under the scheme shall be, in addition to any other
export obligation for the same product under Advance Licence, DFRC, DEPB
or Drawback scheme.
(iii) The export obligation can also be fulfilled by the supply of ITA-I items to the
DTA provided the realization is in free foreign exchange.
(iv) Exports shall be physical exports. However, deemed exports as specified in
paragraph 8.2(a), (b), (d), (f), (g), & (j) of Policy shall also be counted towards
fulfillment of export obligation alongwith the usual benefits available under
paragraph 8.3 of the Policy.
Royalty payments received in freely convertible currency and foreign exchange
received for R&D services shall also be counted for discharge under the EPCG
scheme. Payment received in rupee terms for the port handling services, shall also be
counted for export obligation discharge under the Scheme.

Notes
Payments received against 'Counter Sales' in free foreign exchange through banking
channels as per the RBI guidelines shall be counted for fulfillment of export obligation
under EPCG for Retail Sector.
The licence holder under this scheme shall fulfill the export obligation over the
specified period in the following proportions:
Period from the date of issue of licence Proportion of total export Obligation
Block of 1
st
and 6
th
year
Block of 7
th
and 8
th
year
50%
50%

In respect of licences on which the value & duty saved is Rs. 100 crores or more, the
export obligation shall be fulfilled over a period of 12 years in the following
proportions:
Period from the date of issue of licence Proportion of total export Obligation
Block of 1
st
to 10
th
year
Block of 11
th
and 12
th
year
50%
50%

However, the export obligation of a particular block of year may be set off by the
excess exports made in the preceding block of the year.
An application for grant of an EPCG licence shall be made in the form given in Aayaat
Niryaat Form alongwith the documents prescribed therein. Before clearance of
capital goods through customs, the importer shall execute a bond in such form and
for such sum and with such surety or security as may be specified by the Assistant or
Deputy Commissioner of Customs binding himself to fulfill specified export
obligation.
The licence holder shall submit to the licensing authority by 30th April of every year,
report on the progress made in fulfillment of export obligation against the licence
issued as well as annual average level of exports achieved licensing authority may
issue partial EO fulfillment certificate to the extent of EO fulfilled in a particular year.
On being satisfied that the export obligations have been fulfilled, the licensing
authority shall issue a certificate of discharge of export obligation to the EPCG licence
holder and send a copy of the same to the customs authorities with whom BG/LUT
has been executed.
Dut y Ex empt i on/Remi ssi on Sc hemes
Duty exemption Scheme enables import of inputs required for export production. An
advance licence is issued under the Duty Exemption Scheme. Duty Remission
Scheme enables post export replenishment/ remission of duty on inputs used in the
export-product. Duty Remission Scheme consists of (i) DFRC and (ii) DEPB. DFRC
permits duty free replenishment of inputs used in the export product. DEPB allows
drawback of import charges on inputs used in the export product.
Advanc e Li c enc e
An Advance Licence is issued to allow duty free import of inputs, which are
physically incorporated in the export product (making normal allowance for
wastage). In addition, fuel, oil, energy, catalysts etc., which are consumed in the
course of their use to obtain the export product, may also be allowed under the
Scheme. Duty free import of mandatory spares up to 10% of the C.I.F. value of the
licence which are required to be exported/ supplied with the resultant product may

Notes
also be allowed. Advance Licence can be issued for:
(i) Physical Exports
(ii) Intermediate Supplies
(iii) Deemed exports
Advance Licence is issued for duty free imports of inputs, subject to actual user
condition. Such licences are exempted from payment of Basic Customs Duty,
Additional Customs duty, Education Cess, Anti-Dumping Duty and Safeguard Duty,
if any.
Advance licences and/or materials imported hereunder shall not be transferable even
after completion of export obligation. However, the licencee will have the option to
dispose off the product manufactured out of the duty free inputs once the export
obligation is completed.
Advance licences shall be issued with a positive value addition.
However, for physical exports for which payments are not received in freely
convertible currency, the same shall be subject to value addition as specified in
Appendix - 11 of Handbook (Vol. 1).
In case of Tea, the minimum value addition under advance licence shall be 100%.
Advance Licences shall be issued in accordance with the Policy and Procedure in
force on the date of issue of licence.
The facility of Advance Licence shall also be available where some or all of the inputs
are supplied free of cost to the exporter. In such cases, for calculation of value
addition, the notional value of free of cost inputs alongwith value of other duty-free
inputs shall be taken into consideration.
The period for fulfillment of the export obligation under Advance Licence shall be as
prescribed in the Foreign Trade Handbook (Vol. 1).
An application for advance licence should be made in the Aayaat Niryaat Form
alongwith the documents specified therein.
Ministry of Finance, Deptt. of Revenue has issued Notification No. 93/2004-Cus.
dated 10.9.2004, in respect of duty exemption on materials imported against an
Advance Licence.
Advanc e Li c enc e f or Annual Requi r ement
Advance licence can also be issued on the basis of annual requirement for physical
exports, intermediate supplies and/or deemed exports.
One to Five Star Export House shall be entitled for the Advance licence for annual
requirement. All other categories of exporters having past export performance (in the
preceding two years) shall also be entitled for the Advance Licence for annual
requirement.
In addition, a merchant exporter shall also be issued the Advance Licence for Annual
Requirement provided they agree to the endorsement of the name(s) of the
supporting manufacturer(s) on the relevant licence.
The entitlement in terms of CIF value of imports under this scheme shall be up to
300% of the FOB value of physical export and/ or FOR value of deemed export in the
preceding licensing year or Rs. 1 crore, whichever is higher.
Min. of Finance, Deptt. of Revenue has issued Notification No. 94/2004-Cus.
dt. 10.9.2004, granting exemption from basic customs duty and additional duty
leviable on materials imported against Advance Licence for Annual Requirement.

Notes
Advanc e Rel ease Or der s
An advance Licence holder, holder of advance licence for annual requirement, holder
of Diamond Imprest Licence and holder of DFRC intending to source the inputs from
indigenous sources/State Trading Enterprises/EOU/SEZ/EHTP/STP/BTP units in
lieu of direct import has the option to source them against Advance Release Orders
denominated in free foreign exchange/Indian rupees.
The transferee of a DFRC shall also be eligible for ARO facility. However, supplies
may be obtained against the licence from EOU/EHTP/BTP/STP/units, without
conversion into ARO.
An application for grant of ARO shall be made to the Regional Licensing Authority
concerned. The application shall specify (i) the name description and quantity of the
items and (ii) the individual value of items to be procured. An ARO may be issued
alongwith the Advance Licence/DFRC or subsequently, and its validity shall be co-
terminus with the validity of the Advance Licence as specified in the Handbook of
Procedures.
An ARO issued for the procurement of an individual item shall be automatically valid
for procurement from one or more indigenous sources.
For customs duty exemption, please refer Notfn. No. 47/2002-Cus. dt. 22.4.2002.
Dut y Fr ee Repl eni shment Cer t i f i c at e (DFRC)
Duty Free Replenishment Certificate is issued to a merchant-exporter or
manufacturer-exporter for the import of inputs used in the manufacturer of goods
without payment of Basic Customs Duty. However, such inputs shall be subject to
the payment of Additional Customs Duty equal to the Excise Duty at the time of
import.
DFRC shall be issued on minimum value addition of 25% except for items in gems
and jewellery sector for which value addition as given in paragraph 4A.2.1 of the
Foreign Trade Handbook (Vol. 1) shall be applicable.
DFRC may be issued in respect of exports for which payments are received in non-
convertible currency. Such exports shall, however, be subject to value addition and
conditions as specified in Appendix-11 of Foreign Trade Handbook (Vol. 1).
DFRC may also be issued for supplies affected under paragraph 8.2 of the Foreign
Trade Policy.
DFRC shall be issued only in respect of products covered under the Standard Input
Output Norms as notified by DGFT. However, in respect of Standard Input Output
Norms, which are subject to "actual user" condition or where the export proceeds
have not been realised or for import of fuel under the general norms, DFRC shall be
issued with actual user condition for these inputs.
However, for fuel, the import entitlement may be transferred only to the companies,
which have been granted authorization to market fuel by the Ministry of Petroleum &
Natural Gas.
In cases where Standard Input Output Norms allow import of Acetic Anhydride,
Ephedrine and Pseudo Ephedrine, DFRC shall be issued provided these items are
specifically deleted from the list of import items.
DFRC will not be issued against Standard Input/Output Norms, which prescribes a
prior import condition for inputs.
DFRC shall be issued for import of inputs as per Standard Input/Output Norms as
indicated in the shipping bills. The validity of such licences shall be 24 months. DFRC

Notes
and or the material(s) imported against it shall be freely transferable. However,
DFRC with actual user condition or the material(s) imported against it shall not be
transferable.
However, DFRC with actual user condition or the material(s) imported against it shall
not be transferable.
The export products, which are eligible for modified VAT, shall be eligible for
CENVAT credit/ service tax credit.
However, non-excisable, non-dutiable or non-CENVAT products shall be eligible for
drawback at the time of exports in lieu of additional customs duty to be paid at the
time of imports under the scheme.
The exporter shall be entitled for drawback benefits in respect of any of the duty paid
materials, whether imported or indigenous, used in the export product as per the
drawback rate fixed by Directorate of Drawback (Ministry of Finance).
The drawback shall however be restricted to the duty paid materials not covered
under Standard Input Output Norms.
The exporter exporting under DFRC shall be required to give a declaration in the EP
copy of the Shipping Bill indicating the serial number and product group of Standard
Input Output Norms of the export product. In case of export of gold/silver/platinum
jewellery and articles thereof, the wastage norms as per the Foreign Trade Handbook,
may be indicated on the EP copy of the shipping bill. However, in respect of certain
specified products the exporter is required to give declaration with regard to technical
characteristics, quality and specifications in the shipping bill.
DFRC shall also be available for supplies mentioned in Chapter 8 of the Foreign Trade
Policy except for supplies made to DFRC holders. Such DFRC shall be issued with a
single port of registration mentioned in paragraph 4.19 of the Handbook (Vol. 1) as
per option of the applicant.
The CIF value of DFRC shall be arrived at after discounting 20% from the FOR value
of supply. The FOR shall be calculated on the basis of the document mentioned in
sub-paragraph (ii) below. The application shall be accompanied by the following: -
(i) A copy of the Invoice duly signed by the unit receiving the material and their
jurisdiction excise authorities certifying the item of supply, its quantity, value
and date of such supply. However, in case of supply of items which are non
excisable or supply of excisable items to a unit producing non excisable
product(s), a Project Authority Certificate (PAC) certifying quantity, value
and date of supply would be acceptable in lieu of excise certification.
Notwithstanding the above, in respect of supplies to EOU/EHTP/STP/BTP,
the supplier has the option to furnish a copy of ARE-3 duly signed by the
jurisdictional excise authorities/ bond officer certifying the item of supply, its
quantity, value and date of such supply shall be furnished.
(ii) Payment certificate from the project authority in the form given in Appendix -
22C of the Foreign Trade Handbook (Vol. 1). In the case of Intermediate
Supplies/ deemed exports, supplies to the EOUs/DHTPs/STPs/BTP,
documentary evidence from the bank substantiating the realisation of
proceeds from the Licence holder or EOUs/EHTPs/STPs/BTPs, as the case
may be, through the normal banking channel, shall be furnished in the form
given at Appendix - 22B of the Foreign Trade Handbook (Vol. 1).
However realisation of export proceeds shall not be insisted upon if the
shipments are made against confirmed irrevocable inland letter of credit or
inland bill of exchange is unconditionally Avalised/Co-accepted/Guaranteed

Notes
by a bank and the same is confirmed by the exporter's bank and the same is
certified in columns 5/6/7 of Appendix 22B of the Foreign Trade Handbook
(Vol. 1).
Export shipments under DFRC can be effected from any specified port. The DFRC
shall be issued with single port of registration, which will be the port from where the
exports have been affected. However, for import from a port other than port of
export, TRA shall be issued by the Customs authority at the port of export to the
Customs authority to the port of import.
An application for grant of DFRC may be made to the licensing authority concerned
in the form given in Aayaat Niryaat Form alongwith the documents prescribed
therein. The application shall be filed only after realisation of export proceeds.
However, in case of exports against confirmed, irrevocable Letter of Credit or bill of
exchange is unconditionally Avalised/ Co-accepted/ Guaranteed by a bank and the
same is confirmed by the exporter's bank, the application may be filed after exports.
The FOB value shall be calculated on the basis of the bank realisation certificate.
However, in case of export of gold/silver/platinum jewellery and articles thereof the
CIF value would be computed from the FOB value as per the value addition given in
the Foreign Trade Handbook of Procedures (Vol. 1).
The application for DFRC shall be filed within six months from the date of realisation
in respect of all shipments/supply for which DFRC is being claimed. However, in
case of exports against irrevocable Letter or Credit or bill of exchange is
unconditionally Avalised/Co-accepted/Guaranteed by a bank and the same is
confirmed by the exporter's bank, it shall be filed within six months from the date of
exports/ supply for all shipments in respect of which DFRC is being claimed. In
respect of exports/supply against advance payment, DFRC shall be filed within six
months from the date of exports against advance payment.
For exports/supply against advance payment DFRC shall be filed within six months
from the date of exports against advance payment.
Wherever provisional shipment has been allowed by the customs authorities, DFRC
against such exports shall be issued only after the release of the shipping bill by the
customs. The time limit for filing of application in such cases shall be six months from
the date of release of shipping bill or three months from date of realisation, whichever
is later.
The applicant shall file one application relating to one export product group from one
part of export. Where the same export product has been exported from different ports
of registration, the exporter shall file more than one application for the same export
product group.
For customs duty exemption on materials imported against DFRC, please refer
Notification No. 90/2004-Cus dt. 10.9.2004.
Dut y Ent i t l ement Passbook Sc heme (DEPB)
The objective of Duty Entitlement Passbook Scheme is to neutralize the incidence of
Customs duty on the import content of the export product. The neutralisation shall be
provided by way of grant of duty credit against the export product.
Under the Duty Entitlement Passbook Scheme (DEPB), an exporter may apply for
credit, as a specified percentage of FOB value of exports, made in freely convertible
currency. The credit shall be available against such export products and at such rates
as may be specified by the Director General of Foreign Trade by way of public notice
issued in this behalf, for import of raw materials, intermediates, components, parts,
packaging material etc.

Notes
The holder of Duty Entitlement Passbook Scheme (DEPB) shall have the option to pay
additional customs duty, if any, in cash as well.
The DEPB shall be valid for a period of 24 months from the date of issue. The DEPB
and/or the items imported against it are freely transferable.
An application for grant of credit under DEPB may be made to the licensing authority
concerned in the form given in the Aayaat Niryaat Form alongwith the documents
prescribed therein. The FOB value in free foreign exchange shall be converted into
Indian rupees as per the exchange rate for exports notified by the Ministry of Finance
as applicable on the date of order of 'Let Export' by customs.
The application for obtaining credit should be filed within a period of 12 months from
the date of exports or within 6 months from the date of realisation or within 3 months
from the date of printing/ release of shipping bill, whichever is later, in respect of
shipments, for which the claim has been filed.
The applicant may file one or more applications subject to the condition that each
application shall contain not more than 25 shipping bills. All the shipping bills in any
one application must relate to exports made from one Customs House only. The limit
shall not apply to the apply to the application filed through EDI mode.
The DEPB shall be issued with single port of registration i.e. the port from where the
exports have been affected.
It may be noted that no exports shall be allowed under DEPB scheme unless the DEPB
rate of the concerned export product is notified.
However, to encourage diversification and to promote export of new products, the
DEPB committee would be empowered to notify provisional DEPB rates. Such rates
would be valid for a limited period of time during which the exporter would furnish
the data on export and import for the regular fixation of rates.
Aayaat Niryaat form prescribes the form regarding fixation of DEPB rates. All
applications for fixation of DEPB rates shall be routed through the concerned Export
Promotion Council, which shall verify the FOB value of exports as well as the
international price of inputs covered under Standard Input Output Norms.
For duty exemption, the Ministry of Finance has issued Notification No. 96/2004-Cus.
dt. 17.9.2004. For details refer to Nabhi's DUTY ENTITLEMENT PASS BOOK
SCHEME.
J obbi ng, Repai r i ng, et c . f or Re-ex por t
Import of goods, including those mentioned as restricted in ITC (HS) Classification
but excluding prohibited items, supplied free of cost, may be permitted for the
purpose of jobbing without a licence/certificate/permission as per the terms of
notification issued by Department of Revenue from time to time. In this regard, Min.
of Finance, Deptt. of Revenue has issued Notification No. 32/79-Customs dt. 1.4.97.
Bac k t o Bac k I nl and Let t er of Cr edi t
An advance Licence holder, holder of Advance Licence for annual requirement and
holder of Diamond Imprest Licence and holder of DFRC may, instead of applying for
an Advance Release Order avail the facility of Back to Back Inland Letter of Credit
from the Banks. For this purpose, the Advance Licence Holder and a DFRC holder
may approach a Bank for opening an Inland Letter of Credit in favour of an
indigenous supplier. Before the opening of an L/C the Bank will ensure that
necessary Bank Guarantee or Letter of Undertaking has been executed by the
Advance Licence Holder and an endorsement to that effect has been made on the
Licence. However, execution of BG/LUT shall not be required against DFRC. After

Notes
opening the Inland Letter of Credit, the Bank shall make the endorsement specifying
that the value of Advance Licence stands reduced by the value of inland L/C so
opened on the (i) Exchange Control copy of the Advance Licence for Physical
Exports/Deemed Exports/DFRC (ii) Customs copy of the such Advance Licence.
The licence shall be invalidated by the Bank for direct import only in respect of the
full quantity and value of the item being sourced indigenously.
The original Letter of Credit (L/C) may be retained by the bank for negotiation and
only the non-negotiable copy of the L/C may be given to the indigenous supplier.
The non-negotiable copy of inland L/C together with the photocopy of the Advance
Licence duly carrying endorsements made by the bank shall be sufficient for the
indigenous supplier to claim deemed export benefits. L/C issued against DFRC shall,
however, be entitled only to benefit of Deemed Export Drawback, whereas L/C for
other categories shall be entitled to benefits of Deemed Export Drawback and Refund
of Terminal Excise Duty.
Gem & J ew el l er y Ex por t Pr omot i on Sc hemes
Exporters of gems and jewellery are eligible to import their inputs duty free by
obtaining Replenishment (REP) Licences from the licensing authorities in accordance
with the procedure specified in this regard in the Handbook of Procedure (Vol. 1).
The exporters of gems and jewellery products listed in Appendix -12A of the
Handbook (Vol. 1) shall be eligible for grant of Replenishment Licences at the rate and
for the items mentioned in the said Appendix to import and replenish their inputs.
Replenishment licence may also be issued for import of consumables as per the details
given in paragraph 4A.28 of Handbook (Vol. 1).
Exporters of gold/silver/platinum jewellery and articles thereof may import their
essential inputs such as gold, silver, platinum, mountings, findings, rough gems,
precious and semi- precious stones, synthetic stones and unprocessed pearls etc., in
accordance with the procedure prescribed in the Handbook.
Di amond I mpr est Li c enc e
Diamond Imprest Licence for import of cut & polished diamonds including semi
processed diamonds, half cut diamonds, broken in any form, for mixing with cut &
polished diamonds. Such licences shall carry an export obligation, which has to be
discharged in accordance with the procedure specified in this behalf.
An exporter of cut & polished diamonds who is status holder may be issued a licence
for import of cut & polished diamonds upto 5% of the export performance of the
preceding year of cut & polished diamonds.
The export obligation against each consignment shall be fulfilled within a period of
five months from the date of clearance of such consignment through Customs.
However, at no point of time, the importer shall be required to maintain records of
individual import consignments nor will they be required to co-relate export
consignments with the corresponding import consignments towards fulfillment of
export obligation.
An application for Diamond Imprest licence for import of cut and polished diamonds
including semi-processed diamonds, half cut diamonds, broken in any form may be
made to the licensing authority concerned in Aayaat Niryaat Form alongwith the
documents prescribed therein.1 In addition, the exporter shall furnish:
(i) Declaration giving the name and address of his bankers;

Notes
(ii) Certificate from his bankers to the effect that realisation of export proceeds
against exports made by the exporter are not outstanding for a period of more
than six months.
Holder of such Diamond Imprest Licence shall achieve a minimum value addition of
10%. While discharging export obligation, the quantity of diamonds imported against
such licence shall be accounted for in the cartage. Cut and polished Diamonds
exported for discharge of export obligation need not necessarily be the same as
imported under this licence, as paragraph 4.4.16 of the Exim Policy permits mixing of
these diamonds with other diamonds. The holder of such Diamond Imprest Licence
shall be eligible for import of such diamonds each not exceeding of a carat (25 cents)
in weight. These licences/ goods imported against such licences shall be subject to
actual user condition and will not be transferable even after completion of exports.
The entitlement for these licences shall be exhausted within the same year of its
issuance and shall not be allowed to be carried forward to the next year.
Before clearance of the first consignment of import, the licensee shall execute, Legal
Undertaking (LUT) with the concerned licensing authority. The LUT along with the
application itself, which may be accepted, and such an acceptance may be endorsed
on the back of the licence. The LUT shall be executed in the form given in Appendix
21A of the Handbook (Vol.-1), 2004-09.
In respect of Diamond Imprest Licence, issued under para 4.4.16 of Exim Policy,
subsequently one more application for issue of the licence may also be considered, if
75% of the export obligation on the earlier licence has been fulfilled. However, a
licence in the next year will be issued only if 75% of the export obligation on the
subsequent licence has been fulfilled.
The Licensing Authority may grant extension in export obligation period for a period
of four months against one or more consignment on payment of penalty of 1% on the
unfulfilled FOB value of export obligation with reference to CIF value of the imports
made for which extension is being sought. Any request for extension beyond a period
of four months can be considered only by a Committee headed by the Director
General of Foreign Trade.
The cases of bonafide default in fulfillment of export obligation by an exporter who
has obtained Diamond Imprest Licence may be regularized provided the exporter has
paid customs duty alongwith 15% interest thereon to the Customs on the unutilised
diamonds.
100% Ex por t Or i ent ed Uni t s and Uni t s i n St ps/Eht ps/Bt ps
Units undertaking to export their entire production of goods and services (except
permitted DTA sales) may be set up under the Export Oriented Unit (EOU) Scheme,
Electronic Hardware Technology Park (EHTP) Scheme/Bio-Technology Parks (BTP)
Scheme or Software
Technology Park (STP) Scheme. Such units may be engaged in manufacture,
including repair, remaking, reconditioning, re-engineering and rendering of services.
No trading units shall be permitted.
Fac i l i t i es t o 100% EOUs/STP/EHTP/BTP Uni t s
Export Oriented Units enjoy the following benefits/incentives:
1. Can import or procure from the domestic sources, free of duty, all their
requirements of capital goods, raw material, consumables, spares, packaging
material, office equipments, DG sets etc.
2. No licences are required for import/domestic procurement.

Notes
3. Are exempted even from the anti-dumping duties.
4. Domestic procurement is free from variety of state levies including CST.
5. Are entitled for duty-free supply of furnace oil.
6. Are eligible for concessions in respect of payment of Income Tax.
7. Can utilize goods imported/domestically procured over a period of 3 years.
8. Can achieve NFEP cumulatively over a period of 5 years. Virtually no penal
action for shortfalls during the first three years of operation. Requirement of
minimum export performance also abolished.
9. Full freedom to sub-contract part of the production and production process in
the domestic area. Gem and jewellery EOUs also permitted to sub-contract.
10. Can clear goods up to 50% of the value of exports in the domestic area on
concessional duty. Sales beyond this limit can be made on full duty.
11. Can supply to other EOU/SEZ/EHTP/STP/BTP unit without payment of
duty and such supplies are counted towards fulfillment of NFE.
12. Supplies from the domestic area to EOU are allowed Deemed Export benefit.
13. Can procure duty-free inputs for supply of manufactured goods to advance
licence holders.
14. Are exempted from industrial licensing for manufacture of items reserved for
Small Scale Industry sector.
15. Are exempted from state trading regime except in limited cases.
16. Can club their exports with exports of their parent company for purposes of
obtaining one to five Star Export House status.
17. Brand Promotion and Equity: manufacturers/ processors who have acquired
quality status with specified certification from identified agencies are eligible
for double weightage for recognition as status holder.
18. Can repatriate their profits freely without any dividend-balancing
requirement.
19. Are permitted 100% Foreign Direct Investment through automatic approval
route except for few sectors.
20. Agriculture/ Horticulture processing EOUs may provide inputs and
equipments to contract farmers in DTA to promote production of goods as
per the requirement of importing countries.
21. Foreign bound passengers may take goods from EOUs to promote trade,
tourism and exports.
22. Export/import of all products through post parcel/ courier allowed.
23. Can sell all products including gems and jewellery through exhibitions and
duty free shops or shops set up abroad.
24. Are exempted from payment of service tax.
For further details refer to the latest edition of Nabhi's MANUAL FOR 100% EXPORT
UNITS, SPECIAL ECONOMIC ZONES, EHTP, STP & BTP UNITS.
Spec i al Ec onomi c Zones (SEZs)
Special Economic Zones (SEZs) is a specially delineated duty free enclave and shall be
deemed to be foreign territory for the purposes of trade operations and duties and
tariffs. Goods and Services going into the SEZ area shall be treated as deemed exports

Notes
and goods and services coming into Domestic Tariff Area (DTA) from the SEZ shall
be treated as if the goods are being imported.
SEZ units may be set up for manufacture of goods and rendering of services/
production/processing, assembling, trading, repair and remaking, reconditioning,
reengineering including making of gold/silver/platinum jewellery and article thereof
or in connection therewith.
1. SEZ units may export goods and services including agro-products, partly
processed goods, sub-assemblies and components except prohibited items. It
may also export by-products, rejects, waste scrap arising out of the
production process.
2. SEZ unit may import/ procure from the DTA without payment of duty all
types of goods and services, including capital goods, whether new or second
hand, required by it for its activities or in connection therewith, provided they
are not prohibited items of imports in the ITC (HS). However, any
permission required for import under any other law shall be applicable.
Goods shall include raw material for making capital good for use within the
unit. The units shall also be permitted to import goods required for the
approved activity, including capital goods, free of cost or on loan from clients.
SEZ units may procure goods required by it without payment of duty, from
bonded warehouses in the DTA set up under the Policy and from
International Exhibitions held in India.
SEZ units may import/ procure from DTA, without payment of duty, all
types of goods for creating a central facility for use by units in SEZ. The
central facility for software development can also be accessed by units in the
DTA for export of software.
Gem & Jewellery units may also source gold/silver/platinum through the
nominated agencies.
SEZ units may also import/procure goods and services from DTA without
payment of duty for, setting up, operation and maintenance of units in the
Zone.
3. SEZ unit may, on the basis of a firm contract between the parties, source the
capital goods from a domestic/ foreign leasing company. In such a case the
SEZ unit and the domestic/foreign leasing company shall jointly file the
documents to enable import/ procurement of the capital goods without
payment of duty.
4. SEZ unit shall be a positive net foreign exchange earner.
5. The unit shall execute a legal undertaking with the Development
Commissioner concerned and in the event of failure to achieve positive
foreign exchange earning it shall be liable to penalty in terms of the legal
undertaking or under any other law for the time being in force.
6. SEZ unit may export goods manufactured or software developed by it,
though a merchant-exporter/status holder recognised under the policy or any
other EOU/SEZ/EHTP/STP unit.
7. Goods imported/procured by an SEZ unit may be transferred or given on
loan to another unit, within the same SEZ which shall be duly accounted for,
but not counted towards discharge of export performance.
8. SEZ unit, may subcontract a part of their production or production process
through units in the DTA or through other SEZ/EOU/EHTP/STP with the
permission of the Customs authorities. Subcontracting of part of production

Notes
process may also be permitted abroad with the approval of the Development
Commissioner.
Sub-contracting by SEZ gems & jewellery units through units in DTA or
through other SEZ/DOU/EHTP/STP units shall be subject to conditions
given in the Handbook.
9. SEZ units may sell goods, including by-products and services, in the DTA on
payment of applicable duties.
10. Other Entitlements
(i) Units set up in SEZs will be charged rent for lease of industrial plots
and standard design factory buildings/sheds as per rates fixed from
time to time.
(ii) Corporate tax: SEZ units engaged in manufacturing and services will
be eligible for entitlements in respect of payment of income tax as per
the provisions of Income Tax Act.
(iii) Exemption from service tax.
(iv) FOB Value of export of an SEZ unit can be clubbed with FOB value of
export of its parent company in the DTA, or vice versa, for the
purpose of according One to Five Star Export House status.
(v) Foreign Investment: Foreign Equity up to 100% is permissible for all
manufacturing activities in Special Economic Zones (SEZs), under
automatic route, except for the following activities:
(a) arms and ammunition, explosives and allied items of defence
equipment, defence aircraft and warships;
(b) atomic substances;
(c) narcotics and psychotropic substances and hazardous
chemicals;
(d) distillation and brewing of alcoholic drinks; and
(e) cigarettes/cigars and manufactured tobacco substitutes.
Sectoral norms as notified by the Government shall apply to
foreign investment in services and trading activities.
(vi) SEZ units may retain 100% of their export proceeds in their EEFC
account.
(vii) Export value of goods, software and services by SEZ units may be
realized and repatriated to India within 12 months from the date of
export or within the time extended by Reserve Bank of India.
(viii) Software units may, in addition, also be allowed to use the computer
system for training purpose (including commercial training) subject
to the condition that no computer terminal shall be installed outside
the Zone premises for the purpose.
(ix) Procurement of raw materials and export of finished products shall
be exempt from Central levies.
(x) Exemption from industrial licensing for manufacture of items
reserved for SSI sector.
(xi) State Trading Enterprises policy shall not apply to SEZ
manufacturing units. Export of iron ore shall however be subject to
the decision of the Government from time to time. Requirements of
other conditions like minimum export price/export in consumer pack

Notes
as per Exim Policy shall apply in case the raw materials are
indigenous and exported without further processing/manufacturing
by the SEZ units. Export of textile items shall be covered by bilateral
agreements, if any, Wood based units shall comply with the
directions of Hon'ble Supreme Court.
(xii) SEZ unit may install one fax machine at a place of its choice, outside
the Zone, subject to intimation of its location, to the concerned
Customs/Central Excise authorities.
(xiii) SEZ units may, temporarily take out of the Zone duty free laptop
computers and video projection systems for working upon by
persons authorised by unit.
(xiv) SEZ units may install personal computers not exceeding two in
number imported/procure duty free in the registered/
administrative office subject to the guidelines issued by Department
of Revenue in this behalf.
(xv) For IT and IT enabled services, persons authorized by the software
units may access the facility installed in the SEZ unit through
communication links.
Fr ee Tr ade & War ehousi ng Zones (FTWZ)
Under the Foreign Trade Policy, 2004-2009 the Govt. has proposed setting up of Free
Trade & Warehousing Zones (FTWZ) to create trade-related infrastructure to facilitate
the import and export of goods and services with freedom to carry out trade
transactions in free currency. The scheme envisages creation of world-class
infrastructure for warehousing of various products, state-of-the-art equipment,
transportation and handling facilities, commercial office-space, water, power,
communications and connectivity, with one-stop clearance of import and export
formality, to support the integrated Zones as 'international trading hubs'. These
Zones would be established in areas proximate to seaports, airports or dry ports so as
to offer easy access by rail and road.
1. The Free Trade & Warehousing Zones (FTWZ) shall be a special category of
Special Economic Zones with a focus on trading and warehousing.
2. Proposals for setting up of FTWZs may be made by public sector
undertakings or public limited companies or by joint ventures in technical
collaboration with experienced infrastructure developers. The proposals shall
be considered by the Board of Approval in the Department of Commerce. On
approval, the developer will be issued a letter of permission for the
development, operation and maintenance of such FTWZ.
3. Foreign Direct Investment would be permitted up to 100% in the
development and establishment of the zones and their Infrastructural
facilities.
4. The proposal must entail a minimum outlay of Rs. 100 crores for the creation
and development of the infrastructure facilities, with a minimum built up
area of five lakh sq.mts.
5. The developer shall be permitted to import duty free such building materials
and equipments as may be required for the development and infrastructure of
the zone. Such equipment and materials as are sourced from the DTA shall
be considered as physical exports for the DTA suppliers.
6. Once it has developed the FTWZ, the developer shall also be permitted to
sale/lease/rent out warehouses/workshops/office-space and other facilities
in the FTWZ to traders/exporters.

Notes
7. The developer shall itself or through suitable special purpose arrangements,
ensure a reliable mechanism for the proper maintenance of the common
facilities and security of the FTWZ.
8. The scheme envisages duty free import of all goods (except prohibited items,
arms and ammunitions, hazardous wastes and SCOMET items) for
warehousing. As far as bond towards customs duty on import is concerned,
the units would be subject to similar provisions as are applicable to units in
SEZs.
9. Such goods shall be permitted to be re-sold/re-invoiced or re-exported. Re-
export shall be permitted without any restrictions. However, exporter of
SCOMET items shall not be permitted except with the permission of Inter-
Ministerial Committee.
10. These goods shall also be permitted to be sold in the DTA on payment of
customs duties as applicable on the date of such sale. Payment of duty will
become due only when goods are sold/delivered to DTA and no interest will
be charged as in the case of bonded warehouses.
11. Packing or re-packing without processing, and labeling as per customer or
marketing requirements could be undertaken within the FTWZ.
12. The maximum period that goods shall be permitted to be warehoused within
the FTWZ will be two years, after which they shall necessarily have to be re-
exported or sold in the DTA. On expiry of the two year period, customs
duties as applicable would automatically become due unless the goods are re-
exported within such grace period, not exceeding three months, as may be
permitted.
13. Exemptions/benefits available to units shall be:
(i) Income Tax exemption as per Section 80-1A of the Income Tax Act.
(ii) Exemption from Service Tax.
(iii) Free foreign exchange currency transactions would be permitted.
(iv) Other benefits mutates mutandis as applicable to units in SEZs.
14. Units in FTWZs shall be net foreign exchange earners. Net foreign exchange
earning shall be calculated cumulatively for every block of five years fro the
commencement of warehousing and/or trading operations as per formula,
applicable for SEZ units.
St ar Ex por t Houses
Status Certificate
Merchant as well as Manufacturer exporters, Service providers, Export Oriented Units
(EOUs)/units located in Special Economic Zone (SEZ's)/Agri Export Zone
(AEZs)/Electronic Hardware Technology Parks (EHTPs)/ Software Technology Parks
(STPs) and Bio Technology Parks (BTPs) shall be eligible for such recognition.
Export Performance Level
The applicant shall be categorized depending on his total FOB/FOR export
performance during current plus the previous three years:

Category Performance (Rupees in crore)
One Star Export House 15 crore
Two Star Export House 100 crore
Three Star Export House 500 crore
Contd

Notes
Four Star Export House 1500 crore
Five Star Export House 5000 crore
Note:
1. Manufacturer exporters in Small Scale Industry/Tiny Sector/Cottage
Sector/Units registered with KVICs and KVIBs/Units located in North
Eastern States, Sikkim and J&K/ Units exporting handloom, handicrafts,
hand-knotted carpets, silk carpets/ exporters exporting to countries in Latin
America and CIS/sub Saharan Africa, units having ISO 9000 (series)/ ISO
14000 Series/ WHO GMP/HACCP/SEI CMM level-II and above status
granted by specified agencies, exports of services and export of agro products
shall be entitled for double weightage of exports made for grant of star export
house status.
2. Export made on re-exports basis shall not be counted for the purpose of
recognition.
3. Exports made by a subsidiary of a limited company shall be counted towards
export performance of the limited company for the purpose of recognition
only if the limited company has majority shareholding in the subsidiary
company.
4. In case the recognition is claimed based upon the current year's export
performance, same shall be considered only in case the exporter has export
performance during any one of the preceding three years as well.
Special Strategic Package for Status Holders
A Star Export House shall be eligible for the following facilities:-
(i) Licence/certificate/permissions and Customs clearances for both imports and
exports on self-declaration basis;
(ii) Fixation of Input-Output norms on priority within 60 days;
(iii) Exemption from compulsory negotiations of documents through banks. The
remittance, however, would continue to be received through banking
channels;
(iv) 100% retention of foreign exchange in EEFC account;
(v) Enhancement in normal repatriation period from 180 days to 360 days;
(vi) Entitlement for consideration under the Target Plus Scheme;
(vii) Exemption from furnishing of Bank Guarantee in Scheme under the Policy.
Deemed Ex por t s
"Deemed Exports" refers to those transactions in which the goods supplied do not
leave the country and the payment for such supplies is received either in Indian
rupees or in free foreign exchange.
Categories of Supply
The following categories of supply of goods by the main/sub-contractors are
regarded as "Deemed Exports" provided the goods are manufactured in India:
(a) Supply of goods against Advance Licence/Advance Licence for Annual
Requirement/DFRC under the Duty Exemption/Remission Scheme.

Notes
(b) Supply of goods to Export Oriented Units (EOUs) or units located in Software
Technology Parks (STPs), Electronic Hardware Technology Parks (EHTPs) or
Bio Technology Parks (BTPs).
(c) Supply of capital goods to holders of licences 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 in accordance with the
procedures of those agencies/funds, where the legal agreements provide for
tender evaluation without including the customs duty.
(e) Supply of capital goods, including in unassembled/disassembled condition
as well as plants, machinery, accessories, tools, dies and such goods which are
used for installation purposes till the stage of commercial production and
spares to the extent of 10% of the FOR value to fertilizer plants.
(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.
(g) Supply of goods to the power projects and refineries not covered in (f) above.
(h) Supply of marine freight containers by 100% EOU (Domestic freight
containers-manufacturers) provided the said containers are exported out of
India within 6 months or such further period as permitted by the Customs.
(i) Supply to projects funded by UN agencies.
(j) Supply of goods to nuclear power projects through competitive bidding as
opposed to international competitive bidding.
The benefits of deemed exports shall be available under paragraph (d), (e), (f), and (g)
if the supply is made under the procedure of International Competitive Bidding (ICB).
Benefits for Deemed Exports
Deemed exports shall be eligible for any/all of the following benefits in respect of
manufacture and supply of goods qualifying as deemed exports subject to the terms
and conditions as given in the Foreign Trade Handbook (vol.1): -
(a) Advance Licence for intermediate supply/ deemed export/ DFRC.
(b) Deemed Exports Drawback.
(c) Exemption from Terminal Excise Duty/ Refund of Terminal Excise duty.
Agr i Ex por t Zones
Units in Agriculture Export Zones are entitled to all the import facilities available for
export of gods in terms of the provisions of the respective schemes discussed earlier
in this unit.
Ser vi c e Pr ovi der s
Service Providers are entitled to all the import facilities available for export of goods
in terms of the provision of the respective Schemes discussed earlier in this unit.
Ser ved Fr om I ndi a Sc heme
Objective
The objective is to accelerate the growth in export of services so as to create a
powerful and unique 'Served From India' brand, instantly recognized and respected
the world over.

Notes
Eligibility
All Service providers who have a total foreign exchange earning of at least Rs. 10
lakhs in the preceding or current financial year shall be eligible to qualify for a duty
credit entitlement. For individuals who are service providers, the total foreign
exchange earned criteria would be Rs. 5 lakhs in the preceding financial year.
Entitlement
All Service providers (other than hotels and restaurants) shall be entitled to duty
credit equivalent to 10% of the foreign exchange earned by them in the preceding
financial year.
Hotels & Restaurants
Hotels of one-star and above (including managed hotels and heritage hotels)
approved by the Department of Tourism, and other Service providers in the tourism
sector registered with the Department of Tourism, shall be entitled to duty credit
equivalent to 5% of the foreign exchange earned by them in the preceding financial
year.
Stand-alone restaurants will be entitled to duty credit equivalent to 20% of the foreign
exchange earned by them in the preceding financial year.
In the case of one and two star hotels and stand-alone restaurants, the foreign
exchange earned through International Credit: and sources as may be notified only
shall be taken into account for the purpose of computation of duty credit entitlement
under the scheme.
Imports allowed
Duty credit entitlement may be used for import of any capital goods including spares,
office equipment, professional equipment, office furniture and consumables, related
to the main line of business of the applicant.
In the case of hotels stand-alone restaurants, the duty credit entitlement may also be
used for the import of food items and alcoholic beverages.
Non Transferability
The entitlement and the goods imported shall be non-transferable.
Healthcare & Education
In order to enable Healthcare and Educational Institutions to have world-class state-
of-the-art infrastructure, service providers in these sectors shall, as for other service
sectors, be entitled to duty credit equivalent to 10% of the foreign exchange earned by
them in the previous financial year.
(i) The foreign exchange turnover for Healthcare Institutions would include
amounts earned through medical treatment, surgery, testing, consultancy and
health care provided by the institution.
(ii) The foreign exchange turnover for Educational Institutions would include
amounts earned through the courses and consultancy provided by the
institution.
(iii) In either case, it will not include foreign exchange remittances through any
other source including equity participation, donations etc.

Notes
(iv) The capital goods and the consumer goods imported under the duty free
entitlement shall have a nexus with the activities of the healthcare or
educational institutions concerned.
Special provisions
Government reserves the right in public interest to specify from time to time the
category or type of service exports which shall not be eligible for calculation of either
eligibility or of entitlement.
Similarly, Government may from time to time also notify the goods which shall not be
allowed for import under the duty free entitlement certificate issued under the
Scheme.
For relevant Customs Notification, please refer to 92/2004-Cus. dt. 10.9.2004.
Tar get Pl us Sc heme
Objective
The objective of the scheme is to accelerate growth in exports by rewarding Star
Export Houses who have achieved a quantum growth in exports. High performing
Star Export Houses shall be entitled for a duty credit based on incremental exports
substantially higher than the general annual export target fixed (Since the target fixed
for 2005-06 is 17%, the lower limit of performance for qualifying for rewards is
pegged at 20% for the current year).
Eligibility Criteria
All Star Export Houses (including Status Holders as defined in para 3.7.2 of Exim
Policy 2002-07), which have achieved a minimum export turnover in five foreign
exchange of Rs. 10 crores in the previous licencing year, are eligible for consideration
under the Target Plus Scheme.
Entitlement
The entitlement under this scheme would be contingent on the percentage
incremental growth in FOB value of exports in the current year over the previous
year, as under:
Percentage incremental growth Duty Credit Entitlement
(as a % of the incremental growth)
20% and above but below 25% 5%
25% or above but below 100% 10%
100% and above 15% (of 100%)
Note:
1. Incremental growth beyond 100% will not qualify for computation of duty
credit entitlement.
2. For the purpose of this scheme, the export performance shall not be
transferred to or transferred from any other exporter. In the case of third
party exports, the name of the supporting manufacturer/ manufacturer
exporters shall be declared.
3. Exporters shall have the option to apply for benefit either under the Target
Plus Scheme or under the Vishesh Krishi Upaj Yojana, but not both in respect

Notes
of the same exported product(s). Provided that in calculating the entitlement
the total eligible exports shall be taken into account for computing the
percentage incremental growth but the duty credit entitlement shall be
arrived at on the eligible exports reduced by the amount on which the benefit
is claimed.
4. All exports including exports under free shipping bill verified and
authenticated by Customs and Gems & Jewellery shipping bills but excluding
exports specified under para 3.7.5 of the Foreign Trade Policy shall be eligible
for benefits under the Target Plus Scheme.
Applicant Companies
Companies which are Star Export Houses as well as part of a Group company shall
have an option to either apply as an individual company or as a Group based on the
growth in the Group's turnover as a whole.
If a Group company chooses to apply based on the export of one or more of its
individual Star Export House companies, the entitlement would be calculated
considering the export performance of the applicant company during the previous
licencing year and current year. It shall be necessary that the adjusted export
performance of all the Star Export House companies of the Group during the current
licencing year does not fall below the combined performance of all Star Export House
companies of the Group in the previous licencing year.
In case the Group chooses to apply based on the overall growth in Group's turnover
(i.e. the turnover of all the Star Export House companies), any one of the Star Export
House companies of the Group may file an application on behalf of all the Star Export
House companies of the Group.
The following exports shall not be taken into account for calculation of export
performance or for computation of entitlement under the scheme:
(a) Export of imported goods covered under Para 2.35 of the Foreign Trade
Policy or exports made through transshipment.
(b) Export turnover of units operating under SEZ/EOU/EHTP/STP/BTP/DTA
units.
(c) Deemed exports (even when payments are received in Free Foreign Exchange
and payment is made from EEFC account).
(d) Service exports.
(e) Rough, uncut and semi polished diamonds and other precious stones.
(f) Gold, silver, platinum and other precious metals in any form, including plain
and studded jewellery.
(g) Export performance made by one exporter on behalf of another exporter.
Imports allowed
The Duty Credit may be used for import of any inputs, capital goods including
spares, office equipment, professional equipment and office furniture provided the
same is freely importable under ITC (HS), for their own use or that of supporting
manufacturers as declared in Aayaat Niryaat Form.
Agricultural products listed in Chapter 1 to 24 of ITC (HS) except as may be notified
from time to time, shall not be permissible for imports under this scheme.

Notes
Cenvat/Drawback
Additional customs duty/excise duty paid in cash or through debit under Target Plus
shall be adjusted as CENVAT Credit or Duty Drawback as per rules framed by the
Department of Revenue.
Special Provision
Government reserves the right in public interest, to specify from time to time the
category of exports and export products, which shall not be eligible for calculation of
incremental growth/ entitlement.
Similarly, Government may from time to time also notify the list of goods, which shall
not be allowed for import under the duty credit entitlement certificate issued under
the scheme.
Discuss the liability of export incentives given by government of India
through different foreign trade policy.
Summar y
To safeguard the domestic Industry and to restrict the export of essential goods,
government of India adopted restricted trade policy. In subsequent years, import
substitution and protection of domestic industry became the main thrust of Exim
policy for most of the period during 1950-51 to 1990-91.
The new policy (1991) substantially eliminates licensing, quantitative restrictions, and
other regulatory and discretionary controls, and introduced many trade boosting
policies like Free Import and Export, Rationalization of Tariffs Structure,
Decanalisation, Exchange Rate Reforms. Foreign investor are allowed to invest in
Indian companies through GDR route without any lock- in period.
In December 2000, the government allowed automatic approval for FDI/NRI/OCB
investment except a small negative list. Accordingly on April 5, 2000, RBI stated that
all items excluding specific sectors would be eligible for foreign investment under
automatic route up to even 100%.
After independence a number of councils and organisations were set up in order to
promote exports. Among these are Autonomous Bodies, like-Export Promotion
Councils, Commodity Boards, Export Inspection Council, IIFT, Indian Institute of
Packaging, etc.; Other Organisations-Federation of Indian Export Organisations,
Indian Council of Arbitration, Indian Diamond Institute, etc and Public Sector
Undertaking-STC, MMTC, ECGC, ITPO, etc.
Indian government supports and promotes exports by giving many incentives like
EPCG, pass book Duty drawback system, advance license, setting up of free trade
zones etc. Union minister Kamalnath unveiled the new foreign trade policy (2004 -
07), which was earlier known as EXIM Policy All goods and services exported
including those from Domestic Tariff Area have been exempted from service tax and
all exporters with a minimum turnover of Rs. 5 crore have been exempted from
furnishing bank guarantees which will reduce their transaction cost. The new foreign
trade policy is more rural- oriented as many schemes to boost the exports from rural
economy were introduced.

Notes
Keyw or ds
Import Substitution: Decreasing the dependability on imports.
Liberalised Exchange Rate Management System: A system under which 40 per cent of
the foreign exchange receipts were to be exchanged through RBI at the official rate
and rest is allowed to be converted at market exchange rate.
Canalization: Import of Certain commodities only through specific government
agencies.
Revi ew Quest i ons
1. What was the basic philosophy in the early EXIM Policy?
2. What do you mean by the concept of Import Substitution and Export
Promotion?
3. What are the major steps taken in the nineties to promote exports?
4. Discuss the prevailing organisational structure for exports.
5. What are the major trade reforms initiated in the nineties? Discuss.
6. What are the major objectives of New ExIm Policy (1997-2002)?
7. What are the salient features of the export promotion capital goods scheme?
8. Discuss the role of export organizations in promoting Indias exports.
Fur t her Readi ngs

Unit 4
International Economic Environment
Unit 5
Procedure and Practices of Export

SECTION-II

International Economic
Environment
Notes
Ec onomi c
Envi r onment
Unit Structure
Introduction
Globalisation
Tariff and Non-tariff Barriers
World Trade Organisation (WTO)
Regional Trading Blocks
International Monetary System
Summary
Keywords
Review Questions
Further Readings
Learning Objectives
Identify economic system in the international market and differentiate between market
allocation and command allocation
Distinguish between tariff and non-tariff barriers
Describe the application of tariff and non-tariff barriers in international Trade
Understand the role of WTO and regional trading blocks in international trade
Explain the evolution of international monetary system
I nt r oduc t i on
The macro dimensions of the environment are economic, social and cultural, political
and legal, and technological. Each is important, but perhaps the single most important
characteristic of the international market environment is the economic dimension.
With money, all things (well, almost all!!) are possible. Without money, many things
are impossible for the marketer. Luxury products, for example, cannot be sold to low-
income consumers. Hypermarkets for food, furniture, or durables require a large base
of consumers with the ability to make large purchases of goods and the ability to
drive away with those purchases. Sophisticated industrial products require
sophisticated industries as buyers.
Today, in contrast to any previous time in the history of the world, there is global
economic growth. For the first time in the history of international marketing, markets
in every region of the world are potential targets for almost every company from high
tech to low tech, across the spectrum of products from basic to luxury. Indeed, the
fastest growing markets, as we shall see, are in countries at the earlier stages of
development. The economic dimensions of this world market environment are of vital
importance. This unit examines the characteristics of the world economic
environment from a marketing perspective.

Notes
The international marketer is fortunate in having a substantial body of data available
that charts the nature of the environment on a country-by-country basis. Each country
has national accounts data, indicating estimates of gross national product, gross
domestic product, consumption, investment, government expenditures and price
levels. Also available on a global basis are demographic data indicating the number of
people, their distribution by age category, and rates of population growth. National
accounts and demographic data do not exhaust the types of economic data available.
A single source, The Statistical Year book of the United Nations, contains global data
on agriculture, mining, manufacturing, construction, energy production and
consumption, internal and external trade, rail, road and air transport, wages and
prices, health, housing, education, communication (mail, telegraph and telephone),
and mass communications by book, film, radio, and television. These data are
available for all high-income countries. The less developed a country is, the scarcer is
the availability of economic data. In the low-income countries of the world, one
cannot be certain of obtaining anything more than basic national accounts and
demographic and external trade data. Nevertheless, in considering the worlds
economic environment, the marketers problem is not one of an absence of data but
rather one of abundance. This chapter will identify the most salient characteristics of
the economic environment to provide the framework for further consideration of the
elements of an international marketing programme.
The Wor l d Ec onomy An Over vi ew
The world economy has changed profoundly since World War II. Perhaps the most
fundamental change is the emergence of international markets; responding to new
opportunities, international competitors have steadily displaced local ones.
Concurrently, the integration of the world economy has increased significantly.
Economic integration stood at 10 per cent at the beginning of the 20th century, today
it is approximately 50 per cent. Integration is particularly striking in two regions, the
European Union (formerly the European community) and the North American Free
Trade Area.
Just 25 years back, the world was far less integrated than it is today. As a young man
working in Europe and Africa in the 1960s, the author was struck by how different
everything was. There were many companies, many products and great
differentiation. As evidence of the changes that have taken place, consider the
automobile. European name-plates such as Renault, Citroen, Peugeot, Morris, Volvo
and others were radically different from the American Chevrolet, Ford, or Ply mount,
or Japanese models from Toyota or Nissan. These were local cars built by local
companies, mostly destined for local or regional markets. Today, the world car is a
reality for Toyota, Nissan, Honda and Ford. Product changes reflect organisational
changes as well; the worlds largest automakers have, for the most part, evolved into
global companies.
Within the past decade, there have been several remarkable changes in the world
economy that hold important implications for business. The likelihood of business
success is much greater when plans and strategies are based on the new reality of the
changing world economy.
Capital movements rather than trade have become the driving force of the
world economy.
Production has become uncoupled from employment.
The world economy dominates the scene. The macroeconomics of individual
countries no longer controls economic outcomes.
The 75-year struggle between capitalism and socialism is over.

Environment
Notes
The first change is the increased volume of capital movements. The dollar value of
world trade is greater than ever before. Trade in goods and services is running at
roughly $4 trillion per year, but the London eurodollar market turns over $400 billion
each working day. That totals $100 trillion per year 25 times the dollar value of
world trade. In addition, foreign exchange transactions are running at approximately
$1 trillion per day worldwide, which is $250 trillion per year 40 times the volume of
world trade in goods and services. There is an inescapable conclusion in these data:
global capital movements far exceed the volume of international merchandise and
services trade. This explains the bizarre combination of US trade deficits and a
continually rising dollar during the first half of the 1980s. Previously, when a country
ran a deficit on its trade accounts, its currency would depreciate in value. Today, it is
capital movements and trade that determine currency value.
The second change concerns the relationship between productivity and employment.
Although employment in manufacturing remains steady or has declined, productivity
continues to grow. The pattern is especially clear in American agriculture, where
fewer farm employees produce more output. In the United States, manufacturing
holds a steady 23 to 24 per cent of gross national product (GNP). This is true of all the
other major industrial economies as well. Manufacturing is not in decline, it is
employment in manufacturing that is in decline. Countries such as the United
Kingdom, which have tried to maintain blue-collar employment in manufacturing,
have lost both production and jobs for their efforts.
The third major change is the emergence of the world economy as the dominant
economic unit. Company executives and national leaders who recognise this have the
greatest chance of success. Those who do not recognise this fact will suffer decline
and bankruptcy (in business) or overthrow (in politics). The real secret of the
economic success of Germany and Japan is the fact that business leaders and
policymakers focus on the world economy and world markets; a top priority for
government and business in both Japan and Germany has been their competitive
position in the world. In contrast, many other countries, including the United States,
have focused on domestic objectives and priorities to the exclusion of their
international competitive position.
The last change is the end of the cold war. The success of the capitalist market system
has caused the overthrow of communism as an economic and political system. The
overwhelmingly superior performance of the worlds market economies has led
socialist countries to renounce their ideology. A key policy change in such countries
has been the abandonment of futile attempts to manage national economies with a
single central plan.
Gl obal i sat i on
People around the globe are more connected with each other than ever before.
Information and money flow more quickly than ever. Goods and services produced in
one part of the world are increasingly available in all parts of the world. International
travel is more frequent. International communication is commonplace. This
phenomenon has been titled globalisation.
It refers to the increasing integration of economies around the world, particularly
through trade and financial flows. The term sometimes also refers to the movement of
people (labour) and knowledge (technology) across international borders.
Globalisation is a modern term used to describe the changes in societies and the
world economy that result from dramatically increased international trade and
cultural exchange. It describes the increase of trade and investment due to the
opening of barriers across borders and the interdependence of countries. In economic
contexts, it is often understood to refer almost exclusively to the effects of trade,
particularly trade liberalisation or free trade.

Notes
The International Monetary Fund defines globalisation as the growing economic
interdependence of countries worldwide through increasing volume and variety of
cross-border transactions in goods and services, freer international capital flows, and
more rapid and widespread diffusion of technology. (IMF, World Economic
Outlook, May, 1997).
The World Bank defines globalisation as the Freedom and ability of individuals and
firms to initiate voluntary economic transactions with residents of other countries.
Prepare a report on the impact of globalisation on the Indian economy.

Tar i f f and Non-t ar i f f Bar r i er s
Every country has to regulate its own international trade mainly due to the following
specific reasons: (i) improving its balance of trade and balance of payments position.
Most of the developing countries face balance of payments problem and, therefore,
they struggle hard to maintain the balance in their imports and exports; (ii) protecting
its own industries against competition in the international market or in domestic
markets from foreign products; and (iii) exploiting its manpower and natural
resources to the maximum extent possible so that the countrys economic
development may proceed at a faster pace. In order to attain these objectives, almost
every country imposes certain restrictions on its international trade, i.e, imports and
exports. These restrictions may be called trade barriers. Trade barriers may be (i) tariff
barriers and (ii) non-tariff or protective barriers.
Tar i f f s
Tariffs have been one of the classical methods of regulating international trade. They
may be referred to as taxes levied on imports. They aim at restricting the inward flow
of goods from other countries to protect the countrys own industries by making the
goods costlier in that country. Sometimes the duty on a product is so steep that it does
not become worthwhile to import it. In addition, the duties so imposed provide a
substantial source of revenue to the importing country. In India, customs duty form a
significant part of total revenue and, therefore, is an important element in preparing
the budget. Some countries use this method of imposing tariffs and customs to
balance their balance of trade. A nation may also use this method to influence the
political and economic policies of other countries. It may impose tariffs on certain
imports from a particular country as a protest against tariffs imposed by that country
on its goods.
In order to ensure that the system of imposing custom duties is not discriminatory, a
multilateral association, comprising a number of countries of the world, has been
formed to help formulate trade policies of the member countries. This association is
popularly known as General Agreement on Tariff and Trade (GATT) and its main
objective is to reduce duties and other import levies systematically through mutual
negotiations. It ensures that every member country enjoys a status of Most Favoured
Nation (MFN) and a member country must charge the tariffs and customs duties at
the lowest rate unless otherwise settled bilaterally.
Ki nds of Tar i f f s
Tariffs may be classified according to (i) the purpose of taxes, and (ii) how they are
levied.
i. As far as the purpose of taxes is concerned, tariffs may be classified into two
categories (a) revenue tariff and (b) protective tariff.

Environment
Notes
Revenue Tariffs are basically intended to raise government revenue without
intending to protect any industry of the country. It is levied at a fairly low
rate and does not obstruct the free flow of imports.
Protective Tariffs, on the other hand, aim at protecting the domestic
industries and are generally levied at a very high rate and, therefore, obstruct
the free flow of imports. Its main purpose is not to increase revenue but to
provide a safeguard to the domestic industries against foreign competition in
the local market.
Tariffs, sometimes, are levied to discriminate between countries, e.g., tariffs
are imposed on certain goods having certain specifications, which are
imported, from a particular country.
ii. On the basis of how tariffs are computed, tariffs may be put into two
categories (a) specific tariffs and (b) ad valorem tariffs.
Specific Duties or Tariffs are imposed on the basis of per unit of any
identifiable characteristics of merchandise such as per unit of weight, volume,
length, number or any other unit of quality of goods. The duty schedules so
specified must specify the rate of duty as well as the determining factor such
as weight, number, etc. and the basis of arriving at determining factor such as
gross weight, net weight or fair weight, etc.
Ad valorem Tariffs are based on the value of imports and are charged in the
form of a specific percentage of the value of goods. The schedule should
specify how the value of the imported goods would be arrived at. Most of the
countries follow the practice of charging tariffs on the basis of c.i.f. cost of a
product or f.o.b. cost mentioned in the invoice. As tariffs, under this method,
are levied on c.i.f. or f.o.b. prices, sometimes unethical practices of under
invoicing are adopted whereby the custom revenue is affected. In order to
eliminate such malpractices, some countries adopt a fair value (given in the
schedule) or the current domestic value of the goods as the basis for the
computation of customs duty.
In order to protect the domestic industries against competitions, some other
tariffs are also imposed. Among them, two are important (a) Anti dumping
duty and (b) Counteracting duties.
a. Anti dumping duties: Very often, exporters from developed countries
are eager to sell their products in foreign markets with a view to
capture a large market, at a very low price not proportionate to their
cost of production. This attempt to introduce their products in a large
quantity into foreign market at a very low price, even lower than cost,
is called dumping. This naturally will adversely affect the domestic
industries. The government of the importing country, therefore,
imposes customs duty on such goods at a very high rate to counteract
this unfair competition. This duty is known as anti dumping duty.
Such duties are charged in addition to the normal customs duty on
the product. This additional charge would cover at least the
difference between the export price and the normal price or market
price in the exporting country.
b. Counteracting duties. These are similar to the anti dumping duties
and are charged on goods imported from countries where the
manufacturer exporter is paid, directly or indirectly, a subsidy as an
incentive for export. The amount of duty normally does not exceed
the estimated amount of subsidy.

Notes
Non-t ar i f f Bar r i er s
Over the last few years, GATT has been endeavouring to achieve a reduced and
rationalised tariff structure for trade among its member countries. As per terms of
GATT, every member country will accord MFN treatment to all other member
countries while importing goods from them. At the same time, importing countries
are also concerned with the development of their own industries and trade. They will
have to protect them against unfair competition with a view to giving the domestic
industry a fair chance for survival. To meet the challenges, more and more countries
are adopting non-tariff measures to regulate their imports. Such measures may be
called non-tariff barriers. Some of these non-tariff measures are
a. Quantitative restrictions, quotas and licensing procedures
b. Foreign exchange restrictions
c. Technical and administrative regulations
d. Consular formalities
e. State trading and
f. Preferential arrangements.
We shall discuss these measures in brief hereunder.
a. Quantitative (QR) restrictions, quotas and licensing procedures. Under
quantitative restrictions, the maximum quantity of different commodities,
which would be allowed to be imported over a period of time from various
countries, is fixed in advance. The quantity allowed to be imported or quota
fixed normally depends upon the relations of the two countries and the need
of the importing country. There is, therefore, no effect of price level changes
in foreign or domestic markets and the government is in a position to restrict
the imports to a desired level. Quotas are very often combined with licensing
system to regulate the flow of imports over the quota period as also to
allocate them between various importers and supplying countries. Under this
system, a licence or a permit is to be obtained from the government to import
the goods specifying the quantity and the country from which to import,
before concluding the contract with the supplier.
b. Foreign exchange restrictions. Exchange control measures have been widely
used by a number of developing countries in the post-war period to regulate
their imports and to keep the balance of payments in controllable limits.
Under this system, the importer must be sure that adequate foreign exchange
would be made available to him for the import of goods by obtaining a
clearance from the exchange control authorities of the country before
concluding the contract with the supplier.
c. Technical and administrative regulations. Another measure to regulate
imports is the imposition of certain standards of technical production,
technical specifications, etc. to which an importing commodity must conform.
Such types of technical restrictions are impressed in case of pharmaceutical
products, etc. and the importing commodities must satisfy them before their
import is permitted. Besides technical restrictions, administrative restrictions
such as adherence to certain documentary procedure are adopted to regulate
imports. These technical and administrative measures impede the free flow of
trade to a large extent.
d. Consular formalities. A number of countries demand that shipping
documents must accompany the consular documents such as certificate of
origin, certified invoices, import certificates, etc. Sometimes, it is also insisted

Environment
Notes
that such documents should be drawn in the language of importing countries.
In case the documentation is faulty or not drawn in the language of importing
country, heavy penalties are imposed. Fees charged for such documentation
are quite heavy.
e. State trading. In most socialistic countries, foreign trade, i.e., import and
export transactions, are exclusively handled or canalised by certain state
agencies. Separate state agencies are set up for each class of products. These
agencies carry on international trade strictly according to the government
policies. A few other countries of the world follow state trading in a restricted
sense to achieve certain desired results especially where bulk imports are
needed and the government wants to maintain price stability. India is a good
example where state trading is followed in a restricted sense. Some articles, as
decided by the government, are imported only through the State Trading
Corporation (STC). Likewise, exports of raw materials such as iron ore, mica,
etc. are canalised only through Minerals and Metals Trading Corporation
(MMTC).
f. Preferential arrangements. With due evolvement of the multilateral trading
system, a few member countries agree to a small advantageous group for
their mutual benefit. The member countries of the group negotiate and arrive
at a settlement of preferential tariff rate to carry on trade amongst them.
These rates are much lower than ordinary tariff rates and applicable only to
the member nations of the small group. Such type of preferential
arrangements are outside the purview of the GATT. Some of the small groups
are EEC, ASEAN, LAFTA, etc.
Wor l d Tr ade Or gani sat i on (WTO)
The World Trade Organisation (WTO) was established on 1st January 1995.
Governments had concluded the Uruguay Round negotiations on 15th December
1993 and ministers had given their political backing to the results by signing the Final
Act at a meeting in Marrakech, Morocco, in April 1994. The Marrakech Declaration
of 15th April 1994, affirmed that the results of the Uruguay Round would strengthen
the world economy and lead to more trade, investment, employment and income
growth throughout the world. The WTO is the embodiment of the Uruguay Round
results and the successor to the General Agreement on Tariffs and Trade (GATT). The
WTO has a larger membership than GATT (151 by the end of March 2008). India is
one of the founder members of the WTO.
Tr ade Wi t hout Di sc r i mi nat i on
The main principle that guided the erstwhile GATT and directs the present
incumbent, WTO, is to promote trade without discrimination. For almost 50 years,
key provisions of GATT outlawed discrimination among members and between
imported and domestically produced merchandise. According to Article I, the famous
most favoured nation (MFN) clause, members are bound to grant to the products of
other members treatment no less favourable than that accorded to the products of any
other country. A second form of non-discrimination known as national treatment
requires that once goods have entered a market, they must be treated no less
favourably than the equivalent domestically produced goods. This is Article III of the
GATT. Apart from the revised GATT (known as GATT 1994), several other WTO
agreements contain important provisions relating to MFN and the national treatment.
Intellectual property protection by WTO members provides for MFN and national
treatment. The General Agreement on Trade in Services (GATS) requires members to
offer MFN treatment to services and service suppliers of other members pre-shipment

Notes
inspection; trade related investment measures and the application of sanitary and
phytosanitary measures.
WTO, contrary to popular belief, is not a free trade institution. It permits tariffs and
other forms of protection but only in limited circumstances. It is a system of rules
dedicated to open, fair and undistorted competition.
Obj ec t i ves of WTO
In its preamble, the agreement establishing the World Trade Organisation reiterates
the objectives of GATT. These are: raising standards of living and incomes, ensuring
full employment, expanding production and trade and optimal use of the worlds
resources. The preamble extends these objectives to services and makes them more
precise.
It introduces the idea of sustainable development in relation to the optimal
use of the worlds resources, and the need to protect and preserve the
environment in a manner consistent with various levels of national economic
development.
It recognises that there is a need for positive efforts to ensure that developing
countries, and especially the least developed among them, secure a better
share of the growth in international trade.
Func t i ons of WTO
The agreement establishing WTO provides that it should perform the following four
functions:
First, it shall facilitate the implementation, administration and operation of
the Uruguay Round legal instruments and of any new agreements that may
be negotiated in the future.
Second, it shall provide a forum for further negotiations among member
countries on matters covered by the agreements as well as on new issues
falling within its mandate.
Third, it shall be responsible for the settlement of differences and disputes
among its member countries.
Fourth, it shall be responsible for carrying out periodic reviews of the trade
policies of its member countries.
Most Favour ed Nat i ons St at us
According to WTO, all the signatory countries are given the most favoured nations
(MFN) status so that these countries have market access to each others, trading areas.
India has already given a most favoured nation status to Pakistan; however, Pakistan
has not so far reciprocated. India, in any case, is not going to suffer because of the
acrimonious attitude of Pakistan.
The WTO St r uc t ur e
Its highest authority the Ministerial Conference dominates the structure of the
WTO. This body is composed of representatives of all WTO members. It meets at least
every two years and is empowered to make decisions on all matters under any of the
multilateral trade agreements.

Environment
Notes
Committee on Balance-of-
Payments
Committee on Trade &
Development
Dispute Settlement Body
Ministerial Conference (meets
every 2 years) each country
has an equal vote
General Council (meets 'as
appropriate' between Ministerial
Conference)
Trade Policy Review
Mechanism
Committees under
Plurilateral Agreements
Council for Trade Related
Aspects of Intellectual
Property Right
Council for Trade in Service
Committees on Individual
Agreements
Council for Trade in Goods
Committees on Individual
Agreements
Committee on Budget
Finance and
Administration

Source: WTO Secretariat, Geneva 1996
Figure 4.1
The day-to-day work of the WTO is entrusted to a number of subsidiary bodies,
principally, the General Council, also composed of all WTO members, which is
required to report to the Ministerial Conference. The General Council also convenes in
two particular forms as the Dispute Settlement Body and the Trade Policy Review
Body. The former overseas the dispute settlement procedure and the latter conducts
regular reviews of trade policies of individual WTO members.
The General Council delegates responsibility to three other bodies, namely the
Councils for Trade in Goods, Trade in Services and Trade-Related Aspects of
Intellectual Property Rights (TRIPS). The Council of Goods overseas the
implementation and functioning of all the agreements covering trade in goods,
though many such agreements have their own specific overseeing bodies. The latter
two Councils have responsibility for their respective WTO agreements and may
establish their own subsidiary bodies as necessary.
The Ministerial Conference reports to the General Council which delegates
responsibility to three other bodies as mentioned above. The Committee on Trade and
Development is concerned with issues relating to the developing countries and
especially to the least developed among them. The Committee on Balance of
Payments is responsible for consultations among WTO members and countries which
resort to trade and restrictive measures in order to cope with their balance of
payments difficulties. Finally, a Committee on Budget, Finance and Administration
deals with issues relating to WTOs financing and budget. Each of the pluri-lateral
agreements of the WTO those on civil aircraft, government procurement, dairy
products and bovine meat establish their own management bodies which are
required to report to the General Council.

Notes
Agr eement on Agr i c ul t ur e
The negotiations have resulted in four main portions of the Agreement: the agreement
itself; the concessions and commitments members are to undertake on market access,
domestic support and export subsidies; the agreement on sanitary and phytosanitary
measures; and the ministerial decision concerning least developed and net food-
importing developing countries.
Overall, the results of the negotiations provide a framework for the long-term reform
of agricultural trade and domestic policies over the years to come. It makes a decisive
move towards the objective of increased market orientation in agricultural trade. The
rules governing agricultural trade are strengthened which will lead to improved
predictability and stability for importing and exporting included in the Total
Aggregate Measurement of Support (Total AMS) reduction commitments. These
policies are direct payments under production-limiting programmes, certain
government assistance measures to encourage agricultural and rural development in
developing countries and other support, which makes up only a low proportion (5
per cent in the case of developed countries and 10 per cent in the case of developing
countries) of the value of production of individual products or, in the case of non-
product-specific support, the value of total agricultural production.
The Total AMS covers all support provided on either a product-specific or non-
product-specific basis that does not qualify for exemption and is to be reduced by 20
per cent (13.3 per cent for developing countries with no reduction for least developed
countries) during the implementation period.
Members are required to reduce the value of mainly direct export subsidies to a level
36 per cent below the 1986-90 base period level over the six-year implementation
period, and the quantity of subsidised exports by 21 per cent over the same period. In
the case of developing countries, the reductions are two-thirds those of developed
countries over a ten-year period (with no reductions applying to the least developed
countries) and subject to certain conditions, there are no commitments on subsidies to
reduce the costs of marketing exports of agricultural products or internal transport
and freight charges on export shipments. Where subsidised exports have increased
since the 1986-90 base period level, the Agreement on Agriculture provides for some
limited flexibility between years in terms of export subsidy reduction commitments
and contains provisions aimed at preventing the circumvention of the export subsidy
commitments and sets out criteria for food aid donations and the use of export
credits.
Peace provisions within the agreement include: an understanding that certain
actions available under the Subsidies Agreement will not be applied with respect to
green box policies and domestic support and export subsidies maintained in
conformity with commitments; an understanding that due restraint will be used in
the application of countervailing duty rights under the general agreement; and setting
out limits in terms of the applicability of nullification or impairment actions. These
peace provisions will apply for a period of 9 years.
The agreement sets up a committee that will monitor the implementation of
commitments, and also monitor the follow-up to the decision of measures concerning
the possible negative effects of the reform programme on least developed and net
food-importing developing countries.
The package is conceived as part of a continuing process with the long-term objective
of securing substantial progressive reductions in support and protection. In this light,
it calls for further countries alike.
The agriculture package also addresses many other issues of vital economic and
political importance to many members. These include provisions that encourage the

Environment
Notes
use of less trade-distorting domestic support policies to maintain the rural economy,
that allow actions to be taken to ease any adjustment burden, and also the
introduction of tightly prescribed provisions that allow some flexibility in the
implementation of commitments. Specific concerns of developing countries have been
addressed including the concerns of net-food importing countries and least developed
countries.
The agriculture package provides for commitments in the area of market access,
domestic support and export competition. The text of the Agriculture Agreement is
mirrored in the GATT schedules of legal commitments relating to individual
countries.
In the area of market access, non-tariff border measures are replaced by a tariff that
provides substantially the same level of protection. Tariffs resulting from this
Tariffication process as well as other tariffs on agriculture products are to be
reduced by an average of 37 per cent in case of developed countries and 24 per cent in
the case of developing countries with minimum reduction of each tariff line being
required. Reductions are to be undertaken over six years in the case of developed
countries and over ten years in the case of developing countries. Least-developed
countries are not required to reduce their tariffs.
The tariffication package also provides for the maintenance of current access
opportunities and the establishment of minimum access tariff quotas (at reduced-
tariff rates) where current access is less than 3 per cent of domestic consumption.
These minimum access tariff quotas are to be expanded to 5 per cent over the
implementation period. In the case of terrified products, special safeguard
provisions will allow additional duties to be applied in case shipments at prices
denominated in domestic currencies fall below a certain reference level or in case of a
surge of imports. The trigger in the safeguard for import surges depends on the
import penetration currently existing in the market, i.e. where imports currently
make up a large proportion of consumption, the import surge required to trigger the
special safeguard action is lower.
Domestic support measures that have, at most, a minimal impact on trade (green
box policies) are excluded from reduction commitments. Such policies include
general government services, for example in the areas of research, disease control,
infrastructure and food security. It also includes direct payments to producers, for
example certain forms of decoupled (from production) income support, structural
adjustment assistance, direct payments under environmental programmes and under
regional assistance programmes.
In addition to the green box policies, other policies need not be negotiated in the fifth
year of implementation which, along with, an assessment of the first five years, would
take into account other countries, the objective being to establish a fair and market
oriented trading system and other concerns and objectives noted in the preamble to
the agreement.
Agr eement on Tex t i l es and Cl ot hi ng
The object of this negotiation has been to secure the eventual integration of the textiles
and clothing sector where much of the trade is currently subject to bilateral quotas
negotiated under the Multi-fibre Arrangement (MFA) into the GATT on the basis of
strengthened GATT rules and disciplines.
Integration of the sector into the GATT would take place as follows: first, on 1st
January 1995 each party would integrate into the GATT products from the specific list
in the agreement which accounted for not less than 16 per cent of its total volume of
imports in 1990. Integration means that trade in these products will be governed by
the general rules of GATT.

Notes
At the beginning of Phase 2, on 1st January 1998, products, which accounted for not
less than 17 per cent of 1990 imports would be integrated. On 1st January 2002,
products, which accounted for not less than 18 per cent of 1990 imports, would be
integrated. At each of the first three stages, products should be chosen from each of
the following categories: tops and yarns, fabrics, made-up textile products, and
clothing.
The Agreement, however, tries to provide improved and enlarged access for textile
products that may continue to be restricted during the transitional period. It seeks this
by requiring that the growth factors provided for annual increases in the quotas fixed
for each category of textile products under bilateral agreements should be increased at
escalated rates. Thus if the annual growth rate for a rise in the quota for a textile
product (say, shirts) is fixed under a bilateral agreement at 3%, it will have to be
increased by:
16% per year in the first three year;
25% per year in the next four years; and
27% in the next three years.
This will raise the growth rate to 5.52% in the tenth year. If the size of the quota is 100
tons at the beginning of the transitional period, it will more than double to around 204
tons in the tenth year.
While the agreement focused largely on the phasing out of MFA restrictions, it also
recognised that some members maintain non-MFA restrictions not justified under a
GATT provision. These would also be brought into conformity with GATT within one
year of the entry into force of the agreement or phased out progressively during a
period not exceeding the duration of the agreement (that is, by 2005).
It also contains a specific transitional safeguard mechanism which could be applied to
products not yet integrated into the GATT at any stage. Action under the safeguard
mechanism could be taken against individual exporting countries if it were
demonstrated by the importing country that overall imports of a product were
entering the country in such increased quantities as to cause serious damage or to
threaten it to the relevant domestic industry, and that there was a sharp and
substantial increase of imports from the individual country concerned. Action under
the safeguard mechanism could be taken either by mutual agreement, following
consultations, or unilaterally but subject to review by the Textiles Monitoring Body. If
taken, the level of restraints should be fixed at a level not lower than the actual level
of exports or imports from the country concerned during the twelve-month period
ending two months before the month in which a request for consultation was made.
Safeguard restraints could remain in place for up to three years without extension or
until the product is removed from the scope of the agreement (that is, integrated into
the GATT), whichever comes first.
The agreement includes provisions to cope with possible circumvention of
commitments through transshipment, re-routing, false declaration concerning country
or place of origin and falsification of official documents.
The agreement also stipulates that, as part of the integration process, all members
shall take such actions in the areas of textiles and clothing as may be necessary to
abide by GATT rules and disciplines so as to improve market access, ensure the
application of policies relating to fair and equitable trading conditions, and avoid
discriminating against when taking measures for general trade policy reasons.
In the context of a major review of the operation of the agreement to be conducted by
the Council for Trade in Goods before the end of each stage of the integration process,
the Council for Trade in Goods shall by consensus take such decisions as it deems
appropriate to ensure that the balance of rights and obligations in this agreement is

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Notes
not upset. Moreover, the Dispute Settlement Body may authorise adjustments to the
annual growth of quotas for the stage after the review with respect to members it has
found not to be complying with their obligations under this agreement.
A Textile Monitoring Body (TMB) oversees the implementation of commitments and
prepares reports for the major reviews mentioned above. The agreement also has
provisions for special treatment to certain categories of countries for example those
which have not been MFA members since 1986, new entrants, small suppliers, and
least developed countries.
Agr eement on Tec hni c al Bar r i er s t o Tr ade (TBT)
This agreement will extend and clarify the Agreement on Technical Barriers to Trade
reached in the Tokyo Round. It seeks to ensure that technical negotiations and
standards, as well as testing and certification procedures, do not create unnecessary
obstacles to trade. However, it recognises that countries have the right to establish
protection, at levels they consider appropriate, for environment, and should be
prevented from taking measures. The agreement, therefore, encourages countries to
use international standards where these are appropriate, but it does not require them
to change their levels of protection as a result of standardisation.
Innovative features of the revised agreement are that it covers processing and
production methods related to the characteristics of the product itself. The coverage of
conformity assessment procedure is enlarged and the discipline made more stringent.
Notification provisions applying to local government and non-governmental bodies
are elaborated in more detail than in the Tokyo Round agreement. A Code of Good
Practice for the Preparation, Adoption and Application of Standards by standardising
bodies, which is open to acceptance by private sector bodies as well as the public
sector, is included as an annex to the agreement.
Agr eement on Tr ade Rel at ed Aspec t s of I nvest ment
Measur es
The agreement recognises that certain investment measures restrict and distort trade.
It provides that no contracting party shall apply any TRIMS inconsistent with Articles
III (national treatment) and XI (prohibition of quantitative restrictions) of the GATT.
To this end, an illustrative list of Trims agreed to be inconsistent with these articles is
appended to the agreement. The list includes measures, which require particular
levels of local procurement by an enterprise (local content requirement) or which
restrict the volume or value of import such an enterprise can purchase or use to an
amount related to the level of products it exports (trade balancing requirements).
The agreement requires mandatory notification of all non-conforming TRIMS and
their elimination within two years for developed countries, within five years for
developing countries and within seven years for least developed countries. It
establishes a Committee on TRIMS, which will, among other things, monitor the
implementation of these commitments. The agreement also provides for
consideration, at a later date, of whether it should be complemented with provisions
on investment and competition policy more broadly.
Agr eement on I mpl ement at i on of Ar t i c l e VI (Ant i -
Dumpi ng)
Article VI of the GATT provides for the right of contracting parties to apply anti-
dumping measures, i.e. measures against imports of a product at an export price
below its normal value (usually the price of the product in the domestic market of
the exporting country) if such dumped imports cause injury to a domestic industry in

Notes
the territory of the importing contracting party. More detailed rules governing the
application of such measures are currently provided in an Anti-Dumping Agreement
concluded at the end of the Tokyo Round. Negotiations in the Uruguay Round have
resulted in a revision of this agreement, which addresses many areas in which the
current agreement lacks precision and detail.
In particular, the revised agreement provides for greater clarity and more detailed
rules in relation to the method of determining that a product is dumped, the criteria to
be taken into account in a determination that dumped imports cause injury to a
domestic industry, the procedures to be followed in initiating and conducting anti-
dumping investigations, and the implementation and duration of anti-dumping
measures. In addition, the new agreement clarifies the role of dispute settlement
panels in disputes relating to anti-dumping actions taken by domestic authorities.
On the methodology for determining that a product is exported at a dumped price,
the new agreement adds relatively specific provisions on such issues as criteria for
allocating costs when the export price is compared with a constructed normal value
and rules to ensure that a fair comparison is made between the export price and the
normal value of a product so as not to arbitrarily create or inflate margins of
dumping.
The agreement strengthens the requirement for the importing country to establish a
clear causal relationship between dumped imports on the industry concerned and
must include an evaluation of all relevant economic factors bearing on the state of the
industry concerned. The agreement confirms the existing interpretation of the term
domestic industry. Subject to a few exceptions, domestic industry refers to the
domestic producers, as a whole, of like products or to those of them whose collective
output of the products constitutes a major proportion of the total domestic production
of those products.
Clear-cut procedures have been established on how anti-dumping cases are to be
initiated and how such investigations are to be conducted. Conditions for ensuring
that all interested parties are given an opportunity to present evidence are set out.
Provisions on the application of provisional measures, the use of price undertakings
in anti-dumping cases, and on the duration of anti-dumping measures have been
strengthened. Thus, a significant improvement over the existing agreement consists of
the addition of a new provision under which anti-dumping measures shall expire five
years after the date of imposition, unless a determination is made that, in the event of
termination of the measures, dumping and injury would be likely to continue or
recur.
A new provision requires the immediate termination of an anti-dumping
investigation in cases where the authorities determine that the margin of dumping is
de minimus (which is defined as less than 2 per cent, expressed as a percentage of the
export price of the product) or that the volume of dumped imports is negligible
(generally when the volume of dumped imports from an individual country accounts
for less than 3 per cent of the imports of the product in question into the importing
country).
The agreement calls for prompt and detailed notification of all preliminary or final
anti-dumping actions to a Committee on Anti-Dumping Practices. The agreement will
afford parties the opportunity of consulting on any matter relating to the operation of
the agreement or the furtherance of its objectives, and to request the establishment of
panels to examine disputes.
I mpl i c at i on of Gener al Agr eement on Tr ade i n Ser vi c es
(GATS)
The Uruguay Round, popularly known as the Eighth Round of the General
Agreement on Tariff and Trade (GATT), started in 1986 and culminated in 1993 with

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the final act signed in April 1994 at Marrakech in Morocco. As a result of the Uruguay
Round, the World Trade Organisation (WTO) came into existence with effect from
January 1, 1995. There are a total of 28 agreements signed under WTO. One of them is
General Agreement on Trade in Services (GATS), which has to be implemented by
January 1, 2005.
Services account for a large share of production and employment in most economies.
Its share of the national GDP is higher in developed countries, where it averages 60-70
per cent, while it is lower in developing and least developed countries. In India, the
sector accounted for 49% of the GDP in 2001-02. The world trade in services
amounted to US$ 1.440 trillion in 2001, of which Indias share was about 1.4%. There
are a total of 12 service sectors that have been identified in GATS, out of which 155
sub-sectors have been carved.
The mandated negotiations under GATS to work out the rules and framework for
further liberalisation of trade in services are under way. The negotiations, which
commenced on January 1, 2000, are likely to continue for the next two years. The main
objective of the negotiations is to liberalise commitments in all the service sectors and
all the modes of supply of services and to improve the multilateral rules for trade in
services.
As per the decision taken in the Doha Ministerial Conference, it has been decided that
each member country must submit initial requests by June 2002 and initial offers by
March 2003. This request-offer process is under way. However, most countries,
including India, have interpreted these deadlines as indicative only. India is likely to
submit its offer in May 2003.
The main method of negotiations is the Request and Offer process, under which each
country tables its demands from its trading partners and its offers to its trading
partners sector-wise. India has submitted requests to its trading partners in
computer related services, architecture services, health services, audio-visual services,
tourism services, maritime services and financial services. On the other hand, India
has received requests from 22 countries and has to finalise its response to these
requests through an initial offer. The initial offer would point towards the direction
in which a member is willing to liberalise. However, the initial offer has no legal
status and can be withdrawn or amended at any time if the member feels that the
trading partners offers are not satisfactory or adequate.
It allows the member countries to indicate measures that will be kept in place for that
sector, which will act as limitation to market access and national treatment, as well as
the modes in which commitments are to be taken. These commitments are specified
by modes of supply. The GATS sets out four modes of supplying services as under:
Mode 1: Cross-Border Trade. It corresponds with the normal form of trade in goods
and maintains a clear geographical separation between seller and buyer. In this case
services flow from the territory of one member into the territory of another member
crossing national frontiers (e.g. banking or architectural services transmitted via
telecommunications or mail).
Mode 2: Consumption Abroad. It refers to situations where a service consumer
moves into another members territory to obtain a service (e.g. consumer traveling for
tourism, medical treatment, to attend educational establishment).
Mode 3: Commercial Presence. This is the supply of a service through the commercial
presence of the foreign supplier in the territory of another WTO member. In this case
a service supplier of one member establishes a territorial presence in another
members territory to provide a service (e.g. the establishment of branch offices or
agencies to deliver such services as banking, legal advice or communications).
Mode 4: Presence of Natural Persons. This involves the admission of foreign
nationals to another country to provide services there. An Annex to the GATS makes

Notes
it clear, however, that the agreement has nothing to do with individuals looking for
employment in another country, or with citizenship, residence or employment
requirements. The members still have a right to regulate the entry and stay of the
persons concerned, for instance by requiring visas. We are at liberty to schedule our
commitments in one of the following ways:
i. Full commitment: None or no limitations, which implies that the member
does not seek in any way to limit market access or national treatment through
measures inconsistent with Articles XVI or XVII of GATS.
ii. Commitment with limitations: the member details the measures maintained
which are inconsistent with market access or national treatment, and
implicitly commits itself to take no other inconsistent measures.
iii. No commitment: Unbound which indicates that the member remains free to
maintain or introduce measures inconsistent with market access or national
treatment.
iv. No commitment technically feasible: Unbound which indicates that in the
sector in question, a particular mode of supply cannot be used.
India has been asked to take commitments with regard to transparency in domestic
regulations, simplify procedures, eliminate differential treatment of foreign service
suppliers and facilitate the movement of natural persons under Mode 4. The
categories of professionals on which commitments have been sought include intra-
corporate transferees, contractual service suppliers and specialists (tradespersons,
associate professionals, professionals and managers).
The following requests have been made by India:
Take full commitments in respect of the category of independent
professionals de-linked from commercial presence.
Put in place a visa system to ensure the fulfilment of horizontal and sectoral
commitments undertaken.
Undertake to put in place a visa system ensuring grant of multiple entry visas
for professionals.
Allow inter-firm mobility to professionals.
India has to sort out its services sector impediments before negotiating to iron out its
services delivery issues under GATS. It has to make a strong case at the WTO for
macro issues like a service provider visa for Indian service professionals under GATS,
withholding tax and expansion of definition of services. However, before that, there
are many issues that are to be handled at the local level.
A position paper has been prepared by Skoch Consultancy Services, which brings out
the anomalies of the Indian services sector. It says that the country needs to tackle
basic issues like the withholding tax. The withholding tax is equivalent to customs
duty where cross-border trade is concerned. For instance, a software or services
company in Singapore may be under a zero tax regime, but the same service offered
to a Singapore company from India attracts 15 per cent withholding tax.
If the services exported from India under cross-border trade are being subject to
withholding tax in other countries, then why should India not impose the same on the
import of software products? India could use this argument as a bargaining chip
during negotiations.
Indias inability to lay sectoral definitions and insistence on sectoral commitments,
rather than going in for open ended horizontal commitments, will finally act as a self-
limiting factor for trade in services. India is trying to support horizontal
commitments, which can enable free flow of manpower across the globe. However, it

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Notes
is unlikely that given the complexity of free cross-border movement, this will be
acceptable to most countries. It would be more prudent to try and identify more
sectoral commitments.
Interestingly, India is at a vantage position to gain from expanded and comprehensive
sectoral definitions of services as this would lead to inclusion of many services that
could be remotely delivered to the trading partners from India. Presently the RBI does
not allow even foreign exchange earnings to software exporters for setting up an
office, subsidiary, or a joint venture abroad without three-year profitability provision.
This also needs to be looked into for improving the service sector under GATS, where
there are no such restrictions from the countries abroad.
Agr eement on Tr ade Rel at ed Aspec t s of I nt el l ec t ual
Pr oper t y Ri ght s (TRI PS)
The agreement recognises that widely varying standards in the protection and
enforcement of intellectual property rights and the lack of a multilateral framework of
principles, rules and disciplines dealing with international trade in counterfeit goods
have been a growing source of tension in international economic relations. Rules and
disciplines were needed to cope with these tensions. To that end, the agreement
addresses the applicability of basic GATT principles and those of relevant
international intellectual property agreements; the provision of adequate intellectual
property rights; the provision of effective enforcement measures for those rights;
multilateral dispute settlement; and transitional arrangements.
Part I of the agreement sets out general provisions and basic principles, notably a
national-treatment commitment, under which the nationals of other parties must be
given treatment no less favourable than that accorded to a partys own nationals with
regard to the protection of intellectual property. It also contains a most-favoured-
nation clause, a novelty in an international intellectual property agreement, under
which any advantage a party gives to the nationals of another country must be
extended immediately and unconditionally to the nationals of all other parties, even if
such treatment is more favourable than that which it gives to its own nationals.
Part II addresses each intellectual property right in succession. With respect to
copyright, parties are required to comply with the substantive provisions of the Berne
Convention for the protection of literary and artistic works, in its latest version (Paris
1971), though they will not be obliged to protect moral rights as stipulated in Articles
6 (b) of that convention. It ensures that computer programmes will be protected as
literary works under the Berne Convention and lays down on what basis databases
should be protected by copyright. Important additions to existing international rules
in the area of copyright and related rights are the provisions on rental rights. The
draft requires authors of computer programmes and producers of sound recording to
be given the right to authorise or prohibit the commercial rental of their works to the
public. A similar exclusive right applies to films where commercial rental has led to
widespread copying which is materially impairing the right of reproduction. The
draft also requires performers to be given protection from unauthorised recording of
the broadcast of live performances (bootlegging). The protection of performers and
producers of sound recording would be for no less than 50 years. Broadcasting
organisations would have control over the use that can be made of broadcast signals
without their authorisation. The right would last for at least 20 years.
With respect to trademarks and service marks, the agreement defines what types of
signs must be eligible for protection as a trademark or service mark and what the
minimum rights conferred on their owners must be. Marks that have become well
known in a particular country shall enjoy additional protection. In addition, the
agreement lays down a number of obligations with regard to the use of trademarks

Notes
and service marks, their terms of protection, and their licensing or assignment. For
example, requirements that foreign marks be used in conjunction with local marks
would, as a rule, be prohibited.
In respect of geographical indications, the agreement lays down that all parties must
provide means to prevent the use of any indication which misleads the consumer as
to the origin of goods, and any use, which would constitute an act of unfair
competition. A higher level of protection is provided for geographical indications for
wines and spirits, which are protected even where there is no danger of the public
being misled as to the true origin. Exceptions are allowed for names that have already
become generic terms, but any country using such an exception must be willing to
negotiate with a view to protecting the geographical indications in question.
Furthermore, provision is made for further negotiations to establish a multilateral
system of notification and registration of geographical indications for wines.
Industrial designs are also protected under the agreement for a period of 10 years.
Owners of protected designs would be able to prevent the manufacture, sale or
importation of articles bearing or embodying a design, which is a copy of the
protected design.
As regards patents, there is a general obligation to comply with the substantive
provisions of the Paris Convention (1967). In addition, the agreement required that 20-
years patent protection be available for all inventions, whether for products or
processes, in almost all fields of technology. Inventions may be excluded from patent
ability if their commercial exploitation is prohibited for reasons of public order or
morality; otherwise, the permitted exclusions are for diagnostic, therapeutic and
surgical methods, and for plants and (other than microorganisms) animals and
essentially biological processes for the production of plants or animals (other than
microbiological processes). Plant varieties, however, must be protectable either by
patents or by a Sui Generis system (such as the breeders rights provided in a UPOV
Convention). Detailed conditions are laid down for compulsory licensing or
governmental use of patents without the authorisation of the patent owner. Rights
conferred in respect of patents for processes must extend to the products directly
obtained by the process; under certain conditions alleged infringes may be ordered by
a court to prove that they have not used the patented process.
With respect to the protection of layout designs of integrated circuits, the agreement
requires parties to provide protection on the basis of the Washington Treaty on
Intellectual Property in Respect of Integrated Circuits which was opened for signature
in May 1989, but with a number of additions; protection must be available for a
minimum period of 10 years; the rights must extend to articles incorporating
infringing layout designs; innocent infringes must be allowed to use or sell stock in
hand or ordered before learning of the infringement against a suitable royalty and
compulsory licensing and government use is only allowed under a number of strict
conditions.
Trade secrets and know-how, which have commercial value, must be protected
against breach of confidence and other acts contrary to honest commercial practices.
Test data submitted to governments in order to obtain marketing approval for
pharmaceutical or agricultural chemicals must also be protected against unfair
commercial use.
The final section in this part of the agreement concerns anti-competitive practices in
contractual licences. It provides for consultations between governments where there
is reason to believe that licensing practices or conditions pertaining to intellectual
property rights constitute an abuse of these rights and have an adverse effect on
competition. Remedies against such abuses must be consistent with the other
provisions of the agreement.

Environment
Notes
Part III of the agreement sets out the obligations of member governments to provide
procedures and remedies under their domestic law to ensure that intellectual
property rights can be effectively enforced by foreign right holders as well as by their
own nationals. Procedures should permit effective action against infringement of
intellectual property rights but should be fair and equitable, not unnecessarily
complicated or costly, and should not entail unreasonable time limits or unwarranted
delays. They should allow for judicial review of final administrative decisions. There
is no obligation to put in place a judicial system distinct from that of law in general
than for the enforcement of intellectual property rights in the allocation of resources.
The civil and administrative procedures and remedies spelled out in the text include
provisions on evidence of proof, injunctions, damages and other remedies which
would include the right of judicial authorities who must also have the authority to
order prompt and effective provisional measures, in particular, where any delay is
likely to cause irreparable harm to the right holder, or where evidence is likely to be
destroyed. Further provisions relate to measures to be taken at the border for the
suspension by customs authorities of release, into domestic circulation, of counterfeit
and pirated goods. Finally, parties should provide for criminal procedures and
penalties at least in cases of willful trademark counterfeiting or copyright piracy on a
commercial scale. Remedies should include imprisonment and fines sufficient to act
as a deterrent.
The agreement would establish a Council for Trade-Related Aspects of Intellectual
Property Rights to monitor the operation of the agreement and governments
compliance with it. Dispute settlement would take place under the integrated GATT
dispute settlement procedures as revised in the Uruguay Round.
With respect to the implementation of the agreement, it envisages a one year
transition period for developed countries to bring their legislation and practices into
conformity. Developing countries and countries in the process of transformation from
a centrally planned into a market economy would have a five years transition period,
and least developed countries, 11 years. Developing countries, which do not, at
present, provide product patent protection in an area of technology would have up to
10 years to introduce such protection. However, in the case of pharmaceutical and
agricultural chemical products, they must accept the filing of patent applications form
the beginning of the transitional period. Though the patent need not be granted until
the end of this period, the novelty of the invention is preserved as of the date of filing
the application. If authorisation for the marketing of the relevant pharmaceutical or
agricultural chemical is obtained during the transitional period, the developing
country concerned must offer an exclusive marketing right for the product for five
years, or until a product patent is granted, whichever is shorter.
Subject to certain exceptions, the general rule is that the obligations in the agreement
would apply to existing intellectual property rights as well as to new ones.
Under st andi ng on Rul es and Pr oc edur es Gover ni ng t he
Set t l ement of Di sput es
The dispute settlement system of the GATT is generally considered to be one of the
cornerstones of the multilateral trade order. The system has already been
strengthened and streamlined as a result of reforms agreed following the mid-term
Review Ministerial Meeting held in Montreal in December 1988. Disputes currently
being dealt with by the council are subject to these new rules, which include greater
autonomy in decisions on the establishment, terms of reference and composition of
panels, such that these decisions are no longer dependent upon the consent of the
parties to a dispute. The Uruguay Round Understanding on Rules and Procedures
Governing the Settlement of Disputes will further strengthen the existing system

Notes
significantly, extending the greater autonomy agreed in the mid-term review to the
adoption of the panels and a new Appellate Bodys findings. Moreover, the DSB will
establish an integrated system permitting WTO members to base their claims on any
of the multilateral trade agreements included in the Annexes to the Agreement
establishing the WTO. For this purpose, a Dispute Settlement Body (DSB) will
exercise the authority of the General Council and the councils and committees of the
covered agreements.
The DSB has emphasised the importance of consultations in securing dispute
resolution requiring a member to enter into consultations within 30 days of a request
for consultations from another member. If after 60 days from the request for
consultations there is no settlement, the complaining party may request the
establishment of a panel. Where consultations are denied, the complaining party may
move directly to request a panel. The parties may voluntarily agree to follow
alternative means of dispute settlement, including good offices, conciliation,
mediation and arbitration.
Where a dispute is not settled through consultations, the DSB requires the
establishment of a panel, latest, at the meeting of the DSB following that at which a
request is made, unless the DSB decides, by consensus, against establishment. The
DSB also sets out specific rules and deadlines for deciding the terms of reference and
composition of panels. Standard terms of reference will apply unless the parties agree
to special terms within 20 days of the panels establishment. And where the parties do
not agree on the composition of the panel within the same 20 days, the Director-
General can decide this. Panels normally consist of three persons of appropriate
background and experience from countries not party to the dispute. The Secretariat
will maintain a list of experts satisfying the criteria.
Panel procedures are set out in detail in the DSB. It is envisaged that a panel will
normally complete its work within six months or, in cases of urgency, within three
months. Panel reports may be considered by the DBS for adoption within 20 days
they are issued to members. Within 60 days of their issuance, they will be adopted,
unless the DSB decides by consensus not to adopt the report or one of the parties
notifies the DSB of its intention to appeal.
The concept of appellate review is an important new feature of the DSB. An Appellate
Body will be established, composed of seven members, three of who will serve on any
one case. An appeal will be limited to issues of law covered in the panel report and
legal interpretations developed by the panel. Appellate proceedings shall not exceed
60 days from the date a party formally notifies its decision to appeal. The resulting
report shall be adopted by the DSB, which is decided by consensus against its
adoption.
Once the panel report or the Appellate Body report is adopted, the party concerned
will have to notify its intentions with respect to implementation of adopted
recommendations. If it is impracticable to comply immediately, the party concerned
shall be given a reasonable period of time, the latter to be decided either by agreement
of the parties and approval by the DSB within 45 days of adoption of the report or
through arbitration within 90 days of adoption. In any event, the DSB will keep the
implementation under regular surveillance until the issue is resolved.
Further provisions set out rules for compensation or the suspension of concessions in
the event of non-implementation. Within a specified time frame, parties can enter into
negotiations to agree on mutually acceptable compensation. Where this has not been
agreed, a party to the dispute may request authorisation of the DSB to suspend
concessions or other obligations to the other party concerned. The DSB will grant such
authorisation within 30 days of the expiry of the agreed time frame for
implementation. Disagreements over the proposed level of suspension may be

Environment
Notes
referred to arbitration. In principle, concessions should be suspended in the same
sector as that in issue in the panel case. If this is not practicable or effective, the
suspension can be made in a different sector of the same agreement. In turn, if this is
not effective or practicable and if the circumstances are serious enough, the
suspension of concession may be made under another agreement.
One of the central provisions of the DSU reaffirms that members shall not themselves
make determination of violations or suspend concessions, but shall make use of the
dispute settlement rules and procedures of the DSU.
The DSU contains a number of provisions taking into account the specific interest of
the developing and the least developed countries. It also provides some special rules
for the resolution of disputes which do not involve a violation of obligations under a
covered agreement but where a member believes nevertheless that benefits are being
nullified or impaired. Special decisions to be adopted by ministers in 1994 foresee that
the Montreal Dispute Settlement Rules, which would otherwise have expired at the
time of the April 1994 meeting, are extended until the entry into force of the WTO.
Another decision foresees that the new rules and procedures will be reviewed within
four years after the entry into force of the WTO.
Prepare a brief report on the Agricultural issues in WTO. Also assess the impact of
the Hony Kong pact on Indian agriculture.

Regi onal Tr adi ng Bl oc k s
What is emerging is a world economy of blocs represented by NAFTA (North
American Free Trade Agreement), the European Union and ASEAN (Association of
South East Asian Nations). There is no one centre in this world economy. India is
becoming a powerhouse very fast, Peter Drucker.
The 19th century belonged to Britain, the 20th century belonged to America and the
21st century is going to belong to Asia, China and India.
Philip Dodd, former director of the
Institute of Contemporary Arts (ICA), London
Globalisation is the todays buzzword. International trade barriers are coming down,
nations are coming closer, they are negotiating with each other on the common table
to access other markets, and they are negotiating for fair competition in the world.
Nations are altering their domestic law according to international standards, and
above all today more than 125 nations sit together on one table at the WTO and
discuss trade.
But the other side of the coin is also true. The world is not globalising, in fact it is
regionalising. Trade blocks of the world, NAFTA, EU, SAPTA, ASEAN, etc., are
expanding . Nearly all the WTO members have concluded regional trade agreements
(RTAs) with other countries. Over 150 RTAs were in existence at the end of 2006. All
these trade blocks are demolishing trade barriers among themselves and are creating
unified markets and policy. One trade block is negotiating with the other for market
access, thus the whole world is shifting from globalisation to regionalisation.
Advant ages of Tr adi ng Bl oc k s
When two or more nations come together for the sake of business and reduce the
barrier of international trade amongst them, then a regional trading block comes into

Notes
existence. A trading block is a preferential economic integration among a group of
countries. Countries tend to ally for several reasons. Some of them are as follows:
1. Countries prefer to go for regional agreements for finished goods market and
to take comparative advantage as allies may also be supplying goods not
available with the host countries.
2. Countries feel that RTAs such as GATT and WTO are more advantageous.
They feel that it is difficult to save national interest in the case of GATT as
more than 125 nations are involved. But in RTAs they have preferential
economic integration among a few nations willingly selected after proper
evaluation of all pros and cons.
3. In RTAs countries can give much more leeway to each other than that in
GATT. They can go to the extent of a Common Market. Negotiation with only
a few countries participating is also easier.
4. RTAs also increase the bargaining power of trading blocks in the WTO
because they cooperate with each other in the process of negotiation. It also
helps in decreasing the bargain power of other countries because with the
formation of RTAs among the developing nations like G-15 and ASEAN, their
bargain power has increased significantly.
5. In international trade most of the countries are follow the principle of 80/20,
that is, about 80% of their business comes from 20% of the nations so they feel
that it is better to have close ties with these 20% nations and so they form
RTAs, which is more logical and advantageous.
Besides the above, the following arguments are given in favour of Economic
Integration:
a. Trade Creation and Trade Diversion
b. Reduced Import Price
c. Increased Competition and Economies of Scale
d. Higher Factor Productivity
e. Reduction of International Political Tension
Trade Creation and Trade Diversion: Economic integration helps in generating trade
because trade shifts to a member either because of its comparative advantage in
production of particular goods or it drives a cost advantage because of elimination of
trade barriers.
While the generation of trade is a benefit, trade diversion is the cost of economic
integration. Trade diversion is a cost to a particular non-member country when a
group of countries trade among themselves. Thus trade diverts from the non-member
to member country. It can be understood from the following example: India and
Pakistan are both producers of Basmati Rice and export to Turkey. Import of
agricultural products attracts the same tariff whether it is imported from Pakistan or
India, say 20%. If India is a low cost producer of rice compared to Pakistan then
Indias export to Turkey may cost Rs. 100 per bushel, plus 20% tariff, so the total cost
becomes Rs. 120.
On the other hand, Pakistan produces rice at Rs. 110 per Bushel and 20% tariffs make
it Rs. 132. So obviously India will be at an advantage and will receive the orders. But
if Pakistan and Turkey signed a FTA then import from Pakistan will not attract any
tariffs in Turkey and the result will be that now import from Pakistan will cost Rs. 110
per bushel to Turkey and produce from India (from it being a non-member) will
attract tariffs. Thus it will cost Rs. 120 per bushel. As a result of FTA trade is created

Environment
Notes
for Pakistan. When trading competitiveness is shifted from one country to another
country in this manner, it is termed as trade diversion.
Reduced Import Price: Smaller countries do not have bargaining power. If they
increase import tariffs the exporter wouldnt bother much. He will either look back a
new market or simply increase prices. But if the country is a member of some trading
block, then its bargaining power increases. If the block countries impose tariffs the
exporting country, the damage in terms of lost sales will be very high and exporting
country will be bound to reduce its price. Trade blocks are therefore beneficial for
people of member countries. Among the member countries the tariffs get eliminated,
leading to a decrease in the import price for them.
Increased Competition and Economies of Scale: Integration results in increased
market size that attracts a number of competing firms resulting in increased
competition, greater efficiency and lower prices for consumers. Because large market
firms also operate on economies of scale, as a corollary, cost per unit decreases.
Common markets also lend the advantage of external economies of scale. Because a
common market allows factors of production to flow freely, firms can have access to
cheaper capital, more skilled labour, or superior technology. These factors will
improve the quality of the firms product or service, will lower costs, or even do both.
Higher Factor Productivity: With economic integration, mobility will lead to the
movement of labour and capital from areas of low productivity to areas of high
productivity, resulting in decrease in production costs. In addition to this there are
other benefits which cannot be easily quantified such as free movement of labour that
leads to a higher level of communication across cultures. This in turns leads to a
higher degree of cross-cultural understanding.
Better International Political Relations: In most cases international political relations
are governed by economics and business. Business and SAPTA are two reasons why
India and Pakistan are coming closer. Trade will increase between the two because
they are both signatories of SAPTA.
It is because of trade and business that Russia, arc rival of the USA and Western
Europe is today close partner. It is trade because of which North Korea is coming
closer to South Korea. It is again trade only that warm discussions on strategic issues
are going on between India and China. Totally different types of economies and
ethnic groups of ASEAN nations which includes even very arc rival as S. Korea and
Japan are today a very close allies because of economic integration.
Types of Regi onal Gr oupi ngs
Regional groupings can be of the following types:
1. Preferential Trade Agreement: Here the member countries lower the barrier
for imports of identified products from one another, like the SAARC
Preferential Trading Arrangement (SAPTA).
2. Free Trade Area (FTA): In FTA, countries eliminate duties among themselves
while maintaining the same with the outsiders. The free trade area is the least
restrictive and most loose form of economic integration among countries. Its
goal is to abolish all tariffs between member countries. This is usually done in
a phased manner.
As the tariffs are eliminated, FTA members might explore other forms of
cooperation such as the reduction of non-tariff barrier or trade in services and
investment. In FTAs the focus is usually on eliminating tariffs only. The first
free trade agreement signed by the United States was with Israel in 1985.
SAPTA (South Asia Preferential Agreement) establishes the FTA among the
SAARC nations. FTA allows the member countries to follow a different policy

Notes
with the non-member country. Thus every non-member country can have
different tariff structure with other non-member countries.
3. Custom Union: The objective of custom unions is to harmonies trade
regulations and to establish common barriers against outsiders. A custom
union is an extension of FTAs. In addition to the elimination of tariff among
themselves they also agree to a common external tariff on goods imported
from non-members. This takes the form of a common external tariff whereby
imports from non-members are subject to the same tariff when sold to any
member country.
Tariffs revenues are then shared among members according to a prescribed
formula. It removes the drawback of FTAs where an exporting country can
export the goods to the FTA through a member nation having low tariff and
thus can have access to all FTA members. In a custom union all the member
nations have common tariffs against the non-member, whichever the route it
takes. The worlds oldest custom union is the Benelux Custom Union
(Belgium, the Netherlands, and Luxembourg).
4. Common Market: A common market is a higher and more complex level of
economic integration than either a free trade area or a custom union. A
common market has all the elements of a custom union and in addition to
that it allows free movement of all factors of production (such as labour,
capital, raw material, services etc.). A common market agreement eliminates
all tariffs and other restrictions on internal trade, adopts a set of common
external tariffs, and removes all restrictions on the free flow of capital and
labour among member nations.
Thus, restrictions on immigration, emigration and cross border investment are
abolished. In a common market there is a free movement of factors of production.
Productivity increases in a common market as the factors of production are employed,
where their productivity is higher. The European Union (EU) formed under the
Treaty of Rome in 1957 is a classic example of a common market. In 1993 the EU and
the European Fair Trade Association (EFTA) formed the worlds largest and most
lucrative common marketthe European Economic Area.
Economic Union: When the members of a common market agree to have common
economic policies then it becomes an economic union. A true economic union has an
integration of economic policies among member countries. The members of an
economic union harmonies their monetary, taxation and fiscal policy and therefore
have to surrender their economic sovereignty. Members of the economic union work
as a single nation, as far as economic policy is concerned.
Economic unions have one currency. Though some authors distinguish between
economic and monetary union. In essence, Monetary Union means one money (i.e. a
single currency). The Delors committee, chaired by Jacques Delors (Delors Report
Suggests Step by Step Process of European Integration, IMF survey, 10 July 1989,
209,219), is president of the European Commission, issued a report entitled
Economic and Monetary Union in the European Community that defines monetary
union having three basic characteristics:
a. Total and irreversible convertibility of currencies
b. Complete freedom of capital movement in fully integrated financial markets
c. Irrevocably fixed exchange rates with no fluctuation margins between
member currencies, ultimately leading to a single currency.
The European Commissions One Market, One Money report defines an Economic
Union as a single market for goods, services, capital and labour, complemented by
common policies and coordination in several economies and structural areas.

Environment
Notes
Economic Unions improve trade and capital mobility as they eliminate the cost
associated with converting one currency into another and also eliminate foreign
exchange risk.
According to the Delors Committee, the basic element of an economic union includes
the following: a single market within which person, goods, services, and capital could
move freely, a joint competition policy to strengthen market mechanism, common
competition, structural and regional policies, and sufficient coordination of
macroeconomic policies, including binding rules on budgetary policies regarding the
size and financing of national budget deficit.
Regi onal Gr oupi ngs and WTO
At the WTO, all signatories have to give each other the status of Most Favoured
Nations (MFNs). This implies that each signatory will treat the other on similar
footing. On the other hand economic integration can go to the extent of having a
common currency. Thus economic integration violates the MFN principle. But WTO
also allows economic integration. In principle, it allows that nations can give
commitments and access to each other beyond WTO norms.
WTO agreements recognise that regional arrangements and closer economic
integration can benefit countries. Article 24 of the GATT allows regional trading
arrangements to be set up as a special exception, provided certain strict criteria are
met. In particular, the arrangements should help trade flow more freely among the
countries in the group without barriers being raised on trade with the outside world.
In other words, regional integration should complement the multilateral trading
system and not threaten it.
Similarly, Article 5 of the General Agreement on Trade in Services (GATS) provides
for economic integration agreements in services. Other provisions in the WTO
agreements allow developing countries to enter into regional or global agreements
that include the reduction or elimination of tariffs and non-tariff barriers on trade
among themselves.
Find the various business opportunities which have emerged or can emerge in
India because of any FTA signed by India.
I nt er nat i onal Monet ar y Syst em
International monetary system rules and procedures by which different national
currencies are exchanged for each other in world trade. Such a system is necessary to
define a common standard of value for the world's currencies.
The Gol d and Gol d Bul l i on St andar ds
The first modern international monetary system was the gold standard. Operating
during the late 19th and early 20th cents., the gold standard provided for the free
circulation between nations of gold coins of standard specification. Under the system,
gold was the only standard of value.
The advantages of the system lay in its stabilizing influence. A nation that exported
more than it imported would receive gold in payment of the balance; such an influx of
gold raised prices, and thus lowered the value of the domestic currency. Higher prices
resulted in decreasing the demand for exports, an outflow of gold to pay for the now
relatively cheap imports, and a return to the original price level. A major defect in
such a system was its inherent lack of liquidity; the world's supply of money would
necessarily be limited by the world's supply of gold. Moreover, any unusual increase

Notes
in the supply of gold, such as the discovery of a rich lode, would cause prices to rise
abruptly. For these reasons and others, the international gold standard broke down in
1914.
During the 1920s the gold standard was replaced by the gold bullion standard, under
which nations no longer minted gold coins but backed their currencies with gold
bullion and agreed to buy and sell the bullion at a fixed price. This system, too, was
abandoned in the 1930s.
The Gol d-Ex c hange Syst em
In the decades following World War II, international trade was conducted according
to the gold-exchange standard. Under such a system, nations fix the value of their
currencies not with respect to gold, but to some foreign currency, which is in turn
fixed to and redeemable in gold. Most nations fixed their currencies to the U.S. dollar
and retained dollar reserves in the United States, which was known as the "key
currency" country. At the Bretton Woods international conference in 1944, a system of
fixed exchange rates was adopted, and the International Monetary Fund (IMF) was
created with the task of maintaining stable exchange rates on a global level.
The Tw o-Ti er Syst em
During the 1960s, as U.S. commitments abroad drew gold reserves from the nation,
confidence in the dollar weakened, leading some dollar-holding countries and
speculators to seek exchange of their dollars for gold. A severe drain on U.S. gold
reserves developed and, in order to correct the situation, the so-called two-tier system
was created in 1968. In the official tier, consisting of central bank gold traders, the
value of gold was set at $35 an ounce, and gold payments to noncentral bankers were
prohibited. In the free-market tier, consisting of all nongovernmental gold traders,
gold was completely demonetized, with its price set by supply and demand. Gold and
the U.S. dollar remained the major reserve assets for the world's central banks,
although Special Drawing Rights were created in the late 1960s as a new reserve
currency. Despite such measures, the drain on U.S. gold reserves continued into the
1970s, and in 1971 the United States was forced to abandon gold convertibility,
leaving the world without a single, unified international monetary system.
Fl oat i ng Ex c hange Rat es and Rec ent Devel opment s
Widespread inflation after the United States abandoned gold convertibility forced the
IMF to agree (1976) on a system of floating exchange rates, by which the gold
standard became obsolete and the values of various currencies were to be determined
by the market. In the late 20th cent., the Japanese yen and the German Deutschmark
strengthened and became increasingly important in international financial markets,
while the U.S. dollaralthough still the most important national currency
weakened with respect to them and diminished in importance. The euro was
introduced in financial markets in 1999 as replacement for the currencies (including
the Deutschmark) of 11 countries belonging to the European Union (EU); it began
circulating in 2002 in 12 EU nations (see European Monetary System). The euro
replaced the European Currency Unit, which had become the second most commonly
used currency after the dollar in the primary international bond market. Many large
companies use the euro rather than the dollar in bond trading, with the goal of
receiving a better exchange rate.
The International Monetary System is a financial system consisting of institutions and
regulations that act on the international level, as opposed to those that act on a
national or regional level. The main players are the global institutions, such as
International Monetary Fund and Bank for International Settlements, national

Environment
Notes
agencies and government departments, e.g., central banks and finance ministries, and
private institutions acting on the global scale, e.g., banks and hedge funds.
Deficiencies and reform of the International Marketing System have been hotly
discussed in recent years.
I nt er nat i onal i nst i t ut i ons
The most prominent international institutions are the IMF, the World Bank and the
WTO
The International Monetary Fund keeps account of international balance of
payments accounts of member states. The IMF acts as a lender of last resort
for members in financial distress, e.g. currency crisis, problems meeting
balance of payment when in deficit and debt default. Membership is based on
quotas, or the amount of money a country provides to the fund relative to the
size of its role in the international trading system.
The World Bank aims to provide funding, take up credit risk or offer
favorable terms to development projects mostly in developing countries that
couldn't be obtained by the private sector. The other multilateral
development banks and other international financial institutions also play
specific regional or functional roles.
The World Trade Organization settles trade disputes and negotiates
international trade agreements in its rounds of talks (currently the Doha
Round)
Gover nment i nst i t ut i ons
Governments act in various ways as actors in the international monetary system they
pass the laws and regulations for financial markets and set the tax burden for private
players, e.g. banks, funds and exchanges. They also participate actively through
discretionary spending. They are closely tied (though in most countries independent
of) to central banks that issue government debt, set interest rates and deposit
requirements, and intervene in the foreign exchange market.
Pr i vat e par t i c i pant s
Players acting in the stock-, bond-, foreign exchange-, derivatives- and commodities-
markets and investment banking are
Commercial banks
Pension funds
Hedge funds and Private Equity
Per spec t i ves
There are three primary approaches to viewing and understanding the global
financial system.
The liberal view holds that the exchange of currencies should be determined not by
state institutions but instead individual players at a market level. This view has been
labeled as the Washington Consensus. This view is challenged by a social democratic
front which advocates the tempering of market mechanisms, and instituting economic
safeguards in an attempt to ensure financial stability and redistribution. Examples
include slowing down the rate of financial transactions, or enforcing regulations on
the behaviour of private firms. Outside of this contention of authority and the
individual, neoMarxists are highly critical of the modern financial system in that it

Notes
promotes inequality between state players, particularly holding the view that the
political North abuses the financial system to exercise control of developing countries'
economies.
Summar y
The economic environment is a major determinant of international market potential
and opportunity. The worlds economies can be categorised as market allocation
systems, command allocation systems, and mixed systems. A major trend in recent
years has been the transition towards market economies in many countries that had
been centrally controlled.
Globalisation refers to the increasing integration of economies around the world,
particularly through Trade and financial flows. The term sometimes also refers to the
management of people (labour) and knowledge (technology) across international
borders. Globalisation offers extensive opportunities for international marketing.
Every country has to regulate its own international trade mainly due to: (i) Improving
its balance of trade and balance of payment position; (ii) Protecting its own industries
against competition in the international markets or in domestic markets from foreign
products; and (iii) Exploiting its manpower and natural resources to the maximum
extent possible so that the countrys economic development may proceed at a faster
speed.
In order to attain these objectives, almost every country imposes certain restrictions
on its international trade. These restrictions may be called trade barriers tariff and
non-tariff or protective barriers.
For the purpose of taxes tariffs may be classified into two categories, Revenue tariffs
and Protective tariffs. Based on the method of computation, tariffs may be put into
two categories, Specific tariffs, Ad valorem tariffs; and Anti-dumping duties.
To meet the challenges, more and more countries are adopting non-tariff measures to
regulate their imports. Such measures may be called non-tariff barriers, which are as
under:
Quantitative restrictions, quotas and licensing procedures
Foreign exchange restrictions
Technical and administrative regulations
Consular formalities
State trading
Preferential arrangements
The WTO is founded on the General Agreement on Tariffs and Trade (GATT), which
entered into force on 1st January 1948. Its 23 original signatories were members of a
preparatory committee appointed by the UN Economic and Social Council to draft the
charter for a proposed International Trade Organisation. Since this charter was never
ratified, the General Agreement remained the only international instrument laying
down trade rules. In December 1993 there were 111 contracting parties, and a further
22 countries applying GATT rules on a de factor basis. On 15th April 1994, trade
ministers of 123 countries signed the Final Act of the GATT Uruguay Round of
negotiations at Marrakech, brining the WTO into being on 1st January 1995. As of Jan,
2008 the WTO had 151 member countries.
The object of the act is the liberalisation of world trade. By it, member countries
undertake to apply fair trade rules covering commodities, services and intellectual
property. It provides for the lowering of tariffs on industrial goods and tropical
products; the abolition of import duties on a variety of items; the progressive abolition

Environment
Notes
of quotas on garments and textiles; the gradual reduction of trade distorting subsidies
and import barriers, and agreements on intellectual property and trade in services.
When two or more nations come together for the sake of business and reduce the
barrier of international trade among them, then a regional trading block comes into
existence. An RTAs have many advantages as it results in Trade Creation and Trade
Diversion, reduces and eliminates the import duty and other non-trade barriers, thus
allowing the free movement of goods and services among nations. It also helps in
achieving the economies of scale, to take advantages of higher factor productivity
which results in reduction in the prices of goods and services in the member nations
and in creation of jobs in member nations.
RTA can be of many types such as Preferential Trade Agreement, Free Trade Area
(FTA), Custom Union and Common Market. Some of the most famous RTAs are
European Union, APEC, MERCOSUR, NAFTA, ASEAN, etc. India has also signed
RTAs such as India-ASEAN, SAFTA, Bangladesh-India-Sri Lanka-Thailand Economic
Cooperation (BIST-EC), India-Thailand FTA, India-Sri Lanka Bilateral Free Trade
Area, India-Singapore Comprehensive Economic Cooperation Agreement (CECA).
International Monetary system is a financial system consisting of institution and
regulations that act on the international level, as opposed to those that act on a
national or regional level.
Keyw or ds
Globalisation: The growing economic interdependence of countries worldwide
through increasing volume and variety of cross-border transactions in goods and
services, free international capital flows, and more rapid and widespread diffusion of
technology.
Trade Barriers: Restrictions on free trade.
Tariff: Taxes levied on imports.
Quota: The impositions of an absolute limit on the physical quantity of value of goods
or services that may be traded over a set period of time.
Regional Trading Block: When two or more nations come together for the sake of
business and reduce barriers of international trade among themselves, then a trading
block comes into existence.
Free Trade Area: Member countries eliminate duties among themselves while
maintaining them with the outsiders.
Custom Union: Harmonising trade regulations and to establish common barrier
against the outsiders.
Common Market: A common market has all the elements of a custom union and in
addition to that it allows free movement of factors of production.
Economic Union: When the members of common market agree to have common
economic policies then it become an economic union.
Revi ew Quest i ons
1. Define globalisation and its characteristics.
2. Discuss the impact of globalisation on the strategies of various organizations.
3. What are trade barriers? Explain these in detail with examples from the
Indian scenario?
4. What is the difference between Anti dumping duties and Ad valorem duties?

Notes
5. What is the significance of Quotas in the international marketing?
6. What are the implications of Tariffs in the international marketing?
7. What are the objectives and functions of WTO?
8. What is the difference between GATT and WTO?
9. What are the implications of WTO on GATS?
10. What are the implications of WTO on International Marketing?
11. What is meant by Trading blocks? Describe various types of Trading blocks.
12. What are the advantages and disadvantages of trading blocks to a nation?
Fur t her Readi ngs
Aseem Kumar, Export & Import Management, Excel Books, New Delhi, 2007

Procedure and Practices
of Export
Notes
Uni t 5 Pr oc edur e and
Pr ac t i c es of
Ex por t
Unit Structure
Introduction
Producing for Exports
Export Quality Control
Recognition to Inspection Agencies
Export Finance
Shipment and Procedure Thereof
Summary
Keywords
Review Questions
Further Readings
Learning Objectives
Enter into export contract and suitably process an export order
Analyse exporting a product with a view to sell in the international market
Appreciate the role quality control and inspection in promoting export
Understand the need and significance of export finance
Have a basic idea of procedure for export shipment
I nt r oduc t i on
Majority of exporters in India are merchant exporters. However, the good buyers look
forward to manufacture goods because they can produce the product of their liking.
Export process is not very tedious; only thing is that an exporter has to go in for
quality, competitive pricing and adhere to the time schedule.
Supposing you are in the business of exporting carpets which are labour intensive and
have good potential in cold countries like America and European Union. The
importers of these countries are very fond of traditional carpets.
The step in exporting the carpet will be to establish a company with an appropriate
name. The second step will be to have your own independent office with telephone
nos, fax nos, and e-mails. Third step will be to open a current account in a commercial
bank dealing with foreign exchange. Fourth step will be to apply for the PAN from
the income tax authority. Fifth step will be to keep liaison with the carpet industry
that should be able to give the carpet at competitive price at the right place and at the
right time. Last will be the correspondence with importers and sending of samples to
launch the export process.

Notes
Nami ng t he Busi ness
Whatever form of business organisation has been finally decided, naming the
business is an essential task for every exporter. The name and style should be
attractive, short and meaningful. Simple and attractive name indicating the nature of
business is ideal. The office should be located preferably in a commercial complex, in
clean and workable surroundings. The letterhead should be simple and superb
providing information concerning HO, branches, cable address, telephone number,
fax number, bankers name and address etc. Pick up a beautiful trade name and logo,
which reinforces your organisations name and image. Open a current account in the
name of the organisation in whose name you intend to export. It is advisable to open
the account with a bank which is authorised to deal in foreign exchange. For list of
authorised dealers in foreign exchange kindly refer to Nabhis Exporters Manual and
Documentation.
Sel ec t i ng t he Company
Carefully select the product to be exported. For proper selection of a product, study
the trends of export of different items from India. The selected product must be in
demand in the countries where it is to be exported. It should be possible to procure or
manufacture the selected product at most economic cost so that it can be
competitively priced. It should also be available in sufficient quantity and it should be
possible to supply it repeatedly and regularly. Besides, while selecting the product, it
has to be ensured that you are conversant with government policy and regulations in
respect of the product selected for export. You should also know import regulations
in respect of such commodities by the importing countries. It would be preferable if
you have previous knowledge and experience of commodities selected by you for
export. A non-technical person should avoid dealing in high tech products.
Mak i ng Ef f ec t i ve Busi ness Cor r espondenc e
You should recognise the importance of business correspondence, as it is an
introduction with the buyer in proxy, which may clinch his response according to the
impression created by the correspondence. For creating a very favourable and
excellent impression, you must use a beautiful letterhead on airmail paper and a good
envelope, nicely printed, giving full particulars of your firms name, telephone, telex
and fax number, etc., your language should be polite, soft, brief and to the point,
giving a very clear picture of the subject to be put before the customer. Letters should
be typed/computer typed set, preferably in the language of the importing country.
Also make sure that the full and correct address is written and the envelope is duly
stamped. It should also be borne in mind that the aim of your business
correspondence is not only to clinch the buyers order but also to obtain the
information on the following
1. The specifications of the products already in use in the importing country.
2. Whether your product meets the above specifications. If not, whether your
specifications offer any distinct advantages in terms of prices, quality, after-
sales service, etc.
3. The import policy prevailing in the buyers country (e.g., whether there is any
import licensing, any restriction on remittances, any pre-qualification for
product/supplier, etc.).
4. The trade practices in the buyers country with special reference to your
product, information like whether importers import and distribute the
product/high sea sales, whether agent is required to book orders from actual
users, etc.

of Export
Notes
5. In case your item requires after-sales service, the manner in which it can be
offered.
6. The prices at which your product sells in the retail/wholesale market, the
duty structure and any other cost element to arrive at the landed cost,
information on the margins at which the product is sold. This information
will help you in evolving a pricing strategy.
7. Study of various market segments, viz., importers, supermarkets, government
suppliers, institutional sales, tenders, suppliers, etc.
8 The various factors that rule the market, viz., quality, price, delivery, brand
name, credit terms, etc.
9. Role of advertising and publicity and reference to the product and the
country.
Spec i men of I nt r oduc t or y Let t er t o I mpor t er s Abr oad
Ref: ABC/Eng1997/ 25th April 1997
The Manager (Purchase)
M/S XYZ Ltd.

(England)
Dear Sir,
We are exporters of a wide variety of items including.........................for the last ten
years. Our major buyers are in .We are one of
the registered Export Houses in our country.
We represent the leading manufacturers of these items in India.
These items are produced in collaboration with , the world famous
company. We follow ISI specifications.
We believe that your company imports the items we export. We are interested in
expanding our trade with your company.
We are enclosing herewith a copy of our brochure and price list for your kind perusal.
We shall be glad to send detailed literature/samples of items that may be of interest
to you, on hearing from you.

Thanking you in anticipation,
Yours truly,
For ABC Ltd
Encl: As above Manager (Marketing)
Comments
1. The text can be suitably amended with reference to the manufacturing
activity or/items dealt in by the exporter.
2. Where the manufacturing is not in collaboration with a foreign company, it
need not be referred to.

Notes
3. Product literature (of the buyers interest) and price list should invariably be
sent along with the letter.
4. The price list should categorically indicate whether the prices are fob, C&f or
cif, etc. However, discount need not be indicated in the price list.
5. The information about your company should generally include the following
matters:
(1) Companys name and address/telex/telephone/cable/fax/date of establishment
(2) Export Executives (3) Status: Partnership/Company (Pvt. Ltd/Pub. Ltd) Govt.
(Semi-Govt.), etc. (4) Bank Reference (5) Exporting Since (6) Value of assets (7) No. of
employees; Manufacturing; Sales; Administration (8) Foreign offices/representatives,
if any (9) Exporter; Manufacturer Agent (10) Main line (11) Technical collaboration
(12) Standards/Specification followed (13) Major buyers In India; abroad.
Sel ec t i ng t he Mar k et s
Target markets should be selected after careful consideration of various factors like
political embargo, scope of exporters selected product, demand stability, preferential
treatment to products from developing countries, market penetration by competitive
countries and products, distance of potential market, transport problems, language
problems, tariff and non-tariff barriers, distribution infrastructure, size of demand in
the market, expected life span of market and product requirements, sales and
distribution channels.
For this purpose, you should collect adequate market information before selecting one
or more target markets. Export Promotion Councils (EPCs)/Commodity Boards,
Federation of Indian Export Organisation (FIEO), Indian Institute of Foreign Trade
(IIFT), Indian Trade Promotion Organisation (ITPO), Indian embassies abroad,
foreign embassies in India, import promotion institutions abroad, overseas chambers
of commerce and industries, various directories, journals, market survey reports, etc.
Sel ec t i ng Pr ospec t i ve Buyer s
You can collect addresses of prospective buyers of the commodity form the following
sources
1. Enquires from friends and relatives or other acquaintances residing in foreign
countries.
2. Visiting/participating in international trade fairs and exhibitions in India and
abroad.
3. Contacts with export promotion councils, commodity boards and other
government agencies.
4. Consulting International Yellow Pages (a Publication from New York) by Dun
& Bradstreet, USA, or other yellow pages of different countries like Japan,
Dubai, etc.)
5. Collecting addresses from various private Indian publications directories
available on cost at Jain Book Agency, C-9, Cannaught Place, New Delhi -
110001.
6. Collecting information from international trade directories/journals.
Periodicals available in the libraries of Directorate General of Commercial
Intelligence and Statistics, IIFT, EPCs, ITPO, etc.
7. Making contacts with trade representatives of overseas governments in India
and Indian trade and other representatives/international trade development
authorities abroad.

of Export
Notes
8. Reading biweekly, fortnightly, monthly bulletins such as Indian Trade
Journal, Export Service Bulletin, bulletins and magazines issued and
published by Federation of Exporters Organisations, ITPO, EPCs, commodity
boards and other allied agencies.
9. Visiting embassies, consulates, etc., of other countries and taking note of
addresses of importers for products proposed to be exported.
10. Advertising in newspapers having overseas editions and other foreign
newspapers and magazines, etc.
11. Consulting ITOP, IIFT, etc.
12. Contacting authorised dealers in foreign exchange with whom exporter is
maintaining bank account.
Overseas importers can be contacted or informed about the products by the following
methods:
1. By corresponding and sending brochures and product literature to
prospective overseas buyers.
2. By undertaking trips to foreign markets and establishing personal rapport
with overseas buyers. The number of trips will depend on your budget and
resources. But it is essential for long-term success in international marketing
to establish personal rapport. Foreign trip will provide first-hand information
regarding the market, overseas customers, their requirement, taste, preference
and better out communication of the merits of exporters products.
3. Participation in buyer-seller meets and meeting the members of foreign
delegation invited by export promotion councils concerned.
4. Participation in international trade fairs, seminars.
5. Advertisement and publicity in overseas reputed newspapers and magazines.
Facilities of free publicity can be availed from Import Development Centres.
Sel ec t i ng Channel s of Di st r i but i on
The following channels of distribution are generally utilised while exporting to
overseas market:
1. Exports through Export Consortia.
2. Export through Canalising Agencies.
3. Export through Other Established Merchant Exporters or Export Houses, or
Trading Houses.
4 Direct Exports.
5 Export through Overseas Sales Agencies.
Negot i at i ng w i t h Pr ospec t i ve Buyer s
Whatever the channel of distribution for exporting to overseas countries is proposed
to be utilised, it is essential that the exporters should possess the necessary skill for
negotiating with the overseas channels of distribution. The ability to negotiate
effectively is needed for discussion with importers or trade agents. While conducting
business negotiations, the prospective exporter should avoid conflict, controversy and
criticism vis--vis the other party. During conversation, the attitude should be to
communicate effectively. There should be coherence, creativity, compromise,
concessions, commonality, consensus, commitment and compensation in business
negotiations.

Notes
The general problem you may face is about pricing. The buyers contention is that
prices are too high. It should be noted that though the price is only one of the many
issues that are discussed during business negotiations, it influences the entire
negotiating process. Since this is the most sensitive issue in business negotiations, it
should be tactfully postponed until all the other issues have been discussed and
mutually agreed upon. As far as the price is concerned, you should try to determine
the buyers real interest in the product from the outset, only then a suitable counter
proposal should be presented. It should also be remembered that the buyer might
request modifications in presentation of the product. You should show the
willingness to meet such a request, if possible, provided that it will result in profitable
export business.
Price being the most important sales tool, it has to be properly developed and
presented. Therefore, in order to create a favourable impression, minimise costly
errors and generate repeated business. The following points should be kept in mind
while preparing the price list
1. Submit a typewritten list, printed on regular bond paper and laid out simply
and clearly (with at least an inch between columns and between groupings).
2. Prominently indicate the name of your company, its full address, telephone
and fax numbers, including the country and city codes.
3. Fully describe the items being quoted.
4. Group the items logically (i.e., all the fabrics together, all the made-ups
together, etc.)
5. Specify whether shipped by sea or by air, fob or cif and to what port.
6. Quote exact amount and not rounded-off figures.
7. Mention the dates up to which the prices quoted will remain valid.
8. Where there is an internal reference number quoted, it will remain valid, try
to keep it short (the buyer has no interest in this detail and the more complex
it is, the greater is the risk of error).
One main point regarding export pricing is that while negotiating with the overseas
buyer, you may not remember the cost of the product. It may also be difficult for you
to remember the profit margin built in various prices quoted by you. A clear jotting of
this information is not free from the risk of being leaked out to the competitors or to
the overseas buyers. Some coding is, therefore, essential for the prices quoted by you
so that at any stage/point of time, you can always utilise the information, enabling
you to profitably negotiate with the overseas buyer. Assigning codes to the cost price
can do this.
For assigning codes to the cost price, you may select an English password consisting
of 10 separate letters, each letter to represent a numerical figure. For example
CRAZY MOUNTY is the password selected by you, where C=1, R=2, A=3, Z=4,
Y=5, M=6, O=7, U=8, T=9, H=0. This password can be successfully used for
recognising various items of exports and their varieties. Thus, a brass candle stand
which is being quoted at Rs 100 (sale price) but whose cost price to you is Rs 25.50 will
be coded as item number RYYH and then assigned with a running serial number to
make it more fascinating. You can decode the RYYH to write as Rs 25.50 so as to get
an idea of the difference between the sale price and the cost price, which will provide
you the range within which you can negotiate with overseas buyers.
Pr oc essi ng an Ex por t Or der
You should not be happy merely on receiving an export order. You should first
acknowledge it, and then proceed to examine it carefully in respect of items,

of Export
Notes
specifications, preshipment inspection, payment conditions, special packaging,
labeling and marketing requirements, shipment and delivery date, marine insurance,
documentation, etc. If you are satisfied on these aspects, a formal confirmation should
be sent to the buyer, otherwise clarification should be sought from the buyer before
confirming the order. After confirmation of the export order, immediate steps should
be taken for procurement/manufacture of the export goods. In the meanwhile, you
should proceed to enter into a formal export contract with the overseas buyer.
In order to avoid disputes, it is necessary to enter into an export contract with the
overseas buyer. For this purpose, export contract should be carefully drafted
incorporating comprehensive but in precise terms, all relevant and important
conditions of the trade deal. There should not be any ambiguity regarding the exact
specifications of goods and terms of sale including export price, mode of payment,
storage and distribution methods, type of packaging, port of shipment, delivery
schedule, etc., the different aspects of an export contract are enumerated as under:
1. Product, standards and specifications
2. Quantity
3. Inspection
4. Total value of the contract
5. Terms of delivery
6. Taxes, duties and charges
7. Period of delivery/shipment
8. Packing, labeling and marking
9. Terms of payment amount/mode and currency
10. Discounts and commissions
11. Licenses and permits
12. Insurance
13. Documentary requirements
14. Guarantee
15. Force majeure of excuse for non-performance of contract
16. Remedies
17. Arbitration
It will not be out of place to mention here the importance of arbitration clause in an
export contract. Court proceedings do not offer a satisfactory method for settlement of
commercial disputes, as they involve inevitable delays, costs and technicalities. On
the other hand, arbitration provides an economic, expeditious and informal remedy
for settlement of commercial disputes. Arbitration proceedings are conducted in
privacy and the awards are kept confidential. The arbitrator is usually an expert in the
subject matter of the dispute. The dates for arbitration meetings are fixed with the
convenience of all concerned. Thus, arbitration is the most suitable way for settlement
of commercial disputes and businessmen in their commercial dealings may invariably
use it. The Indian Council of Arbitration, Federation House, Hansen Marg, New
Delhi, Ph. 3319251 Fax. 3320714 is a specialised arbitration institution providing
arbitration facilities for all types of domestic or international commercial disputes.
You should use their services as far as possible.

Notes
Br i ef Spec i men Cont r ac t f or m f or Sal e/Pur c hase
Tr ansac t i ons, Ex por t s and I mpor t s
1. Name and address of the parties ..(state correct appellation and
complete address of the parties)
2. We, the above named parties have entered into this contract for the
sale/purchase, etc. (state briefly the purpose of the contract) on
this ..(date) at (place) subject
to the following terms and conditions.
a. Goods..
b. Quantity .
(Describe the quantity, quality and other specifications of the goods
precisely as per agreement. An agency for inspection/certification of
quality and/or quantity may also be stipulated).
c. Price.
Mode of Payment ..
(Quote the price, terms, i.e., ex-works/FOB (free on board) CIF (Cost,
insurance & freight) etc. in the currency agreed upon and describe the
mode of payment, i.e., payment against L/C (letter of credit/DA)
(document against acceptance) D/P (document against payment), etc.
It is also desirable to mention the exchange rate).
d. Shipment .
(Specify date of delivery and the maximum period up to which
delivery could be delayed and for which reasons, port of shipment
and of delivery should be mentioned).
e. Packing and marking
(Requirements to be specified precisely).
f. Insurance .
(State the type of insurance cover required, i.e., FPA (free from
particular average)/WA (with average)/All risks, etc. State also the
party responsible for the insurance).
g. Brokerage/Commission .
(If any payable may be mentioned)
h. Passing of the property and of risk.
The property or ownership of the goods and the risk shall finally pass to the buyer at
such stage as the parties may agree, i.e., when the goods are delivered at the sellers
place of work/pass the ships rails/are covered by insurance, etc., as per agreed
terms).
Arbitration
Arbitration clause recommended by the Indian Council of Arbitration:
All disputes or differences whatsoever arising between the parties out of relating to
the construction, meaning and operation or effect of this contract or the breach thereof
shall be settled by arbitration in accordance with the rules of Arbitration of the Indian
Council of Arbitration and the award made in pursuance thereof shall be binding on
the parties.

of Export
Notes
3. Any other special condition, prevalent in or relevant to the particular line of
trade or transaction, may also be specified.
Sd/-Seller
Sd/- Buyer
Notes: The above specimen contract form, drawn up in brief essentials, is meant for
simple small scale transactions and is intended to draw the attention of the parties to
important aspects of the trade deal in drafting the contract. The parties are free to add
to or modify the terms as per the peculiar nature of their trade transaction. They may
also consult with advantage, experienced commercial or arbitration bodies for the
purpose or study published literature on the subject.
The use of arbitration clauses in commercial contracts is becoming increasingly
common, particularly in export-import transactions, with a view to promoting smooth
and swift flow of business.
The Indian Council of Arbitration (ICA), which is partly funded by the government of
India, provides comprehensive institutional arbitration service to all government
departments and public undertakings as well as private traders, exporters and
importers in India for amicable and quick settlement of all types of commercial
disputes.
It has been suggested by the Ministry of Commerce that all commercial organisations
should make use of the arbitration clause of the Council in their commercial contracts
with Indian and foreign parties.
Pr oduc i ng f or Ex por t s
International products are offered in international markets. They are international and
multi-regional. A true international product is offered in the Triad, in every world
region, and in countries at every stage of development. Some international products
are designed to meet the needs of an international market; others are designed to meet
the needs of a national market but also, happily, meet the needs of a international
market.
Booz, Allen and Hamilton have carried some of the most pragmatic and operationally
useful research on the new product development process. Success, they suggest, is
most likely to occur when organisations adopt a conscious step-by-step approach that
begins with a search for possible new product ideas and then moves progressively
through a series of evaluative stages culminating in the launch of the new product.
All too often, they argue, organisations, for one reason or another, rush through the
NPD process paying too little attention to the need for detailed evaluation and are
then surprised by the products subsequent poor performance.
The step by step approach that Booz, Allen and Hamilton advocate consists of eight
stages: idea generation; initial screening; concept development and testing; the
development of marketing strategy; business analysis; product development; market
testing; and commercialisation. These are illustrated in Figure 5.1, which begins with
a statement of the new product development strategy.

Notes
Idea
generation
Initial
Screening
Concept
development
and testing
Business
Analysis
Product
Development
Market
testing
Commercial-
isation
Product Development

Figure 5.1
This process is designed to act as a series of filters with a large number of ideas being
poured in at the beginning in the hope and expectation that one or more commercially
sound products will emerge at the end. From their initial research in the 1970s, Booz,
Allen and Hamilton found that an average of 58 initial ideas were needed in order to
generate one worthwhile product. In their latest research, however, this has been
reduced to just seven. There are, they suggest, several explanations for this, the most
encouraging of which is that many organisations appear to have come to terms with
the structure and complexity of new product development and are now far less likely
to waste resources by pursuing the shotgun approach that dominated during the
1970s.
International product planning involves determining which products to introduce
into which countries; what modifications to make in the products; what new products
to add; what brand names to use; what package designs to use; what guarantees and
warranties to give; what after sales services to offer; and finally, when to enter the
market. All these are crucial decisions requiring a variety of informational inputs.
Basic to these decisions are three other considerations (1) product objectives, (2)
coordination of product planning activities between headquarters and subsidiary, and
(3) foreign collaboration.

of Export
Notes
Ex por t Qual i t y Cont r ol
Exported goods represent a country's image, in terms of its commitment to quality
and perfection. If you import goods from a supplier from a particular country and
they turn out to be defective or do not measure up to your expectations, you will not
only form a poor impression about the exporter but also about the country under
question. Exporters, no doubt, work hard to ensure that goods conform to expected
standards. However, since exports reflect a nation's quality as well, the Government
of India has also taken upon itself the onus of making sure that exports from India
conform to international quality norms. To accomplish this task, the Export (Quality
Control and Inspection) Act, 1963 was established and later amended in 1984. The
basic objective of the Act is to ensure sound development of export trade of India
through Quality Control and Inspection.
The Export Inspection Council (EIC) was set up by the Government of India under
Section 3 of the Export (Quality Control and Inspection) Act, 1963 (22 of 1963), as an
advisory body to the Central Government, which is empowered to:
Notify commodities which will be subject to quality control and/or
inspection prior to export,
Establish standards of quality for notified commodities,
Specify the type of quality control and/or inspection to be applied to such
commodities.
Ever since its inception, EIC has evolved a great deal and stands as an apex institution
having the vision to facilitate worldwide access for Indian exports through a credible
and efficient inspection and certification system which can help an earn global
recognition as India's premier organisation for certifying quality.
Its main activities include:
Certification of quality of export commodities through installation of quality
assurance systems (in-process quality control and self-certification) in
exporting units as well as consignment-wise inspection.
Certification of quality of food items for export through installation of Food
Safety Management Systems in the food processing units as per international
standards.
Issue of different types of certificates such as health, authenticity etc. to
exporters under various product schemes for export.
Issue of Certificates of Origin to exporters under various preferential tariff
schemes for export products.
Laboratory testing services.
Training and technical assistance to the industry in installation of Quality and
Safety Management Systems based on principles of Hazard Analysis Critical
Control Point (HACCP), ISO-9001: 2000, ISO: 17025 and other related
international standards, laboratory testing etc.
Recognition of Inspection Agencies as per ISO: 17020 and Laboratories as per
ISO: 17025 and utilising them for export inspection and testing.
In rendering the above services, EIAs are backed by qualified technical
manpower, having nearly 40 years of diversified experience of quality control
and inspection of notified commodities including their testing as per
international standards/importing countries' standards or the foreign buyers'
specifications.

Notes
EIC advises the Central Government on measures to be taken for development of
export trade through quality control and pre-shipment inspection. EIAs are the five
Export Inspection Agencies which have headquarters at Mumbai, Kolkata, Cochin,
Delhi and Chennai. EIAs are the autonomous field organisations for implementing
policies of the Central Government with respect to quality control and/or pre-
shipment inspection of export commodities from India.
Not i f i c at i on of Commodi t i es
Notified commodities represent products that are subject to compulsory pre-shipment
inspection under Section 6 of the Export (Quality Control & Inspection) Act, 1963.
There are over 1,200 commodities under the broad classifications of chemicals and
allied products, cement concrete, common salt, inorganic pigments, linoleum,
minerals and ores group, organic chemicals, paint and allied products, pesticides and
their formulations, printing ink, PVC leather, cloth refractories, rubber products, cycle
tyres and tubes, bicycle and rickshaw tubes, bicycle and rickshaw tyres, rubber belts,
v.belts, fan belts, rubber hoses, engineering products, automobile - spares components
and accessories, bicycles bright steel bars, cast iron manholes covers and frames, cast
iron soil pipes and fittings, cast iron spun pipes, diesel engines, dry-batteries, electric
cables and conductors, electric fans, electric lamps and tubes, electric motors and
generators, enamelware, fasteners, gas cylinders, household electrical appliances, jute
mill spares, accessories, light engineering products, builders hardwares, cutlery,
household articles, pipe fitting, stainless steel utensil, steel and steel product, storage
batteries, switch gear and control gear, food and agricultural products, fish and
fishery products, canned crab meat prawns (frozen), dried fish, egg products, fruits
and vegetable products, textiles, coir products, coir yarn (baled), hand knotted
woolen carpets, jute and jute products, footwear and footwear components, human
hair double drawn, at present that fall under the purview of these notifications.
(The detailed list of notified items can be accessed from www.eicindia.org).
Ex por t Cer t i f i c at i on Syst ems
The following Export Certification Systems are available with EIC:
Consignment-wise Inspection: Under this system, each export consignment is
inspected and tested by the recognised inspection agency. Samples are drawn using
statistical methods and the shipment is tested against prescribed standards. These
tests may be carried out either in the field or at any recognised laboratory, depending
upon the requirements. If the goods pass the test, a certificate to that effect is issued
that enables the exporter to gain clearance at customs. However, if the goods are not
found conforming to standards, the shipment is rejected. The exporter will have to re-
apply for inspection after he has carried out necessary improvements.
These certificates usually have a validity period and if the exporter is unable to ship
the goods within such this period, he will have to re-apply and obtain a fresh
certificate.
No consignment of any notified commodity can be exported unless it is accompanied
by a certificate issued by a recognised inspection agency. Customs authorities will not
grant their approval, unless this certificate is produced.
In-Process Quality Control: This system emphasises the need to exercise quality
control at the process stage itself to ensure that the end product will conform to
desired standards. Control needs to be applied right from the initial stage of raw-
material procurement through to the various stages of production, processing and
packaging. This will instill a sense of responsibility in the exporter to create quality
products on a consistent basis. Quality should become a natural habit rather than a

of Export
Notes
forced phenomenon. To this end, EIAs approve certain units against applications
received in the prescribed format, as possessing adequate levels of quality control
systems in all relevant areas, based on its own thorough assessment carried out by a
panel of Inter-departmental experts. Units thus approved are granted an option either
to issue the certificate of inspection of export worthiness on their own or to obtain the
certificate of inspection from EIAs. EIA representatives keep making spot checks on
such units from time to time.
This method encourages internal quality control and works as a motivation for the
truly quality conscious exporters, by giving them the facility of self certification.
Self Certification: This system provides for additional stringent norms over and
above in process quality control (IPQC) procedures in the crucial areas of design and
development, quality audit, after sales service, housekeeping and maintenance. An
export unit desirous of approval under this scheme needs to apply to the EIA in the
prescribed format. Upon receipt of the application, EIA representatives carry out a
thorough inspection of the facilities and quality control systems in use at the
exporter's premises, particularly in the four designated areas. Once satisfied, the unit
is recognised by the Government of India as being capable of issuing certificates of
export worthiness for their own export consignments. Such a facility is being initially
granted to engineering units for a period of one year only and their performance is
reviewed from time to time.
Food Safety Management System Based Certification: Keeping in view the growing
concern over food safety, EIC has developed specific certifications based on
international standards like HACCP, GMP, GHP (that respectively stand for Hazard
Analysis Critical Control Point, Good Manufacturing Practices, and Good Hygienic
Practice). Presently, these certifications are mainly being used for Fish and Fishery
Products, Egg Products and Milk Products.
In addition, special pre-shipment certification schemes exist for categories like
Basmati Rice, Black Pepper, Egg Products, Fish and Fishery Products, Honey, Milk
Products and Processed Food Products containing Red Chilies. Detailed procedures
and guidelines are available at the EIC website.
Rel ax at i ons f r om Compul sor y Pr e-shi pment I nspec t i on
In view of the increasing competition in global markets, the Government of India has
been liberalising various rules and regulations to streamline foreign trade. The
operation and procedures of pre-shipment inspection have also been simplified to
help exports grow without hindrances. As a result, following relaxations have been
granted from pre-shipment inspection:
All the star trading houses as well as Industrial Units in Export Processing
Zones and 100% Export Oriented Units have been exempted from the
purview of Compulsory Pre-shipment Inspection.
Units approved by EIAs under the system of In-process Quality Control
(IPQC) have been authorised to issue statutory certificates by themselves.
Items which were hitherto subjected to compulsory pre-shipment inspection
have been exempted from the same provided the exporter has a firm letter
from the overseas buyer stating that the overseas buyer does not require pre-
shipment inspection from any official Indian inspection agencies.

Notes
Rec ogni t i on t o I nspec t i on Agenc i es
EIC operates a scheme to recognise inspection agencies for carrying out the pre-
shipment inspection on its behalf. Any agency desiring recognition as an inspection
agency for any of the notified commodities under the Act needs to furnish an
application in duplicate in the prescribed proforma accompanied by an application
fee of Rs. 5,000/- (non-refundable) as given in the Schedule of Fee in Clause 9 and a
copy of its Quality Manual. The application should be complete in all respects and
should be accompanied by necessary documents in relation to its activities as well as
quality management systems implemented by it.
EIC will thoroughly scrutinise the application and if satisfied, will accept the same.
Subsequently, it will carry out an Adequacy Audit of the quality manual submitted by
the agency. On successful completion of the same, a team of auditors from EIA will
conduct a physical audit of the applicant's facilities and quality systems. If the
auditors are satisfied with the applicant's survey, they will recommend their case to
the Director (I&Q/C), EIA, who is authorised to grant this recognition to act as an
agency. The recognition is normally granted for an initial period of three years,
renewable for maximum of three years at a time.
Pr e-shi pment I nspec t i on as per Requi r ement s of t he
Buyer
We have understood the mechanism of compulsory pre-shipment inspection as
required by the Government of India through its network of EIC and EIAs. However,
the foreign buyer may waive of this compulsory inspection by a government
recognised agency but may insist on pre-shipment inspection by an independent
agency nominated for the purpose by him or his own agent. In such cases, the
exporter will receive instructions from the buyer and he must follow the same
religiously. Essentially, this pre-shipment inspection at the behest of the importer will
decide the fate of his shipment. LCs normally have this pre-shipment inspection
clause and one of the essential documents required for processing the payment is the
Pre-Shipment Inspection Certificate from the designated agency in original. A large
number of buying agencies around the world carry out such inspections.
1. Interview a view local exports and compare the quality control
practices being followed by them.
2. Access SGC Indias website and prepare a detailed report of its
various testing capabilities.
Ex por t Fi nanc e
Export finance in India is available in two categories-pre-shipment finance and post-
shipment finance.
Pr e-Shi pment Fi nanc e
Pre-shipment credit is provided to the exporters for meeting their need of getting the
shipment ready. It is generally offered as Packing Credit (PC). The exporter has to
submit the prescribed application form for obtaining packing credit together with the
required papers to the bank. The documents required generally are the export order,
letter of credit, proof of business address, financial papers like profit & loss account
and the balance sheet. The bank thoroughly scrutinizes the application and the
attachments. Generally, a physical verification of the exporter's business premises is

of Export
Notes
also carried out. The bank wants to make certain that the exporter has a financially
sound business background. In addition, the bank asks the exporter to provide
collateral security/guarantee to secure the loan. Banks these days extend packing
credit only against firm export orders backed by irrevocable confirmed letter of credit
from a prime bank.
Banks also require the exporter to obtain an insurance cover from ECGC against
payment risks. The banks themselves also obtain financial guarantees from Export
Credit Guarantee Corporation and the exporter is required to bear the charges for the
same (see chapter on Risk and Insurance).
The amount of PC extended normally will not exceed the FOB value of the export
order. The bank will also consider the domestic cost of production of a particular
order. Banks also require the exporter to contribute margin money to ensure his
financial stake in the transaction as well as not to finance his profits also. The bank's
own risk is also reduced to the extent of the margin money and the exporter becomes
personally responsible to the same extent. Each bank decides its own margin
requirements as there are no set rules for this.
The period for which PC is granted depends upon the situation in each case. The bank
will prepare its own estimate of the time required for completion of the particular
order, as well as pay attention to the shipment date. Out of the two, the earlier date
normally defines the credit period. The banks decide the repayment period keeping in
view a maximum of 180 days as prescribed by the RBI. In certain cases, where the
production process is rather long, credit is permissible for up to 270 days. If the credit
remains outstanding beyond the specified time period, interest is charged at the
normal commercial lending rate, from the start date of the loan.
PC is normally operated as a separate account and the exporter is required to utilize
the funds only for transactions related to the particular export order. The bank closely
monitors the operation of this account to ensure proper use of funds designated for
fulfillment of a certain export contract.
The outstanding loan amount in a PC account has to be settled out of the proceeds of
the exported goods as soon as the documents drawn for the same are discounted. At
this moment, the pre-shipment loan actually gets converted into post-shipment credit.
Pre-shipment credit is extended in both Indian rupees as well as in foreign currency.
The latter is known as PCFC, that is, pre-shipment credit in foreign currency. This
facility entitles the exporter to borrow funds as pre-shipment credit in foreign
currencies like US Dollar, Japanese Yen, Pound Sterling or Euro. Such credit is offered
at internationally competitive interest rates to enable the exporter to take advantage of
the same under stiff competitive environment. These loans are extended at
LIBOR/EURIBOR/EURO LIBOR interest rates. LIBOR stands for London Inter-Bank
Offer Rate which refers to the rate of interest at which banks are ready to lend money
to each other in London's inter-bank market. LIBOR rates are the world's most widely
used short-term interest rates. EURIBOR is Euro Inter-Bank Offered Rate, the rate
released by the European Banking Federation, used for euro inter-bank loan
transactions between banks in the euro region. EURIBOR is generally used as the
underlying interest rate for euro-denominated transactions. EURO LIBOR, as the
name suggests, refers to Libor denominated in euro.
The exporter may also be allowed a Running Account Facility if his track record is
satisfactory to help him overcome difficulties arising due to long production periods
and seasonal availability of raw materials. In such cases, the exporter is granted PC
without submitting a firm exports order or letter of credit. However, he is expected to
submit the same with the bank within a reasonable period. Banks are authorised to
use their own judgements in this respect.

Notes
Advanc es agai nst Dut y Dr aw bac k /I nc ent i ves
Banks may also extend loans prior to shipments against the drawback/incentives
receivable from the government covered by ECGC guarantee in certain exceptional
cases. This type of advance is normally extended after the goods have been shipped.
The exporter will have to present his case as a special one to the satisfaction of the
bank. The bank in its own discretion may advance a loan for up to 90 days at any
interest rate within the ceiling of BPLR (Benchmark Prime Lending Rate) minus 2.5%.
The rates of interest for export credit, both in rupees and in foreign currency for Pre-
shipment and Post-shipment loans, as prescribed by Reserve Bank of India (RBI) have
been provided as Annexure I and II at the end of this chapter (www.rbi.org.in).
Post -Shi pment Cr edi t
Once the exporter has shipped the goods, there will always be a time gap between the
date of shipment and the date of receipt of payment. Post-shipment credit refers to the
facilities extended by the banks to the exporter during this period to enable him to
tide over his financial needs. It also includes any loan or advance granted by the bank
to the exporter against any drawback or other export incentives receivable, permitted
by the government. Post-shipment loan runs from the date of extending credit, after
shipment of goods to the date of realization of export proceeds. It infuses funds into
the business even before the actual payment has been received, thus easing the cash
flow. The exporter is in a position to obtain funds for the shipped goods without
waiting for the buyer to make the payment.
Post-shipment finance is provided at concessional interest rates as per RBI guidelines.
The proof of shipment of goods, serves as the basis of grant of such facility. The basic
purpose of this credit is to finance export receivables. Normally, the exporter who has
exported the goods is eligible to apply for this facility. Alternatively, the exporter to
whom the export documents have been transferred, can apply for this credit.
Post-shipment finance can be granted upto 100% of the invoice value although the
normal practice is to give 90%. This credit gets liquidated by the proceeds of export
bills received from overseas in respect of the exported goods.
The exporter has the choice to avail post-shipment credit either in Indian rupees or in
foreign currency. However, if the exporter has availed the pre-shipment credit in
foreign currency, the post-shipment credit has to be essentially in foreign currency
since pre-shipment credit has to be liquidated in foreign currency. Under export bill
re-discounting (EBR) scheme, for post shipment finance at international rates of
interest, PCFC will be liquidated with the discounting of bills. The foreign currency of
the bill will be applied to PCFC in foreign currency and if there is any surplus of the
bill after adjusting to PCFC, the surplus portion will be converted into Indian rupees
and credited to the exporter's CC or current account. The EBR advance, which is a
foreign currency loan, will be eventually closed when the overseas buyer pays the bill
and the export proceeds are realised.
The following options are available to the exporter for post-shipment credit:
(i) Export bills purchase/discounting
(ii) Export bills negotiated (against letter of credit)
(iii) Advances against bills for collection
(iv) Advances against duty drawback receivable from the government
(v) Advances against exports on consignment basis
(vi) Advances against undrawn balances

of Export
Notes
Banks can extend post shipment finance on concessional rates for periods
listed below:
Demand bills the credit period is the Normal Transit Period (NTP)
as prescribed from time-to-time by the Foreign Exchange Dealers'
Association of India (FEDAI). This period comprises the average
period normally involved from the date of negotiation/purchase/
discount till the receipt of bill proceeds in the Nostro account of the
bank. It is not the same as time taken for the arrival of the goods at
the destination.
Usance bills the credit period is a maximum of 180 days inclusive of
NTP plus usance period plus grace period.
An exporter can also avail of factoring services for his export receivables to finance his
post-shipment activities. Under export factoring, the factoring agency factors export
invoices drawn on overseas buyers and prepays to clients an agreed percentage of the
invoice value immediately. The following steps are involved:
The exporter ships the goods to the importer.
The exporter assigns his invoices through the export factor to the import
factor who assumes the credit risk (as per prior arrangement).
The Export factor prepays invoices.
The importer pays the proceeds to the import factor, who transfers the
amount to the export factor.
The export factor deducts pre-payment already made, other charges and pays
the balance proceeds to the exporter.
The agency handling the collection of export receivables of clients (exporters) is called
Export Factor (EF) and the factor in the buyer's country who undertakes collection
and credit protection services, is called the Import Factor.
Rol e of Ex por t -I mpor t Bank of I ndi a i n Ex por t Fi nanc e
Export-Import Bank of India, set up in 1982, for the purpose of financing, facilitating,
and promoting foreign trade in India, is the principal financial institution in the
country for coordinating the working of institutions which are engaged in financing
exports and imports. The bank provides competitive finance at various stages of the
export cycle.
EXIM INDIA operates a wide range of financing and promotional programmes. The
Bank finances exports of Indian machinery, manufactured goods, consultancy and
technology services on deferred payment terms. EXIM INDIA also seeks to co-finance
projects with global and regional development agencies to assist Indian exporters in
their efforts to participate in such overseas projects.
The Bank is involved in promotion of two-way technology transfer through the
outward flow of investment in Indian joint ventures overseas and foreign direct
investment flow into India. EXIM INDIA is also a Partner Institution with European
Union and operates for facilitating promotion of joint ventures in India through
technical and financial collaboration with medium-sized firms of the European Union.
The Bank provides the following fund based facilities:
Lines of Credit: Exim Bank extends lines of credit to overseas
governments/agencies nominated by them or financial institutions overseas
to enable buyers in those countries to import capital/engineering goods,
industrial manufactures and related services from India on deferred payment
terms. This facility enables importers in those countries to import from India

Notes
on deferred credit terms as per the terms and conditions already negotiated
between Exim Bank and the overseas agency.
Supplier's Credit: Exim Bank offers Supplier's Credit in Rupees or in Foreign
Currency at post-shipment stage to finance export of eligible goods and
services on deferred payment terms. Supplier's Credit is available both for
supply contracts as well as project exports; the latter includes construction,
turnkey or consultancy contracts undertaken overseas. Exporters can seek
Supplier's Credit in Rupees/Foreign Currency from Exim Bank in respect of
export contracts on deferred payment terms irrespective of value of export
contracts.
Overseas Buyer's Credit: Credit is offered directly to the overseas buyer for a
specific project/ contract.
Finance for Rupee Expenditure for Project Export Contracts (FREPEC): This
scheme seeks to Finance Rupee Expenditure for Project Export Contracts, to
enable Indian project exporters to meet rupee expenditure incurred/required
to be incurred for execution of overseas project export contracts such as for
mobilisation/purchase/acquisition of materials and equipment, mobilisation
of personnel, payments to be made in India to staff, sub-contractors,
consultants and to meet project related overheads in Indian rupees. The
purpose of the programme is to provide a boost to project export efforts of
companies having a good track record and sound financials.
Pre-Shipment Rupee Credit: Pre-shipment Rupee Credit is extended to
finance temporary funding requirement of export contracts. This facility
enables the provision of rupee mobilisation expenses for construction/
turnkey projects. Exporters could also avail of pre-shipment credit in foreign
currencies to finance the cost of imported inputs for the manufacture of
export products to be supplied under the projects.
Refinance of Export Credit: Authorised dealers in foreign exchange can obtain
from Exim Bank, 100% refinance of deferred payment loans extended for the
export of eligible Indian goods.
Forfaiting: Forfaiting is a mechanism of financing exports through:
by discounting export receivables.
evidenced by bills of exchange or promissory notes.
without recourse to the seller (viz. exporter).
carrying medium to long term maturities.
on a fixed rate basis (discount).
up to 100% of the contract value.
In a forfaiting transaction, the exporter surrenders, without recourse to him, his rights
to claim for payment on goods delivered to an importer, in return for immediate cash
payment from a forfaiter. As a result, an exporter in India can convert a credit sale
into a cash sale, with no recourse to the exporter or his banker.
Bills of exchange or promissory notes, backed by co-acceptance from a bank (which
would generally be the buyer's bank), are endorsed by the exporter, without recourse,
in favour of the forfaiting agency in exchange for discounted cash proceeds. The
banker's co-acceptance is known as availisation. The co-accepting bank must be
acceptable to the forfaiting agency.
Exim Bank works as a facilitator between the Indian exporter and the overseas
forfaiting agency. On a request from an exporter, for an export transaction which is

of Export
Notes
eligible to be forfaited, Exim Bank will obtain indicative and firm forfaiting quotes
discount rate, commitment and other fees from overseas agencies.
Exim Bank will receive avalised bills of exchange or promissory notes, as the case may
be, and send them to the forfaiter for discounting and will arrange for the discounted
proceeds to be remitted to the Indian exporter. Exim Bank will issue appropriate
certificates to enable Indian exporters to remit commitment fees and other charges.
Advantages to Exporters: Forfaiting offers the following benefits to the exporters
Converts a deferred payment export into a cash transaction, improving
liquidity and cash flow
Frees the exporter from cross-border political or commercial risks associated
with export receivables
Finance up to 100% of the export value is possible as compared to 80-85%
financing available from conventional export credit programmes
As forfaiting offers without recourse finance to an exporter, it does not impact
the exporter's borrowing limits. Thus, forfaiting represents an additional
source of funding, contributing to improved liquidity and cash flow
Provides fixed rate finance; hedges against interest and exchange risks arising
from deferred export credit
The exporter is freed from credit administration and collection problems
Forfaiting is transaction-specific. Consequently, a long-term banking
relationship with the forfaiter is not necessary to arrange a forfaiting
transaction
Exporter saves on insurance costs as forfaiting obviates the need for export
credit insurance
Simplicity of documentation enables rapid conclusion of the forfaiting
arrangement.
Visit the offices of SBI Factors or visit their website and prepare a detailed study of
the type of schemes offered by them to the exporters. Also explore the success of
their schemes against the traditional finance options.
Shi pment and Pr oc edur e Ther eof
We have already gone through the complexities involved in the marketing efforts
required for exports. Unlike domestic business, an exporter is dealing with a larger
number and more challenging uncertainties. However, even when he has received the
order, his life doesn't become easy as the path between receipt of an export order and
its successful execution is full of hurdles. Please do not be alarmed. The idea is not to
make anyone nervous here. The point of emphasis here is that an exporter has to
follow certain procedural routines while executing an export shipment and therefore
and he must be fully aware of the drill.
To focus better on the issue, let us take the example of an exporter Ratnesh from
Delhi, who deals in auto parts. He receives an enquiry from abroad for supplying a
certain part in good numbers. Now we will see the step-by-step route that Ratnesh
needs to follow.
Enqui r y
This is the beginning of an export transaction. This reflects the buyer's interest
and specific requirements.

Notes
In this case, Ratnesh ideally should have received the following details:
Vehicle Model Number and its Type (like Isuzu 312, MUV)
Original Part Number and its full description (like 01256, radiator
hose)
Size/Technical specifications
Drawing
Original Sample
Quantity required
Packing Requirements
Price Specification Required - FOB/C&F/CIF
Delivery Schedules
Mode of Shipment - Sea/Air
Mode of Payment - like Letter of Credit
Production sample approvals, if required
Pre-shipment Inspection Requirements, if any
Any other Certification/Compliance required, like a Certificate of
Origin
Quot at i on
Ratnesh must go through all the details in the enquiry and in case there is
need for some clarifications, he must immediately get in touch with the buyer.
Based on the details of the enquiry, Ratnesh will prepare his quotation, also
called a Proforma Invoice and submit the same to his buyer for approval.
Or der Rec ei pt and Ac c ept anc e
If the buyer is satisfied with the quotation, he will approve the same and
place a firm order on Ratnesh. If the importer wants certain changes in the
offer from Ratnesh, he will ask Ratnesh and after due
negotiations/discussions, mutually agreed changes will be made by Ratnesh
and the quote will have to be resubmitted. The buyer will approve this new
quote and place a firm order on Ratnesh.
On receipt of the order, Ratnesh must immediately acknowledge the
acceptance of the same.
Fi nanc e, Pr oduc t i on and Pac k i ng
Ratnesh will need to arrange finance to produce the order in time. He could
avail the pre-shipment finance facilities offered by all nationalized banks to
exporters in India at special interest rates.
Ratnesh will also organize production for timely shipment. He will ensure
compliance of quality standards as per the buyer's expectations. In case, a pre-
shipment inspection is required by the customer's nominated agency, Ratnesh
will have to get their approval as well.
Ready goods will need to be packed as per the instructions of the importer. In
the absence of any such instructions, Ratnesh will have to ensure good
export-worthy packing.

of Export
Notes
Ex c i se Cl ear anc e
Before Ratnesh is allowed to remove the goods for export from his
factory/godown, he will need to complete excise formalities, if his unit falls
under the purview of excise. Goods exported from India are free from
payment of excise duties and the exporters are required to follow the
procedure prescribed to claim this benefit under the Central Excise Act, 1944
(see chapter on Export Incentives for procedural details of excise exemption).
Ex por t Doc ument s
Ratnesh will now prepare the basic export documents, Invoice and Packing
List. He will hand these over to his C&F agent. The role and functions of
Clearing & Forwarding agents have been discussed in details later in this
unit.
C&F agent will prepare shipping documents including the following:
Shipping Bill in multiple copies
Commercial Invoice
Packing List
SDF (in duplicate)
LC (original)
Copy of Export Order
Inspection Certificate
ARE-1 & ARE-2 forms (in duplicate)
Car go I nsur anc e and Shi ppi ng Spac e Reser vat i on
The C&F agent will book shipping/air space for the cargo. He will also
arrange for cargo insurance, if Ratnesh so desires.
Ratnesh will send the cargo to the C&F agent, who will take it direct to the
port of shipment or store it in his own warehouse, as per the situation.
Cust oms Cl ear anc e
The C&F agent will submit the documents with the Customs.
The Customs Examiner will check the documents for compliance with
customs' rules and procedures as well as for accuracy of quantity and value in
the export documents with export order/LC.
The Customs Examiner will also instruct the Dock Appraiser for physical
examination of cargo.
The C&F agent will bring the export cargo to the port for examination.
The Dock Appraiser will conduct physical examination of the goods and if
satisfied will endorse "Let Export" on the shipping bill copy.
The Preventive Officer will also endorse the same shipping bill copy with the
words "Let Ship" to accord his approval to the cargo.
The C&F agent will now proceed to get the cargo loaded on board the ship.
The Master of the ship will issue 'Mate's Receipt' to the port's Shed
Superintendent.

Notes
The C&F agent will pay the relevant port dues and collect the Mate's Receipt.
He will then submit this receipt with the shipping company.
The shipping company will release bill of lading to the C&F agent in
exchange of the Mate's Receipt.
Rec ei pt of Shi pment Doc ument s f r om C& F Agent
The C&F agent will then deliver the bill of lading together with other
shipment documents to Ratnesh. These will include:
Complete set of Clean on Board Bill of Lading
Copies of Customs attested Commercial Invoice & Packing List
Original LC and Export Order
Drawback Copy of Shipping Bill
ARE-1 and ARE-2 forms
SDF (duplicate copy)
Copies of Certificate of Origin/Consular Invoice/Customs Invoice, if
required
Shi pment Advi c e t o Buyer
Ratnesh must now send a shipment advice to his buyer giving him particulars
of the shipment date, vessel name, ETA etc. He must enclose a copy each of
the commercial invoice, packing list and bill of lading with this advice.
Pr esent at i on of Shi pment Doc ument s t o t he Negot i at i ng
Bank
Ratnesh now has to present the following documents to his bank:
Bill of Exchange/Draft (First and Second Original)
Complete set of Bill of lading (negotiable and non-negotiable)
Commercial Invoice copies in required number
Packing List copies in required number
SDF (duplicate copy)
Cargo Insurance Policy
Original LC
Export Order
Bank Certificate in prescribed format
Certificate of Origin/Consular Invoice/Customs Invoice, if required
Inspection Certificate by the buyer nominated agency, if applicable
Pr esent at i on of Doc ument s f or Payment t o For ei gn Bank
by t he Negot i at i ng Bank
Ratnesh's bank will now thoroughly scrutinize these documents against the
terms of the LC and export contract.
Once satisfied, the bank will send this set of documents to the buyer's bank.

of Export
Notes
The importer's bank will release payment once it is satisfied that the
documents are in order.
The duplicate copy of the SDF will be directly sent by Ratnesh's bank to the
Exchange Control Department of the RBI, on receipt of the payment from the
buyer's bank.
Ex por t I nc ent i ves
Ratnesh will also file his claim for excise exemption and receive the due
amount of duty drawback as well.
It is now amply clear that an export transaction is a series of many diverse yet inter-
related activities. The exporter has to not only work himself but also has to deal with
various agencies like the C&F agent, bank, shipping company/airlines, port
authorities, customs, excise, sales tax, transporters, inspection agencies, and so on. A
brief visual of various activities is given below as a one-glance shot:

Having seen the above at a glance, one thing surely stands out and that is the role and
responsibility of the C&F agent. As the name suggests, these are professional agencies
that specialize in customs clearing of both export as well as import cargo. In addition,
they also undertake warehousing and haulage operations. They are also known as

Arrange Finance
for Exports
Production/Sourcing
of goods as per order
Finalize C&F Agent
Forwarding Docs and
Goods to C&F Agent
CARGO
Insurance
Booking of
Shipping Space
Customs Clearance
of Cargo
Export Docs to
Exporter
Claim
Incentives
Receipt of Docs
from C&F Agent
Shipment Advice to
Buyer
Receipt of
Incentives
Presentation of Docs to
Negotiating Bank
Payment Receipt
FINALIZE EXPORT ORDER

Notes
Custom House Agents (CHAs) or Freight Forwarders. They perform a variety of tasks
that lessens the burden of the exporter. Most exporters/importers around the world
use such services and now we have certain multinational operators in this particular
field. India also has seen the growing presence of such multinationals. Some of the
famous names include Fritz Freight, Expediters, Schenkers, and Bax Global, etc.
Func t i ons
C&F agencies mainly perform the following important functions:
Customs clearance of export/import cargo
Consolidation of cargo
Advice on shipping/air routes
Booking of ship/air space
Inland haulage in both countries
Loading/offloading activities
Cargo Insurance
Warehousing facilities both local and foreign
Packing/Repacking Activities
Documentation Services
Attending to Port Formalities
Helping exporter with filing claims for export incentives
Assist in pre-shipment inspection by buyer nominated agency
Represent shipping companies to offer one window services
Spend a day with a local cleaning and forwarding (CDF) agent in export and make
a Comprehensive project report on the functions carried out by him for exporters.
Summar y
Whatever form of business organisation has been finally decided, naming the
business is an essential task for every exporter. Simple and attractive name indicating
the nature of business is ideal. The office should be located preferably in a commercial
complex, in clean and workable surroundings. The letter head should be simple and
superb providing information concerning H.O., branches, cable address, telephone
number, fax number, bankers name and address, etc.
For proper selection of a product, study the trends of export of different items from
India. Besides, while selecting the product, it has to be ensured that you are
conversant with Government policy and regulations in respect of the product selected
for export. Also make sure that the full and correct address is written and the
envelope is duly stamped.
Pre-shipment inspection in India is conducted for quality control of export goods
under the overall supervision of the Export Inspection Council (EIC), which falls
under the Ministry of Commerce, Government of India. The Export Inspection
Council (EIC) was set up by the Government of India under Section 3 of the Export
(Quality Control and Inspection) Act, 1963 (22 of 1963), as an advisory body to the
Central Government, which is empowered under the Act to: Notify commodities
which will be subject to quality control and/or inspection prior to export, establish

of Export
Notes
standards of quality for such notified commodities and specify the type of quality
control and/or inspection to be applied to such commodities.
There are over 1,200 commodities under various classifications that fall under the
purview of Pre-Shipment inspection. There are various types of certification systems
available: Consignment-wise inspection, where the exporter applies to the EIA
(Export Inspection Agency) for conducting inspection once his consignment is ready.
EIA representatives check the consignment and if satisfied, they issue a certificate that
enables the exporter to clear his goods at customs. IPQC stands for In Process Quality
Control where EIAs approve certain units against applications received in the
prescribed format, as possessing adequate levels of quality control systems in all
relevant areas, based on its own thorough assessment carried out by a panel of Inter-
departmental experts. Units thus approved are granted an option either to issue
certificate of inspection of export worthiness on their own or to obtain certificate of
inspection from EIAs.
Self certification provides for additional stringent norms over and above the in
process quality control (IPQC) procedures in the crucial areas of design and
development, quality audit, after sales and service, housekeeping and maintenance.
Once a unit is recognised under this scheme, it obtains the permission to issue
certificates of export worthiness for its own export consignments. Such facility is
initially granted to engineering units for a period of one year only and their
performance is reviewed from time to time. Food Safety Management System Based
Certification is carried out mainly for Fish and Fishery Products, Egg Products and
Milk Products as per international standards like HACCP, GMP, and GHP.
Certain units like Star Trading Houses and units under EPZ are exempted from the
compulsory pre-shipment inspection. The government has also allowed exemption to
those exporters who possess firm letters from overseas buyers stating that they do not
require pre-shipment inspection from any official Indian inspection agency.
EIC also runs a scheme for recognising independent testing agencies as capable of
conducting pre-shipment inspections on its behalf and issuing certificates of export
worthiness to exporters.
Pre-shipment finance is generally offered as packing credit (PC). The exporter will
have to submit the PC application along with required documents. Bank will satisfy
itself with document scrutiny and physical verification before sanctioning the loan.
This facility is also extended in foreign currency. The outstanding loan amount in a
PC account has to be settled out of the proceeds of the exported goods as soon as the
documents drawn for the same are discounted. At this moment, the pre-shipment
loan actually gets converted into post-shipment credit.
Post-shipment loan runs from the date of extending credit, after shipment of goods to
the date of realization of export proceeds. The options available to the exporter for
Post-shipment credit include Export bills purchase/discounting, Export bills
negotiated (against letter of credit), Advances against bills for collection, Advances
against duty drawback receivable from the government, Advances against exports on
consignment basis and Advances against undrawn balances. An exporter can also
avail of factoring services for his export receivables to finance his post-shipment
activities. Under export factoring, the factoring agency factors export invoices drawn
on overseas buyers and prepay to clients an agreed percentage of the invoice value
immediately. Factoring offers a host of advantages to the exporters.
EXIM Bank (Export Import Bank of India) is the principal financial institution in the
country for coordinating working of institutions engaged in financing exports and
imports. The bank provides competitive finance at various stages of the export cycle.
The principal fund-related services of the bank include Lines of Credit, Supplier's
Credit, Overseas Buyer's Credit, Loan under FREPEC Programme Financing Rupee

Notes
Expenditure for Project Export Contracts, Pre-Shipment Rupee Credit, Refinance of
Export Loans and Forfaiting.
An exporter first receives an enquiry with relevant details like description of item,
detailed specifications, quantity required, packing requirements, mode of dispatch,
inspection requirements etc. The exporter then has to quote his price by way of a
proforma invoice, which once approved, becomes the basis of the export contract. On
receipt of the order, the exporter must convey its acceptance to his buyer. Now the
exporter has to arrange for finance, start production to meet the desired delivery
schedule and appoint C&F agent. The exporter has to arrange for the insurance of the
export cargo. The C&F agent takes care of a lot of activities after receipt of the basic
shipment documents, Invoice and Packing List, from the exporter. He prepares the
Shipping Bill and submits it with the customs authorities together with other
shipment papers. He also receives the export cargo from the exporter and presents it
to the customs for physical examination. Once both the documentary and physical
checks are over, the approved for shipment cargo is loaded on to the vessel. The C&F
agent takes delivery of the Mate's Receipt from the port authorities after paying their
charges. He then receives the full set of clean on board bill of lading from the shipping
company in exchange for the Mate's Receipt. The C&F agent then delivers the
shipment documents to the exporter.
The exporter then submits the documents to his bank, who after thorough scrutiny of
the same sends these to the importer's bank abroad for payment. On receipt of the
payment, the duplicate copy of the SDF will be directly sent by the bank to the
Exchange Control Department of RBI. The exporter will then file his claim for excise
exemption and will also receive duty drawback amount due to him.
Keyw or ds
Quality Control: Any activity having for its object the determination of the quality of
a commodity whether during the process of manufacture or production or
subsequently in order to ascertain whether it satisfies the standard specifications
applicable to it or any other specifications stipulated in the export contract and
whether it may be accepted for purposes of export.
Notified Commodity: Any commodity notified under clause (a) of section 6 of the
export (Quality Control and Inspection) Act, 1963.
Inspection: The process of determining whether a batch of goods in that commodity
complies with the standard specifications applicable to it.
Pre-shipment Finance: It offers liquidity to the exporter to procure raw materials,
carry out processing, packing, transporting and warehousing of the goods to be
exported.
Post-shipment Finance: It provides credit facility from the date of shipment of the
goods to the time export payment is realized.
Revi ew Quest i ons
1. How do you select the market for the exporting of goods?
2. What is the method of entering into an export contract?
3. Negotiation with the prospective buyers is an art and negotiation with the
bank after dispatch of goods is also an art. Comment.
4. What is Pre-shipment Inspection? What are the various methods of
certification available to Indian exporters?
5. Write a detailed note on EIC and its functioning.

of Export
Notes
6. Write short notes on (i) IPQC, (ii) EIAs, (iii) Recognition of Inspection
Agencies by EIA, (iv) Benefits of Pre-shipment Inspection, (v) Relaxation from
Compulsory Pre-shipment Inspection.
7. What is the need for export finance? Discuss the two types of facilities
available keeping in view the export cycle.
8. Discuss pre-shipment finance in foreign currency in detail.
9. What are the different types of post-shipment finance? Is post-shipment
finance also available in foreign currency?
10. What is the difference between Factoring and Forfaiting? Explain with the
help of flow charts.
11. Discuss the role being played by Exim Bank of India to help exporters with
finance.
12. Outline the shipment procedure for exports from enquiry to payment receipt
stage.
13. What is the role played by C&F agents in export? Discuss their importance as
assistants to exporters.
14. Write short notes on: Proforma Invoice, Documentary Check versus Physical
Examination, and Release of Mate's Receipt.
Fur t her Readi ngs
P. K. Vasudeva, International Marketing, Excel Books, New Delhi, 2006
Aseem Kumar, Export and Import Management, Excel Books, New Delhi, 2007

Unit 6
Export Documentation
Unit 7
Export Market & Export Marketing Process
Unit 8
International Marketing Research

SECTION-III

Notes
Uni t 6 Ex por t
Doc ument at i on
Unit Structure
Introduction
Export Documentation Requirements in India
Bill of Lading/Airway Bill/Combined Transport Document
Processing of an Export Order
Organisation & Structure of Export & Import Houses
Summary
Keywords
Review Questions
Further Readings
Learning Objectives
Develop an understanding of the export documentation framework in India
Discuss each type of export document in detail
Know how to process an export order
Describe the organizations and structure of export and import houses
I nt r oduc t i on
Export documentation is a very important area in export management. Exporters are
required to follow certain formalities and procedures, using a number of documents.
Each of these documents serves a specific purpose and hence carries its own unique
significance. A clear understanding of all documents and their purpose, how to
prepare these, number of copies required, when and where to file, is a must for all
export professionals. Usually, one could counter this by saying that experts help is
available to do this job, so why should one bother. Sounds convenient too; you may
not prepare or file these documents by yourself, but then you will surely be able to
crosscheck these for accuracy and correctness of information before allowing someone
else to file these on your behalf. After all if anything goes wrong, whether you are an
employee or an export businessman, it will be your neck on the noose!
An export manager needs to keep himself thoroughly updated on all documentation
requirements to carry out an export transaction successfully and it is one of his
primary responsibilities to ensure that all documentary formalities are duly complied
with. Export transactions are comparatively more complex than domestic business
transactions. These require a lot of paperwork and almost nothing is done verbally,
while in domestic business, at times, one could do with certain verbal
communications. For example, a lot of orders for domestic business are placed and
received verbally. This is not possible in international business.
Documentation in export business assumes greater significance as many
parties/authorities are involved in a single transaction. There are the buyers and
exporters, buying agents, RBI, authorized dealers in India (where the exporter has his
bank account), buyers bank (foreign bank), DGFT, customs and port authorities, VAT

Notes
and excise authorities, EPCs, insurance companies, inspection agencies, clearing and
forwarding agents, shipping companies/airlines and inland haulage carriers, etc. This
is just an indicative list!
Proper documentation will ensure smooth sailing with the requirements of each of
these agencies and the resulting transaction will be a successful one. Inaccurate or
incomplete documentation will result in serious financial and goodwill losses. Such
losses can be completely avoided by understanding clearly the documentation
requirements of all concerned parties and then meticulously planning to get the right
documents in the right numbers, at the right places and at the right time.
To illustrate the extent of damage that faulty or incorrect documentation can inflict,
let us take a look at the following points:
The exporter may suffer financially in terms of higher interest
costs/penalties/fines and discrepancy charges.
He may have to spend extra money on phone/fax/courier services.
He may suffer heavily due to loss of credit cover from insurance companies.
He might be forced to pay heavy demurrage charges in his own country/offer
compensation to his buyer in the form of discounts if there is delay due to
snags in documents, affecting the buyers ability to claim goods at the foreign
ports.
The exporter may be forced to airfreight goods at his own expense if the
shipment is delayed unreasonably because of documentation problems.
Last but not the least, the exporter may suffer loss of goodwill with the buyer
resulting in loss of further business.
Ex por t Doc ument at i on Requi r ement s i n I ndi a
Export documentation in India has evolved a great deal particularly since 1990.
Efforts are on, on a faster footing to streamline and modernize the system further (see
box 1). Prior to 1990, the documentation was all manual and not at all coordinated.
The result was lot of delays and mistakes, rendering the task very clumsy, tiresome,
repetitive and truly frustrating. India adopted the ADS in 1991. ADS refers to Aligned
Documentation System, which is the internationally accepted documentation system
(see box 2).
ADS uses a Master Document that contains the information common to all documents
forming part of the aligned series (refer to enclosed CD).

Notes
Box 1

Speed
50-page set of forms to replace
120 pages
EDI linkage to facilitate online
filing of documents
Fast-track mechanism for
perishable cargo
Time limit to be set up for
approvals/sanctions
Importer-Exporter Code (IEC)
number to be issued online.

Right click for fast delivery

To cut transaction time and costs for exports, which are about five times that of China,
commerce and industry ministry announced several measures including a drastic trimming in the
number of forms to be filled from 120 pages to 50 pages. The new set Aaayat Niryaathas
been introduced by DGFT.
Union Commerce Minister Kamal Nath said this was in keeping with his promise made in 2006
that exporters and importers would be spared from filing multiple application forms at various
stages.
He said a committee, set up under chairmanship of DGFT, had submitted its report. We shall be
implementing them, he said.
Electronic Data Interface (EDI) linkage will be ensured among all trade partners, like DGFT,
customs, banks, export promotion councils, to facilitate online filing, verification and retrieval of
documents.
A fast-track mechanism is being introduced for clearance, packaging, quarantine etc, to facilitate
import and export of perishable cargo. Time limits will be laid down for approvals/sanctions to
ensure transparency in government departments and to ensure quality of service.
Moving towards an automated electronic environment, the global trading community can now
reach for a single source for all policy-related information, which will be available on the DGFT
site. Video conferencing will replace manual filing of documents. This will be done via digital
signatures. A special-purpose vehicle for electronic licence use and transfer mechanism is being
planned.
A six-month timeframe has been set for the customs and DGFT to complete EDI linkages. Once
done, manual submission of shipping bills and other documents will be a thing of the past.
Online verification will reduce transaction costs and time.
An Importer Exporter Code (IEC) number will be issued online. Linking the DGFT database with
the income-tax PAN database, by using digital signatures, will do this.
Other e-governance initiatives are also being planned. The effort is to reduce human interface
with DGFT offices.
Source: The Financial Express, April 8, 2005 & www.financialexpress.com

Box 2
Document Alignment is a major trade facilitation activity, whereby trade documents are based on
the United Nations Layout Key and thus aligned in a standard format. Deriving national document
subsets from the UN Layout Key rules simplifies trade documentation on an international scale,
bringing considerable benefits to traders.

Contd

Notes
History
International trade developed over the centuries in an unstructured and ad hoc manner, as
countries exchanged goods and products they excelled in for those, which they lacked.
Documents accompanying these transactions followed a similarly haphazard path, to where
numerous documents in a variety of formats were required for each export shipment. An order
number might appear on the right or left side of a form; addresses could be shown as lines or
blocks.
The situation started to improve in the mid 1960s with the document alignment work initiated by
Sweden, standards developed by the Trade Facilitation Working Party of the UN/ECE (WP.4), and
the 1965 publication of the United Kingdom Board of Trades Simpler Export Documents.
Alignment Aims
The objective of an aligned series of documents is to have as many forms as possible printed on
the same size paper and to have common items of information occupying the same relative
position on each form.
For example, shipper top left, references top right, signatory details bottom right and so on. This
makes forms both easier to complete and easier to process. Since common positions are used for
data items, it is possible to use multi-part sets of different forms or to type a master document.
This master document can be used to produce a range of documents using a photocopier and
overlays (to provide the form outlines and hide unwanted data).
Everyone in the international trade chain benefits from easier document processing. Using
documents that comply with UN alignment standards speeds up form preparation, cuts costs and
reduces errors. You may actually get paid quicker! Aligned documents simplify document
checking and training of new staff. They even enhance an organisations professional image.
Document alignment has been a major agenda item for the UN/ECE Expert Group on
procedures and documentation, with the goal of simplified international trade documents.
Source: Lining up benefits for international trade by Tessa Jones, Head of Publications at SITPRO, the Simpler
trade procedures board, the UKs trade facilitation agency http://www.unece.org/trade/cnnct/artl944.
The export documentation framework in India can be best understood by classifying
export documents in the following two categories:
1. Commercial documents
2. Regulatory documents.
Commer c i al Doc ument s
These documents have their origin in Custom of Trade in international commerce
and are used by exporters/importers to discharge their respective legal and other
incidental responsibilities under sales contract. Commercial documents can be further
sub-divided into:
(a) Principal commercial documents
(b) Auxiliary commercial documents
Principal commercial documents: These documents serve the following purposes:
To effect physical transfer of goods and title to the goods from exporter to
buyer
To realise export sales proceeds.
Principal commercial documents include:
Commercial invoice (and the invoice prescribed by the importer)
Packing list
Certificate of inspection
Certificate of insurance/insurance policy

Notes
Bill of Lading/Airway bill/Combined transport document
Certificate of origin
Bill of exchange
Shipment advice.
Auxiliary commercial documents: These documents are required to prepare/procure
the principal commercial documents and include:
Proforma invoice
Shipping instructions
Insurance declaration
Intimation for inspection
Shipping order
Mates receipt
Application for certificate of origin
Letter to bank for negotiation/collection of documents
Regul at or y Doc ument s
These are prescribed by various government departments/bodies for compliance of
formalities under relevant laws governing export transactions. These include:
Exchange Control Declaration Form-GR Form
Freight Payment Certificate
Insurance Premium Payment Certificate
ARE I/ARE II Forms
Shipping Bill/Bill of Export
Port Trust Copy of Shipping Bill/Export Application/Dock Challan
Receipt of Payment of Port Charges
Vehicle Ticket
A detailed description of all the commercial documents is given below:
Commercial Invoice: It is the basic and most important document in an export
transaction and extreme care has to be taken by the exporter to prepare this
document. A commercial invoice must provide complete and accurate information as
is expected. A slight mistake on the part of the exporter may cost him dearly. This
document requires the exporter to submit details such as his own (exporter) details,
invoice number with date, details of the consignee and buyer (if the buyer is other
than the consignee), buyers order number with date, country of origin of the goods,
country of final destination, terms of payment and delivery, pre-carriage details
(road/rail), place of receipt by pre-carrier, vessel/flight number, port of loading, port
of discharge, final destination, marks and numbers, container number, number and
kind of packaging, detailed description of goods, quantity, rate and total amount
chargeable.
As can be seen, a commercial invoice contains the complete details of the export order
right from order number to quantity, rate, packaging, mode of dispatch and shipping
particulars. Normally, the trade practice is to raise and send a proforma invoice to the
buyer for his approval, once the order has been finalised. On receipt of the approved
proforma invoice, the exporter can use it as part of the export contract. The
commercial invoice then becomes easier to prepare on the basis of the approved

Notes
proforma invoice (the enclosed CD contains the formats of both a commercial invoice
and a proforma invoice).
The commercial invoice serves the following objectives:
It serves as the exporters bill as it indicates the total chargeable amount.
It provides both the consignors and consignees (buyers details if the buyer
and the consignee are different) details and the order number.
It gives the complete details of goods being shipped, corresponding to the
export order and letter of credit.
As per the export order, the exporter is required to ship the exact quantity in
the required packing. The invoice depicts both the quantity and packing,
which must strictly be in accordance with the specifications of the export
contract.
It also lists the terms of delivery and payment that are to be as per the letter of
credit/export contract.
Let us now learn to fill each segment of the commercial invoice one by one:
1. Exporter: This box appears on the top left hand corner of the commercial
invoice. Here, the exporter is required to give his name and complete address
specifying the city, state and country along with his phone and fax numbers.
The purpose is to establish the identity of the shipper.
2. Consignee: This box requires details, that is, the name and complete address
of the party to whom the goods are being consigned.
3. Buyer: Usually, the buyer and the consignee are the same. However, in cases
where the buyer is different from the consignee, his details, that is, the buyers
name and complete address is to be provided in this box.
4. References and Numbers with date: In these boxes the relevant references
such as exporters quotation number with date, invoice number with date,
buyers order number with date have to be accurately filled in.
5. Country of Origin of Goods: The exporter has to fill this box with the name of
the country where the goods have actually been produced.
6. Country of Final Destination: This box must provide the name of the country
where the goods will be finally delivered.
7. Terms of Delivery and Payment: This box has to contain details of the terms
of delivery like FOB, C&F, CIF etc. and the terms of payment such as
L/C (letter of credit), D/A (documents against acceptance), D/P (documents
against payment) etc. These terms have been discussed in details in chapters
titled Terms of Payment and Methods of Payment respectively.
8. Pre-Carriage By: This box should provide the name of the carrier/mode of
transport used to bring the goods from the place of origin to the place where
these were accepted by the pre-carrier.
9. Place of Receipt by Pre-Carrier: This box has to depict the name of the place
where goods were accepted by the pre-carrier.
10. Vessel/Flight Number: This box requires the name and number details of the
shipping vessel or the aircraft carrier being used for the shipment.
11. Port of Loading: The name of the port where goods are loaded on board ship
or flight is required to be provided in this box.
12. Port of Discharge: The name of the port where goods are finally offloaded
(airport or seaport) is to be filled in this section.

Notes
13. Final Destination: This box must contain the name of the place that is the
final destination of the shipment. This will mean not the port of discharge but
the final destination from the port of discharge in the buyers country. For
example, if the airport of the final discharge is JFK, New York, but the goods
are supposed to be finally delivered at the Atlantic City, the name of Atlantic
City will be given in this box.
14. Mark Numbers and Container Number: This box shows the various marks
and numbers that are required to be put on the packed cargo. If containers are
being used, then the container numbers are also required.
15. Number and Kind of Packages: Here, the type of packages being shipped such
as cartons, bales, bags, drums, crates etc. and the total number of such
packages being shipped are to be provided.
16. Description of Goods: The detailed description of goods being shipped is to
be put in this section. The description has to be the same as required in the
export order/letter of credit. If more than one types of goods are being sent,
the description of each is required to be given against the respective number
and kind of packages.
17. & 18. Quantity, Rate and Amount: These columns must show the quantity and
respective rates of each item being exported and the total amount chargeable,
both in figures and words. The quantities and rates have to be the same as in
the export contract.
19. Signature with Date: The invoice must in the end, have the signatures with
date of the exporter or his authorized representative. Unless this is done, the
invoice will remain incomplete and therefore ineffective.
For better and comprehensive understanding of the above, Annexure A at the end of
this chapter provides the specimen of a duly completed commercial invoice.
At times, the importing buyer may ask for specific commercial invoices as per the
customs/requirements of their countries:
(i) Consular Invoice: Some countries use consular invoice as a non-tariff barrier.
Here, the exporter is required to get the commercial invoice verified by the
Embassy/Consulate of the importers country in his (exporters) country. This
certification is done by way of seal/stamp from the Commercial section of the
Embassy/Consulate on payment of the requisite processing fee. For example,
many of the Middle East countries require this verification for their imports
from India.
(ii) Legalized Invoice: Many countries require the exporter to get the commercial
invoice certified by the local chamber of commerce in the exporting country to
verify the correctness of the invoice. Once attested, this commercial invoice
becomes legalized for the importing country. For example, Mexico requires
such legalized invoices for imports from India.
(iii) Customs Invoice: Here, the importing country requires the commercial
invoice to be prepared in its own prescribed format, usually for safeguard
against dumping activity. The information required is almost the same and
the exporter is required to self-attest such invoices. Examples of such
countries are the US, Canada and Australia.
Pac k i ng Li st
This document provides the details of number of packages; quantity packed in each of
them, the weight and measurement of each package and the net and gross weight of
the total consignment. Net weight refers to the actual weight of the items and gross

Notes
weight means the weight of the items plus the weight of the packing material. In fact,
it carries almost all the information as the commercial invoice but for the rate and
total amount. It excludes the financial part of the transaction but concentrates on the
physical and material part.
In cases where the shipment consists of one item in a single pack, the packing
information may be incorporated in the invoice itself. However, as a general trade
custom, both the documents are used irrespective of the size of the shipment.
The packaging list serves a useful purpose for the exporter while dispatching the
consignment as a crosscheck of goods sent. For the port personnel, it comes handy
while planning the loading and offloading of cargo. It is also an essential document
for the customs authorities as they can carry out the physical examination of cargo
and conduct checks on the weight and measurements of the goods smoothly against
the declarations made by the exporter in the packing list.
The prescribed format of a packing list is given in the enclosed CD. Annexure B at the
end of this chapter provides the specimen of a duly completed packing list.
Shipping Instructions: This document serves as a checklist of the exporters
instructions to the shipping company regarding a particular shipment.
Intimation for Inspection: This is the prescribed format for intimating the Export
Inspection Agency (EIA) inviting them to come to inspect the shipment. This topic has
been dealt with in details in the chapter titled Pre-Shipment Inspection. The format of
the same has been reproduced for the readers ready reference in the enclosed CD.
Certificate of Inspection: This is the certificate issued by the EIA after it has
conducted the pre-shipment inspection of goods for export provided the goods fall
under the notified category of goods requiring compulsory pre-shipment inspection.
This topic has been dealt with in details in the chapter titled Pre-Shipment Inspection.
Certificate of Insurance/Insurance Policy: Insurance is an important area in the export
business as the stakes are usually very high. Protection needs to be taken in the form
of insurance cover for the duration of transit of goods from the exporter to the
importer.
Regular exporters normally opt for an open insurance policy and as they make a
shipment, they are required to file an insurance declaration with the insurance
company. Against this declaration, the insurance company issues an insurance
certificate, which is a negotiable instrument. The policy covers all the terms and
conditions of the cargo insurance whereas a certificate issued under an open policy
serves as an evidence of insurance of goods shipped.
The format of a marine insurance declaration and an insurance certificate are included
in the enclosed CD.
Bi l l of Ladi ng/Ai r w ay Bi l l /Combi ned Tr anspor t
Doc ument
These documents are also known as Transport Documents. Let us discuss these one
by one:
Bi l l of Ladi ng
This is issued when goods are shipped using ocean (marine) transport, i.e., ships.
When the exporter finally hands over the goods to the shipping company for loading
on board the ship for transport to their foreign destination, the shipping company
issues a set of Bills of Lading to the exporter. This set serves multiple purposes. It is a

Notes
receipt signifying physical acceptance of cargo by the shipping company and also a
contract of carriage between the exporter and the shipping company for transport of
the goods to their designated destination. In addition, the bill of lading also works as
a document of title to the goods. The importer gets the right to take possession of the
merchandise in his own country only if he possesses the bill of lading. This document
is the instrument used for passing the ownership right or title of the goods to the
buyer by the exporter.
A bill of lading is a negotiable instrument as it is transferable by endorsement and
delivery. However, as already explained above, it also serves some non-negotiable
purposes. Therefore, it is always issued as a set containing both negotiable and non-
negotiable copies.
A bill of lading can be freight paid or freight to pay, depending upon whether the
freight is prepaid or is to be collected at destination. The shipping company will
stamp the bill of lading as freight prepaid in case the exporter has already paid the
freight at the port of loading and the bill of lading will be marked as freight collected
or freight to pay if the freight has not been paid and is required to be collected from
the importer at the port of discharge.
A format of B/L is presented in the enclosed CD.
Bill of lading can be of various types:
An On Board or Shipped Bill of Lading signifies that the goods have been
placed on board the ship. Such B/Ls are required in case of FOB (Free on
Board) shipments.
Received for Shipment Bill of Lading signifies that the shipping company has
received the goods for shipment. Goods are waiting for shipment and are
under the custody of the shipping line. Such B/Ls will work in case of FAS
(Free Alongside Ship) shipments.
A Clean Bill of Lading is one that does not contain any negative remark on
either the quality of goods or on the physical condition of the packaging of
the merchandise received by the shipping company. Importers worldwide
insist on such B/Ls.
A Dirty or Claused Bill of Lading is one that carries a remark put by the
shipping company regarding the damage to the goods or their packaging.
A Stale Bill of Lading is one that is presented by the importer at the port of
discharge late and as a result he may be required to pay fines and
warehousing charges, etc. If this delay is caused due to exporters late
dispatch of documents, the importer is likely to penalize him.
A Transshipment Bill of Lading is needed where goods are required to be
transshipped. However, the original carrier who issues such a bill, takes on
the role of an agent in all subsequent journeys and thus cannot be held
responsible for any loss/damage to the cargo during such subsequent
transport.
A Through Bill of Lading is required where goods are to move from one
carriage to another. This B/L acts as a combined transport document where
the original carrier takes on the role of the principal carrier and thus becomes
responsible for the total journey for loss/damage to the cargo.
The shipping company issues a Charter Party Bill of Lading in cases of charter
shipping. Such B/Ls require specific authorization in the L/C for purposes of
negotiation.

Notes
A Short Forms Bill of Lading contains all the elements of a B/L except that it
does not have all the attributes of a contract of affreightment. Banks do accept
such bills for negotiation unless expressly prohibited by the L/C.
A House Bill of Lading, also called a freight forwarders bill of lading, is
issued by the freight forwarder, consolidator or a NVC (non-vessel carrier). It
is a non-negotiable document containing the names, addresses of the parties
and specific description of the goods shipped.
Ai r w ay Bi l l
Airway bill is a bill of lading used when the goods are shipped using air transport. It
is also known as an air consignment note or airway bill of lading. It is similar to the
ocean bill of lading on two counts. One, it too serves as a receipt of goods by the
carrier and two, it also works as a contract of carriage between the shipper and the
carrier. However, unlike a marine bill of lading it does not serve as a document of title
to the goods. Hence, it is a non-negotiable document.
The goods will be delivered to the party named as consignee in the AWB without
need of any further formalities, once the importer obtains customs clearance.
Therefore, an exporter is advised to ensure the payment receipt, as it is quite risky to
consign goods through air direct to the importer.
As per IATA (International Air Transport Association) norms, an airway bill is issued
as a set of 12 copies, having three originals as explained below:
1. First Original is green in colour. It is meant for the carrier issuing it and is to
be signed by the exporter or his agent
2. Second Original is pink coloured and is meant for the importer (consignee)
and therefore accompanies the shipment through to the final destination and
is signed by the carrier or his agent.
3. Third Original is blue in colour and is for the exporter. It is signed by the air
carrier after goods have been accepted for airfreight and handed over to the
consignor.
Airway bill is a very important document when goods are sent through air. It serves
the all-important purpose of tracking the shipment and is also required at the time of
customs clearance.
Combi ned Tr anspor t Doc ument
This is also known as Multi-modal transport document. Ever since containers have
become popular, the concept of combined transport has gained solid ground. This
topic has been covered in greater details in the chapter titled Cargo Management &
Containerization.
Containerization has made it possible to move the goods from the place of origin, i.e.,
the factory or warehouse, to its final destination, that is the buyers premises in the
foreign country. Containers, in fact are also used in domestic transportation in India.
Indian Railways have their door-to-door delivery service. The goods are transported
in containers from one country to the other using different modes of transport. From
the exporters premises, the containers are loaded on trailers (road transport), which
then use rail transport for carriage up to the port of loading and finally these are put
on board the vessel. Likewise, in the foreign country too, the containers travel up to
the importers premises using multiple or combined modes of transport.
The combined transport document is used to cover this total journey of cargo using
the various transport modes. The format showing bill of lading in the enclosed CD
could also be used as a CTD.

Notes
Certificate of Origin: This document serves as a proof of the country of origin of
goods for the importer in his country. Importing countries usually require this to be
produced at the time of customs clearance of import cargo. It also plays an important
part in computing the liability and rate of import duty in the country of import. This
certificate declares the details of goods to be shipped and the country where these
goods are grown, manufactured or produced. Such goods need to have substantial
value-addition in the country of export so as to become eligible to certification of this
nature. Certificate of origin also has the dimension of preferential duty treatment
attached to it provided it falls under the GSP category. Accordingly, the Certificate of
Origin can be classified in the following two categories:
(a) Non-Preferential: The local chamber of commerce in the country of export
normally issues such a certificate of origin. It serves only as a proof of country
of origin and does not offer any duty benefits to the importing countries. The
exporter is required to make an application to the local chamber of commerce
in a prescribed format and the chamber upon scrutiny of this application will
issue the certificate of origin. The formats of both the application and the
certificate of origin are given in the enclosed CD.
(b) Preferential: These are required by importing countries offering concessional
(preferential) import duties to import from certain countries under certain
trade agreements. The following preferential certificates of origin currently
are applicable for exports from India:
(i) Generalised System of Preferences (GSP): Under this system many
developed countries like the US, Japan, Switzerland, Canada,
Hungary, EU, Norway and New Zealand offer concessional tariffs to
developing nations. This instrument is non-contractual in nature and
the offer is made on a unilateral and non-reciprocal basis. These
countries have their GSP schemes reviewed and updated on a timely
basis to give details of specific benefits available under particular
product categories. Usually, these benefits are made available to
exporters on providing relevant information in a prescribed GSP
form. A format of the same is included in the enclosed CD.
(ii) Global System of Trade Preferences (GSTP): This is an arrangement
between developing nations under which concessional tariffs are
provided on a reciprocal basis. India has such arrangements with
many other developing countries. For availing of these preferences,
exporters in India can obtain certificate of origin under GSTP from
EIA (Export Inspection Agency), which is the sole agency authorized
to issue these certificates.
(iii) Other preferential systems exist under the SAARC Preferential Trade
Agreement (SAPTA), Bilateral Preferential Trading Agreement with
Afghanistan, Indo-Sri Lankan Free Trade Agreement etc.
Shipping Order: This document is the reservation slip issued by the shipping
company against the exporters or his agents request for booking of ship space for a
shipment. In case of air transport of cargo, this document is known as Carting Order.
Mates Receipt: Once the goods are received on board the ship, the master of the ship
issues a document called mates receipt to the port authorities for every shipment. The
exporter must then collect this receipt either himself or through his authorized agent
from the port authorities by paying all charges due to them. The shipping company
issues the bill of lading to the exporter only against the mates receipt. This document
is not a document of title. It is merely a receipt of goods. However, it is a very
important document as without it, the exporter will not be able to obtain the title
document to the goods, that is, the bill of lading. Therefore, the exporter is best
advised to obtain the mates receipt from the port authorities soon after the goods

Notes
have been placed on board. Any delay here may further result in greater delays
leading to unwanted losses.
A format of Mates receipt is given in the enclosed CD.
Bill of Exchange: Also known as a Draft, this is an instrument for payment realization.
By definition, it is a written unconditional order for payment from a drawer to a
drawee, directing the drawee to pay a specified amount of money in a given currency
to the drawer or a named payee at a fixed or determinable future date.
The exporter is the drawer and he draws (prepares and signs) this unconditional
order in writing upon the importer (drawee), asking him to pay a certain sum of
money either to himself or to his nominee (endorsee). This order could be made for
payment on demand, called a bill of exchange at sight or payment at a future date,
called a usance bill of exchange. Usually, sight bills of exchange are used with
Documents against Payments (D/P) method of receiving payment and usance bills of
exchange are used for Documents against Acceptance (D/A) system. Since both these
systems do not provide any security to the exporter regarding payment realization,
these bills, in actual practice, are drawn under a letter of credit to ensure guarantee of
payment. Usance bills of exchange are drawn for periods ranging from one to six
months. These are negotiable and are usually discounted by the exporter.
A proforma of a bill of exchange is given as Annexure C at the end of this chapter.
Shipment Advice: The exporter sends this document, called shipment advice, to the
buyer soon after the shipment is made to provide him all the shipment details. This
serves as advance intimation of the shipment and allows the importer to arrange for
the delivery of the same.
A format of shipment advice is given in the enclosed CD.
Letter to Bank for Negotiation/Collection of Documents: This is a standard letter
covering various instructions that an exporter must give to his bank at the time of
submitting shipment documents concerning the negotiation/collection of documents.
A format of the standard instructions is provided as Annexure D at the end of this
chapter.
Let us understand the regulatory documents now:
Exchange Control Declaration Forms: As per the Foreign Exchange Management
(Export of Goods and Services) Act, 2000, all exporters from India excepting those
exporting to Nepal and Bhutan, are required to submit an exchange control
declaration form in the prescribed format. The purpose behind this declaration is to
ensure timely realization of export proceeds by the exporters and to track the
defaulters.
FEMA requires the submission of export documents to the Authorised Dealer by the
exporter within 21 days from the date of shipment. The time allowed for full export
value realisation is six months from the date of shipment.
Following four types of foreign exchange declaration forms are used in India:
(i) Guaranteed Remittance or GR forms are to be submitted (in duplicate) for all
types of physical exports from India including export of software in physical
form using magnetic tapes or paper.
(ii) Self Declaration Forms or SDF Forms are to be submitted by all such
exporters who are shipping from a port/airport where the customs
authorities have EDI (Electronic Data Interchange) facility for shipping bill
processing. SDF forms are required to be attached with the shipping bill in
duplicate.

Notes
(iii) Software export declaration forms, called SOFTEX forms are required for
exports of software in non-physical form; for example, online transmission of
data using satellite links. These must be submitted in triplicate.
(iv) Postal Parcel or PP forms are used when exports are done by post. These are
also to be submitted in duplicate.
The detailed discussion on these forms is done in chapter titled Export Shipment
Procedure.
Freight Payment Certificate: This certificate is an evidence of freight payment. It
certifies that due freight has been paid by the exporter. It is an equivalent of freight
receipt.
Insurance Premium Payment Certificate: This document certifies the payment of
insurance premium.
ARE I/ARE II Forms: These are forms pertaining to Central Excise Clearance. These
have been covered at length in the Chapter titled Export Incentives. These need to be
used only by those exporters who are governed by Central Excise.
These forms are basically prescribed application forms for obtaining permission from
the Central Excise Authorities for removal of excisable goods for exports. Another
form known as CT-1 is used to seek permission from the Central Excise authorities to
remove excisable goods without the payment of excise duty for exports.
Shipping Bill/Bill of Export: This happens to be the most important document
required by customs authorities for permitting exports. It is called a shipping bill in
case of export by sea/air and a bill of export when the export is done using land
transport. The goods are allowed to enter the port only after the custom officials have
stamped the shipping bill. It contains complete details of the shipment including
name of exporter, name of importer, description of goods, port of loading, port of
discharge, marks, number, quantity, FOB value, country of destination, name of the
vessel or flight number, etc.
Shipping bills can be of the following types:
(a) Shipping bill for dutiable goods
(b) Shipping bill for duty-free goods
(c) Shipping bill for claiming duty drawback
Formats of all three types of shipping bills are reproduced in the enclosed CD.
Port Trust Copy of Shipping Bill/Export Application/Dock Challan: This form is the
same as shipping bill. However, the purpose here is to assess the various port and
dock charges. This is used in sea shipments.
Receipt of Payment of Port Charges: This is the receipt issued by the Port Trust
Authority on payment of port dues by the exporter.
Vehicle Ticket: It serves the purpose of an entry pass for the exporter to get his export
cargo inside the port for export to its final destination.
Additional Documents/Certificates: In addition to the various documents/certificates
discussed above, there may be a need of some additional documents/certificates.
These are briefly described below:
Blacklist Certificate: This is required only in those specific cases where the importing
country is at war or has hostile relations with another country and wants to make sure
that the exporter is not in any way touching that country for purposes of fulfilling this
order.

Notes
Antiquity Certificate: This certificate is needed only in those cases where goods are
being exported as antiques and the importer wants their authenticity checked. In
India, Archaeological Survey of India is authorized to issue such certificates.
Health/Veterinary/Sanitary Certificate: Many importing countries require such
certificates particularly in case of imports of foodstuff, livestock, hides, marine
products, etc. to safeguard against the dangers of diseases and health hazards. The
exporter has to get the required certification from the respective health, veterinary or
sanitary authorities, before he is able to dispatch his goods.
Fumigation Certificate: Certain importing countries require fumigation of the cargo
before it is allowed to enter their limits. This is again needed for cargo like plants and
weeds, to ensure safety against spread of harmful virus. The exporter has to not only
get the fumigation done but has to also submit a certificate from the prescribed
agency to that effect.
Use of ADS in India: As already explained, aligned documentation system (ADS) for
exports is in use in India for many years now. It offers many advantages and has
really made life a lot simpler for the exporter and importer as well as related agencies
in both countries.
ADS uses Master Document I and Master Document II for preparing commercial and
regulatory documents (as described in the previous sections) respectively. The
enclosed CD provides the format of both these Master Documents.
To begin with, masks were used to prepare documents under ADS that were used to
hide all the information not required in a specific document. In this way, using masks
and photocopying the master documents all the aligned documents could be readied.
Any additions required could either be pre-inserted or added later.
The commercial documents under ADS are prepared on standard A4 size (210mm
297mm) paper whereas regulatory documents are prepared using foolscap paper
measuring 34.5 cms 21.5 cms. The design of the documents is such that the common
slots of information are aligned to perfection and find the same relative space in each
of the documents forming part of the system.
An Indian exporter can generate 14 commercial documents out of a total of 16 by
using the Master Document I. Similarly; Master Document II could be used to prepare
three out of nine regulatory documents.
Widespread usage of computers has made it even simpler to use ADS to prepare
export documents. Many software companies sell customized software packages to
create export documents as per the requirements of Indian exporters (see box 3 to
know about available software packages and the range of solutions they offer). One
hopes that very soon we will see more and drastic changes to streamline the
documentation system further.
Box 3
A Complete Suite for Export Documentation
frontline ExMSTM is a complete solution for exporters helping them in controlling their export
operations. It also generates the complete set of documentation required to be submitted to the
Export Authorities. It facilitates an automated preparation and easy tracking of documents and
generation of MIS/Reports.
Key Benefits:
Reduces the chances of errors in filling the various statutory from thus increases the
efficiency of operations and reduces the wastage of time, effort and cost.
Eliminates the wastage of time as the software automatically fills all the required statutory
forms on just the input of basic information.
Savings in management time required in reviewing the documents.
Contd

Notes
Reports can be directly mailed from the application and even can be easily saved into any
kind of desired format. (Word, Excel, PDF, HTML, etc.)
User-friendly, intuitive menu driven design and comprehensive on-screen manual with full-
colour illustrations available at the press of a key mean minimal training requirement.
Reduces the administration/accounting burden by elimination of manual filling of those
large numbers of cumbersome documents.
Increases transparency.
Pre-Shipment Documents
Buyer Order Generation/Amendments/Cancellation
Letter of Credit Generation/Amendments/Cancellation
Sales Order Contract Generation/Amendments/Cancellation
Performa Invoice
Pre-Shipment Packing List
Detailed Packing List
Pre-Shipment Invoice
Shipping Instruction
Intimation to Insurance Company
Document to CHA
Annexure SDF
Covering Letter to Bank with GR.
Post-Shipment Documents
Final Packing List
Final Invoice
Bill of Exchange
Final Detailed Packing List
Bank Realization Certificate
Insurance Certificate
COO (Certificate of Origin)
Delhi Chamber of Commerce
PHD Chamber of Commerce
Application for (Certificate of Origin)
Application for Delhi Chamber of Commerce
Application for PHD Chamber of Commerce
GSP (Generalized System of Preferences)
Beneficiary Certificate
ExMS Module Features:
Exports
Integration: Provides ease in order processing due to direct linkage of Performa Invoice with the
Buyer Order.
Documentation: Automates the complete documentation process of the exports including the pre-
shipment and the post-shipment documents.
Standardisation: Helps in standardising the processes due to the facility of printing of documents
on the desired statutory format.
Flexibility: Allows linking of the documents from LC (Letter of Credit), SC (Sales Contact) and BO
(Buyer Order).
Source: http://www.fsltechnologies.com

Notes
Visual X-port

Visual X-Port is Indias largest selling Exporters Software that helps an exporter by taking care of
all his documents and also manages his shipments, inquiries received, pending orders, pending
payments, etc.
Salient Features:
Maintains export right from inquiries received to the payment realisation.
Data flows from Inquiry to Order, from Order to Pre-Shipment and from Pre-Shipment to
Post-Shipment, hence there is no duplication of work.
Documents like Invoice, Packing list, Certificate of Origin, GSP, Letter to Bank, Draft and all
other standard forms can be generated with a single point entry.
Invoices, Packing List, B/L Instructions can be e-mailed in standard formats, which can be
viewed or printed by the recipient.
Custom Documents like Shipping Bills, Annexure can also be printed.
Documents can be edited on the screen before printing.
Invoice and B/L Instructions can be send electronically to Freight Forwarders who can feed
them directly into their system to avoid delays and costly errors.
Many reports like Pending Orders, Shipments Handled, Pending Payments will help
exporters to manage their exports efficiently.
Many statistical reports with graphs master databases for buyers, consignees, products,
bankers, custom house agents to avoid re-entry of data.
Tracking of all schemes like Drawback, DEEC, DEPB, etc.
Databases like Currency, Country, Unit and Packages are provided for your convenience.
Products can be categorized or sub-categorized as per requirement and can be stored with
all the relevant details like their Price, HSC Codes, Drawback Rates, Export Duties (if any).
Auto numbering of transaction like Inquiries, Invoices, Orders based on your own format.
All the standard documents can be printed on Standard pre-printed stationary or on a plain
paper.
Specific functions that it can perform for you:
Solution for Marketing
Inquiries can be stored and quotation can be sent to the buyer
Order Confirmation or Proforma Invoice can be generated
Maintains Pending and/or Executed Orders
Generates reports as per user requirements.
Pre-Shipment Documentation and Management
Faster data entry with the help of well designed data can be edited.
L/C Checklist can be used to verify the documents creation.
Prints custom Invoice, Packing List, Certificate of Origin for various Chambers of
Commerce, GSP Form, Shopping Bill, EDI Annexure, and GR Form, Shipping Bill, EDI
Annexure, and GR Form etc.
Can send invoice electronically to CHA who can directly read it in his software to avoid
errors and delays?
All documents can be faxed or e-mailed without printing.
Many registers and reports streamline operation.
Post-Shipment Documentation and Management
Information for post shipment is picked up from pre-shipment and can be edited.
Can generate industry specific detailed packing list as per user format?
For realisation of money, software generates Negotiation Letter to Bank and Bank Draft
(Bill of Exchange).
Prints Bank Certificate as per prescribed format.
Many reports and registers can be generated.
Contd

Notes
Solution for Excise
For shipments under excise bond, bond details can be maintained.
Excise documents like CT-1 Form, ARE-1 Form C and Proof of Exports can be printed.
Can keep the track of shipments covered under the bond and balance amount available?
License Management
Keeps the track of Duty Drawback realised and balance.
Can Print DEPB Application (Appendix 10C) and maintains its utilisation?
Can Print Pending DEPB Claims report?
For shipments under Advance Licenses (DEEC), Standard Input Output norms can be
maintained.
Prints Advance License Application, keeps track of received Licenses.
Export obligation and import entitlement can be tracked for DEEC license issued.
Cutting Edge Technology
Developed using latest Technology.
All Documents/Reports can be e-mailed in PDF Format.
Many reports can be printed in graphical form.
Highly user-friendly with online help.
The Advantages of Softlink
Softlink has been a pioneer in Custom Software since 1992, developing highly
technological advanced and dependable software backed by timely updates.
Softlink is the marked leader in his segment with more than 90% market share.
All products are benchmarked against the best in the world.
Softlink products are backed by a highly motivated support team that monitors software
and provide imports to the development term for continuous improvement.
List of documents, which can be generated using:
Quotation
Order Confirmation
Proforma Invoice
Invoice
Packing List
Shipping Instructions
Shipping Bill
GR Form/SDF Form
EDI Annexure
Intimation for Inspection
Certificate of Inspection
ARE-1 Form
Form CTI
Proof of Exports
Commercial Invoice
Commercial Packing List
Certificate of Origin (for Various Chambers of Commerce)
Gsp Form
Bill of Lading (Generic)
Bill of Exchange
Negotiation Letter
Shipment Advice
Bank Certificate
L/C Checklist
DEPB Application
DEEC Application
Source: www.softlinkglobal.com

Notes
Visit a seaport closest to you and talk to the customs officials there. Make a list of
common errors that exporters usually make in their export documents. Also find
out the possible consequences of such errors.
Pr oc essi ng of an Ex por t Or der
We all know that a sale is a contract between two parties, namely, a buyer and a
seller. The seller agrees to sell his goods to the buyer at a certain price. When both
parties keep their respective promises under the contract, the contract reaches a
happy culmination. Export sales are also the same, the only difference being that two
sets of rules belonging to the home country and the importing country are needed to
be followed, as also the international regulations governing international trade. In
view of this, an export transaction assumes greater complexity compared to a
domestic sale transaction. Exporters must appreciate this complex nature of an export
contract to be able to clearly understand the various implications of the deal they are
about to enter.
The exports contract flow is depicted in the figure below:

Physical delivery of goods abroad

Title to goods transferred

Physical transfer of funds abroad

Payment credited in sellers favour
Exporter/Seller
(Home Country)
Promises to supply ordered
goods against the promise of
receipt of settled price
Importer/Buyer
(Importing Country)
Promises to pay the agreed
price against the promise of
delivery of ordered goods

As can be seen in the figure given above, the seller is in one country and the buyer is
in another country. They make promises to each other that work as consideration for
each. This set of promises containing an offer from one party and its acceptance by the
other party, forms an export agreement that is also a valid export contract as it is
legally enforceable. The terms of the contract have to be lawful and not in
contravention of any legal provisions in either countries for it to be called a valid
contract.
The system works as follows:
The buyer sends a query
The seller sends a quotation
The buyer accepts and sends a purchase order
The seller accepts the purchase order and conveys the same to the buyer
The export contract is in place.
Alternatively:
The seller sends an offer to supply/sell certain goods to foreign buyer

Notes
The buyer accepts and sends a formal purchase order to the exporter
The exporter acknowledges receipt of the order
The export contract is in place.
Let us also add here the fact that in both the schemes shown above, a lot of
negotiations as to price, quality, design, delivery schedules, and such similar terms
usually take place until the final order/contract is sealed.
Export contract serves as the ground for the export transaction. It is supposed to spell
out the rights and liabilities of both the parties in such a manner that there is no room
for any confusion or misunderstanding. Both the parties, therefore, must clearly
understand their part in the agreement before they finally approve it. Once finalized,
there is going to be difficulty in seeking amendments. Sometimes, this may not even
be possible, and it will always result in monetary loss due to charges attached as well
as because of time lost.
Export orders, export contracts and export agreements are used interchangeably in
practice, though in the strictest legal sense this may not be true. However, the
importance of this document is undisputed, irrespective of the name by which it is
called.
For the exporter, the export order means the successful conclusion of his marketing
efforts. It serves as a document communicating his foreign buyers decision of
purchasing the said goods from him. An exporter is required to work a great deal to
obtain a purchase order from an importer and after receipt of the order, he has to
work even harder to execute the order successfully and in time to win the foreign
buyers confidence in placing further orders.
An export order/contract normally covers the following:
The item
The description of the item
The quantity required
The price per unit
The terms of payment and delivery
Date of order/Reference to exporters Proforma Invoice or quotation
Date of delivery
The kind of packaging required
The kind of labeling required
The kind of marking required
Insurance instructions, if required
Inspection instructions, if required
Documentation required
Production sample instructions, if required
Penalties for late delivery, if any
Any other special conditions
The exporter has to make sure that he understands the order completely and that no
surprises are hidden for him in the order. If he is not careful right in the beginning, he
will face problems later on. Most export contracts nowadays are covered by a letter of
credit (L/C). This letter of credit also forms an integral part of the export contract as
besides being a method of payment, it also contains all the terms and conditions

Notes
governing the order. Thus, before accepting an order/letter of credit, an exporter
needs to make sure that everything it contains is as per the mutual agreement and
that he is clear about it all. It calls for a thorough scrutiny of the order by the exporter
before he accepts it. If he finds any terms or clauses that he is not sure about, he must
seek clarification from the foreign buyer. Likewise, if he feels that something
undiscussed or unwarranted is included, he must request for its deletion. On the
other hand, if something important is missing, he is advised to seek its inclusion.
The exporter has to pay attention to following essentials of an export contract:
1. Product: Ordered products name, technical name and description, quality
specifications and grades, details as to standards, sizes, references to samples
and their specifications.
2. Quantity: Ordered quantity both in figures and words. This is essential to
leave out any room for confusion. Unit of measurement needs to be specified
as well. It could be numbers, volume or weight. In addition, care has to be
taken while stating the unit of measurement in international or country
specific terms, for example, Metric Ton is 1,000 kgs. whereas the US Short Ton
is 907 kgs. and the British Long Ton is 1,016 kgs.
3. Value: The Total value of the order needs to be clearly stated both in numbers
and words in the decided currency.
4. Packing, Labeling, and Marking Requirements: The order must provide total
details of the kind of packaging required including the labels and the marks
to be put up. The instructions have to be explicit specifying requirements in
full details as there could be separate labels for the articles and the packaging.
5. Mode of Payment: This must be settled and clearly included in the contract.
6. Terms of Delivery: The decided terms of delivery must be explicitly spelt out.
7. Consignee Details: If the consignee is different from the buyer, his complete
name and address is required.
8. Inspection Clause: If the buyer wants a pre-shipment inspection carried out, it
must be mentioned in the contract. The details of the inspection agency must
also be given.
9. Production Sample: If the buyer wants the exporter to provide him with
production samples, the fact must be provided in the export order.
10. Test Certificates: At times, the importer may ask the exporter to conduct
certain tests on the material, for example, a colour bleed test on fabric, and to
submit a test report by a prescribed agency. This must form a part of the
contract.
11. Treatment of Various Charges: To avoid any confusion and penalties, it must
be settled and clearly instructed in the export order as to who will bear what
charges/duties/taxes etc. in relation to the contract. Some of these are to be
borne by the importer and some by the exporter. The export contract must
specify both.
12. Period Allowed for Shipment: The export order must clearly indicate the
delivery period and the due date for shipment.
13. Penalties for Delay: The contract must also contain the possible consequences
of delay in shipment by the exporter beyond the due date.
14. Insurance: The contract must clearly provide insurance instructions for the
exporter, if he is to arrange insurance. In case, the buyer is responsible for
insurance, the order must say so.

Notes
15. Instructions regarding Part-shipment/Transshipment/Consolidation: The
export contract must explicitly indicate the applicability or otherwise of any
or all of these.
16. Commissions/Discounts: In case the exporter is required to pay any kind of
commission or offer any discount to the buyer or his authorized agent, the
export order must provide details of the same.
17. Documents Required: The export contract must specify all the documents
required to be submitted by the exporter to the importer. The exporter then
has to comply with all the documentation requirements very religiously.
18. Force Majeure Clause: Force Majeure literally means greater force. These
clauses excuse a party from liability if some unforeseen event beyond the
control of that party prevents it from performing its obligations under the
contract. Typically, force majeure clauses cover natural disasters or other
Acts of God, war, etc. It is important to remember that force majeure
clauses are intended to excuse a party only if the failure to perform could not
be avoided by the exercise of due care by that party.
When negotiating force majeure clauses, the exporter must make sure that the
clause applies equally to him as well as the importer.
19. Arbitration Clause: The exporter must make sure that the export contract
contains an arbitration clause for quick and amicable settlement of any
dispute.
20. Remedies for Breach of Export Contract: The exporter must insist on
inclusion of a clause specifying the possible remedies available to him against
breach of the contract by the importer.

INCO Terms
ICC (International Chamber of Commerce) introduced the first version of Incoterms - short for
International Commercial Terms - in 1936. Since then, ICC expert lawyers and trade
practitioners have updated them six times to keep pace with the development of international
trade.
Incoterms make international trade easier and help traders in different countries to understand
one another. These standard trade definitions that are most commonly used in international
contracts are protected by ICC copyright. (www.iccwbo.org)
Incoterms are standard trade definitions most commonly used in international sales contracts.
Devised and published by the International Chamber of Commerce, they are at the heart of world
trade.
Correct use of Incoterms goes a long way to providing the legal certainty upon which mutual
confidence between business partners must be based.
The purpose of Incoterms is to provide a set of international rules for the interpretation of the most
commonly used trade terms in foreign trade. Thus, the uncertainties of different interpretations of
such terms in different countries can be avoided or at least reduced to a considerable degree. The
scope of Incoterms is limited to matters relating to the rights and obligations of the parties to the
contract of sale with respect to the delivery of goods. Incoterms deal with a number of identified
obligations imposed on the parties and the distribution of risk between the parties. In total, 13
Incoterms have been defined which are grouped into four basically different categories,
applicable for sea and inland waterway transport or for all modes of transport:

Notes
Applicable for sea transport only
Applicable for all modes of
transport (including water)
Departure term EXW (Ex Works)
Shipment term, main carriage
unpaid
FAS (Free Alongside Ship)
FOB (Free On Board)
FCA (Free Carrier)
Shipment term, main carriage
paid
CFR (Cost and Freight)
CIF (Cost, Insurance and Freight)
CPT (Carriage Paid To)
CIP (Carriage and Insurance Paid to)
Delivery term DES (Delivered Ex Ship)
DEQ (Delivered Ex Quay)
DAF (Delivered At Frontier)
DDU (Delivered Duty Unpaid)
DDP (Delivered Duty Paid)

Source: www.ponl.com
From top (EXW) to bottom (DDP), the point of transfer in the transport chain moves
from the sellers premises to the buyers place. The second and third group specify the
shipment conditions, with freight and insurance unpaid or paid. For the first three
groups the risk of loss or damage during (sea) transportation are with the buyer of the
goods, whereas for the fourth group, all risks up to delivery are with the seller of the
goods.
An explanation of each of these with their implications is given below:
EXW EX Works (...named place)
Carriage to be arranged by the buyer.
Risk transfer from the seller to the buyer when the goods are at disposal of
the buyer.
Cost transfer from the seller to the buyer when the goods are at disposal of
the buyer.
FCA Free Carrier (...named place)
Carriage to be arranged by the buyer or by the seller on the buyers behalf.
Risk transfer from the seller to the buyer when the goods have been delivered
to the carrier at the named place.
Cost transfer from the seller to the buyer when the goods have been delivered
to the carried at the named place.
FAS Free Alongside Ship (...named port of shipment)
Risk transfer from the seller to the buyer when the goods have been placed
alongside the ship.
Cost transfer from the seller to the buyer when the goods have been placed
alongside the ship.
FOB Free On Board (...named port of shipment)
Risk transfer from the seller to the buyer when the goods pass the ships rail.
Cost transfer from the seller to the buyer when the goods pass the ships rail.
CFR Cost and Freight (...named port of destination)
Carriage to be arranged by the seller.
Cost transfer at port of destination, buyer paying such costs as are not for the
sellers account under the contract of carriage.

Notes
CIF Cost, Insurance and Freight (...named port of destination)
Carriage and insurance to be arranged by the seller.
Cost transfer at port of destination, buyer paying such costs as are not for the
CPT Carriage Paid To (duty paid) (...named place of destination)
to the carrier.
Cost transfer at place of destination, buyer paying such costs as are not for the
sellers account under the contract carriage.
CIP Carriage and Insurance Paid to (...named place of destination)
to the carrier.
Cost transfer at place of destination, buyer paying such costs as are not for the
DAF Delivered At Frontier (...named place)
at the frontier.
Cost transfer from the seller to the buyer when the goods have been delivered
at the frontier.
DES Delivered Ex Ship (...named port destination)
Risk transfer from the seller to the buyer when the goods are placed at the
disposal of the buyer on board the ship.
Cost transfer from the seller to the buyer when the goods are placed at the
disposal of the buyer on board the ship.
DEQ Delivered Ex Quay (...named port of destination)
disposal of the buyer on the quay.
disposal of the buyer on the quay.
DDU Delivered Duty Unpaid (...named place of destination)
disposal of the buyer.
DDP Delivered Duty Paid (...named place of destination)

Notes
Source: www.agilfreight.co.in
Incoterms, as is evident from the above detailed description, are a set of international
rules for the interpretation of commonly used trade terms, eliminating or reducing the
uncertainties of different interpretations of these terms in different countries.
Incoterms 2000 contain 13 rules listed above for standardized global trade, defining
the most important responsibilities of buyers and sellers in international sales
contracts.
An exporter has to have a thorough understanding of these international commercial
terms before he is in a position to finalize an export contract. It is advisable to insist on
using Incoterms 2000 when negotiating an export sale. Normally, all L/Cs are drawn
up as per ICC Incoterms.
Or gani sat i on & St r uc t ur e of Ex por t & I mpor t
Houses
Every company wishing to consolidate its export activity has to create its own foreign
trade department so it can handle the different tasks that enable its continued
presence in international markets. As sales are solely the result of a marketing policy,
the export department might be described as an instrument that carries out all the
tasks generated by international marketing policies of the company. The export
department has very definite goals: to perform all tasks related to international sales.
Upon analyzing the export activities of the companies that have experienced stable
growth in their exports, one observes that, historically, their international contacts
started out sporadically and only later started to consolidate. That was when they
made the decision to expand their the international trading staff to penetrate other
markets to a greater extent and better.
When interviewing companies with consolidated foreign departments, we discover
that their reasons for creating the export structures have nothing to do with academic
reasoning, instead the reasons were:
Excess production.
Given the high stocks, the need to increase sales quickly, at all costs.
This in turn resulted from insufficient penetration of the domestic market, product
quality problems, pricing, even distribution problems or lack of promotion. We note
that companies which are large in terms of their sales, number of employees, or own
resources, export greater volumes of goods. There are many common elements in the
paths taken by various companies to create an Export Department.
The organization of a firm and how its products are sold overseas are related to and
depend on several factors including the size of the company, productive capacity,
types of products, degree of processing, previous exporting experience, and business
conditions overseas. "In-house" organization of the business involves direct selling of
products by the producer to the foreign importer. The producer is usually responsible
for shipping the product overseas.
Traditional and customary marketing and business practices in a foreign country will
dictate how the products will be sold. Depending on the country, direct selling may
involve working with foreign sales representatives, agents, or distributors. For

Notes
example, agents are very active in the wood products trade in the United Kingdom
and other European countries. In Japan, trading companies are the primary contacts.
"In-house" organization will provide the company greater control over the export
marketing procedures for the firm's products. In general, there are higher start-up
costs and fewer economies of scale under this organizational structure than with the
others described below.
Ex por t Management Compani es (EMC' s or agent s)
EMCs are generally small, closely held companies which represent manufacturers in
export marketing. The EMC may represent a number of small, unrelated companies
and provide benefits (economies of scare) relating to foreign sales, marketing
missions, and scheduling or shipping products for export. The EMC often retains the
identity of the manufacturer when dealing with foreign importers, whereas agents
work under their own names.
Ex por t Tr adi ng Compani es (ETC' s)
The largest domestic obstacles to exporting-lack of knowledge of foreign marketing,
limited credit facilities, and legal restrictions in cooperating with other U.S.
companies (antitrust violations)-may be overcome by forming an export trading
company (ETC). ETCs may assume the risks involved with international trade by
taking title to the products and assuming responsibility for marketing and selling the
products overseas.
Ex por t Mer c hant s (EM' s)
Similar to an ETC, an export merchant (EM) may take title to a producer's goods and
be responsible for selling to the foreign importer. The advantages of using an export
merchant include:
1. Products are sold to an export merchant domestically. Producers do not need
to be familiar with foreign business practices-this is the responsibility of the
EM.
2. The EM may handle all intermediate processing and handling functions, such
as pressure treatments or kiln-drying of lumber prior to export.
3. The EM may serve as a "sorter" or distribution yard for lumber and other
products. This permits lumber to be regarded specifically for export and
specialty markets. Lower volume, high-quality products may become more
marketable as a result of using an EM.
4. EMs may become familiar with the operation of mills and producers and may
provide valuable assistance in Producing Products for the export market.
Summar y
This unit discussed the export documentation framework in India so essential to
understand for exporters and export managers alike. The importance of proper and
accurate documentation in export transactions was duly highlighted. Inaccurate or
incomplete documentation will result in serious financial and goodwill losses. Such
losses can be completely avoided by understanding clearly the documentation
requirements of all concerned parties and then meticulously planning to obtain the
right documents in right numbers at the right places in right time.
The framework of export documentation in India was then discussed highlighting the
progress made so far as well the reforms on the anvil. Export Documentation in India
has evolved a great deal particularly since 1990. Prior to 1990, all documentation was

Notes
manual and not at all coordinated. The result was lot of delays and mistakes,
rendering the task very clumsy, tiresome, repetitive and truly frustrating. India
adopted the ADS in 1991. ADS refers to Aligned Documentation System, which is the
internationally accepted documentation system.
The objective of an aligned series of documents is to have as many forms as possible
printed on the same size paper and to have common items of information occupying
the same relative position on each form. Under ADS, trade documents are based on
the United Nations Layout Key and thus aligned in a standard format.
The Indian classification of export documents under Commercial and Regulatory
documents was then explained in great details taking each document one by one.
Most of the relevant formats of explained documents have been provided in the
enclosed CD. A few examples of documents filled in with sample figures have been
given as Annexures at the end of the chapter to enhance practical learning.
Finally, a brief overview of software packages available to help exporters manage
their export documentation better has been given.
This unit discussed the nature of an export contract. Export contracts assume special
importance as the buyer and seller belong to different countries. The exporter has to
make sure that he understands the buyer and vice-versa in terms of the proposed
contract that he is going to finalize. Care has to be exercised at the beginning itself to
avoid complications later. All the essential elements that an exporter needs to focus on
in an export order were described. Finally, the chapter discussed ICCs Incoterms
2000, a set of international rules for the interpretation of commonly used trade terms,
eliminating or reducing the uncertainties of different interpretations of these terms in
different countries. Incoterms 2000 contain 13 rules for standardized global trade,
defining the most important responsibilities of buyers and sellers in international
sales contracts.
Keyw or ds
Regulatory Documents: These are prescribed by various government
departments/bodies for compliance of formalities under relevant laws governing
export transactions.
Commercial Invoice: It contains the complete details of the export order right from
order number to quantity, rate, packaging, made of dispatch and shipping partculars.
Packing List: It provides the details of number of packages, quantity packed in each
of them, the weight and measurement of each package and the net and gross weight
of the total consignment.
Shipping Instructions: This document serves as a checklist of the exporters
instructions to the shipping company regarding a particular shipment.
Certificate of Inspection: This is the certificate issues by the EIA after it has conducted
the pre-shipment inspection of goods for export provided the goods fall under the
notified category of goods requiring compulsory pre-shipment inspection.
Bill of Lading: A document which is issued by the shipping company acknowledging
that the goods mentioned therein have been placed on board, the ship, and an
undertaking that the goods in like order and condition as received, will be delivered
to the consignee, provided that the freight specified therein has been duly paid.
Letter of Credit: Through this, the promise to pay usually made by the overseas
importer is substituted by the promise to pay his bank.
Bill of Exchange: When a draft is drawn on a foreign bank, it is known as foreign draft
or bill of exchange.

Notes
Revi ew Quest i ons
1. Describe the export documentation framework in India in details. How do
you think has ADS helped the cause?
2. Explain the significance of Commercial Invoice in an export transaction.
Discuss the various types of invoices that the importing countries may
require.
3. What is an Ocean Bill of Lading? How is it different from an Airway Bill?
4. Write short notes on:
(i) Mates Receipt
(ii) Shipping Bill
(iii) Nature of Regulatory Documents
(iv) Blacklist Certificate
5. Discuss the Exchange Control Declaration Forms used in India in detail. What
purpose do these serve?
6. Distinguish between the following:
(i) Shipment Advice and Shipping Instructions
(ii) Preferential and Non-Preferential Certificate of Origin
(iii) Shipped Bill of Lading and Received for Shipment Bill of Lading
(iv) Proforma Invoice and Invoice
7. What is an export contract? How is it different from a domestic contract?
8. What are the important elements that must be considered very critically by an
exporter before finalizing an export deal?
9. What are Incoterms 2000? How do they help international buyers and sellers?
10. Discuss any five of the ICC Incoterms 2000 in detail.
Fur t her Readi ngs

Export Market
& Export Marketing Process
Notes
Uni t 7 Ex por t Mar k et
& Ex por t
Mar k et i ng
Pr oc ess
Unit Structure
Introduction
The selection of Export Market
Planning and Strategy of Export Marketing
Product Planning
Export Pricing
Export Promotion
International Distribution Channel
Summary
Keywords
Review Questions
Further Readings
Learning Objectives
Describe the criteria for selecting export market
Explain product, pricing and promotional Strategies for export marketing
Know about distribution channel of export marketing
I nt r oduc t i on
Export marketing consists of choosing a country/countries and sourcing willing
buyers, planning and executing their orders made at home and completing all the
requisite formalities. These days, export marketing has virtually become unavoidable
because if you do not go to their markets, they will come to yours. The impact of
globalization is for everybody to see. Only those firms will succeed that are able to
deliver satisfaction for their customers better than their competitors, irrespective of
whether the transaction is local or global. This has an additional implication for
exporters for their task is not restricted to sourcing buyers and supplying them with
ordered goods. They have to look for building long-term relationships with their
buyers by giving them expected service consistently and coming up with innovative
ways of improving their offerings.
They also need to be proactive in their approach. The idea is to keep looking for new
markets and new buyers to conquer. Traditional marketing has to be ably supported
with non-traditional channels. New experiments to improve supply chain have to be
explored. Improving efficiency to bring down the cost is the order of the day. An

Notes
exporter therefore, must redefine his role as a marketer. He has to create opportunities
by aggressively marketing to the foreign buyers, rather than being satisfied to be at
the receiving end, awaiting the mercy of the importer.
The various proactive and reactive motivations work on a companys decisions to tap
markets in other countries. Government initiatives also play a crucial role. In India,
for example, there are various agencies that help businesses in their export efforts.
With all the help and information available, the exporter or the export manager of a
business firm has to really take on this challenging yet interesting task of export
marketing in his stride to be able to succeed.
The Sel ec t i on of Ex por t Mar k et
Sounds heavy but is essential to uncover the macro and micro characteristics of the
potential markets abroad. One of the fundamental decisions and possibly the most
critical one that faces a company intent on making forays into the export markets is
the selection of the target market(s). It requires a careful study of the potential
markets and matching their needs either with the existing products or modified/new
products. An exporter needs to undertake a great deal of primary as well as
secondary research to define and understand the nature and dynamics of the target
market(s).
A thorough analysis of the target market will include customers, suppliers, substitute
products and services as well as present and potential competitors. The future
competitors may not be those that we know and see today; the newcomers may well
enter by changing the rules of the game in the market. Success against these forces
depends upon the companys ability to create a successful product-market fit that
offers unique advantages to the customers, reduces costs of operation below those of
its competitors, erects barriers to entry into its market places, attracts price premiums
for its goods and services and above all creates a strong position in the mind of the
customers.
The initial screening of the potential markets will form the basis for target market
selection. The essential steps are a thorough analysis of each market against preset
definition of the target market. Thus, a company may be looking at South East Asia,
Far East and China as its potential markets but a thorough analysis of each of these in
terms of demand for a particular product, size and growth potential of the market,
income levels of the potential buyers, geographic serviceability, psychographic profile
of the customers, nature and size of local and foreign competition, Government
regulations, political stability may point that China is the most favoured potential
market and China tops as the target market.
Effective marketing programmes require a detailed analysis of the target markets.
This analysis can only be developed through achieving adequate information about
these markets. Systematic collection on information is crucial to successful strategy
development in global markets. Information is needed to:
(a) To assess new opportunities and threats that may emerge in target markets.
(b) To better prepare in a better manner, for lack of familiarity in foreign markets
and their business environment.
(c) To monitor market demand, competition, government policies, and other
environmental factors in the target markets.
An interesting example is of a US company, which brought its tomato ketchup to
Japan on the simple assumption that ketchup was not available in Japan and that the
company would be able to derive the pioneer advantage. However, Japanese did not
like the product as their tastes traditionally favoured a Soya, based sauce. The

Export Market
Notes
company paid a heavy price for not conducting proper research to arrive at a suitable
product-market fit for its target market of Japan.
The research has to answer the following questions:
What are the most exportable products to be offered to target market(s): To
identify products with export potential for distribution internationally, you
need to consider products that are successfully distributed in the domestic
market. The product needs to fill a targeted need for the purchaser in export
markets according to price, value to customer/country and market demand.
What makes your product(s) unique for markets abroad: Your products must
have a unique feature(s) that will interest the foreign buyer to accept them
from you compared to anyone else from around the world. The product
needs to fill a targeted need for the purchaser in export markets according to
price, value to customer/country and market demand.
What are the best countries to market your product: Since the number of
world markets to be considered by a company is very large, it is neither
possible nor advisable to research them all. Thus, your firms time and money
are spent most efficiently by using a sequential screening process.
The first step in this sequential screening process for the company is to select
the more attractive countries for your product. Preliminary screening
involves defining the physical, political, economic and cultural environment.
Subsequently, one could identify two or three markets that offer the best
potential.
Who will be your target customers within your chosen markets: You will
need to identify your target customers within the countries that you have
chosen to enter. In addition, you will have to collect detailed information on
their current buying-volumes, frequency, reasons for buying from a particular
source, etc.
What is the best way to approach the target customers: Once you know your
target customers, the next step is to get in touch with them to market your
company and goods to them. You will need to decide what is the best way to
approach them, as also when and where. You could write to them, talk to
them on phone, meet them at a trade fair, visit them in their country or catch
them in your country while they are visiting for some other purpose.
What buying companies, agents or distributors would most likely be useful
to get you the prospective customers for your export products: You must look
for intermediaries that could get you export orders. Your research efforts,
therefore, must focus on identifying such sources.
What other sources could be tapped to source export business: You should
find out about various other secondary data sources that will help you
explore export-marketing opportunities.
Suppose you are a manufacturer of handicrafts in India, what schemes of
the office of DC (H) will help you to explore export opportunities?
Pl anni ng and St r at egy of Ex por t Mar k et i ng
Exporters decision making can be summarized as four Ws:
What to export?
Where to export?

Notes
When to export?
To whom to export?
What refers to the decision regarding the product or service one plans to export.
Where refers to the countries and markets that offer the most potential for exports.
When refers to the sequencing of the export transactions.
To whom refers to the buyers or importers.
Pr oduc t Pl anni ng
If the exporter is already following a particular line, the obvious choice will be to
export the same or related item. At times, it could be the other way round-one may
get an order for something different from ones core area of competence, or existing
business so the decision will become difficult, whether to jump into the unknown or
not.
The process of product planning in the international context is diagrammed in Figure
7.1. A company interested in an international market should first define its business
intent based on the objectives of both the corporation and the host country. The
product objectives of a company would flow from the definition of its business.
Ultimately, the offering should provide satisfaction to the customer, which would be
reflected in the realisation of the goals of both the corporation and the host country.
Pr oduc t Obj ec t i ves
Product objectives emerge from host country and corporate objectives combined via
the business definition. The companys goals usually are stability, growth profits and
return on investment. Stated differently, the corporate objectives may be defined in
terms of activities (the manufacture of a specific product, or export to a particular
market), financial indicators (to achieve a targeted return on investment), desired
position (its market share and relative market leadership) and all these in combination
with each other. The parent company usually also has a series of objectives on behalf
of the various stakeholders interests for which it is accountable. Host country
objectives vary depending on the countrys economic, political and cultural
environment. For example, the typical goals of a less developed country would be to
seek faster economic growth, to build a balanced industrial sector, to create
employment opportunities, and to earn foreign exchange. On the other hand, the
objectives of an oil-rich country might be to provide a modern living standard to its
masses in a short time without disrupting the cultural structure of its society and/or
to diversify its economy to reduce its dependence on oil over the long-term.
Obviously, the objectives of the host country and the company are poles apart. In any
emerging market worldwide, however, no company can hope to succeed without
aligning itself with the national concerns of the host country. There are no models to
use in seeking a description of such an alignment. Conceptually, however, a macro
analysis of a countrys socio-economic perspectives should provide insights into its
different concerns and problems. The company can then figure out if its business
would help the country in any way, directly or indirectly. The business definition
should then be developed accordingly. For example, shortage of foreign exchange
might be a big problem for a country. A multinational marketers willingness to
pursue a major effort of export promotion in the country would amount to an
objective in line with the countrys need. On the other hand, a company simply
interested in manufacturing and selling such consumer goods as toiletries and canned
foods, in a nation that is interested in establishing a basic infrastructure for industrial
development in the country, may not be serving the national interest.

Export Market
Notes
The definition of product objectives should emerge from the business definition.
Product objectives can be defined in physical or marketing terms. We sell instant
coffee is an example of defining objectives in physical terms. In marketing terms, the
objective statement would emphasise the satisfaction of a customer need. The latter
method is preferred because it reinforces the marketing concept.
To illustrate the point, assume that the RCA is interested in establishing a plant for
manufacturing consumer electronics in Egypt. The product objectives may be defined
in the following manner:
RCA corporate objective: Earn a minimum of 25 per cent return on
investment in any developing country.
Egypts national concerns: Create employment opportunities and build up
faltering foreign exchange balances.
Business definition: Establish a large consumer electronics plant in Egypt to
compete effectively in the Middle-east.
Product definition: Meet the electronic home entertainment needs of the
masses.
The perspectives of international product planning can be categorised between issues
of day-to-day concern on the one hand and strategic issues on the other. The day-to-
day issues arise in implementing decisions already made. For example, following up
on the RCA example, an issue may arise concerning the need for extra precautions to
be taken to protect working televisions from dust. This issue applies only to the
Middle-east market where the climate requires that windows be open all the time and
where the winds carry a lot of dust into the houses. Local managers would handle the
issue appropriately. If any specific technological help were needed, it would be
sought from the parent corporation on an ad hoc basis.
Strategic issues require major commitments which must be taken up with the parent
corporation. For example, using the RCA illustration, the question might be raised
whether colour picture tubes for TV sets should be imported from RCA in the United
States or from a relatively new Japanese subsidiary located in Egypt. Another
strategic question could arise with reference to trading with a country that is not on
friendly terms with the United States. Let us assume that Egypt does a lot of trade
with Uganda. Assume further that the United States has a trade embargo against
Uganda. Will it be all right for the RCA subsidiary in Egypt to export electronic goods
to Uganda in view of the US governments trade embargo? Strategic questions cannot
be handled by subsidiary management alone and must be referred to the parent
organisation.
It is difficult to accumulate an inventory of decisions to label as day-to-day or
strategic. It all depends on the individual situation. The subsidiary management must
decide if the matter involved is strategic enough to require input from or a decision
by the parent. At the risk of overgeneralization, an issue/matter/decision can be
considered strategic
If the United States government comes into the picture.
If substantial investment needs to be made.
If previously agreed upon arrangement would be overturned by a decision.
If long-term financial interests of the parent are affected.
If the host government appears to be imposing regulations that might affect
the long-term survival of the company.
If technical problems have arisen that cannot be handled locally.

Notes
If certain accusations have been made against the subsidiary that could flare
up in labour trouble or have other ramifications.
In addition to ad hoc problems, which may be day-to-day or strategic, the parent may
require a periodic review of the subsidiarys plants. Product planning for established
product lines and plans for the development and marketing of new product lines
would then be prepared by each host country/geographic area and separately
submitted to corporate management for approval.
I nt er nat i onal Pr oduc t Li f e Cyc l e
Another reason for modifying a product is to cope with the limited International
Product Life Cycle (IPLC) of the good. Ford Motor, for example, was extremely
profitable in Europe during the 1980s, but those earnings disappeared by the early
1990s because Ford did not develop new, competitive products. This is in contrast to
Coca-Cola of Japan, which introduces an average of one new soft drink per month
and has the competition scurrying to keep up. Gillette, which has been particularly
effective in combining technology, provides another good example and marketing to
bring new products to market before the market share of old offerings begins to
decline significantly.
One of the most effective strategies has been to shorten the IPLC by offering new
goods and services before the demand for the old ones has dropped significantly.
Figure 7.1 provides a graphic illustration. Note in the figure that there are two types
of IPLCs. One is the standard IPLC, which covers an extended time, continue, often 4
to 5 years. The other is a short life cycle that lasts much less. Many companies are
discovering that by shortening the IPLC and offering new product adaptations, they
are able to capture and retain large market share. This is typically done by offering a
new product and then modifying it and bringing out a new version before the
competition can effectively combat the first offering. For example, a company will
offer a notebook computer with a 30-megabyte internal memory. Then within 6
months the company will come out with a 60-megabyte internal memory and a built
in modem. Six months later the firm will offer still another version of the product
with additional features. In each case the competition is left scurrying to keep up. As
long as the firm can continue this adaptation strategy, it can outmode the old product
(and those of competitors as well) and maintain market position. At some point the
competition may gain the advantage by offering a product that revolutionizes the
field, but as long as a product improvement strategy remains viable, the firm will
continue to be the product leader, and this strategy is being implemented by MNEs
throughout the world. (Figure 7.1)

Extended Life Cycl e
Short Li fe
Cycl es
Ti me
Sal es

Source: International Business, A Strategic Management Approach; Alan M. Rugman, Richard M. Hodgetts.
Figure 7.1: International Product Life Cycles

Export Market
Notes
New Pr oduc t s i n I nt er nat i onal Mar k et i ng
In todays dynamic, competitive market environment, many companies realize that
continuous development and introduction of new products are keys to survival and
growth. Which companies excel at these activities? Gary Reiner, a new-product
specialist with the Boston Consulting Group, has compiled the following list: Honda,
Compaq, Motorola, Canon, Boeing, Merck, Microsoft, Intel and Toyota. One common
characteristic: they are international companies that pursue opportunities in
international markets in which competition is fierce, thus ensuring that new products
will be world class. Other characteristics noted by Reiner are as follows:
1. They focus on one or only a few businesses.
2. Senior management is actively involved in defining and improving the
product development process.
3. They have the ability to recruit and retain the best and the brightest people in
their fields.
4. They understand that speed in bringing new products to market reinforces
product quality.
What is a new product? Newness can be assessed in the context of the product itself,
the organisation and the market. The product may be an entirely new invention or
innovation, for example, the videocassette recorder (VCR) or the compact disc. It may
be a line extension (a modification of an existing product) such as Diet Coke. Newness
may also be organisational, as when a company acquires an already existing product
with which it has no previous experience. Finally, an existing product that is not new
to a company may be new to a particular market.
I dent i f yi ng New Pr oduc t I deas
The starting point for an effective worldwide new-product programme is an
information system that seeks new-product ideas from all potentially useful sources
and channels. Those ideas relevant to the company undergo screening at decision
centres within the organisation. There are many sources of new product ideas,
including customers, suppliers, competitors, company salespeople, distributors and
agents, subsidiary executives, headquarters executives, documentary sources (for
example, information service reports and publications), and finally, actual first-hand
observation of the market environment.
The value of first-hand market observation as a source of new product ideas is
illustrated by troll dolls which were originally popular in the United States during the
1960s. While traveling in Denmark in 1982, Steven Stark, a United States marketing
executive, discovered that trolls had never gone out of style in that country. Stark and
his wife licensed the Danish designs and began to manufacture them in the United
States; by 1992, company sales had reached the $150 million mark.
The I nt er nat i onal New Pr oduc t Depar t ment
As previously noted, a high volume of information flow is required to scan
adequately for newproduct opportunities and considerable effort is subsequently
required to screen these opportunities to identify candidates for product
development. An organisational design for addressing these requirements is a new
product department. The function of such a department is fourfold (1) to ensure that
all relevant information sources are continuously tapped for new product ideas (2) to
screen these ideas to identify candidates for investigation (3) to investigate and
analyse selected new product ideas (4) to ensure that the organisation commits
resources to the most likely new product candidates and is continuously involved in

Notes
an orderly programme of new product introduction and development on a world-
wide basis.
With the enormous number of possible new products, most companies establish
screening grids to focus on those ideas that are most appropriate for investigation.
The following questions are relevant to this task:
1. How big is the market for this product at various prices?
2. What are the likely competitive moves in response to our activity with this
product?
3. Can we market the product through our existing structure? If not, what
changes and what costs will be required to make the changes?
4. Given estimates of potential demand for this product at specified prices with
estimated levels of competition, can we source the product at a cost that will
yield an adequate profit?
5. Does this product fit our strategic development plan?
a. Is the product consistent with our overall goals and objectives?
b. Is the product consistent with our available resources?
c. Is the product consistent with our management structure?
d. Does the product have adequate international potential?
Mar k et Segment at i on
Another mistake which business people make in foreign countries is attempting to
capture the total market at once. The resulting disappointment in the market
performance demonstrates that two major problems have been overlooked. Firstly,
consumers in a foreign country are unlikely to be homogeneous. Marketers must
distinguish rural consumers from urban consumers. In India, it is essential to segment
Indian consumers. The needs or urban rich and the rural poor are entirely different,
76 per cent population of India is rural and only 24 per cent urban out of which only
one per cent is the affluent society.
Japanese firms usually fix targets carefully avoiding head-to-head competition with
major US manufacturers in mature industries. Starting at the low end of product
spectrum, a Japanese firm establishes a reputation for product excellence and
eventually gets customers to trade up over time. This strategy has worked
exceedingly well in the automobile and consumer electronics industries. Japanese
computer makers have used the same market strategy in breaking into the world
computer market especially the US. Japanese firms market commodity products such
as personal computers, disc drives, printers and other peripherals before attempting
to trade up with their customers to the larger systems, which have the highest profit
margins.
The most important reason behind the utilisation of market segmentation is market
homogeneity/heterogeneity. Based on national boundaries, homogeneity can be
vertical (homogeneous in one country) or horizontal (homogeneous across the
countries). Therefore, two countries exhibiting a lack of homogeneity within their
borders may still be homogeneous horizontally when a particular segment of one
country is similar to an equivalent segment of another country. This is what Hassan
and Katsanis call global market segment and they derive it through the process of
identifying specific segments whether they be country groups or individual consumer
groups of potential consumers with homogeneous attributes who are likely to exhibit
similar buying behaviour.

Export Market
Notes
Pr oduc t Posi t i oni ng
Product positioning is a marketing strategy that attempts to occupy an appealing
space in consumers mind in relation to the spaces occupied by other competitive
products. The mind is like a computer in that it has slots and each bit of information is
placed and retained in the proper slot. The mind screens and accepts information
according to prior experience.
The target market of Polaroids One Film is that of amateurs in United States who are
overwhelmed by the choices. Polaroid, however, decided not to sell one film in
Europe because European consumers are sophisticated enough to know that one film
is essentially a conventional moderately fast (ASA 200) film that is positioned in the
market as a versatile film for different light situations.
The success of Maruti car in India has largely been due to its positioning as a least fuel
consumption model in comparison with others. In automobiles, Mercedes Benz for
wealthy and BMW try to maintain a uniform international image by appealing to the
racy.
A marketer determines the perceived position of a product as well as the ideal
position in a number of ways. One way is to use focus groups to explore possible
alternatives. Another positioning method is to rely on perceptual and preference
mapping. Respondents compare brands based on perceived similarities and in
relation to their ideal brands. The statistical technique of multi-dimensional scaling
(MDS) can then be used to determine the number and type of dimensions and to
transform similarities into distances. Attributes can later be examined to see how each
attribute is associated more or less with a particular brand.
A product must be positioned carefully. Mazda erred in its initial attempt to sell its
rotary engine automobile as an economy car when in fact it is a performance car. A
company may possibly use dual or even triple positioning. Beechem has positioned
aqua fresh as (i) tooth paste (ii) breath freshener and (iii) plaque remover.
Regarding positioning, the Japanese have clear focus on quality, service and
innovation. In comparison, British firms emphasise traditional brand names while
American firms emphasise product range and technology and are less likely to adapt
to local market conditions. In the final analysis, consumer needs must determine how
products are to be positioned. Kelloggs, on discovering that its rice krispies were
consumed in large quantities in Mexico, changed its promotional message to reflect
consumer needs. In India, Kellogg corn flakes have been positioned as an iron and
calcium substitute for Indian consumers.
Pr oduc t Adopt i on
For a product to gain acceptance, it must demonstrate its relative advantage over
existing alternatives. Products emphasising cleanliness and sanitation may be
unimportant in places where people are poor and struggle to get by. Wool coats are
not needed in a hot country and products reducing static cling (cling free) are useless
in a humid country. A sunscreen film attached to auto windshields to block out
sunlight may be necessary in countries with a tropical climate but it has no such
advantage in cold countries. Dish washing machines do not market well in countries
where manual labour is readily available and is inexpensive.
A product must also be compatible with local customs and habits. A freezer would
not find a ready market in Asia where people prefer fresh food. In Asia and such
European countries as France and Italy, people like to sweep and mop floors daily,
and thus there is no market for carpet and vacuum cleaners.
A new product should also be compatible with consumers other belongings. If a new
product requires replacement of those other items that are still usable, product
adoption becomes a costly, proposition. That is why Victor Company of Japan, known

Notes
as JVC in the United States, have chosen a new digital video cassette recorder that
while replacing the standard unit can still run on the existing VHS tapes. The new
machines offer significant advantages over the conventional VCR by providing
clearer, sharper picture and better colour.
A new product has an advantage if it can be divided and tested in small trial
quantities to determine its suitability and benefits. This is a products
trialability/divisibility factor. Disposable diapers and blue jeans lend themselves to
trialability rather well. Non-dairy coffee creamer, likewise, has not found great
resistance in replacing sweetened condensed milk in many countries. But when a
product is large, bulky and expensive, consumers are more apprehensive about
making a purchase. Thus washers, dryers, refrigerators and automobiles are products
that do not lend themselves well to trialability/divisibility.
Observation of a product in public tends to encourage social acceptance and
reinforcement resulting in the product being adopted more rapidly with less
resistance.
Ex por t Pr i c i ng
Pricing is an important element of the marketing mix. Success in marketing depends a
great deal on pricing. If you price your product right, the chances of your success
improve. A wrong move on this front and you could be carrying a burden of
unliquidated stocks of goods. Buyers world over attach a lot of importance to prices
while deciding whether to buy a product or not. Likewise, marketers too treat pricing
with a great deal of care. Export marketing in particular requires extremely careful
pricing, as generally the orders are bigger and repeat buys will not happen if you
have overcharged a foreign buyer once. Similarly, underpricing will get you in tough
waters, as there are many hidden costs involved in exports.
Pricing for export is different than domestic pricing. Additional consideration needs
to be given to the costs of modifying product or support materials for the foreign
market, the logistics of getting the product to the foreign market, insuring the
product, financing costs, transportation and other costs unique to exports, such as
long-distance communication costs and exchange rates, etc. (see Box 1)
Box 1: Export Pricing Considerations
At what price should the firm sell its product in the foreign market?
Does the foreign price reflect the products quality?
Is the price competitive?
Should the firm pursue market penetration or market-skimming pricing objectives abroad?
What type of discount (trade, cash, quantity) and allowances (advertising, trade-off) should
the firm offer its foreign customers?
Should prices differ with market segment?
What should the firm do about product line pricing?
What pricing options are available if the firms costs increase or decrease? Is the demand in
the foreign market elastic or inelastic?
Are the prices going to be viewed by the foreign government as reasonable or exploitative?
Do the foreign countrys dumping laws pose a problem?
Pricing products in foreign markets can be a big challenge; price suited for one market
may be disastrous in another. There is no single formula for establishing prices for
exported products; an exporter can make use of a number of logical as well as
judgmental considerations to decide an appropriate pricing structure.

Export Market
Notes
As pricing strategy is a key component of an export-marketing plan, the pricing
structure has to be an integral part of the marketing objectives. These will vary
depending on the target overseas market(s).
Is the company attempting to penetrate a new foreign market?
Is the company entering the market with a new/unique product?
Is the company trying to sell surplus/excess or obsolete/outdated products?
Is the company willing to reduce profits to gain market share for long-term
growth?
Is the company in a position to command a higher price owing to its brand
equity?
For example, a firm might regard the foreign market as a secondary market and
consequently have lower expectations regarding market share and sales volume.
Pricing decisions are naturally affected by such views.
An exporter must thoroughly evaluate all the variables that have a bearing on the
price for the product/service offering in the target foreign market. If his price is
considered as too high, the product or service may not sell. On the other hand, too
low a price may not justify any exports at all. It is important that an exporter obtains
as much information as possible on foreign market prices as part of his export market
research. Various sources could be tapped to collect price relevant information like
other exporters to same markets, overseas distributors and agents dealing in similar
products, searching the Internet, foreign travel etc.
Price for any product is affected by the following factors:

Price

Competition Costs

Customer Expectation

Costs: Costs serve the basic purpose of arriving at the minimum price, also known as
the floor price. These are basically bounded to production and other incurred costs.
Costs serve as the foundation of any pricing as the objective of every business is to
make some profit and even for non-profit organizations, it is not to incur any losses.
Profits will commence as and when one is able to recover all the incurred costs.
Competition: Competition plays a very important part in any pricing decision as it
defines the price ceiling or maximum price. Based on your costs and the competition
prices, you will have to work on your own prices.
Customer Expectation: Here, one must take into account the customer demand at
various price levels. Pricing is done for customer acceptance and it should be an
optimum price to suit the customer expectations.
In addition, government tax policies, transportation costs, distribution costs and
miscellaneous other costs also need due consideration.
Pr i c i ng St r at egi es
Businesses generally use any of these three pricing strategies: market penetration,
skimming and holding.
A low price (penetration) refers to a volume policy. Products are priced low
to gain speedy acceptance in the market.

Notes
Products are priced high (skimming) where the product is an innovation,
unique in the market, set up costs are high and demand is relatively inelastic.
Market (holding) is a strategy intended to hold market share. Products are
priced based on what the market can take.
Met hods of Ex por t Pr i c i ng
Cost Plus Pricing
This method is based on adding a desired markup on costs- including domestic costs
and exporting costs (documentation expenses, freight charges, customs duties and
international sales and promotional costs) to arrive at the prices for export markets.
Domestic marketing and promotion costs are not taken into account.
This method permits the exporter to maintain his desired profit percentage to set a
suitable export price. However, this price may or may not suit the foreign markets.
Example:
The cost per unit of producing a shoe is Rs.120.00 (Fixed + Variable Costs)
Domestic Marketing Costs included in Rs. 120.00 are Rs.15.00 per unit
Export Related Costs are Rs. 20.00 per unit
Cost for export will be Rs.120.00 Rs. 15.00 + Rs. 20.00 = Rs. 125.00
Now, using a markup of 20%, Export price for a particular market could be set at
Rs. 150.00.
Export related costs here will include Packaging, Foreign Market Research,
Advertising and Marketing, Exchange Conversion/Fluctuation Costs, Translation,
Consulting and Legal Fees, Bank Charges & other Financial Costs, Foreign
Agent/Distributor Product Information and Training, After-Sales Service Costs etc.
Here, the price set using a certain mark-up may or may not suit the foreign market.
Normally, exporters are guided by any one of the following:
(a) High-Price Option: This approach will use higher mark-ups to produce big
profits. It may work if a company is selling a new and unique product
targeted at the upper-end of the market. This option is likely to attract
competition and limit the market for the product while, at the same time,
yield bigger margins.
(b) Moderate-Price Option: This is the middle path focusing on a lower risk as
compared to the high- or low-price option. The emphasis is on matching
competition, building a market position and earning a reasonable profit
margin.
(c) Low-Price Option: This route is generally taken to impede competition to
penetrate a market, suitable in case one is trying to reduce inventory and does
not have a long-term commitment. Such pricing will result in low profit
margins.
Marginal Cost Pricing
An improved version of cost plus method is called marginal cost pricing. The fixed
cost including expenses incurred on modifications to the product for producing an
additional unit for export is determined first. Variable export costs are then added to
arrive at the realistic total cost for exports. Such costs invariably include Packaging,
Foreign Market Research, Advertising and Marketing, Exchange Conversion
/Fluctuation Costs, Translation, Consulting and Legal Fees, Bank Charges and other

Export Market
Notes
Financial Costs, Foreign Agent/Distributor Product Information and Training, After-
Sales Service Costs etc. Margins are then applied to arrive at the export price. This
result is a more realistic determination of cost of producing products for export.
Competitive Pricing
Costs are important in pricing decisions. However, they should be looked at
alongside the prices of competitive products in the target markets. Prices need to be
set in tune with the competition. Most customers compare prices of alternatives before
coming to a final decision. If ones prices are set in isolation, these may not find
favour with the customer except in cases where there is no competition.
Market Pricing
Extensive competition and availability of a variety of products have necessitated
market pricing also known as target pricing. Here, the exporter has to work on a
price that the customer is willing to pay and the focus shifts on managing costs as
efficiently as possible. This has happened because the customer today is highly
informed he knows most costings and is ready to pay only what suits him. The
exporter needs to work backwards from target price down to the costs and find
margins for him by managing his overheads and other costs better.
Example: Rs.
Target price in foreign markets 25.00
Less 30% retail margin on selling price 7.50
Retailer Price 17.50
Less 7.5% Distribution Mark-up 1.31
Distributor Price 16.19
Less 12% Import Duties/Levies 1.94
CIF Price 14.25
Less Freight & Insurance 1.60
Target FOB Price 12.65
If the exporter cannot match 12.65 with his margins, he must consider either of the
following alternatives:
Refuse to export
Find an alternative supply source to bring the costs down
Find ways to reduce costs by modifying the product/shortening of channel of
distribution
The above strategies have to be considered together to use price as a competitive edge
in international markets. The success of an exporter depends on a price that affords
him reasonable margin, is competitive and acceptable to his customer. Sounds
unbelievable, as it is paradoxical. However, business these days requires dealing with
such complexities. Therefore, the exporter must work close to his buyer while setting
prices, sharing all information on costs and competition, and using all inputs
provided by the buyer.
Export prices also need to be dealt with mutual clarity between the buyer and the
exporter. There are certain special terms used for finalizing prices (please see chapter
on Export Contract and INCO Terms) and the exporter has to know all of them before
he finalizes any prices with the buyer.
For example, there is a great difference between FOB, C&F and CIF prices. The
exporter must know what these are and quote the desired price. Cost inputs for
pricing will be different with each one of these. An exporter must be aware of the
implications of each and build cost inputs accordingly.

Notes
Illustration
CKY exports have received an enquiry from DDR Imports, U.K. for supplying
2,50,000 toothbrushes. The price required is FOB Mumbai.
Now, as per the implications of FOB:
Carriage is to be arranged by the buyer.
Risk will get transferred from the seller to the buyer when the goods pass the
ships rail.
Cost transfer will materialise from the seller to the buyer when the goods pass
the ships rail.
As per point three above, the price has to include cost inputs incurred till the point
when the goods are put on board the ship.
Similarly, in the above illustration if the price required is CIF Southampton, then by
implication of CIF-
Cost transfer at port of destination, buyer paying such costs that do not
accrue for the sellers account under the contract of carriage.
As per point three above, the price must include costs incurred till the port of final
destination excluding those that are for the buyer as per the contract.
Visit an exporter and find out his pricing strategy. Compare it with your
conceptual knowledge.
Ex por t Pr omot i on
The purpose of promotion is to communicate with buyers and also to influence them.
Effective promotion requires an understanding of the process of persuasion and how
this process is affected by environmental factors. The potential buyer must not only
receive the desired information but should also be able to comprehend that
information and the information must be sufficiently potent to motivate this buyer to
react positively. To communicate effectively with someone means that certain facts
and information are shared in common with that person. Communication is basically
a five-stage process consisting of source, coding, information, decoding and
destination.
Pr omot i on Mi x
Success in persuading customers to buy hinges on an understanding of the workings
of the human mind and the types of communications that stimulate thoughts and
emotions. Thus, promotion is a field in which the effects of the basic systems of a
society are strongly felt. Education, religious codes, social values and all the other
forces that mould the minds and feelings of people are the backdrop against which
advertising and other forms of promotion must fit.
The St at us of Pr omot i on
The dominant pattern is the pronounced rise in level of expenditures from the low
income countries to the high income ones. In the former, advertising generally runs
about 1 per cent of national income, while at the upper end it approaches 3 per cent.
Furthermore, many of the expenditure ratios fall on a rough curve, suggesting that
there is some systematic relation between economic development and advertising.
There are also clear deviations from the curve like France and Germanywhich

Export Market
Notes
indicate that, if there is a systematic relation, it is subject to variation in individual
national societies.
What is behind these patterns? First, there is a progression in the structural aspects of
marketing that causes the differences in the overall level of expenditure. In primitive
societies, goods are produced to meet a limited group of known needs, producers and
consumers are close, and the quality of products is easily seen and judged. As we
move up the economic scale, these conditions change, creating needs for advertising.
Buyers have enough money to become selective in their purchasing, so promotion is
employed to persuade them to buy the output of a particular maker. The producer is
separated from the consumer by widening levels of middlemen. Rather than relying
on their often inadequate selling efforts, he turns to advertising to stimulate demand.
The complexity of products increases, so the buyer needs more and more knowledge
to make his decisions. Sellers find that advertising methods permit them to present
facts and arguments to the consumer.
These problems accelerate as incomes increase. That is, they increase faster than the
rate of rise of incomes. This in itself would justify acceleration in the rise of
advertising. But because of the increase, advertisers are confronted by a problem in
the limited attention and absorption capacities of the buyer. He has just two eyes and
two ears and only twenty-four hours per day. So more producers try to get more
complex messages into a limited receiver, with a result somewhat similar to the
noise level as a cocktail party grows. The total advertising effort intensifies as each
advertiser tries to make himself noticed in competition with the increasing efforts of
others. Finally, a saturation plateau is reached beyond which further increments of
effort to claim the consumers attention produce little return. According to one
estimate, the average US consumer is exposed to some 1600 ads each day. Since the
advertising expenditures in the United States have held close to 2.8 per cent of
national income since 1955, despite further rises in per capita income, we may assume
that this is the saturation level. In most countries, however, the percentages are well
below that, and as their incomes rise, creating more competition for buyer attention,
progress along the general trend of the curve is likely.
Second, we have the question of notable deviations from the general pattern such as
those for France and Germany. These would appear to be due to national attitudes
toward advertising, attributable to various causes. The aversion to promotion that
exists to a degree in the United States is quite strong in many countries. In Europe, the
feelings are for the traditional, old-line character: a good product will sell itself.
Consumers accustomed to the conservative approach look with skepticism at anyone
who advertises heavily, the assumption being that his products must be inferior if he
has to try so hard to sell them. This point of view also prevails, to some degree, in less
developed countries, where selling, besides, has a low social status. Thus, an Indian
businessman whose thinking runs along English lines anyway is reinforced in his
aversion to advertising by its association with uncouth merchant salesmanship. As
one Indian factory owner explaining his lack of selling effort put it, We make the
sugar; we do not run a bazaar shop.
In the background also is the economic waste argument of some government
economists. They cannot usually place actual limitations on advertising, but in
countries where government planning and controls are strong, their attitude can hold
down the level. In the late 1960s, the British Labor Party government was taking a
very critical position toward high advertising expenditures and had implemented
some restrictive moves against producers of detergents. The Indian government is
heavily staffed with socialistically inclined economists who lean to this view. They
have, from time to time exerted enough pressure, so that they have probably deterred
the development of advertising. When an Indian government team made a study of
tire prices in 1954, one of its sharpest criticisms was on the high level of promotion

Notes
costs. Although it could not specifically direct the companies (Firestone, Goodyear,
and others) to reduce their selling effort, the governments general power to control
other aspects of the foreign companies activities meant that the managements had to
give weight to its views. Finally, in those countries where economic growth is slow,
sellers become resigned to a static market and see little purpose in advertising. These
various deterrents are common in many countries, but it would appear from the
French and German examples that they are stronger in some than others.
The status of promotion in a society sets broad limits for promotion programmes.
Clearly, it is appropriate to think in terms of less intensity of effort in countries at a
lower level of economic development and to act with restraint where promotion has a
lower level of public acceptance. However, within these broad limits, management
has wide range of discretion. Some companies, like Colgate and Pepsi-Cola, have
advertised very heavily in low income countries. It is true that because of inadequate
marketing data, the results of their advertising are not specifically definable.
However, their overall success attests to the soundness of their practices. Thus
promotion programmes must be designed on the basis of specific analysis of
objectives and practicalities, not just by conforming to national patterns.
Pr omot i on Appeal s
In creating promotion appeals for foreign markets, the marketing manager needs to
bear in mind the full range of consumer characteristics like buying abilities,
motivations and purchasing practices.
The widespread of buying abilities abroad has considerable bearing on the pitch of
promotion appeals. We have noted that in low income countries the market for some
products is largely limited to a small wealthy class, for others the market extends
down into the middle class, and for only a few is there demand among the
impoverished masses. Advertising approaches have to be grated to the characteristics
of the income groups that can buy the products. The wealthy elite of the lowest
income countries, for example, can only purchase automobiles, so their luxury
qualities may well be emphasised. Somewhat higher in the scale of economic
development, a demand appears among the new middle classes. For these consumers
emphasis on economy of operation is in order, because they are often hard pressed
financially. Beyond such specifics of advertising appeals, it is important to keep the
income level of buyers in mind because it underlies much of the discussion that
follows both of other aspects of appeals and of media selection.
Customer motivations are, of course, the heart of the promotion mans planning. The
varied influences of social, educational and other systems provide a wide range for
imaginative design of appeals. The critical decisions lie in determining which of them
will be significant in a given situation. For example, consider the experience of a US
company that decided to introduce dishwashers in Switzerland, one of the more
affluent European societies. The time saving aspects of the dishwasher seemed to fit
the new pattern of life evolving for the upper middle class housewives. They were
less and less able to afford servants, and their time economy was moving in the
direction of US women. The success of instant coffee, cake mixes, and the like seemed
to indicate that they were receptive to time saving products. Thus the company
initially planned to emphasise the convenience aspects of the product as it does in the
United States. However, a pre-introduction study showed that this was not
appropriate. Despite the limits on their time, Swiss housewives still feel under strong
pressure from social codes that call for hard work and devotion to domestic duties. So
the company switched its approach to one of sanitation and emphasised the greater
sterilisation possible with high temperatures in a dishwasher, an idea that appealed to
the spic and span Swiss housewife.

Export Market
Notes
Another set of motivations is involved in the use of US television commercials to sell
home products in some Latin American countries. At first glance it seems a dubious
practice to show, for example, an American housewife busily doing her dishes with
XYZ detergent on a Mexican television screen. Most Mexican owners of television sets
are in the middle or upper classes, where servants are still almost universally
employed. A woman from these classes rarely deigns to wash the dishes. It is a mark
of social status that she can afford to have others do such mantel work. So ones first
reaction is that the advertiser is curing his own throat by running counter to the
values of the society.
However, there are two and possibly three other motivations at work in the situation
that make this sort of commercial highly effective. First, there is the high quality
reputation of products made by US companies. Nationalistic pride may be offended if
a company blatantly says it is a US firm in its ads, but the use of commercials made in
the United States makes the point quite effectively. Second, to many of the Latin
American housewives, especially those in the rising, ambitious middle class, the
material accoutrements of the US way of life are an ideal. Thus a favourable
association is built up between the idea of buying XYZ detergent and having a kitchen
equipped like that of a US housewife.
The third possibility, while difficult to prove, may be a very strong point. At the same
time that middle-class Mexicans are admiring US material goods, there is strong vein
of envy and sense of inferiority in their emotions. They are all too conscious of their
lower standard of living, a feeling aggravated by political sensitivities toward the
giant to the north. The picture of the US housewife washing her own dishes is slave to
these feelings. The Mexican housewife can say to herself, Well, she may have all
those fancy gadgets. But at what price? She has to wash her own dishes. I, at least, can
afford servants to do my dirty work for me. So the commercial leaves her with a
feeling of contentment along with favourable impressions of XYZ detergent.
The element of nationalism illustrated in this story is one to which US companies
must be specially sensitive abroad. There are a few countries in which it appears to be
almost a neutral element. For example, US made commercials are commonly used on
television in Australia with no apparent adverse effect. But Australia is unusual both
in its distance from the United States and its lack of friction generating relations.
Canadians, while ethnically and economically similar to the Australians, harbour
strong antagonism toward the United States because they fear its size and resent the
influence of American ways, which they feel are destructive of their own culture.
Most of the less developed countries envy and fear US economic wealth and political
power. Europeans have assorted negative feelings, ranging from the anti-Anglo-
Saxon attitudes of the French to the Colonel Blimp superiority complex persisting in
some Britons. On the other hand, there are feelings of admiration for the American
way of life and respect for US made products, especially in developing nations. One
key to successful advertising abroad is fitting appeals among these mixed feelings.
On the other hand, studies in Europe show that US products are considered superior
by only a limited portion of buyers (with substantial variation by country and
product). Experience indicates that a clear identification as a US company may have a
negative effect, so it is better just to build the company and its brands in advertising
without reference to their US origins.
So far as purchasing practices are concerned, the important points for creating
promotion appeals are the differences in who makes the buying decisions and the
problem of complexity of decisions. In foreign markets, the wife and children
generally play a smaller role in purchases than the husband, and that in industrial
buying much more decision making is concentrated at the top levels of management,
especially in the family-owned company. All of these factors clearly bear on the
character of promotion employed. For example, the massive efforts of food companies

Notes
to court the younger generation in the United States may not be so appropriate
abroad, where the mother generally still decides what the children should eat. But
change is occurring here too. For example, one company introduced a new detergent
in Holland by advertising solely in one magazine read by children under ten and
offering a miniature sports car as a premium. The success of the introduction
indicated that at least in this case the children had a very strong influence on buying
decisions.
The complexity of decision making is most important in the area of brand image and
institutional advertising. We have already observed the value to the buyer of
confidence in the quality standards of a manufacturer. US manufacturers, as a group,
have a favourable reputation in this respect. But, although the general reputation is a
good start, each firm must make its own name in each market. Finding the best way to
achieve this objective may require some ingenuity, as the XYZ detergent story
indicates. Most US companies, especially in the less-developed highly nationalistic
countries, are not eager to emphasise their foreign ownership but they know that they
profit from keeping the public conscious of it because their ties with US research and
manufacturing know-how are recognised marketing strengths. Beyond that, a
company benefits from types of advertising material that build its image as a
responsible, reliable firm whose products, in contrast to those of many local
manufacturers, the consumer may purchase with assurance of consistent quality.
These, then, are the fundamental lines of analysis upon which promotion appeals
should be developed for foreign markets. In addition, there are, in all markets, some
legal boundaries restraining advertising. Some of these are simply concerned with
morals and good taste. Others, such as food and drug labeling, are designed to aid
and protect the buyer. A few are restrictions on the basic approach to promotion. The
most notable instance is the German prohibition of comparative references in ads. A
company cannot says its product is the best or even that it is better than others in
any respect. This prohibition has a logical basis in the concept that such comments
amount to slander against other firms. But, noting that this same logic would apply in
any country, we must conclude that its continuation is more related to the status of
promotion in Europe.
Medi a Sel ec t i on
Table 7.1: The new product development process
Measure of
Effectiveness
Per cent of Respondents
Using this method
Major Difference
Lowest Percentage Highest Percentage
Sales 82 Germany (56%) Australia (96%)
Israel (94%)
Awareness 66 Israel (6%) Australia (92%)
Hong Kong (84%)
Recall 45 Israel (13%)
Mexico (13%)
Yugoslavia (17%)
Germany (67%)
Australia (65%)
Executive judgement 35 Finland (10%)
Israel (13%)
Brazil (62%)
Great Britain (54%)
Intention to buy 27 Argentina (8%)
Great Britain (14%)
Australia (42%)
USA (39%)
Israel (38%)
Profitability 21 Israel (6%)
Hong Kong (7%)
Argentina (8%)
Finland (53%)
Yugoslavia (39%)
Coupon return 15 Argentina (0%)
Brazil (0%)
Denmark (27%)
Hong Kong (25%)
Sweden (25%)
Other 18 Yugoslavia (4%)
Denmark (5%)
Israel (6%)
Finland (50%)
Mexico (34%)

Source: Synodinos, Keown, and Jacobs. Transnational Advertising Practices, 1999

Export Market
Notes
The figures in Table 7.1 give a broad picture of the variations in media that advertisers
in several countries use to present their stories to the public. At the back of these
figures are a number of differences in the availability of media and their effectiveness
in reaching buyers.
In most markets, the same variety of communications media found in the United
States exist. In addition, the showing of short commercials in movie theatres, a
practice that used to be common in rural United States, is widely utilised abroad and
here and there imaginative managements have created quite novel media. For
example, one company supplies taped music interspersed with commercials to be
played on long distance buses in Rhodesia. The chief gaps in media availability are
due to government restrictions, especially in the broadcast media. There is a feeling in
many countries, especially in Europe and several British-oriented nations like
Australia and Canada, that radio and television programming should be under public
rather than private control. This feeling arises in part from a fear of the potential
political strength of the media. Europeans have lived for years with a politically-
oriented press, many newspapers being closely allied with a political party. They
have feared to allow broadcast media to be used for the same purpose. Equally
important is the general low opinion of advertising. It is commonly assumed that
advertisers do have the good taste and intelligence to present programmes that fulfill
the publics expectations from entertainment and education. Thus, in a number of
countries, the government has retained ownership of the broadcast media and no
commercials are allowed.
The chief breaks in this pattern have been forced by economics radio is relatively
inexpensive, and it serves as a useful outlet for government messages. Television is
far more costly both in initial equipment and in programming. Therefore,
governments have been more willing to allow private business to share the cost by
accepting commercials. The British, for example, have stoutly resisted commercial
radio, but after holding the line on television for several years, they gave in and
permitted the formation of a commercial network.
The selection of media generally turns on the question of which means is most
effective in reaching a particular audience with a particular message. On the whole,
the capabilities of the media abroad are similar to those in the United States: outdoor
ads can convey brief visual messages; newspapers are a good means to promote the
current sale of many specific products. But the coverage and economic aspects of
foreign media are different from their US counterparts.
Although there are many selective aspects of media in the United States, the general
pattern is one of universal coverage paralleling the fairly homogeneous middle-class
market. Virtually all people read newspapers, listen to the radio, watch television, etc.
There is, by contrast a high degree of selectivity in the coverage of most media in low-
income countries. Illiteracy and low educational levels eliminate much of the lower
class, especially in rural areas, from the coverage of press media. Low buying power
restricts most ownership of television sets to the middle and upper classes. On the
other hand, radio ownership goes fairly low on the income scale, and the practice of
bars and other establishments of allowing radios to blare loudly into the streets
further broaden its coverage in many low-income areas.
In addition to these broad coverage patterns, finer distinctions of coverage are
important. Cinema advertising, for example, can be used to reach virtually the whole
urban population of most countries because movie attendance is high even in the
poorer ones. But because of the social stratification common abroad, it is also possible
to pinpoint a particular income level by showing commercials only in theatres that
cater to the upper classes or by using them only in the slum theatres. Likewise,
geographic objectives often lead naturally to selection of certain media. In some
countries, a few leading newspapers provide the best national press coverage, at least

Notes
among more educated people. This is true in Turkey, for example, and to some degree
in England, where the London Times, the Manchester Guardian, and a few other
papers have a wide national readership. On the other hand, there are countries like
Germany where newspapers are basically local and magazines provide the only broad
national press coverage. Probably as a result of this condition, German magazine
advertising rose about 250 per cent from 1957 to 1966, while newspaper ads increased
by 135 per cent.
This selectivity of coverage of media is, of course, related in most cases to the same
conditions that create the segmentation of markets buying ability, education and so
forth. And the result is that the problem created by market segmentationthat of
pinpointing advertising on the groups that offer real potential is solved quite
naturally, at least in broad terms, by the selectivity of media coverage. In each market,
it is generally possible to find at least one medium that fits any companys needs.
Pepsi-Cola and Coca-Cola have invested heavily in radio time wherever it is available,
because it penetrates to the lowest levels among which they have developed good
sales. Automobile companies, on the other hand, find that television and quality
magazines reach the foreign buyer who can afford their products.
The economics of various selling methods provide the second level of selection.
Advertising is in part a product of the inefficiency of personal selling. It does have
other capacities that personal selling lacks, but, on balance, taking a message
personally to every prospective buyer is more effective than reaching him indirectly
through advertising media. The limitation on personal selling is largely economic,
and as we move from high wage to low wage countries, the feasibility of utilising
personal selling in preference to advertising rises. The effects of this shift can be seen
in the practices of US companies. Colgate, for example, has virtually no direct contact
with customers in the United States; except for distributing samples in supermarkets,
it relies almost entirely on advertising. In low-income countries, however, the
company has employees who visit virtually all urban homes once or twice a year with
a basketful of company products. Ostensibly, they are salesmen and they may in fact
sell enough to pay for a good part of their cost. But their main function is to make the
merits of Colgate products known to the public. Because their wages are very low, the
method is economical, whereas it would be prohibitively expensive in the United
States.
Economic differences are also found among the main advertising media. Outdoor
displays, for example, require a large amount of labour-paining individual signs,
pasting up sheets, etc. In the United States, high labour costs are a prime factor behind
the stagnation of outdoor advertising; expenditures in the medium dropped from an
already small 2 per cent of the total in 1958 to 1 per cent in 1966. In low-income
countries, on the other hand, low labour costs make it relatively inexpensive to slap
up signs and paint slogans on buildings. Thus, some companies appear literally to
have plastered the countryside with their namesit is hard to walk a block in a
Mexican city, for example, without seeing a Tome Pepsi-Cola sign.
What are the various agencies for sales promotion in international markets?
Explain is detail any one of them.

I nt er nat i onal Di st r i but i on Channel
Di st r i but i on Def i ni t i on
Distribution is the course that goods take between production and the final consumer.
This course often differs on a country by country basis and MNCs will spend a

Export Market
Notes
considerable amount of time in examining the different systems that are in place, the
criteria to choose distributors and channels and how distribution segment will be
employed.
The I mpor t anc e of Pl ac ement
The marketing function of distribution involves the critical process of ensuring that
the products of a firm reach the proper location for sale at the proper time and in
proper quantity. Breaks in the distribution flow can have critical ramifications, in the
form of disgruntled customers, spoiled or damaged goods, excessive costs, and lost
sales. Thus, the type of product being transported determines the appropriate method
of distribution and choice of channels. For example, one of the companies of United
Technologies manufactures refrigerated transportation containers for fresh produce in
which temperatures must remain constant or importers are faced with receiving, say
instead of bananas, a shipment of imported brown mush.
Distribution decisions are also of critical importance because they are often long-term
in nature, involving the signing of contracts with transporters or equipment leasers or
the development of expensive capital equipments or infrastructures, such as rail lines,
wharfs, ports, docks and loading facilities.
This process, difficult in domestic markets, grows more complicated in international
environments because it has two stages. First, the international exporter must
transport goods from the domestic production site to the foreign market, then
establish methods of distribution for the goods within the foreign country.
Numerous players within distribution systems are required to get goods to markets.
The distribution chains begin with the producers of the goods and then generally
close through an intermediary or in the form of a wholesaler or distributor, who, in
turn, provides the retailer with his goods for sale. Other services provided in the
distribution of goods are storage of facilities, transportation to market via rail, truck,
barge or plane and insurance services for those goods being carried between the
nations.
This relatively simple scenario becomes much more complicated with the addition of
the international component, at which point other people enter the act to facilitate
these exchanges. There are freight forwarders, who see the details of international
transportation and exporters and importers who conduct their international trading
as either agents or brokers. Sometimes, these individuals seek title to the goods and
trade them on their own behalf (merchant middlemen); alternatively, they represent
the firms interests and arrange for the distribution of goods for a fee (agent
middlemen). Other players in the distribution game are resident buyers who work in
foreign market to acquire goods and foreign sales agents who sell a product line in the
international market. The classifications are augmented by such entrants in the
process as export management companies, which provide distribution services for
firms under contract; buyers for exports, who actively seek merchandise for purchase
by the principals they represent and selling groups, such as those established in the
United States under the terms of the Webb-Pomerene Act to promote trade. Some
agents specialise and focus primarily on barter or counter-trade agreement with non-
market economy countries. Further down the chain, key players are those who deal
directly with customers such as sales force, door to door sales persons, individual
merchants, and the customers themselves.
Di r ec t and I ndi r ec t Sel l i ng Channel s
When companies have to market abroad they use two principal distribution channels
(i) direct selling and (ii) indirect selling. Direct selling is employed when a
manufacturer develops an overseas channel. This channel requires that the
manufacturer deals directly with a foreign party without going through an

Notes
intermediary in a home country. The manufacturer must set up the overseas channel
to take care of business activities between the countries. Being responsible for
shipping the products to foreign markets itself, the manufacturer exports through its
own internal export department or organisation.
The greatest advantage of direct selling channel is active market exploitation, since
the manufacturer is more directly committed to its foreign markets. Another
advantage is greater control and improved communication because approval does not
have to be given to a middleman before a transaction is completed. Hence, the
channel allows a uniform policy for the company.
Direct selling has a number of problems also. It is a difficult channel to manage if the
manufacturer is unfamiliar with the foreign market. Moreover, the channel is time
consuming and expensive. Without a large volume of business the manufacturer may
find it too costly to maintain the channel. Hiram Walker, a Canadian distiller, used to
have its own marketing operation in New York city to distribute such brands as
Ballantine Scotch, Kahlua, and CC Rye. Poor earnings finally forced the company to
phase out its costly US selling organisation along with its New York city market
operations.
Exporters, who do not undertake international marketing research, have a tendency
to sell directly to an export agent. A survey of exporting firms in the electrical,
machine tool builders, food equipment and fluid power industries found that firms
that export industrial goods use distribution channels identical to those that are used
at home. The export distribution channel is used by the exporting firms through sales
representatives and export distributors. In the balance, firms that have been exporting
for a while are happier with their distribution system than firms that have relatively
little exporting experience.
Indirect selling, also known as the local or domestic channel, is employed when a
manufacturer in the United States, for example, markets his product through another
US firm that acts as the manufacturers sales intermediary (middleman). As such, the
sales intermediary is just another local or domestic channel for the manufacturer
because there are no dealings abroad with a foreign firm. By exporting through an
independent local middleman, the manufacturer has no need to set-up an
international department. The middleman, acting as the manufacturers external
export organisation, usually assumes the responsibility for moving the product
overseas. The intermediary may be a domestic agent if it does not take title to the
goods or it may be a domestic merchant if it does take title to the goods.
There are several advantages to be gained by employing an indirect domestic channel.
For example, the channel is simple and inexpensive. The manufacturer incurs no start
up cost for the channel and is relieved of the responsibility of physically moving
goods overseas. Because the intermediary very likely represents separate clients who
can help share distribution costs, the costs of moving the goods are further reduced.
Types of I nt er medi ar i es: Di r ec t Channel
There are several types of intermediaries associated with the direct and indirect
channels (Figure 7.2). This figure compares two channels and lists the various types of
domestic and foreign intermediaries.
Foreign Distributor
A foreign distributor is a foreign firm that has exclusive rights to carry out
distribution for a manufacturer in a foreign country or specific area. For example,
when Don Wood returned to Detroit, he still remembered the MG Sports Car he
drove in England during Second World War His letter asking MGs chairman to sell
and ship one car to him brought the response that MGs policy was to sell only

Export Market
Notes
through authorised distributors. But MG was willing to appoint Wood its Midwest
distributor if he would order two cars instead. Wood agreed to do so and went on to
become a successful distributor.

Deptt stores
Independent
retailers
Voluntary
group retailers
Multiple retailers
Manufacturers'
sales branches
Franchises
Mail order houses
Industrial
distributors
Voluntary
Independent
wholesalers
Agents
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Direct delivery, door-to-door, automatic vending
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Figure 7.2: International channels of distribution
Orders must be channelled through the distributor even when the distributor chooses
to appoint a sub-agent or sub-distributor. The distributor purchases merchandise
from the manufacturer at a discount and then resells or distributes the merchandise to
the retailers and, sometimes, final consumers. In this regard, the distributors function
in many countries may be a combination of wholesaler and retailer. But in most cases
the distributor is usually considered as an importer or foreign wholesaler. The length
of association between the manufacturer and its foreign distributor is established by a
contract that is renewable provided the continued arrangement is satisfactory to both.
In some situations, the foreign distributor is merely a subsidiary of the manufacturer.
Seiko, USA, for example, is a distributor for its Japanese parent, Hattori Seiko, which
manufactures Seiko watches. It has been observed that foreign distributors invariably
are independent merchants. Charles of Ritz Group has been the US distributor for
Opium, a very popular perfume in France.
There are a number of benefits for using a foreign distributor. Unlike agents, the
distributor is a merchant who buys and maintains merchandise in its own name. This
arrangement simplifies the credit and payment activities for the manufacturer. To

Notes
carry out the distributing function, the foreign distributor is often required to
warehouse adequate products, parts and accessories. Apple Computer now does its
own distribution in Japan because the services of Toray Industry, its foreign
distributor, proved inadequate.
Foreign Retailer
If foreign retailers are used the product in question must be a consumer product
rather than an industrial product. There are many channels by which a manufacturer
may contact foreign retailers and trust them in advertising the product ranging from a
personal visit by the manufacturer to mailing of catalogues, brochures and other
literature to prospective retailers. The use of personal selling or a visit, although
expensive, provides for more effective sales presentation as well as better screening of
retailers for distribution purposes. The use of direct mail, although less expensive,
may not sufficiently catch the retailers attention.
For big items such as automobiles or high volume products, it may be worthwhile for
the manufacturer to sell to retailers without going through a foreign distributor. In
fact, most large retailers prefer to deal directly with their manufacturers. In Europe,
for example, a number of retail food chains are becoming larger and more powerful
and they prefer to be in direct contact with the foreign manufacturer in order to
obtain price concessions.
State Controlled Trading Company
For some products, particularly, utility and telecommunication equipment, a
manufacturer must contact and sell to the state controlled companies. In addition,
many countries, especially in Eastern Europe, have state controlled trading
companies, which are companies that have a complete monopoly in the buying and
selling of goods. Hungary has 100 state trading organisations for a variety of products
ranging from poultry to telecommunication equipment and for both imported and
exported products.
India has a State Trading Corporation (STC) which deals with the import and export
of cars and other items which are in SIL. Most opportunities for manufacturers are
limited to raw materials, agricultural machinery and manufacturing equipment and
technical instruments rather than consumer or household goods. Reason for all this
may be the limitations in shortage of foreign exchange and an emphasis on self-
sufficiency as in communist and socialist countries.
End User
Sometimes a manufacturer is able to sell directly to foreign end users with no
intermediaries involved in the process. This direct channel is a logical and natural
choice for costly industrial products. For most consumer products, the approach is
only practical for some products and in some countries. A significant problem with
consumer purchasers can result from duty and clearance problems. A consumer may
place an order without understanding his or her countrys import regulations. When
the merchandise arrives the consumer may not be able to claim it. As a result the
product may be seized or returned on a freight collect basis.
To solicit orders a manufacturer may use publications to attract consumers. Many US
magazines receive overseas distribution and foreign consumers read the
advertisements inside. The important magazines are Time, Newsweek and
Businessweek that facilitate the ordering process because they publish international
editions. An advertiser can also place his advertisement directly with the foreign
publisher.

Export Market
Notes
Types of I nt er medi ar i es: I ndi r ec t Channel
A manufacturer may find it difficult, rather impractical, to sell directly to various
foreign parties (foreign distributors, foreign retailers, state controlled trading
companies and end users) for a majority of products. Other intermediaries have come
between these foreign buyers and manufacturers.
Although there are many kinds of local sales intermediaries, all can be grouped under
two broad categories (i) domestic agents (ii) domestic merchants. The basic difference
between the two is ownership (title) rather than just the physical possession of
merchandise. Domestic agents never take title to the goods regardless of whether the
domestic agents take possession of the goods or not. Domestic merchants, on the
other hand, own the merchandise regardless of whether the merchants take
possession or not. An agent represents the manufacturer whereas a merchant
(distributor) represents the manufacturers product. A merchant has no power to
contract on behalf of the manufacturer but the agent can bind the manufacturer in
authorised matters to contracts made on the manufacturers behalf.
Agents can further be classified according to the principal whom they represent. Some
agent intermediaries represent the buyer; others represent the interests of the
manufacturer. Those who work for the manufacturer include export brokers,
manufacturers export agents, export management companies, cooperative exporters,
and Webb Pomerene Agents who look after the interests of the buyer include
purchasing (buying) agents/offices and country controlled buying agents.
Agent s w ho l ook af t er t he I nt er est s of Manuf ac t ur er s
The aim of the export broker is to bring a buyer and seller together, for which he is
paid the fee. The broker may be assigned some or all foreign markets to seek potential
buyers. He negotiates the best terms for the seller (manufacturer) but cannot conclude
the transaction without the approval of the principal. As a representative of the
manufacturer, the export broker may operate under his own name or that of the
manufacturer. For any action performed, the broker receives a fee/commission. An
export broker does not take the title of the goods. He is very useful because he has an
extensive knowledge of the market, its supply, demand and foreign customers. He
can, therefore, negotiate the most favourable terms for the manufacturer.
Manufacturers Export Agent or Sales Representative
Manufacturers export agent is not a manufacturers employee. In fact, he is an
independent businessperson who usually retains his/her identity by not using the
manufacturers name. Having more freedom than the manufacturers own sales
person, a sales representative can select when, where and how to work within the
assigned territory. Working methods include presenting product literature and
samples to potential buyers. An export agent pays his/her own expenses and may
represent manufacturers of related and non-competing products. He can operate on
either an exclusive or non-exclusive basis.
Like a broker, the manufacturers, export agent works for commission. Unlike the
broker, the relationship with the manufacturer is continuous and more permanent.
The contract is for a definite period of time and it is renewable by mutual agreement.
The manufacturer, however, retains some control because the contract defines the
territory, terms of sale, method of combination and so on.
There are a number of circumstances when it may not be justifiable for a
manufacturer to set-up his own export and distribution network. Such circumstances
include the following:
1. When the manufacturer has a geographically widespread market.

Notes
2. When some overseas markets are too thin.
3. When the manufacturers product is new and the demand is uncertain.
4. When the manufacturer is inexperienced in international marketing.
5. When the manufacturer wants to simplify business activities.
Export Management Company
An export management company (EMC) manages, under contract, the entire export
programme of a manufacturer. An EMC is also known as a Combination Export
Manager (CEM) because it may function as export department for several allied but
non-competing manufacturers. In this regard, those export brokers and
manufacturers export agents who represent a combination of clients can also be
called EMC. When compared with export brokers and manufacturers export agents,
the EMC have greater freedom and considerable authority. EMC provide extensive
service ranging from promotion to shipping arrangement and documentation.
Moreover, EMC handle all and not a portion of its principals product. In other words,
EMC handles the international responsibilities.
Foreign buyers usually prefer to deal with manufacturers directly rather than through
a third party. Therefore, an EMC usually solicits business in the name of the
manufacturer and may even use manufacturers letterhead. This may be an
advantageous arrangement for small and medium size firms that lack expertise and
adequate human and financial resources to obtain exports.
Cooperative Exporter
A cooperative exporter is a manufacturer with its own export organisation that is
retained by other manufacturers to sell in some or all foreign markets. In fact, this
intermediary is also a manufacturer, who functions like any other export agent. The
usual arrangement is to operate as an export distributor for other suppliers sometimes
acting as a commission representative or broker. Because the cooperative exporter
arranges shipping, he takes possession of goods but not the title.
The cooperative exporters motive in representing other manufacturers primarily
involves its own financial interests. Having fixed costs for the marketing of its own
products. the cooperative exporter desires to share its expenses and expertise with
others who want to sell in the same markets abroad. Because of these activities, a
cooperative exporter is often referred to as a mother hen, piggy back exporter or
an export vendor. Some of the well-known cooperatives are GE, Singer and Borg-
Warner.
The relationship between the cooperative exporter and its principal is a long-term
one. The arrangement provides an easy, low risk way for the principal to start
marketing overseas and the relationship should ordinarily continue as long as
unrelated or non-competitive products are involved. A problem may arise if the
principal decides to market a new product that competes directly with the
cooperative exporters own product or the exporters other clients.
Webb-Pomerene Association
A Webb-Pomerene Association is formed when two or more firms, usually in the
same industry, join together to market their products overseas. The association
constitutes an organisation jointly owned by competing US manufactures exclusively
for the purpose of export. It may seem strange for competing firms to cooperate but
experience has shown that joint export operations are not effective for unrelated

Export Market
Notes
products. The largest such association has almost 300 members whereas the North-
West Dried Fruit Association has only two members.
Basically a Webb-Pomerene Association is an export cartel. Although cartels are
illegal in some countries like US, this kind of cartel is allowed to operate as long as it
has no anti- competitive impact on domestic marketing in the US market. The Webb-
Pomerene Act provides the Association with qualified exemption but it may not
receive prior certification of anti-trust exemption. The only legal requirement is that
the Association must file with the Federal Trade Commission within 30 days after its
organisation.
Purchasing/Buying Agent
An export agent represents a seller or manufacturer. The purchasing/buying agent
represents the foreign buyer. By residing and conducting business in the exporters
country, the purchasing agent is in a favourable position to seek a product that
matches the foreign principals preferences and requirements. Operating on the
overseas customers behalf, the purchasing agent acts in the interest of the buyer by
seeking the best possible price. Therefore, the purchasing agents client pays a fee or
commission for the services rendered. The purchasing agent is also known as
commission agent, buyer for export, export commission house and export buying
agent. This agent may also become an export confirming house when confirming
payment and paying the seller after receiving invoice and the title document for the
client.
The buying agent is valuable for the manufacturer because he seeks firms out and
offers them services. However, since the agent operates on an order basis, the
relationship with either buyer or seller is not continuous. This arrangement, thus,
does not offer a steady volume of business for the manufacturer and neither does it
offer any reduction in the financial risks.
Country Controlled Buying Agent
Country Controlled Buying Agent is only a variation on the purchasing agent because
this kind of agent performs exactly the same function as the purchasing/buying
agent, the only distinction being that a country controlled buying agent is actually a
foreign governments agency or quasi-government firm who is empowered to locate
and purchase goods for its country. This agent may have a representative or may
make a formal visit to the supplier country when the purchasing need arises.
Resident Buyer
Resident Buyer is another variation on the purchasing agent. The resident buyer, as
the name implies, is an independent agent that is usually located near the highly
centralised production industry. Although functioning like a regular purchase agent,
the resident buyer is different because the principal, on a continuous basis, maintains
a search for new products that may be suitable to it. The long-term relationship makes
it possible for the resident buyer to be compensated with a retainer and commission
for business transacted.
The resident buyer provides many useful services for the manufacturer. He can offer a
favourable opportunity for a supplier to maintain a steady and continuous business
relationship as long as the supplier remains competitive in terms of price, service,
style and quality.
For a foreign buyer, the resident buyer offers several useful services one of which is
the purchasing function. The resident buyer uses his judgement to make decisions for
its overseas clients which does not have the time to send someone to visit production
sites or firms or which cannot wait to examine samples. Another service provided by

Notes
the resident buyer is follow up action. He can make certain that the delivery is made
as promised.
Export Merchant
The intermediaries covered above have some common factors such as they take
neither risks nor title, preferring to receive fees for their services. Unlike these
middlemen, domestic merchants are independent businesses that are in business to
make a profit rather than to receive a fee. There are several types of domestic
merchants because they all take title; other features such as physical possession of
goods and services rendered distinguish them.
One kind of domestic merchant is the export merchant. An export merchant seeks out
needs in foreign markets and makes purchases from manufacturers in its own country
to fill those needs. Usually the merchant handles staple goods, undifferentiated
products or those in which brands are unimportant. After having the merchandised
packed and marked to specifications, the export merchant resells the goods in its own
name through his contacts in the foreign markets. The merchant completes all the
formalities and arrangements and assumes all risks associated with the ownership.
Export Drop Shipper
An export drop shipper, also known as a desk jobber or cable merchant, is a special
kind of export merchant. As all these imply, the mode of operation requires the drop
shipper to request the manufacturer to drop ship a product directly to the overseas
customers. It is neither practical nor desirable for the shipper to physically handle or
possess the product. Based on this operational method, the shippers ownership of the
goods may only last for a few hours.
The export drop shipper places an order with a manufacturer directing the
manufacturer to deliver the product directly to the foreign buyer on the receipt of
order from overseas. The manufacturer collects payment from the drop shipper who,
in turn, is paid by the foreign buyer.
Export Distributor
An export merchant and drop shipper purchase from a manufacturer whenever they
receive orders from overseas but an export distributor deals with the manufacturer on
a continuous basis. This distributor is authorised and granted an exclusive marketing
right to represent the manufacturer and to sell in some or all-foreign markets. He pays
for goods in his domestic transaction with the manufacturer and handles all financial
risks in the foreign trade.
An export distributor differs from a foreign distributor simply in location. The foreign
distributor is located in a particular foreign country and is authorised to distribute
and sell the product there. The export distributor, in comparison, is located in
manufacturers country and is authorised to sell in one or more markets abroad. For
example, consider Mamiya, a Japanese manufacturer. J Osawa is Mamiyas
worldwide distributor. Mamiya is in turn J Osawas exclusive US distributor.
Trading Companies
Buyers and sellers, in foreign markets, have no knowledge of each other or no
knowledge of how to contact each other. Trading companies have come into existence
to fill this void. In international marketing activities for many countries this type of
intermediaries may be the most dominant form in volume of business and in
influence. Many trading companies are large and have branches wherever they do
business. They operate in LDCs, developed countries and in their own home markets.

Export Market
Notes
Trading companies controls half of Taiwans exports. In Japan, general trading houses
are known as sogo shosha and the largest traders include such well-known MNCs as
Mitsubishi, Mitsui and C Itoh. The nine largest trading firms handle roughly half of
Japans imports and exports. Even large Japanese domestic companies buy through
such companies.
Channel Development
The suitability of a particular channel depends greatly upon the country in which it is
used. The particular type of intermediary that works well in our country may not
work well elsewhere or may lose effectiveness over time. This does not necessarily
mean that each country requires a unique channel but a company may find that a
country classification system is useful, a system that can be used to determine how
the distribution strategy should be set-up from one group of countries to another.
Litbak and Benting suggest the use of a countrys temperature gradient to classify
countries. Their classification system is based on the following environmental
characteristics:
1. Political stability
2. Market opportunity
3. Economic development and performance
4. Cultural unity
5. Legal barriers/restrictions
6. Physiographic barriers and
7. Geo-cultural distance.
Based on these characteristics, countries may be classified as hot, moderate or cold. A
hot country is one that scores high on the first four characteristics and low on the last
three. A cold country is exactly the opposite and a moderate one is medium on all
seven characteristics.
The United States falls in the characteristics of a hot country. So does Canada even
though its cultural unit and its physiographic barriers are moderate. Germany,
likewise, is a hot country in spite of some slight interference in the sense that its legal
barriers and geo-cultural distances are moderate. Brazil, in contrast, largely conforms
to cold countries characteristics. India is a cold country though for the market
opportunity it is hot. Its economic development and performance, cultural unity and
legal barrier restrictions also fall in the hot category. It is only in the case of political
stability that it is cold. However, with the ensuing next elections, this may also
become hot.
Summar y
This unit focused on the export-marketing task. The importance of this task was also
highlighted. An exporter has to look for markets beyond his countrys geographical
borders. An export company essentially has to find foreign buyers for its own
products or has to produce/procure goods as per the requirements of the importer.
This means one has to deal with foreign nationals/companies to be in exports. Export
marketing, thus, can be defined as identifying willing foreign buyers whose needs
could best be met using our products and delivering satisfaction through supply of
goods in their countries complying with formalities of international transactions of
both countries.
There are six distinct steps in new product development. The first step is the
generation of new product ideas. The second step involves the screening of ideas. The

Notes
third step is business analysis, the fourth is product development. Fifth step involves
test marketing to determine potential marketing problems and the optimal marketing
mix. In the sixth step, assuming that things go well, the company is ready for full scale
commercialisation by actually going through with full scale production and
marketing. It may be pointed out here that not all the six steps in new product
development will be applicable to all products and countries.
The product cannot be marketed in a big way without product segmentation. Starting
at the low end of product spectrum, a Japanese firm establishes a reputation for
product excellence and eventually gets customers to trade up over time.
Product positioning is a marketing strategy that attempts to occupy an appealing
space in consumers mind in relation to the spaces occupied by other competitive
products. A product must be positioned carefully. For example, British firms
emphasize traditional brand names while American firms emphasise product range
and technology and are less likely to adapt to local market conditions. In the final
analysis, consumer needs must determine how products are to be positioned.
Before breaking into the foreign market, marketers must consider factors that
influence product adaptation. Wool coats are not needed in a hot country and
products reducing static cling (cling free) are useless in a humid country. If a new
product requires replacement of those other items that are still usable, product
adoption becomes a costly preposition. Complexity of a product or difficulty in
understanding the products quality tends to slow its market acceptance.
Export pricing is crucial to the success of any exporter. Price needs to be understood
with three reference points of Cost, Competition and Customer. An exporter can use
the normal cost plus pricing, choosing between high, low or moderate pricing
options. However, a more realistic basis would be the use of marginal costing.
Competition has a direct bearing on the prices and cannot be ignored. The most
important and lasting influence on the price decisions is that of the customer
acceptance. The exporter needs to work backwards on his costs to match the target
price. Pricing has to meet the contradicting objectives of recovery of costs with a
profit, beating your competition and above all customer satisfaction. The exporter
therefore must work close to his buyer while setting prices, sharing all information on
costs and competition, and using all inputs provided by the buyer.
The promotion mix consists of three distinct but interrelated activities: personal
selling, publicity and sales promotion. The cost of personal selling is very high. and its
effectiveness is also a function of product type. In general, personal selling works well
with high unit value and frequently purchased products.
Advertising differs from personal selling in many aspects. Advertising relies on a
non-personal means of contact and sales presentation. The differences between
advertising and personal selling can also be contrasted in terms of the communication
process. High unit value and low turnover products require a higher quality of
personal selling than low-unit-value, high-turnover products. Japanese sales persons
sell cars door to door. Inter-cultural negotiations are important for sales promotion.
Certain factors may affect sales performance in various countries. Some marketers feel
that expatriate persons should be used as sales persons in foreign markets or those
from the home country. Publicity offers several advantages. It should be used when a
company advertises heavily since advertising increases the likelihood of the media to
reciprocate by using the companys news releases. Nike was able to overtake Adidas
in the United States with effective publicity and sales promotion campaigns.
The exporting firms, through sales representatives and export distributors, use the
export distribution channel. A foreign distributor is a foreign firm that has exclusive
rights to carry out distribution for a manufacturer in a foreign country or specific area.
If foreign retailers are used, the product in question must be a consumer product

Export Market
Notes
rather than an industrial product. A manufacturer may find it difficult, rather
impractical, to sell directly to various foreign parties (foreign distributors, foreign
retailers, state controlled trading companies and end users) for a majority of products.
Other intermediaries have come between these foreign buyers and manufacturers. An
agent represents the manufacturer whereas a merchant (distributor) represents the
manufacturers product. Some agent intermediaries represent the buyer; others
represent the interests of the manufacturer. Those who work for the manufacturer
include export brokers, manufacturers export agents, export management companies,
cooperative exporters, and Webb Pomerene Agents.
Keyw or ds
Market Segmentation: The process of segregating a heterogeneous market into a set of
homogeneous market into a set of homogeneous groups of customers.
Skimming Price: The firm decide to charge high initial price where the product is an
innovation, unique in the market.
Marginal cost Pricing: Under this method, fixed costs are ignored and prices are
determined on the basis of marginal cost.
Export Promotion: It consists of diverse set of incentives tools used for promotion of
products and services in international market.
Distribution Channel: A distribution channel for a product is the route taken by the
title to the goods as they move from the producer to the ultimate customer.
Market Targeting: The Process of segmentation, targeting and positioning an offer in
the market.
Product Positioning: The act of developing a product offer and selecting an image to
occupy a distinctive place in the minds of the target market.
Product: A product is anything which is offered to the market to satisfy consumer
needs and wants.
Product Line: A set of individual products that are closely related.
New Product: A product that is new in any way for the company concerned.
Market Penetration Pricing: Deciding in favour of a lower price to penetrate deeper
into the market and to stimulate market growth and capture a large market share.
Cost Plus Pricing: Under this method, the price is set to cover cost and pre-
determined margin of Profit.
Middlemen: Anybody acting as an intermediary between the producter and the
consumer.
Agent: Intermediaries with legal authority to market goods and services and to
perform other functions on behalf of the producer.
Revi ew Quest i ons
1. How do you select the market for the exporting of goods?
2. Discuss the process of introducing new products in international market.
3. What are the factors that make it feasible to offer a standardized product?
Offer your comments for product adaptation.
4. How is export pricing different from domestic pricing? What special points
should an exporter keep in mind while finalizing export prices?
5. Critically examine the various factors affecting export price decisions.

Notes
6. What is Target Pricing? Explain with the help of an example.
7. What do you understand by promotion in relation to international trade?
What are the objectives and importance of sales promotion in foreign trade?
8. What are various factors that affect the promotion decisions in world
markets? Discuss in detail.
9. Distinguish between direct and indirect selling channels. What are the
advantages and disadvantages of each?
10. Explain direct channel intermediaries and indirect channel agents with the
example from Indian contact.
Fur t her Readi ngs

International
Marketing Research
Notes
Mar k et i ng
Resear c h
Unit Structure
Introduction
The Scope of International Marketing Research
Research of Industry, Market Characteristics and Market Trends
The International Marketing Research Process
Summary
Keywords
Review Questions
Further Readings
Learning Objectives
Formulate research design for international marketing
Explain the quantitative techniques for market research
Distinguish between primary and secondary data
I nt r oduc t i on
International marketing research is the systematic design, collection, recording,
analysis, interpretation, and reporting of information pertinent to a particular
marketing decision facing a company operating internationally.
This definition of international marketing research contains a caveat also present in
the general definition of marketing research: An acquired understanding of the
market environment. In an international setting, the environment is particularly
complex, and it displays obvious and important subtle differences in culture, religion,
customs and business practices, and general market characteristics from the
environment of the companys home country.

Research of Industry, Market Characteristics, and Market Trends
Buyer behavior research
Product research
Distribution research
Promotion research
Pricing research

Figure 8.1: The scope of international marketing research

Notes
The Sc ope of I nt er nat i onal Mar k et i ng Resear c h
International marketing research has a broader scope than domestic research:
Managers will need additional information to compensate for lack of familiarity with
the foreign environment (Figure 8.1).
Resear c h of I ndust r y, Mar k et Char ac t er i st i c s and
Mar k et Tr ends
Studies of industry, market characteristics, and market trends, often in the form of
acquisition, diversification, and market-share analyses, are conducted regularly by
marketing research suppliers and shared with subscribers. This topic will be further
addressed in the Secondary Data section. Export research is yet another type of
research in this category; it is prompted by the shortening of the product life cycle and
the intensity of international competition, as well as by the rapid technological change
that increases the need to segment markets more frequently. The research techniques
range from formal methods, such as focus groups and concept testing to more
informal approaches.
Buyer Behavi our Resear c h
Examining brand preferences and brand attitudes falls into the category of buyer
behaviour research. This type of research was recently conducted by DuPont, which,
for six months performed qualitative and quantitative research in 20 countries with
more than 85,000 respondents. In the process, the company found that 64 percent of
the consumers interviewed perceived clothing made with DuPont Lycra to be of
better quality, while 45 percent indicated that they wanted stretch in their wardrobe,
and a total of 30 percent actually asked for Lycra apparel. As a result, DuPont
launched its first International advertising campaign, created by Saatchi & Saatchi, to
promote Lycra apparel to men and women ages 21-49 with a household income of
more than $35,000, and to teenage girls ages 12-17 throughout the Americas, Europe
and Asia.
In most Asian countries, uncertainty is strongly avoided, resulting in high brand
consciousness, brand loyalty, greater insistence on quality, and consumers active
reliance on reference groups and opinion leaders. People tend to shop in groups, and
they are slower to accept new products. Whereas consumers worldwide are
concerned about monetary, functional, physical, psychological, and social risks, Asian
tend to be more sensitive to social risk than Westerners.
Brand awareness research and purchase behaviour studies are frequently conducted
by companies to assess their position in the market. For example, the International
Research Institute on Social Change, a consultancy based in Switzerland and active in
19 markets, launched a study of luxury goods in the United States. A total of 3,000
respondents were interviewed in person at home and were asked, among others,
about their familiarity, at least by name, with a set of 34 luxury brands. They were
asked the following aided awareness questions: here is a list of luxury brands. Please
indicate which ones you know least by name. The researchers found that, in the
United States, brands such as Daum, Christofle, and Bulgari were relative unknowns.
Consequently, consumers were less likely to indicate an intention to purchase these
brands: The study concluded that the consumers desire for the brands is limited
because awareness is low. The respective marketers can address this problem by
launching an awareness campaign for their brands.
Other useful studies that belong to this category are consumer segmentation studies,
which are conducted to identify profiles of heavy product consumers, as well as

International
Marketing Research
Notes
occasions for consumption. Using the previous example of the problems faced by
Procter & Gamble Japan when marketing Pampers to Japanese mothers, it is evident
that the company might have benefited from a study of diaper use rate. Linking the
heavy use of diapers (Japanese mothers change their children more frequently than
mothers in other regions of the world), and the limited space available for storage in a
typical Japanese home, the company could have easily identified the need for less
bulky disposable diapers in this market.
Pr oduc t Resear c h
Concept development and testing studies are usually performed in developed
countries by the firms research and development departments. When going
international, firms usually already have a successful product to bring to the
marketplace; nevertheless, it is still important that they evaluate the product/ service
they offer and related marketing mix in light of the different target markets, regional
and local.
Brand name generation and testing is used not only in the consumer goods industry,
where its importance is obvious, but also in companies that have traditionally
marketed their products regionally, such as agricultural goods companies. These
companies need to test brand names when they market their products internationally.
For example, when American Cyanamid Company created a new International
herbicide tolerant crop production system, it used a research firm that started out
with 600 possible names and then narrowed the list to 30 that were tested for
linguistic appropriateness. After the company decided on the clearfield brand, it then
tested this brand and one other choice in seven different countries for six different
crops. Testing showed the Clearfield name and logo to be meaningful, credible,
appropriate, memorable and likable.
The annals of marketing are replete with examples illustrating the importance of
testing a brand name in different countries. Rolls-Royce planned on marketing its
Silver Mist in German-speaking countries only to find out before the launch that
Mist means dung in German. Sunbean Corporation, however, entered the
German market without testing the name of its product, Mist Stick, before
introduction. In other examples, a Finnish brewery introduced two new beverages in
the United States, Siff beer and Koff beer, both unsuccessful.
Product testing identifies the extent to which the product conforms to local tastes. For
example, PepsiCo Foods International decided to undertake extension product testing
in China before introducing its Cheetos snack food brand. The outcome of the test was
not favourable: Respondents indicated that they did not like the cheesy taste of the
snack. As a result, PepsiCos local joint-venture Guangzhou Frito-Lay decided to get
rid of the cheese and replace it with cream and steak flavors. Sales increased
dramatically.
Other types of studies that would be appropriate are competitive product studies,
which are helpful in determining the overall product strategy for the product, the
price that the market will bear for the respective product category, the promotion that
is appropriate in light of the competition etc.
As for product packaging design studies, firms need to take into consideration
consumers reaction to the package, the extent to which the package adequately
communicates information to the consumer, and the distribution implications of the
packaging decisions. For instance, in many emerging markets, packaging
distinguishes between local products and international products. In Poland and
Romania, many local dairy products are available in recyclable glass jars, have no
brand name (just the product name, such as yogurt, kefir, etc.) and may contain only
the dairys address information. International products, on the other hand, come in

Notes
colorful, sophisticated, disposable packaging. To the local consumers, however,
simple packaging represents freshness and a lack of additives, after researching this
phenomenon, a Romanian-German joint venture offered to the market dairy products
in simple, recyclable glass packaging, rather than in sophisticated, disposable
packaging.
Test marketing is another important research procedure belonging to the product
research category. In the late 1990s, Procter & Gamble test marketed Swiffer, a new
disposable mop, in Cedar Rapids, Iowa, and Sens, France, among other disparate
markets. The company hoped to craft an international new-product success with the
goal of evaluating whether a consistent brand image could be achieved in a number of
major markets.
Di st r i but i on Resear c h
The distribution function is particularly important in international marketing, where
special attention should be given to import/export regulations and practices, and
where companies are well advised to engage in comprehensive analyses. For
example, import/export analyses aid companies in identifying the logistics
companies most capable to handling the paperwork and getting products through
customs in a timely and cost-effective manner. The Unites States government and
state governments in the U.S. are often instrumental in helping with this type of
research.
Another important type of study is that of channel performance and coverage which
may reveal either that channels need to be further developed at significant expense to
the company, or that, in certain markets, particular channels dominate much of the
activity in a particular area. Kraft, according to former Philip Morris U.S.A. (Krafts
former parent company) CEO William Campbell, had for the longest time, delayed
entering the Hong Kong market due to the high costs imposed by the dominant
distribution companies. After many years and little progress in this market, however,
Kraft decided, after all, to partner with the top distribution firm that has been
instrumental to Krafts success in Hong Kong.
Finally, plant/warehouse location studies are important, as are evaluation of the
transport infrastructure (roads, shipping, and warehousing infrastructure). In
countries with an underdeveloped infrastructure and/or a mountainous terrain,
warehousing is available only in the main cities, or just in the capital city.
Consequently, distribution to a more remote location is complicated, and firms may
elect to avoid it altogether. Research is this regard is important. For example, in the
case of Ecuador, transportation between the capital city, Quito, and its second largest
city, Cuenca, is facilitated by the well-developed highway system between the two
cities, both of which are at a high altitude. Moving products from one location to
another should not present problems because the transportation infrastructure is
adequate and warehousing facilities exist in both cities. If, however, a firm is to
transport goods to Guayaquill from the capital city, it is likely to encounter difficulties
because the transportation infrastructure between these two locations is complicated
by the terrain. Guayaquill is easily accessible by sea the route taken by most-
imported goods and services aimed at the islands tourist market. Goods from Quito
are more likely to be transported by air than by truck.
Pr omot i on Resear c h
Promotion research is crucial for companies doing business internationally. By doing
such research, the firm evaluates the extent to which it effectively communicates with
the market, it ensures that certain promotional strategies are appropriate for that

International
Marketing Research
Notes
particular market, and, finally, it evaluates the extent to which the local media are
appropriate for the intended message.
First, in terms of studies of premiums, coupons and deals, it is important to identify
the practices in each country where the specific promotion will run. When an agency
has developed an idea to run in a number of countries, it first needs to check on the
legality of premiums and coupons across those markets. For example, the sales
promotion consultancy Black Cat has extensive experience in adapting Pan-European
strategies to different legislations in different countries. The agency has been running
a promotion for 3M diskettes, data cartridges, mini cartridges, optical disks, and
transparency film, offering millions of prizes. Whereas, in most European countries,
this has taken the form of an instant-win promotion, with the game mechanism in
the box, in some countries, such as Germany, the promotion has had to be adapted to
include a write-in-a-slogan competition. Similarly, giving away money-off vouches
is legal in the U.K., Ireland, and Spain but illegal in Germany, Norway, and
Switzerland, whereas self-liquidating premiums are legal in the U.K., Germany,
France, and many other countries but illegal in Luxemburg, Norway, and
Switzerland. They may be allowed in the Netherlands, depending on exactly what
form these premiums take.
Advertising effectiveness research is frequently conducted to examine the
effectiveness and appropriateness of advertisements aimed at individual markets.
Frequently, ads that are initially developed for home-country markets and tested
there are later used abroad; such ads are frequently dubbed and do not fit with the
culture of the local environments where they are broadcast. For example, Gitanes, a
French cigarette maker, advertises its cigarettes on television in developing countries
where the average monthly salary is less than $100 per month; the ad sells the good
life by portraying a man driving a Porsche, with a beautiful, tall blonde on his arm (in
a country where most women are petite and hardly ever natural blondes).
Media research also is important. First, in terms of media availability, developing
countries pose the most problems. For example, in many countries in Central Africa,
television is available only for a select few, via satellite. The majority of individuals
have access to radio (local, or Deutsche Welle, the German broadcasting company)
aimed at the individual countries in the region. The local radio station usually
advertises only local service providers and only occasionally, whereas Deutsche Welle
does not advertise at all. No advertising exists in locally available newspapers, nor in
local magazines (western publications, bought primarily by the expatriate
community, have advertisements aimed only at the respective Western markets).
Most advertising is limited to billboards on the main roads to the national airport in
the capital city, and most are aimed at the business segment. Occasionally, one may
see an ad advertising cigarettes, cola or rum. In this type of environment, it would be
difficult for a company to communicate with prospective customers using
advertising; research would most likely indicate that the most effective
communication would take place at the point of purchase.
Finally, studies pertaining to personal selling activities, such as sales force
compensation; quota and territory studies are crucial in helping to determine the
appropriate strategies for different markets.
Pr i c i ng Resear c h
Internationally, pricing research is much more problematic than when it is performed
locally, in a developed country. In addition to studies projecting demand, such as
international market potential, sales potential, sales forecasts, cost analyses, profit
analyses, price elasticity studies and competitive pricing analyses, which are typical of
most pricing research studies conducted by U.S. firms in the U.S., the firm also must

Notes
look at issues regarding counter trade and currency issues, inflation rates, and a
national tradition of bargaining for every transaction all of which have implications
for pricing decisions.
Marketers of consumer goods in Kazakstan should research sales compensation
practices. Potential distributors must be trained thoroughly in selling a given product.
Many stores, although privatized still have not grasped the concept of product
marketing and often do not keep track of their inventories. As a result, it can be very
difficult to build loyalty among retailers, who will often sell whatever is available at
any given moment rather than try to establish a solid relationship with suppliers.
Research in cost analysis would reveal that high product certification cost could
significantly contribute to the price of a product and ultimately adversely affect its
marketability. This is the case in Russia, where the lack of transparency connected
with certifying products confronts both foreign and domestic companies. Although
such companies are awaiting political solutions to these problems, marketers should
be aware and plan ahead for certification. Often, the process may be cumbersome.
Generally, there is some choice among the certification centers inside and outside
Russia which are accredited to certify a given type of product or equipment. In some
cases, however, the produce itself may fall into several categories, and two certificates
may be required.
What kind of research should an aspiring exporter undertake before finally
deciding to export?
The I nt er nat i onal Mar k et i ng Resear c h Pr oc ess
Effective international research involves the steps shown here. Researchers
attempting to obtain accurate and reliable information regarding a problem
experienced in the firms international operations are likely to encounter a number of
difficulties, such as translation and cross-cultural comparison complications, which
do not, as a rule, affect firms engaging only in domestic research. These difficulties
will be addressed for each step in subsections titled International Constraints.
Def i ni ng t he Resear c h Pr obl em and Resear c h Obj ec t i ves
The first step in the international marketing research process requires international
marketing manager and marketing researcher to define the research problem and
jointly agree on the research objectives. The complexity of the environment of
international operations does not afford marketing researchers the opportunity to
have a very clear idea of the specifics that the research study should examine. Instead,
they may need to engage in an exploratory research of the problem to define the
relevant dimensions of the problem investigated. Exploratory investigations may help
to further define the problem, suggest hypotheses, or even actually identify additional
problems that need to be investigated. Descriptive research, on the other hand,
portrays a situation for instance, how frequently shoppers in Cairo shop for food
items; whether they prefer to shop for meat products in state stores, which are
cheaper but offer inferior-quality products, or in private stores, which are more
expensive but offer a higher quality and assortment of meat products. Finally casual
research examines cause-and-effect relationships, such as the extent to which Sonys
offer of financial incentives to electronics salespeople in Ahmedabad, India is likely to
increase sales of the Sony brand.

International
Marketing Research
Notes
Devel opi ng t he Resear c h Pl an
The research plan is a blueprint for the study, indicating all the decisions to be made
with regard to information sources, research methods, data collection instruments,
sampling procedures, data collection methods, data analysis, and based on these
decisions the projected costs of the research.
Dec i di ng on I nf or mat i on Sour c es
After the international manager and researcher define the problem and set the
objectives, the researcher must determine the extent to which available information
may shed further light on the problem at hand. The researcher wills tart by
identifying information that may shed additional light on the problem and that has
been collected either by the company itself (internal) or by some other firm or agency
(external)-secondary data. The secondary data may, if needed, help the researcher to
more clearly define the problem and set better objectives. It will also help the
researcher pinpoint the type of information that needs to be gathered for the goals
articulated.
Sec ondar y Dat a
Researchers first must determine if information is available, and if so, and how much;
doing so may aid in gaining insights into the problem at hand. Secondary data is
defined as data collected for a problem other than the problem at hand.
Secondary data is typically examined first, and it offers the advantage of low cost and
ready availability in many of the more developed countries. The data that it may be
most relevant to the researchers study, however, may not exist, or if it does, it may be
dated or unreliable. For example, one company chose to cut costs and use research
previously performed by a competitor on a specific Asian market. The study found
that such investment had substantial support. After the firm built its plant, however,
it noted that conditions had substantially changed since the study had been done. The
companys use of an outdated feasibility study caused it to overestimate market
potential.
Secondary data can be categorized as internal (collected by the company to address a
different problem, or collected by the company to address the same problem, but in a
different country), or external (collected by an entity not affiliated with the company).
Internal Secondary Data
Assuming that Reynolds Aluminum Foil is available in Saudi Arabia, but not in
Sudan, and assuming that the firm has no prior experience in Sudan, internal
secondary data is useful only if the company has collected similar information from
relevant respondents in a country with a similar environment (Saudi Arabia). For
example, after considerable research, Reynolds advertising in Saudi Arabia portrays
the hands (with the wrists covered) of a woman preparing a sandwich for storage; an
authoritative male voice describes the use of the foil and endorses its use. Because,
from a religious perspective, the two countries are similar (although Sudan is less
conservative), transferring this advertisement to Sudan will probably work. In this
case, an analogy approach is appropriate.
External Secondary Data
Marketing researchers in developed countries have ample access to different sources
of external secondary data. They include government sources (provided by
government ministries/ departments or bureaus such as the Census Bureau),

Notes
international agencies (such as the World Bank, the various United Nations agencies),
professional associations, various magazine publications and Internet sources.
Secondary Data Sources
The following are examples of publications that could offer information for
researchers and national and international marketing associations that could be useful
as external secondary sources:
Publications
Advertising Age
Adweek
American Demographics
Brand Marketing
Brandweek
Catalog Age
Chain Store Age
Discount Store News
Marketing
Marketing and Research Today
Marketing management
Marketing News
Marketing Research
Mediaweek
Sales & Marketing Management
Target Marketing
Professional Organisations
Academy of International Business
Academy of Marketing (U.K.)
Academy of Marketing Science
Advertising Research Foundation
American Academy of Advertising
American Marketing Association
American Psychological Association
Asia Pacific Marketing Federation
Association Francaise du Marketing
Association for Consumer Research
Australia-New Zealand Marketing Academy
Center for Service Marketing
Chartered Institute of Marketing
Direct Marketing Association
European Direct Marketing Association

International
Marketing Research
Notes
European Marketing Academy
Hong Kong Institute of Marketing
Institute for the Study of Business Markets
Institute for Qualitative Market und Wirkungsanalysen, Germany
Interactive Marketing Institute
Japan Marketing Association
Market Research Society, U.K.
Marketing Research Association
Marketing Science Institute
Medical Marketing Association
Sales & Marketing Executives Association
Society for Marketing Advances
Research suppliers, such as A.C. Nielson and others offer subscribers extensive
information on different markets. Overall, secondary data collected by different
research suppliers is quite useful. In the past, U.S. research suppliers dominated the
market; now-a-days, there are more and more international players. Among the top
ten global marketing/ad/opinion research firms in the world are firms from the U.K.,
France, and Germany. The top firms are, in order of sales revenue: A.C., Nielsen Corp.
(U.S.), Cognizant Corp. (U.S.), the Kantar Group Ltd. (U.K.), Information Resources
Inc. (U.S.), GfK AG (Germany), SORFRES group S.A. (France), Infratest Burke AG
(Germany), IPSOS Group S.A. (France), the Abritron Company (U.S.), and
PMSI/Source Informatics (U.S.)
Pr i mar y Dat a
Primary research is used internationally far less than it should be. Cost-benefit
analyses suggest that spending on research in remote markets of questionable value
in unwise; consequently, the temptation is to use secondary data to serve all research
functions.
Yet many U.S. firms are interested in conducting research in the international markets
where they operate. In a 1996 interview of 313 executives at major U.S. corporations
who were responsible for conducting research and hiring outside research firms, 61
percent indicated that they would devote a larger percentage of their research
budgets to international research over the following three years.
Most international marketing research projects involve the collection of primary data,
information collected for a specific purpose, to address the problem at hand. It
requires substantial expertise in both instrument design and administration and, as a
consequence, it is expensive and time consuming.
Prepare a report on the problems face by researchers in conducting
international marketing research.
Summar y
International Marketing Research is a complete analysis of the market, information
regarding the nature, size, organisation, profitability of different markets, changes in
the market and various factors economic, social and political affecting those

Notes
changes. The main purpose of international market research is to know about
consumers and the markets of its products and services.
Keyw or ds
Research: Systematic and objective investigation of a subject or problem to discover
relevant information for principles.
Market Research: A systematic process of gathering, recording and analyzing data
about problems related to the marketing of goods and services.
International Marketing Research: The systematic design, collection, recording,
analysis, interpretation and reporting of information pertinent to a particular
marketing decision facing a company operating internationally.
Secondary Data: Data collected for a problem other than the problem at hand.
Primary Data: Information collected for a specific purpose, to address the problem at
hand.
Revi ew Quest i ons
1. What do you understand by international marketing research?
2. Discuss the role of international marketing research in determining
international marketing policies.
3. What is the need and importance of market research for export business?
4. Describe the various steps involved in the international market research.
Fur t her Readi ngs
PUNJAB TECHNICAL UNIVERSITY
LADOWALI ROAD, JALANDHAR

INTERNAL ASSIGNMENT

TOTAL MARKS: 25

NOTE: Attempt any 5 questions
All questions carry 5 Marks.

Q 1. What are the various points that you would consider before entering the foreign market?

Q 2. What are the basic economic reasons which might influence a firms decision or motivate a
firm to plunge into international marketing?

Q 3. What do you mean by the concept of Import Substitution and Export Promotion?

Q 4. What are the implications of WTO on International Marketing?

Q 5. What are the different types of post-shipment finance? Is post-shipment finance also available
in foreign currency?

Q 6. What are the important elements that must be considered very critically by an exporter before
finalizing an export deal?

Q 7. What do you understand by promotion in relation to international trade? What are the
objectives and importance of sales promotion in foreign trade?

Q 8. How is export pricing different from domestic pricing? What special points should an exporter
keep in mind while finalizing export prices?

Q 9. What do you understand by international marketing research?

Q10. What is the need and importance of market research for export business?

PUNJAB TECHNICAL UNIVERSITY
LADOWALI ROAD, JALANDHAR

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Total Marks:_____________/25

Remarks by Evaluator:__________________________________________________________________

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Note: Please ensure that your Correct Registration Number is mentioned on the Assignment Sheet.

Signature of the Evaluator

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