How and why you should establish sound buyer seller relationships in international trade.

The international trade arena today functions largely on the transmission of complex information often realized via face-to-face communication. This can be attributed to the growth rate of world merchandising in the past decade, increase in the number of international players, nature of goods being exported/imported (read variety as well), above all the advent of technology in various aspects of foreign trade.

Now the bottom line is that the dynamics of global trade is continuously evolving. Thus giving rise to an imminent need for successful business relationships to be established for credible and sustainable trade transactions to take place.

Reasons why buyer-seller relationships must not fail

Mutual benefits aside, what can be the contribution of successful, sustained firm-to-firm relationships to international trade? Relationships between exporters and importers can have major implications on international trade flows as well. While successful relationships can lead to expansion for firms on both sides, failed relationships can disrupt production cycles. This is in addition to wasted money and resources. In fact, relationships gone sour might be so expensive for an importing firm that it might even choose to stick with an exporting partner even if the transaction is not favorable. For the obvious reasons, there is always the threat of losing the deal at the slight instance of instigation. Considering the cyclical nature of trade transactions, any disturbance can have a cascading effect on the rest of the entities in the system.

There still could be a large number of importers who buy from a specific exporter only once, yet there are many trade relationships that are long-lasting, with the same importer and exporter trading with each other for years at a stretch. It is this longevity that helps establish the much-needed brand value and credibility, particularly in the international arena.

Tips to work on the buyer-seller relationship in foreign trade-

1. Focus on being transparent with your prospective trade partner-
You can be trust-worthy only if you’re honest and transparent on your dealings. This will automatically reflect on the products you represent. Imagine that a particular deal has almost materialized for your firm when your prospective buyer learns of an almost exact copy of your product being made available for a fraction of this cost. While this could deter your ability to negotiate and push the deal towards closure- there is a learning here. Ignorance can be feigned the first time around on rips-off but going ahead an active clause stating this as well as differentiating factors of the original can be included in proposals presented.  Additionally, this also calls for extensive research to be done before launching a product into the export market initially and time to time later as well.

2. Setting realistic expectations that can be followed-through always-
Setting the right expectations whether it is a deadline or a product specification and it is uniform always. The slightest change needs to be necessarily communicated or a discrepancy reported. Let us understand this with an example- An exporter A used a plain white display box to ship his goods- as they were targeted for the international market and their requirements. A blank box allowed distributors to add their own name, logo and the language most suited for their local market.  Now, this website featured a box that came with colorful graphics and text. This evidently confused their distributors as they logically assumed that the package mentioned on the website was what will reach them. Though the situation was effectively addressed by providing additional promotional material etc.- there was a necessity that came up wherein exporter A had to review all the material used and ensure it was in line with what was indicated in the website. The proposals included the necessary literature on packaging as well.

3. Observe and adapt to your offerings to global customers-
Never make the mistake of replicating whatever works back at home onto a foreign market. Observe, pay close attention and then adapt- be it the packaging of the product or establishing a channel of communication. Everyone and every business have their motivations for staying in relationships. Listen to your global partners, learn their goals and understand what motivates them. Ensure that your offerings are aligned with their goals and style of dealing in business. For whatever it means- maybe fun videos as against cumbersome manuals, or the manner in which the product is presented as a package, etc.

4. Share knowledge that will help partnerships succeed –
The more you are able to quip your buyers and distributors with knowledge, the more conviction they will have to continue the relationship. Segregate your learnings so as to all parties in the receiving end of the transaction. Create a resource /knowledge pool for marketing the product that can be accessed by saying distributors you recruit to sell your product. The same can be practiced for information on changing laws, rules, and policies that pertain to trade as well.
5. “Trust” always holds the key for building long-term international business relationships-
Trust is a culmination of various efforts- an exhibition of earnest and credible behavior, setting the right expectations, being able to listen and adapt, and sharing relevant knowledge. Once the foundation is solid in a buyer-seller relationship, it paves way for long, lasting and fruitful relationships. It is but a fact that the costs of the acquisition of new customer are manifold while comparing it to maintain the existing ones. And with trust, you get to keep them with ease and imagine the prospect of getting references from them without efforts!

Technology helps crack buyer-seller nexus- begin using EXIMAPS.

Now how does one determine the underlying mechanisms that drive the formation and durability of these relationships? How does one learn the role of the long-term compatibility of a trading partner? Should you differentiate between short and long-term relationships, how can you derive the actual numbers? Do you find yourself shooting in the dark for data and analytics on the above front?

It is important to get the numbers first, what else is possibly as tangible as seeing a figure that can help you direct your efforts? If you are deluded about buyer behavior, preferences, and import history – how do you envisage your business plan and growth from there? With EXIMAPS, all of these changes. Each buyer’s real physical existence is verified by a core team of analysts, all of his/her transactional histories can be tracked no matter the frequency of business. Making informed, high-value business decisions as well as working on the foundation of an uncompromised buyer-seller relationship is only possible with fool-proof information of purchase history of the buyer, details of transactions, existing supplying markets, etc. EXIMAPS not only facilitates this prospect of knowing your buyer better, so as to proceed with reassurance but also offers a host of other features on trade intelligence.

Get started with a demo :   https://www.thedollarbusiness.com/#request-a-demo

Breaking into the export arena – Tips to time this well.

A very distinct aspect in the prosperity of the human race over centuries can be attributed to the concept of trade. The system of barter which gave way to the birth of a standard currency has only accelerated buying and selling various goods over the years- within communities first and then slowly across geographic boundaries.

Crossing boundaries is ingrained in an average businessman today; it is simply second nature – an organic progression into the exploration of newer markets once there is an inkling of having exhausted the immediate segment is not new. Indian exporters have nearly caught up with this trend as well. To substantiate this- trading economics states that- “Exports from India increased 11.02 percent from a year earlier to USD 32.55 billion in March 2019”. This goes to hearten the small businesses, manufacturers and domestic traders to venture into the international trade market. Let us look at how this system works first.

The trade weather and small businesses-

Today the modern system of international trade is a web of import/export businesses which handle sales, distribution, and delivery of goods from one nation to another. To start with there are multiple entities that operate in the modern trade scenario –say a manufacturer’s representative who specializes in a certain industry, an import/export merchant or agent who is more of a freelance broker. Further for business owners in pursuit of global opportunities, research into key principles, consumption trends and legislative clauses of exporting is imperative for getting a firm grasp of the current marketplace and thereby the scope for expansion.

A small word of caution- It is to be borne in mind that exporting is not a quick fix for growth or poor local sales. Exporting products abroad also presents financial, product and operational risks. Some basic simple research into standard practices of the countries being targeted for export as well as ensuring necessary precautions are in place will set the ball rolling in the right direction. Further-

Tips to succeed as a first time exporter-

1. Choose the right market for your products-
The key to choosing the right market for your product is based on acceptability and if more exports or imports occur for the same in the country. Understanding of factors such as the size of the market, presence of competition and alternatives etc., are to be carefully considered. For markets closer home the costs incurred for freight and logistics is definitely lesser. A look at the necessary numbers, trends, and analytics can add value to decision making.

2. Strike the right balance between cost and quality-
It is but indeed true that almost all manufacturers today are competing with Chinese imports, so pricing your product right remains to be an issue. Looking for means to manufacture and sell quality products overseas without steep pricing can be through joint ventures with bigger manufacturers or by choosing the outsourcing model. On the other hand, there is a lot of funding available to give assistance to initial start-up costs.

3. Utilize assistance services-
A growth and development plan, with business objectives coupled with a marketing plan, needs to be first steps before approaching an investor. Clarity with respect to the moves ahead along with the justification of funds requested for is the next. With government funding and assistance comes paperwork and bureaucracy. A look into the document shared by the ministry of commerce– will help understand the outline of schemes and benefits that favor our country to expand into foreign markets and promote export oriented activities. There are similar assistance services made available by governments all over the world to facilitate healthy exchange goods and services, shrinking boundaries to a large extent. (For instance for Peru- https://www.prochile.gob.cl/)

With all of the above in mind, the ability to demonstrate what is to be achieved, targets and long term vision must be a mandate. Documenting the same, approaching relevant organizations and learning the grind from there through workshops and training sessions helps manufacturers’ preparedness for the steps that follow.

4. Have a solid marketing plan-
The right strategy for exporting goods abroad should include adapting your local marketing strategy to make it more robust and effective internationally as well. If you’ve gone the distributor route a lot of this will rest on them, but today you can also easily get involved through social media channels.

  • Revamp the relevant packaging, product literature, advertising and point-of-sale material.
  • Translate product literature into different languages as per the targeted countries.
  • Advertise, analyze and promote to potential buyers before leaving the country and make use of local tradeshows to establish a presence.

5. Pay attention to shipping, logistics and, other paperwork
Setting up an efficient and cost-effective process for moving your goods is absolutely essential for successful international growth.

  • Deciding between air, rail, road or sea is depends on various factors such as weight of the product, the infrastructure available both between both countries that will affect the cost, distribution lead times, the value and life of the product.
  • Consider using the services of a freight forwarder with experience in transporting the chosen product to the destination country to ensure hassle-free logistics and the additional formalities.
  • Remember that there are varied monetary regulations in different countries, including tax considerations.
  • There is also a significant amount of paperwork for payment receipt from foreign countries.

The role of research – be it a potential buyer or the overall trade environment.

The constant need for updated information pertaining to all aspects of foreign trade can never diminish; awareness and the ability to tap into the available data and analytics continues to be a key player in various aspects of strategic decision making in exporting. The one form of reassurance for a domestic trader or a manufacturer will stem from his ability to understand the trade market dynamics and certain future for the product due to be launched in the near future onto the behemoth international market. Consider the following-

  • Will regular desktop research suffice to understand different countries and how the markets work? Insights can definitely be obtained by reading industry news and papers, trade data and other material online- is that all?
  • How can questions such as the ability to strengthen the market, reaching out to newer domains be answered each time?
  • How is the overall market for the chosen product at this given time? How about the demand and pricing criteria?
  • Does it need a distributor? How about venturing into complementary products.

Today there exists ease of access and ability to connect with global buyers through digital and electronic means, video-conferencing and other tools such as B2B portals are readily available to connect and communicate with prospective buyers before even setting foot on a plane. What remains to be answered is how to substantiate and make the best use of the ancillary favorable developments for those ready to export.

Enter EXIMAPS- a comprehensive trade intelligence tool.

EXIMAPS was conceptualized exactly for this prevalent need among first- time and experienced exporters – of what use is data and analytics when it is cumbersome to process and break it down to useful bits of information while it creates a drain on resources too? Aren’t these resources justified better when channelized in areas of strategy and execution? Where would you obtain exact information on your closest competition? Looking for a broad picture on foreign trade dynamics or segment/ country wise is preferable?

There are innumerable such questions that remain to be answered by conventional systems of research mechanisms.EXIMAPS is an all-round feature-rich trade intelligence application that can actively aid traders and manufacturers looking to spread their wings and explore beyond

Technology and the export business- a dream marriage!

Merchandisers and exporters operate in an extremely dynamic environment today; constant vigilance is required on competitive pricing that borders on tit for tat tariffs, an increase in number of export players etc. and certainly the economics of trade. The brighter side of such international trade developments? Entry of innovative technologies can transform trade by making processes more inclusive and efficient as well as extending knowledge. Business intelligence and trade technology will also help sustain competition by leveling out the field for all players.

The role of technology, AI overall and its impact on the EXIM business particularly-

Early and mid-eighties, is when there was a realization of the potential of other countries outside of the United States and Europe in the export segment. This combined with the steady growth of a facilitator called the internet has transformed how the world does business. Websites, blogs and presence in social media has shrunk distances and points of contact can be easily established globally. Let us look this with a small example-

Jane Brown travels to Indonesia on work, and manages to take a little break to go around the city; she discovers an exquisite piece of pottery and immediately buys it. She also nurses the idea of importing them in bulk and selling it to local stores back home in Australia. The outer box of the item has all details including the name of the manufacturer and his contact information. A few months and more parties later, Jane reflects on the popularity of that piece of art – displayed near her fire place. She gets back to the idea that had struck her when she was buying that piece of pottery. Luckily the packaging is saved and in no time she has their contact information and their website too! A few conversations later- Jane has a quote, some samples and a trial order on the way. Jane has gone global. And this is just one instance.

For that matter, today, technological disruption isn’t new for the global trade system or for that matter any industry. With Artificial Intelligence -Uber has disrupted the private transportation industry, Amazon has flipped the retail landscape and AirBnb has transformed the traveling and accommodation industry. Specifically in the trading landscape, technological developments such as Optical Character Recognition (OCR) that is used read container numbers, Radio Frequency Identification (RFID) and QR codes to identify and trace shipments, and basic digitization of trade documents have now successfully established reliability and efficiencies of this domain.

While we say that trade agreements were mostly written before digital commerce, transactions that go accompanied with large amount of paper work, to trade financing that are still by and large stuck to traditional banking methods, trade intelligence tools that aid exporters and importers still seems a far cry. Global trade system has just about begun to take complete advantage of cutting edge technologies that could make trade a lot more efficient, inclusive, and far less risky. Different technologies in the various parts of adoption process, when combined, could fundamentally change the way resources are allocated and international trade operates. Access to current trends and studies on trade can thus be accurately ascertained by governments and businesses thereby allowing them to stay ahead of the curve.

Trade technologies that are already creating a buzz-

Block chain- A development that is not only is making movement of goods more efficient and reliable, but is also actively helping the world of trade financing- such as say obtaining a Letter of Credit (LoC) has been simplified to a large extent.

Artificial Intelligence and Machine Learning technologies- can be used to optimize trade shipping routes, manage vessel and truck traffic at ports, and as well as in translation of e-commerce search queries across languages. Over and above gains in terms of efficiency and customer service, tech can also be used to monitor the overall trade business.

Trade using digital platforms- For small businesses in particular, these digital platforms have thrown open a huge arena of unprecedented opportunity to go global.AI-developed translation services are further enabling digital platforms as drivers of international trade as well.

Trade “intelligence” technology undisputedly takes the center stage-

Big data is being mined and handled by advanced algorithms that yield accurate and reliable reports and analytics across the vast spectrum of global trade. Technological intervention is only expected to grow as startups and established businesses alike gradually scout for and implement cutting edge applications to enhance their global presence. Today AI continuously, learns evolves and adapts itself from the patterns observed thereby success rates of such algorithms especially in trade technology are climbing. While most options and ideas are kept proprietary, it’s safe to say that the return on investment for traders can be beneficial here, since AI can handle and manage all kinds of data in its own way.

Why do exporters necessarily need to embrace this technological advancement? Think on the following lines-

  • Let us remember that the global market place is exponentially growing – How do you enhance your knowledge on global public goods? Given that these function as the foundation for trade and market intelligence.
  • Strengthening skills of partners in effectively using trade and market intelligence to make business decisions is key. How do you work in that direction?
  • How can you as an exporter access new and innovative approaches to intelligence especially that of competitive intelligence.
  • How about your contribution to an evidence-based policy reform that conforms to specific obstacles in trade such as tariffs etc.?
  • Is it not needed to understand and connect to international value chains as an exporter?

Investment in the right trade and BI tool is therefore inevitable for exporters today, for measured confident strides into the ever expanding world trade environment.

EXIMAPS – your trade technology partner.

In concurrence with the above detailed discussion on the role of trade intelligence and the degree to which it has the capability to permeate into all depths of foreign trade, EXIMAPS was conceptualized. The product is fuelled by a unique algorithm, that efficiently breaks down relevant data and analytics available to serve various interests of exporters and importers or those are on the lookout for such opportunities.

The product helps sellers pinpoint exact potential across feasible geographies as well as revealing the prevalent state of affairs with respect to the particular product, buyer or the market as such. The product overrides the shortcomings and misgivings of data and analytics provided by regular B2B portals as well as generic researches conducted online with limited knowledge.

More than anything, be it a merchandizer or a manufacturer strategic trade decisions made determine the fate and future of the business, and this is best accomplished with EXIMAPS as your trusted aide! Jane Brown did invest in EXIMAPS to find her footing higher up in the export business, wise wasn’t she?

Is export factoring a superior choice to other forms of export credits?

International trade offers remunerative opportunities to the traders but also demands resilience and strategically planned execution from them. Out of a multitude of stumbling blocks that exporters face, procuring finance and mitigating payment risks are the most cumbersome for them.

According to a trade and finance report in 2016 by the ICC, almost 80% of the global trade functions with the strong support of export finance. Exporters, until now, have always been dependent on the traditional export credit methods extended to them by the banks, private financial institutions, and government agencies for their short-term, medium-term and long-term needs, against collateral or assets.

What is the export credit?

Financial loan acquired by the exporters through banks or financial institutions against collateral or security has always been the prevalent methods of procuring export credit.

Lack of assets or collateral to be presented to the banks as security to procure credit by the small companies gradually made way for a relatively newer method of accessing financial support. This method is known as export factoring.

Though it is yet to be accepted by the Indian exporters without apprehensions, it is undoubtedly gaining momentum around several countries in the world as a complete financial package.

What is export factoring?

Export factoring is a tool, which enables the exporters to procure short-term financial assistance against the bills of exchange, to be received by them, under open account payment terms from the importer, after they have delivered the goods.

It is not a pre-shipment but post-shipment finance for the exporter. And the factors contributing credit cover three services under it, i.e., finance, credit protection, and follow-up services.

Critical factors of export factoring:

  • A tool to raise short-term finance
  • A seller sells his receivables to a factor for immediate cash
  • After deduction of the fees and charges the exporter receives up to 90% of total receivables immediately once the factor approves the papers, the rest of the amount goes through clearance once the shipment is complete to the satisfaction of both parties.
  • The credit is an open account receivables system and can extend beyond six months.

How to qualify for export factoring?

There are no qualification criteria for export factoring. First-time exporters or SMEs can avail export factoring without any cumbersome documentation process, yet there are certain criteria that exporters applying for export factoring should meet –

  • The factor considers the importer’s credibility with whom the exporter is dealing.
  • No bank has secured the accounts receivable.
  • The payment terms are under open account credit term.
  • There is a valid contract between the buyer and the exporter.
  • The seller sells his receivable to a third party, i.e. the factor

An exporter dealing in gems and jewelry cannot opt for export factoring, as these items are not amenable to factoring. The exporters mandatorily have to share each detail regarding the agreement, debtor, sales agreement, the term of payments and the exporter’s performance history to acquire financial assistance through export factoring.

How is export factoring different from traditional export credit?

Traditional export credit is not available without collateral or security whereas the only major requirement under export factoring is a valid agreement between the exporter and the importer under open account payment terms.

Banks or financial institutions under the traditional export credit do not provide credit protection, collection facility or unsecured finance to the exporters, unlike export factoring.

Unlike the traditional methods of procuring credit, finance is available in the invoice currency and is actually cheaper for the Indian companies as the interest rate is based on London Inter-Bank Offered Rate, i.e. LIBOR, which is significantly lower than the Indian interest rates.

Factoring, however, is not a replacement to procuring finance through banks but instead acts as a supplementary method to garner working capital.

When taking credit through traditional export credit methods, the exporters have to protect themselves against importers default by taking an insurance cover from an agency. It involves cumbersome documentation process for two separate institutions whereas export factoring provides a complete financial package to the exporters.

Why is export factoring a preferred choice?

Export factoring presently is a recognized and accepted method of open account receivables financing all across the globe. A systemic and methodical set of rules and procedures is applicable for governing it. It assists exporters to avoid credit losses by mitigating their collection and credit risks to a third party.

There are several reasons why export factoring is gradually becoming a preferred choice of procuring short-term finance all around the globe. These reasons include –

  • Elimination of the risk of non-payment as it is against accounts receivable.
  • It helps exporter to avail immediate cash.
  • It charges interest only against the funds provided. There are no hidden costs.
  • Operating costs become minimal as the factor takes over the risk of collection debts
  • It is not a kind of credit instead is an advance against the bills receivable
  • Immediate liquid cash becomes available within 24 hours against presentation of accounts receivable
  • Does not require any assurance from any bank or other financial institution
  • It does not put the financial burden on the exporters like traditional financing methods.
  • The process of procuring credit guarantee through export factoring is straightforward and simple
  • It enables the exporter to cover his payment risk and have adequate cash flow
  • It assists those small exporters or MSMEs that do not have the back up of assets to procure immediate cash without any collateral security

Export factoring in India

Export factoring in India has still to gain recognition. Some exporters are unaware of it being a method to procure cash against accounts receivable. Some are apprehensive about its process and its expenses. According to estimates, there are only 30 to 35% exporters in India who are aware of export factoring. Countries like China, Germany, France, Brazil, Taiwan, and Italy have well recognized the advantages of export factoring. Though, it still has to be accepted by the Indian exporters.

India presently has seven institutions that are members of FCI [Factors Chain International], the global association for providing factoring services. Germany has 190 such institutions, yet India is poised to take off on it.

An endnote

Trade finance is an integral part of international trade. Thus, export factoring has emerged to be the most lucrative alternate for exporters. It is for those who want to avail liquid cash, an advance against their invoice without any risk.

How MSME exporters can benefit from India’s FTAs?

Free Trade Agreements are immensely beneficial to the MSMEs operational in the country. They result in increased export revenues and investment flow on the one hand and strengthen harmonious trade relations on the other.

Over the last five decades, Indian MSMEs have dynamically emerged to become the most empowering sector of the economy. They are the most stabilizing sector generating consistent revenues by providing employment opportunities at the widest scale.

Thus, MSMEs in India play a significant role as the catalyst for the transformational changes in the economic development of the country.

The deep-rooted role of MSMEs in the economic development of the country can be well-perceived by the NSSO survey of 2015-2016, which indicates that there are a total of 6.3 crores MSME’s in India generating employment for over 111 million people. They contribute over 45% to the total industrial production and almost 40% to the export revenues and also account for 30% GDP of the country.

MSME exporters

All micro, small and medium enterprises involved in the export of goods and services from India are MSME exporters. The MSME Act in India became functional on 2nd October 2006. They are classified into two categories namely manufacturing enterprise and service enterprise.

Challenges faced by the MSME exporters
Even though MSME exporters have contributed substantially to the country’s revenue and have had remarkable growth, they have had to resiliently face certain challenges that have limited their growth quite a bit, over the years. Some of the problems that became a hurdle for the MSME exporters are:

  • Lack of implementing innovative technology in the quality and packaging of the products as per the international market
  • Lack of awareness of the existent international trade agreements
  • No knowledge about the export promotion and assistance programs initiated by the Indian government
  • No familiarity with the regulatory framework of the countries sought to be traded with

A strategic action plan is already being implemented to remove all limitations that are hindering the progress of MSME exporters. But besides this, it is also essential that MSME exporters utilize the benefits offered by India’s FTAs to increase their financial returns.

FTAs

Free Trade Agreement is a deal or an agreement between two or more countries or a trading bloc that taxes, regulatory laws, quotas and preferences on goods and services to be traded between them will be reduced or eliminated to foster better trading relations and returns.

FTAs may also include clauses with respect to intellectual property rights (IPRs), investments, government procurement, etc.

Important features of FTAs

Under FTAs, markets are opened completely, and the FTA partners get advantageous reciprocal trade.

  • Removal of Import and export duties on several products
  • The partner countries are treated equal even if they are at a disparity on socio-economic levels.
  • Partner countries cannot discriminate between their domestic companies and foreign exporters.

Benefits of FTAs

Countries that enter into FTA agreements benefit in a number of ways. The countries that enter into FTA get easy access to each other’s market due to the reduction or removal of tariff and non-tariff barriers. Other beneficial aspects of FTAs for countries are-

Easier access to markets

The low prices owing to tariff cuts place the products of the partnering countries more advantageously thus bringing new trade opportunities. Thus, entry to the markets of partnering countries becomes easy and hassle-free.

Low tariff barriers

Tariff barriers inhibit trade and make products costly. By reducing these barriers the countries that are participants in the agreement experience the free flow of trade and in result their economies flourish.

Low cost in importing raw materials

Raw materials essential for products may be available at lower prices in the markets of the partnering countries. This makes imports of raw materials cheaper, which in turn reduces the cost of a product.

Countries india has a free trade agreement with

Though India has not entered into any new FTA for the past three years, there are several countries India has a Free Trade Agreement with. The countries are-

  • Sri Lanka
  • Singapore
  • ASEAN [Association of South-east Asian Nations]
  • Malaysia
  • Japan and Korea
  • Bangladesh
  • Bhutan
  • Nepal
  • Thailand
  • Maldives
  • Afghanistan
  • Pakistan
  • South Korea
  • Chile

FTA is under negotiation with countries-

  • Canada
  • Peru
  • New Zealand
  • Israel
  • Europe

MSME exporters and India’s FTAs

MSME sector contributes majorly to the revenues and economic development of the country, as they are the biggest sector to generate employment. Thus, it is essential that the existing or new free trade agreements of India contain provisions to bring maximum growth opportunities for the MSME exporters of the country.

To extract the maximum benefits of the FTA, it is therefore essential that MSME exporters go through each provision of the FTA and assess how it can be used.

Out of 28.5 million MSMEs in India, 25 million are micro-enterprises that cannot compete against the enterprises from developed economies.

The key provisions in an FTA can significantly affect the MSME sector and the MSME exporters in India. Following are the provisions and how they may affect the functioning of the MSME sector:

Import duties

Since the MSME sector lacks a well-secured marketing facilities network, increase in import competition with partner countries infiltrating the domestic markets can pose a big threat to the Indian MSME sector. “Most MSMEs do not have money to invest in market research, advertisement, packaging and are unable to carry out design and technical improvements to keep up with market demands” (P.254, SIDBI, 2010a). However, in certain situations, FTAs may also have a detrimental effect on MSMEs.

Import duty cuts for a partner country can cause a threat to domestic MSMEs. For example, toy imports from China, flooding the Indian market, came as a major setback for the MSME toy industry in India when applied duties were removed.

Non-tariff barriers

MSMEs in India lack the facilities to produce as high standard goods as produced in the developed countries. FTAs have stringent norms regarding standardization and quality of products. It becomes easier for MSMEs to standardize their products, as there are clear rules as per FTAs regarding the quality of products. By complying with the quality standards according to the FTA, MSME exporters can indisputably enter the markets and increase their export turnover.

Rules of origin

Rules of Origin identify the originating region or the country of the exported goods. Since Rules of Origin are different under each FTA, to receive preferential benefits, MSMEs must meet the required Rule of Origin applicable to specific products and the specific FTA.

MSME exporters can only ensure benefits from India’s FTAs through strict compliance of quality standards including packaging facilities. To get the maximum benefits of FTAs, they can take help of the government schemes to facilitate their production and quality standards and answer to the following questions can help them further:

  • What is the HS code of their product?
  • Which countries have India FTAs with?
  • Is the product they manufacture being imported into or being produced in the partner countries?
  • Is their product on the sensitive lists (not included in the duty cuts) in the signed FTAs?
  • Have duties been reduced to zero in India or the partner countries?
  • Are their products competitive in terms of prices and quality as compared to FTA partners?
  • What is the current duty on their product in the partner country?
  • Will duties be less on their exports to FTA partners?

An EndNote

FTAs serve the vital purpose of reducing trade barriers such as quotas or tariffs between countries. Lowering trade barriers helps the partner countries to boost their outreach and increase their sales. They witness a wider range of products and at lower and more competitive prices under an FTA. MSME exporters can benefit from the FTAs if they skillfullymaneuver the provisions in the FTA after understanding them intricately.

How to deal with payment defaults in exports?

Challenges and restraints have always surrounded international trade yet global growth, owing to the exchange of goods and services over borders, has been dynamically significant over the years. The proactive approach, adopted towards globalization and international trade, by the emerging market economies has been the reason why outcomes have been this positive and promising.

Exports and payment defaults

There has been a consistent growth of exporters in the Indian subcontinent, over the years. The benefits exporters derive outweigh the difficult tasks that are required to be handled by them.

Even though there are systematic payment methods to safeguard the interests of the exporters, owing to a lack of trust between the international traders, default in payments may pose a serious challenge for the exporter.

An export procedure beginning with the registration of export business ends when the goods are delivered to the importer, procuring payment in return. During this process, an exporter may face careless or unforeseen and unavoidable challenges. To overcome these hurdles, an exporter has to be resilient and well prepared.

The approach exporters can take to avert payment defaults

Whereas the most worrisome feature of international trade for importers is the procurement of high-quality goods at competitive prices, for exporters it is the timely payment by the importer after they have dispatched the goods.

How much an exporter can safeguard his payments is directly correlated to the type of approach he takes as his business strategy. An exporter can adopt a reactive or a proactive business approach, or a blend of both strategies to deal with the risk in payments. Thus, either the exporter can wait for the importer to default in making payments and then take measures to deal with it or can take precautionary measures beforehand to safeguard his payments. Of course, taking proactive measures tends to minimize the chances of having to take recourse of reactive measures at a later date.

Proactive approach

A proactive strategy is always more effective to meet the challenges of payment default because they involve prior preparation and take into account all possible challenges.

Exporters have to be very careful while agreeing on several aspects. It includes a method of payment, the terms, and conditions in the contract, ensuring their bills of exchange or documents. Also, exporters must keep in mind the countries that have a high default rate in payments.

A. Payment method

It is crucial for an exporter to agree to the payment method that is either completely safe or holds minimum risk. Given below are some methods through which exporters receive payments in international trading.

Clean payments
Under this payment system, the transfer of related documents is direct between the importer and the exporter and the bank is only involved in clearing the amount. Clean payments can be as an advance payment by the importer or as an open account in which the payment is given by the importer only after he receives the goods.

Documentary collections

Under this payment system, the banks hold the concerned documents to be released to the importer only when they clear the payments. It may be against payment D/P or acceptance D/A, i.e., against acceptance of a draft.

Letter of credit

Under an L/C, the importer assures the exporter, through a legal negotiable instrument, that he shall receive payment after completing his end of the agreement, by the importer’s bank.

The exporter can also use the letter of credit as a form of export credit. To improve his cash flow or to meet any unavoidable expenditure, the exporter can present the letter of credit to a bank for it serves as collateral and takes a credit against it.

B. Drawing the contract

To overrule any potential confusion between the exporter and the importer and to help resolve any difference, it is essential to draw a written contract between the two rather than just a verbal agreement.

While framing an agreement or a contract, many facets require coverage to eliminate the risk factors associated with exporting. The contract should be clear about what and when also enclosing the responsibility for both the parties.

Included in the contract must be the goods and the quality compliance they have to meet. The details regarding the price such as the amount, the currency and the exchange rate, terms & conditions regarding the payment. It should include when and how, delivery terms, shipping costs, custom related conditions, and insurance details covering the party to bear the risks and the type of risks to be borne by each party at every stage.

Besides this, the contract should include the procedures to settle disputes in case of any defaults made by the parties and the place where legal proceedings shall be conducted in case of a legal dispute.

C. Credit insurance

In International trade, it is always easier to avoid the risk factor before it has occurred. To safeguard their payments, even if the importer defaults in making a payment, it is essential that an exporter ensure the potential risk of non-payment by the importer by export credit insurance (ECI).

ECI is a kind of conditional assurance to the exporter. In case an importer fails to make the payment arising out of any political or commercial fluctuation, the exporter shall receive his payments.

D. Norms of the importing country

Each country has a different set of laws and regulations that govern its functioning. It is essential for an exporter to understand and gain knowledge about the importing country. The exporter should formulate a written contract accordingly and well substitute any contingent law of the importing country.

Reactive approach

The foremost step of an exporter should be to communicate and negotiate with the importer. The exporter should look for good terms and convince him to make the payment. When communicating with the importer, the exporter should be willing to compromise on a few unreasonable demands of the importer. Also, if the need arises, as it would save the exporter from incurring substantial losses from non-payment.

If however negotiating with the importer fails and the sum is large, the exporter could obtain assistance from several sources. It could be of its bank, qualified trade experts, trade commissions, recovering agencies or legal counsel.

A. Recover from insurance policies

To mitigate the risk of non-payment, the exporters can opt for account receivable insurance policy to be used in case of default in payment by the importer. The insurers, under the ARI policy, pay the exporter if the importer does not pay owing to fraudulent intention.

One such central government undertaking body in India is the Export Credit Guarantee Corporation. It ensures credit guarantee to the exporter against any possible default of payments by the importer. ECGC is more or less operates as an insurance agency. It guarantees payment to the exporter if the importer defaults in making a payment.

After both the parties have signed the agreement, the exporter approaches the ECGC. It is to get an approval and amount of limit. If the importer fails to make the payment, ECGC reimburses that amount to the exporter. Also, its operational network tries to find the cause of default. If the ECGC deems fit, they blacklist the buyer who makes it difficult for him to continue business. It is because it affects his creditworthiness in the market.

B. Protection with ‘without recourse finance’
When an exporter is unfamiliar with their buyer’s bank or is involved in trading with a country where political risks are considerable, then they can opt for without recourse finance. This protects the exporter from default payments against L/C.

C. Legal channels

Certain countries have stringent laws. It may be difficult for an exporter to recover the lost amount from the importer belonging to such countries. It is essential for an exporter to sign a contract with the importer of such countries. Sometimes it is also better if the exporter builds a strong local network in that country. It helps them recover their amount from the importer.

The exporter can approach their embassy, Foreign Chamber of Commerce etc. and seek their intervention if the importer refuses payment. The exporter must present documentary proof in the form of a contract to the legal advisor. But, the exporter should seek assistance from these legal channels only when the amount is considerable or high.

There is a multitude of international agencies that extend their collection services against fees to the exporters against any possible default by the importer. Since the legal costs of processing such cases are high, collection procedures often recover very little of the outstanding amount.

If both the exporter and the importer agree, then they can take their dispute to an arbitration agency. It is better than the exporter taking legal action against the importer. The settlement of dispute via an arbitration agency will be quicker. It will be less costly than legal action, which could take too much time.
The International Chamber of Commerce does not belong to any single country and is therefore acceptable to all international traders. It handles major international arbitration.

An Endnote
Receiving timely and proper payment from the importer is the most critical aspect of the deal for an exporter. It is essential that an exporter treads and plans about this criteria delicately and meticulously. There are specific measures, which an exporter can take in advance. They can contact certain agencies or trade commissions after the importer has made a default in payment for due action and reimbursement of the amount through legal intervention.

Factors to keep in mind while approaching an international buyer for the first time

International trade accompanies robust challenges but lucrative returns. It takes patience and perseverance before one can establish a global enterprise. And as with any new business plan, crossing borders also involves a multitude of critical factors to be worked upon before one can begin exporting or importing, including thorough homework and pre-planning.

Firstly, to enter into business overseas, it is essential to find appropriate international buyers. This can be done by conducting extensive market research and determining the countries where the products would click.

There are several ways to approach a prospective international buyer for the first time. An exporter can communicate with a buyer through written communication, i.e., via e-mail, or through oral communication, i.e., via telephonic conversation.

Ways to approach international buyers

An export order can be solicited from an international buyer through any of the following ways-

  • Direct mail

A foreign buyer can be approached through an email, informing them of the products and about the intent of the exporter to form a business deal with the buyer.

  • A personal visit

An exporter can schedule a personal visit to the buyer’s office with complete details including sample product, prices, delivery schedule, printed materials containing details as suggested.

  • A telephonic conversation

Another effective technique is to have a conversation with the importer on a telephone or Skype [international software used for business communication].

  • Participating in trade fairs

International trade fairs are held in India as well as on foreign grounds. The exporter can approach the foreign buyer through a trade fair.

While contacting a foreign buyer, there are a number of obstacles that may pose an impending threat, including

1.The cultural and socio-economic differences
2. The methodology of conducting business
3.The time difference between the two countries and
4. Barriers to language are a few aspects that create difficulties in trying to impress a buyer, the very first time.

How to overcome communication obstacles effectively?

The ulterior motive of the exporter is to gain credibility and develop trust in the buyer to procure an import order. Since there are many sources of potential confusion between an exporter and a foreign buyer, from language difficulties to differences in business practices, an exporter has to be meticulous while communicating with the buyer. This involves the following steps:

      1. The exporter should be proficient in the English language

English is a global language and the most prevalent form of business communication all across the world. An exporter should be proficient in both written and oral English. If the exporter lacks advance knowledge in the language, they should take help of a professional writer for drafting email intent or an interpreter for acting as a bridge between the exporter and the foreign buyer.

Any mistake in the communication or presentation oral or written can cause the international buyer to shirk away, even if the products offered by the exporter are credible as business is about efficiency and marketing. Proficiency in English is one of the most important prerequisites to communicating and impressing an international supplier.

        2. The direct mail should be clear and precise

The exporter can contact the buyer by drafting an email that contains information about the product, the terms, and conditions of the exporter and an intent displaying interest and negotiation. The email sent should be unambiguous and correct with impressive content.

  • An email is the first business communication with the prospective buyer and thus should include all aspects of the products and trading but in a polite language. It is always better to start the introduction with a formal salutation and with a direct approach.
  • The exporter must highlight all the outlines of the product.
  • Written communication via an email should not include slang and clichés but should be simple and descriptive. And it should have content to empower the buyer in the first few sentences. 


    3. The exporter should have authentic and proven contact details

When contacting the buyer for the first time, it is essential that the exporter provide ample contact information including a Skype ID. Foreign buyers are unknown to the exporters, and they require legal proof that the exporter vying for their order hold legible identity in his country and is not a fraud. A LinkedIn profile can also prove to be helpful to satisfy the foreign buyer.

         4. The exporter should accustom themselves to the cultural and time differences:

When contacting for the first time, it is vital that the exporter adjusts his time to the buyer accordingly. A little insight into the cultural background of the country and some common terms and words in the native language of the buyer could help the exporter to break the ice of unfamiliarity.

          5. Details about the products should be formidable

A skillful presentation of the products and the exporter’s in-depth knowledge of the market pulse can impress a buyer. The manner in which an exporter benchmarks their products in comparison to other products in terms of quality, price and availability should be transparent. This makes the international buyer believe in the exporter’s business sense and acumen.
The exporter should be intelligent enough to add some scintillating negotiating deals and offers.

An EndNote

An exporter vying for an international order must prepare well with all the details. The preparation goes in for the product and its presentation, terms, and conditions and intent to crack a deal. These are beside him being affluent in the art of creating a potent impact on the buyer with his personality and sincere efforts.

 

 

Handling delays in exports

India is the 14th largest exporter in the world and is all set to climb up to be among the top 5 by the year 2030, says a recent report by HSBC. With exporters growing consistently in India, every other day, it is essential to understand that as an exporter there is a multitude of aspects to consider when dealing with international buyers with the most crucial part being the compliance with the legal norms of the importing as well as their own country. Other than that there are several other details to be contemplated and worked upon so that they do not pose a challenge to the exporter.

The export procedure begins right from when an exporter registers his business to until the delivery of goods to the importer. During this process, an exporter may come across delays in steps of the process, due to negligence or unavoidable reasons. And it is only with due diligence and knowledge of ways to overcome the challenges that an exporter can move ahead with the shipping of the merchandise without many glitches.

Delay in business registration

Before one can begin functioning as an exporter, it is essential they register themselves as a business. Since proprietorship and partnership are classified as unregistered business, and importers prefer dealing with a registered entity, it is recommended that an exporter register them as a private limited company. But registration as a private limited company is not mandatory. To begin exporting one can register their business as proprietorship or partnership also.

After the business registration is complete, i.e., the exporter receives the CIN number it is essential that the exporter applies for a GST registration, PAN and TAN number. The entire registration procedure takes 10 to 15 days, and the cost involved is a minimum of rupees 10,000 and beyond.

There are no application charges for registration of GST, which is mandatory for companies having a turnover of more than 20,00,000 INR a year. In case the exporter fails to obtain GST number, they may be liable to pay 10% of the tax amount as fine or 100% if it was a deliberate evasion.

The exporter may get stuck by unnecessary delays in the business registration. These delays may be because of failure to comply with all the mandatory submission of documents, any incorrect or false declaration in the application form, not providing correct information, any false declaration, or the draft/ fees not coming through.

The exporter can avoid these delays by processing the application form through a qualified CA or registration agent or lawyer by ensuring a crosscheck of all the details before submitting the form and documents.

Delay in IEC (DGFT)

For an exporter to begin, it is paramount that they register themselves with the DGFT, i.e., Director General of Foreign Trade, Ministry of Commerce, Government of India. It is only after the unique ten-digit code issued by the DGFT referred to as an import-export code, that the exporter is considered legible to begin exporting products.

The mandatory documents required to be submitted along with the application form are:

➢ The PAN number of the applicant
➢ Identity proof
➢ Address proof
➢ Photographs of the applicant
➢ Current bank account number
➢A canceled cheque bearing the name of the applicant

On submission, the process takes minimum two to three working days to get processed, and the exporter may receive his IEC number within a week.

The exporter after procuring an IEC number should register with an EPC, i.e., Export Promotion Council to receive export-import benefits or concessions under foreign trade policies. The registration can be done by submitting the following:

➢ IEC certificate
➢ Certificate by a chartered accountant certifying the export turnover of the exporter in the preceding year
➢ Membership fee
➢ List of partners or directors if the exporting concern is registered as a partnership or a private limited company

If there is a delay at the end of the DGFT, the reason may be an error in filling the application form or a document may not be authentic. Sometimes the delay may be because of an error in the draft as application fees.

The exporter would, in this case, be required to rectify the errors and re-submit the application form. Any delay in REPC registration may be because of any incomplete detail or documents and can be rectified by re-filing the details and re-submitting the correct documents to the concerned department.

Delay in financing

The government has simplified export finance and given preference over any other types of finance, owing to the foreign exchange earnings they bring into the country. The institutions that are directly or indirectly involved in financing for exports in India are –

  • Export-Import Bank
  • Commercial banks, both nationalized and non-nationalized
  • Development banks such as IDBI, ICICI
  • Small Industries Development Bank of India
  • State Finance Corporations
  • National Small Industries Corporation
  • Export Credit Guarantee Corporation

Finance for exports can be availed in the following five ways:

Pre-shipment export finance

This type of finance is given against a confirmed order from the importer in addition to an anticipatory letter of credit for a period of 180 to 270 days.

Post-shipment export finance

Against the export bill as the bill takes 3 to 6 months to realize. The bank may purchase, discount or collect the bill. This type of finance is given for a period of 180 days.

Export finance against a collection of bills

The financing bank finances exporters against FOB bills of exchange and can get compensation up to 80% of the total amount.

Deferred export finance

The banks finance the exporters for the full amount and keep receiving the part installments from the importer.

Export finance against allowances and subsidies

Exporters are given subsidies by the government to enable them to sell their goods to the importers at lower prices and are given allowances in the form of a duty drawback.

The exporter may encounter delays in the processing of finance due to several reasons such as-The bank is not satisfied with the bona-fides of the transaction

• The bank has doubts regarding the documents and considers this as a suspicious transaction.
• The documents are not in compliance with the registered rules and norms.
• The shipping documents have been delayed submission
• Or any other norms that somehow are not authentic while applying for finance, by the exporter.

The exporter only can handle the delays in finance by being very clear and precise in the documents submitted to the banks. The exporter should patiently meet all the formalities of the banks. Each document should be in accordance.

The delay in the procurement of finance can be solved by contacting the negotiating bank after complying with all the details missed out.

Delay in export documentation

An exporter is liable to meet all the regulatory requirements and documentation process mandatory in the importer’s country as well as their own country to avoid any delay in the export due to document delay.

The important documents necessary during the export procedure include-

➢ Bill of lading, which contains the details of the shipment
➢ Certificate of a manufacturer certifies that the exporter has manufactured the goods

➢ The commercial invoice is the most critical document in the export procedure containing all details from beginning to the end, such as packing details information about the shipment, the marks, and numbers as on the outside of the boxes and the value of the merchandise.

There may be other specific documents to prepare before exporting goods. The main documents along with the additional documents should be completed with the help of a professional to avoid any unnecessary delay and should be authentic and in compliance with the rules laid down in the export norms.

Delay in shipping

Transit time is one of the most critical features in logistics. The delivery of the merchandise at the opportune moment is essential. Out of the several modes of transport, i.e., rail, road, ship, air and multimodal, each mode of transport comes with its own advantages to the transit of goods.

The mode of transport is chosen according to the expected time to reach the destination, geographical distance of the importing country, the value, size, weight, and volume of goods. The delay in shipment may occur due to several reasons such as:

➢ Delay in the movement of the vessels owing to port congestion, bad weather conditions, or changes in the schedule because of the holiday season or any event
➢ Loading of shipment is not in the vessel out for delivery but on another vessel.
➢ Incorrect or negligent documents
➢ Poor coordination of freights
➢ Declarations in the customs are not authentic and may result in the delay of shipment in the customs
➢ Evasion in the export license

Ways to avoid delay in shipments

  • Add some time in advance to the expected delivery time as a precaution to unexpected delays
    • Evaluate factors regarding the holiday periods and weather conditions at the time of transit and accordingly plan the shipment
    • Double-check all the documents before submitting them to avoid any delay owing to incorrect information.
    • Appoint efficient freight forwarders and customs agents to take the paperwork and customs clearance through without any hitch.

Delay in receiving payments

The ultimate goal of an exporter is to receive timely payments from the importer, once the deal is complete. It is therefore vital that the payment method should be such that the risk of payment is minimal. Since the realm of risk is not very narrow in the international trade, the exporter cannot be precarious until the payments are secured in his bank account.
The three types of payment methods, most prevalent in the international trade are:

Clean Payments

The type of payment system has minimal involvement of the banks. They are only responsible for clearing the amounts. The transfer of related documents is direct between the importer and the exporter.

Advance payment

This is the most secure type of clean payment method. Here the exporter receives the payment as advance by the importer.

Open account

Clean payment method is risky. The exporter agrees to deliver goods to the importer prior to the payment without any responsibility of associated risks either.

Documentary collections

Here the exporters authorize the banks to release the relevant documents to the importer once their payments have been released. The banks release the shipping and other related documents to the importer.

Documents against Payment D/P

The release of documents only against payment by the importer

Documents against Acceptance D/A

The release of documents against acceptance of a draft

Letter of credit

Here the importer’s bank issues a guarantee to the exporter that he shall receive the payment. Thus, the exporter must meet the terms and conditions laid in the letter of credit.

Sometimes the exporter may face certain delays in payments. It is because of the importer refusing payment owing to any of the following reasons:

➢ Goods or documents are not in compliance with the importer’s request
➢ The importer has delayed or withheld payments purposely with an intention to cheat
➢ Importer going bankrupt
➢ Any other unforeseen delay arising out of political, commercial, or fluctuation in foreign exchange risk.
➢ Lack of coordination between the collecting and the remitting bank.

In case the delay in payment is because of any incorrect document then the exporter will have to bear the delay and rectify the mistakes in the documents. If the importer is delaying the payments without any reason, the exporter can protest the bill and take him to court or protest through the bank’s lawyer.

An EndNote

It is essential for an exporter to study the norms of the importing countries. It will avoid unnecessary delays or problems and adapt the business accordingly. But adding a professional to help exporter complete legal details and documents can help them in avoiding these hindrances.

 

 

Supply Chain Management for exports

With the advent of time, as the obstacles of international trade are gradually dissipating and new opportunities are making their way into the global markets, import-export companies are beginning to grow rapidly. These companies are intricately into the transit of goods from one country to another, yet their lucrativeness often suffers setbacks in the form of:

Time taken to transport the goods

Import-export companies often face challenges and problems at the destination port in the form of unnecessary delay or high charges by agents thereby resulting in more than stipulated time for the goods to reach the importers.

Mode of logistics

The mode of transport is one of the most critical aspects of international trade. Several contingencies affect logistics such as delays at the loading port, delay while transiting, or sometimes cancellation of the shipment vessel that cause problems for the importers and exporters.

These hindrances have spurred on the need for an effective and compliant supply chain management that monitors and deals with issues related to norms, procedures, documentation, customs, trade compliance, HTS classifications, freight and many more to minimize the obstructions in the transit of export orders. This specialized strategy is helping to enhance the margin of profits by increased customer satisfaction.

How does it work?

Supply chain management involves the skillful dispensation of strategies and leverages operations in the supply chain in order for an exporter to be successful in delivering the merchandise to the importer hassle-free.

Supply chain management is all about what an exporter requires, where an exporter requires when an exporter requires and how does the exporter utilize the human resources to process his order. Thus, it involves successful completion of the following systemic approach:

1. Managing the products

The exporter may be a manufacturer exporter or a merchant exporter or an export management company on behalf of the manufacturer. It is essential that any kind of exporter who enters the market have an infrastructure to make a regular and timely supply of the products he is looking to export. The exporter must meet the regulatory norms strictly for the products. It is also beneficial for the exporter to know well about government offerings on the incentives and the tax exemptions.

It is essential that an exporter work on the export cost to enhance profits and also on the export price at which the goods shall be offered to the international buyers or the domestic buyers in the form of merchant exporters.

2. Sample production and acceptance

The exporter may be required to send a sample to the importer for approval before the final order. It is essential that an exporter is well versed with the government regulations and procedures for sending an export sample.

The sample produced should meet all quality requirements as stipulated, and when being sent for approval, they should be marked as ‘sample-not for sale.’ The samples can only be shipped by airfreight or post parcel.

Export samples fall under three categories. First are the samples, which are within a value of rupees 10,000. They do not involve any foreign exchange, and the exporter must declare this.

Samples which are more than 10,000 but less than 25,000 require a value certificate from the bank stating that no foreign exchange is involved and the value of the sample exported does not exceed rupees 25,000.

Lastly, when the value of the sample is more than rupees 25,000 the exporter should obtain a GR/PP waiver from the RBI.
In case the samples are sent against payment then they are deemed as normal exports and require all formalities to be complied with.

3. Quality and certification requirements

It is mandatory that export products must meet the quality control and certification requirements both of the exporting country as well as the importing country.

The exporter may have to fulfill sanitary, phyto-sanitary requirements if the export product belongs to the food category-comprising animal or plant ingredients. When exporters export agricultural products from India, they should hold AGMARK certification and ISI 9000 mark of approval. ISI 9000:2000 is the present international norm of high-quality goods that has worldwide acceptance. Products belonging to the pharmaceutical sector must qualify under USFDA or EMA.

Without necessary quality certification, the goods to be exported may be rejected, and the exporter may incur heavy financial losses.

4. Managing documentation challenges

When exporters send goods internationally, they require precise and relevant documentation. It is of utmost importance that paperwork is in due compliance. The order as an error in them could delay the shipment. Managing documentation challenges methodically ensures timely delivery of goods.

  • The documents for payment {bank draft}, contact address and packing should have clear and precise information.
  • Classify the product under the correct system code.
  • Mention the units of measure and quantity authentically.
  • The commercial invoice should be true and with the correct value.
  • The product description should be in accordance with the letter of credit.
  • In the case of exporting any dangerous goods, the consignment should have a proper label.

The documents involved in international trade are:

  • Air Waybill
  • Bill of Lading
  • Combined Transport Document
  • Draft (or bill of exchange)
  • Insurance Policy
  • Packing List/Specification
  • Inspection Certificate

5. Financing

While engaged in exports, long payment terms can be challenging and cause problems in the working capital. Export finance through banks or financial institutions helps to release this working capital contingency and helps a business to grow.

The exporter can procure pre-shipment finance to carry on the manufacturing process without any glitch. It is available against an expected export order or a letter of credit. The two types of pre-shipment finance are:

Packing credit 

Packing credit is available in both Indian currencies as well as foreign currency. The maximum time a bank provides a packing credit is 180 days. It can further extend it to another 90 days at its discretion. The rate of interest is according to the amount of finance against the order. In case the exporter fails to liquidate the packing credit at the due date owing to any contingency the bank considers it as an overdue and initiates necessary steps to recover the said amount.

When the packing credit is in foreign currency the rate of interest is according to the London Interbank Offered Rate (LIBOR). According to the stipulated guidelines, the final cost of exporter must not exceed 0.75% over six months LIBOR, excluding the tax.

Advance against cheque or draft representing advance payments

The exporter can procure finance at a concessional rate from the bank. They can present an advance cheque or draft from the importer, till the time the proceeds of the advance payment get realized.

The exporter can also procure post-shipment finance from a bank or a financial institution. An exporter takes this finance after the export shipment has already been made. It is only taken for the period until the export proceeds get realized. It is more or less taken to fund oneself in advance against secured payments to be realized later.

6. Insurance Production management

With an insurance policy, the exporters become safe against the unforeseen risks that they may encounter during the course of exporting goods. Insurance coverage can come for the merchandise from the airline, logistics specialist or from the freight forwarder. They may also come from an insurance company that extends insurance coverage for the goods by an ocean or air cargo.

The insurance coverage is available under three forms, i.e., perils, broad-named perils, and all-risks. The most prevalent plan is the all-risk plan which all insurance companies or transport companies offer. This insurance coverage ensures goods against any loss arising out of external circumstances excluding loss out of natural calamities. The insurance coverage on aggregate costs 1 to 2% of the value of total goods.

7. Shipping costs and time

Selecting the most appropriate mode of transport is an essential aspect of the export procedure. The exporter must contemplate that the transit mode is in accordance with the merchandise they are exporting. The exporter should work around strategies that enable them to reduce the shipping time and costs.

To speed the shipments through delays in customs, the most effective strategy is to partner with an efficient freight forwarder. It could also be a customs broker or any other agent who can manage shipment documents in less time.

One must complete the documentation and formalities accurately. It will avoid any delay at the customs. Also, the mode of transport should be as per the transit time and value of goods.

Some other aspects that could help reduce shipping cost are-

Consolidate the shipping order such that a 40 feet container could be in use once a month, rather than shipping in small quantities a multiple times. This will help to reduce transportation costs and custom clearance fees.

Try and set the small boxes in one palette. This will help to reduce the weight and volume of the shipment saving costs.
Also, provide correct and factual information on the packing to avoid any delay of shipment.

An EndNote

Thus, there is a multitude of norms and regulations, which require compliance by the exporter. The supply chain management enables the exporter to meet all the requirements with precision so that high-quality goods can reach the importers without any delays and compromise, as efficiently as they can.

 

Quality and certification requirements and challenges across markets and products

International trade is governed by a paramount principle, which states that when products cross countries, they should comply with the regulations and quality standardization of the importing country or as per international standardization.

Over the years the technical and quality requirements of countries have become more integrated owing to the global demand for safe and high-quality products. Both voluntary and mandatory technical quality requirements need to be conformed to, as per international standards, by the producers and the exporters.

The mandatory compliance stipulation pertaining to sanitary, phytosanitary, environmental or technical requirements involving conformity assessment procedures such as testing, certification, and declaration of conformity, inspections and so on is crucial for exports.

Quality requirements are stringent

Different markets have different quality requirements for which they require different certifications. Once the products are ready to target the export markets, the exporter has to document reports that show that the products are in complete compliance to the quality standards of the importing country and also as per international standards laid down by certification agencies.
Both Indian and Foreign certification bodies carry out this conformity assessment procedure. It is only after approval and certificate by these bodies that exporters can ship their goods to the importing country.

Out of a wide range of products that are exported to other countries certain products, for instance, agricultural produce, food and drugs, wine, pharmaceuticals, and electrical products require certain quality regulations that need to be strictly complied with.

Some foreign certification agencies

  1. UNITED STATES FOOD & DRUG ADMINISTRATION [USA]

USFDA, The United States Food and Drug Administration, is a regulatory authority that regulates an array of products that enter the US market. Exporters have to mandatorily comply with the regulations laid down by the FDA to enter the US market.

The products that fall under the jurisdiction of USFDA are:

  • Food products such as dietary supplements, water bottled, additives used in food, infant food, food made of meat, poultry, and egg products.
  • Drugs including generic and over the counter drugs.
  • Biologics such as tissue and tissue products, vaccines, blood-related products, allergenic, etc.
  • Medical equipment, for instance, surgical and dental implant and prosthetics, and simple and complex technology-based items.
  • Electronic products that emit radiation, including microwave ovens, x-ray equipment, laser products, sunlamps, or ultrasonic equipment
  • Cosmetics, for instance, nail polish, perfumes, skin moisturizers, cleansers, and color additives used in personal care products.
  • Veterinary products including pet foods and livestock feed.
  • Tobacco products, such as cigarettes, smokeless and cigarette tobacco.
  1. EUROPEAN MEDICINES AGENCY [EUROPEAN UNION]

EMA, The European Medicines Agency, is equivalent to USFDA, in Europe. EMA is a regulatory agency to evaluate and supervise medicines to ensure human and animal health in the European Union. In order to enter the European market, the medicines or drugs must meet with EMA’s stringent regulations.

  1. EUROPEAN FOOD SAFETY AUTHORITY [EUROPEAN UNION]

EFSA, the European Food Safety Authority is a regulatory agency. It demarks the set standards for food and food products that enter the EU market. The level of pesticide residue, metal involvement, chemicals and other additives that could cause food products to be unsafe for consumption are governed by the EFSA including the standards set by GLOBAL GAP, i.e., for fruits and vegetable production.

  1. MEDICINES AND HEALTHCARE PRODUCTS REGULATORY AGENCY [UNITED KINGDOM]

MHRA, The Medicines, and Healthcare Products Regulatory Agency is an executive agency of the United Kingdom that ensures that medicines and medical devices that enter the UK are safe for consumption.

  1. Thai Food and Drug Administration lay down regulations regarding quality of drugs, food, cosmetics and narcotics in Thai countries.
  2. Federal Institute for Drugs and Medical Devices is a regulatory authority in Germany that sets regulations for the pharmaceutical products entering the country.
  3. Medical Products Agency, Sweden is a regulatory agency of Sweden.
  4. The National Agency for Food Administration and Control (NAFDAC), Nigeria regulates the import quality standards of food and pharmaceutical products in the country.
  5. BUREAU VERITAS QUALITY INSPECTION [BVQI]

Bureau Veritas, operational since 1828, is an international certification and inspection agency. It is functional globally to improve quality and productivity and verify that the products are in compliance with the set standards. BVQI has its headquarters in Paris and France.

It is the responsibility of the buyer that seeks BVQI services that the products supplied to them meet all required parameters.
Thus, the buyer must attach the BVQI inspection certificate to the shipping documents.

The Indian BVQI began functioning in 1971 and is responsible for testing, inspection and certification services to ensure that the quality of the products complies with the international standards.

  1. SOCIETE GENERALE DE SURVEILLANCE [SGS SA]

SGS SA is an international company with its headquarters at Geneva, Switzerland providing inspection, verification, testing and certification services. It ensures that the products meet the required and relevant regulatory international requirements. It also checks the condition and weight of imported /exported goods at trans-shipment. SGS tests the quality, safety, and performance of the products in terms of health and safety standards

Thus, SGS certifies that the products or systems comply with the national or international standards and regulations or the standards required by the importer.

  1. TECHNISCHER UBERWACHUNGSVEREIN / TECHNICAL INSPECTION ASSOCIATION [TUV RHEINLAND]

TUV Rheinland AG is an organization with headquarters in Cologne, Germany, providing technical test service and certification. It has offices in several other countries such as Europe, Asia, America, and Africa. TUV certifies that the safety standards and the quality of products, management systems, manufacturing processes, and personnel meet the required parameters. Also, it ensures that they are in compliance with the international standards.

Quality regulations in Japan

Food products, milk, and milk products, food additives are regulated in Japan under the Food Sanitation Act and relevant legislation. Japan is very strict with the permissible amount of pesticide present in the food imported into the country. Foods, which have a higher level of pesticide, veterinary drug than the regulatory maximum residue limit as defined under the said legislation are not allowed to be sold in Japan.

Certification requirements in the Middle East countries

Middle Eastern countries, i.e., Saudi Arabia, Iraq, Kurdistan, Lebanon, Kuwait, Qatar and/or Syria function on stringent mandatory Conformity Assessment Programmes. It is to ensure that inferior quality or unsafe goods do enter their market from other countries.

All shipments have to comply with product conformity documentation, which includes safety test reports and technical data sheets. For electrical equipment sold in the Gulf region, it is essential that products comply with the technical requirement laid down by the Gulf Standards Organization (GSO). It is vital that products successfully cross the Gulf conformity marking, i.e., G Marking.

Sanitary and phytosanitary requirements in countries

The export country must comply with certain international standards. This is to ensure that the produced food is safe for consumption and adheres to strict health and safety regulations.

In the last decade, international sanitary and phytosanitary requirements of countries have become very strict and inflexible. Importing countries deny consignments that have not complied with their laid down food requirements.

Sanitary requirements refer to minimum pesticide residues, metals, and other contaminants to be present in the export food. Therefore, it emphasizes that the export food products are entirely safe for consumption without any harmful effects.

In the same manner when a country imports plants or plant products, fruits and vegetables, cut flowers and branches, grain or any other regulated articles from another country, they mandatorily require a certificate along with the consignment, which is termed as a phytosanitary certificate.

The phytosanitary certificate is an official document. It declares that consignment being sent to the importing country is in complete accordance with the specified phytosanitary import requirements and with the requirements of the National Plant Protection Organisation (NPPO) of the importing country.

World Trade Organization (WHO) provided an international framework by entering into SPS Agreement. Therefore, the SPS Agreement ensures that the health, hygiene standards or regulations that are met with by the countries to avoid the spread of animal and plant diseases.

Codex Alimentarius Commission (CAC) of the Food and Agriculture Organization (F.A.O.) and World Health Organization (W.H.O.) adopts these standards.

An EndNote

Thus, India, as an exporting country, understands the importance of quality standards set for different commodities among fresh fruits and vegetables and other products and has incorporated measures to meet the various features and required parameters pertaining to Indian products for improving the quality of produce for exports.