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.

 

Is it better to be a merchant exporter than a manufacturer/producer exporter?

It has always been on-going speculation whether it is the manufacturer exporters that hold an advantageous edge over the merchant exporters or is it the other way around. Manufacturer exporters have always been looked upon as the more lucrative option. But recently merchant exporters have almost become parallel to them.

Merchant exporters act as an advantageous recourse because of their high level of competitiveness to propel higher unit realization. It is also their adeptness at upgrading the production quality offered by the manufacturers.

The increasing difficulties in generating foreign exchange earnings have begun to demand compliant export schemes to encourage exports. It is perhaps another reason, which has enforced the governments to increase the involvement of both manufacturer and merchant exporters equally.

The merchant exporters in India contribute almost a third of export revenues, they have been bereft of many incentives received by the manufacturer exporters until now, not being given equal footage. But the concern over the slow growth of exports, even though having crossed the USD 300 billion mark in the year 2017-2018, has induced the government to seriously look upon the merchant exporters as the best boosters in bringing in more export opportunities into the country and has spurred on the extended incentives being especially designed for the merchant exporters including reduction in the cost of credit.

Who are manufacturer exporters?

An entrepreneur who produces finished goods with an intention to sell them to the global markets under his brand is a manufacturer exporter. The manufacturer exporter procures raw materials from the market and processes them to produce finished goods.

Who are merchant exporters?

A merchant exporter, on the other hand, is a person that procures finished goods from a manufacturer and furthers them to the global markets under his label or name. He does not own a factory to produce goods but trades in them.

What is the fundamental difference between the two?
An indisputable advantage that manufacturer exporters experience over merchant exporters is that they do not require the services of any intermediaries for exporting, inadvertently keeping their prices at bay. Since they manufacture the products, they can easily incorporate any changes defined by the importer.

Merchant exporters, on the other hand, do not own a processing facility of their own and have to depend on the manufacturers to purchase goods from. They can procure goods from several manufacturers, and export them at their own risk thus entering into two agreements, i.e., one with the manufacturer to procure goods and the other with an importer to sell goods.

Is merchant exporting more advantageous?

Though manufacturer exporters and merchant exporters receive equal export benefits from the government yet, they differ from each other in terms of how they conduct their business. There are several areas where merchant exporting seems to have the edge over manufacturer exporting. Though there is a multitude of limiting factors involved in it too, on the other hand.

Cons of being a merchant exporter

Cost competitiveness

Manufacturer exporters produce the goods hence they serve importers with a better deal in terms of price. When they quote their prices, it is with an added profit margin. It may have variations depending on the buyers, the volume to supply and the consistency of the order from the same buyer. They need not add any middlemen expenses as they can directly deal with the importer.

The merchant exporters are specialist traders and though they have an infrastructure to serve importers with the best quality products and flexible deals they fail to present as low prices as the manufacturer exporters.

The reason for this being that a merchant exporter is another buyer for the manufacturer exporter. When goods by a merchant exporter are purchased, they already have an added profit margin. The merchant exporter further adds his profit ratio too. Thus, when the merchant exporter quotes the prices to the importers, they are higher than the prices offered by the manufacturer exporter.

Dependence on suppliers for goods 

Manufacturer exporters have a production and processing infrastructure to manufacture the goods; hence they do not have to depend on the suppliers for the products to enter into any export-import agreement.

Merchant exporters, on the other end, are traders and they cannot move ahead with an export order without complete cooperation of the manufacturer. They need to complete a number of extra formalities, which involves two-way paperwork.

Reliability

Merchant exporters rely on the manufacturer in terms of timely delivery as well as meeting the quality parameters meticulously. Though the network of merchant exporters is well structured and they meet all international norms astutely, the reliability on a merchant exporter is indirectly dependent on the quality of the products, which he has to procure from the producers. Any discrepancy in the quality directly affects the credibility of the merchant exporter.

Pros of being a merchant exporter

Lower manufacturing risk

Manufacturing goods require a well-laid infrastructural facility in the form of a processing unit, which in turn involves massive finances. Merchant exporters are traders who involve their finances to further the already produced goods to the overseas market. Thus, they do not have to face overwhelming manufacturing risks. They have the freedom to select the finished products they require and sell it at a profit.

Easily available finance

Merchant exporters are just like other ordinary exporters. With a well-documented export order in their hands, they can access easy finance. It could be either through government or private financial institution or banks. They provide pre-shipment finance to the manufacturers to instigate them to produce products without fear of loss or obsolete stock. The cost of credit presently is low to facilitate the merchant exporters to bring in more export revenues.

Easy diversification

Merchant exporters are just like any other exporters in a country and enjoy all benefits that manufacturer exporters do. They are experts in their strategies and have a strong network through which they adeptly deal with overseas buyers and multiple products.

Flexibility

Merchant exporters buy products from several buyers according to the market pulse. Later they repackage it to sell it under their own brand and name. Thus, they have a wider range of products catering to different qualities than a manufacturer exporter.
Their operational field is more flexible than a manufacturer exporter. Having many products of different quality and price range, they can easily promote goods that fetch better returns in the foreign market and pull away products that are not bringing in profits for them.

Benefits under GST

The merchant exporter prior to the imposition of GST received a special tax benefit. They could procure goods without any duty payment. But with effect from 23.10.17, there have been four IGST tax slabs in function, i.e. 5%, 12%, 18%, and 28%. Precious metals fall under a special category of 3% for inter-state supply.

The merchant exporters are eligible for special concessions on GST. It is under the deemed condition that they export the goods within ninety days of procuring them with effect from the date of the tax invoice of purchase. They have to submit a well-endorsed export order to avail the incentives offered by the government.

Financial benefits

Merchant exporters have to pay GST to procure goods from the manufacturer. When they export the goods to another country, they become legible to ITC allowance, i.e., input tax credit. If the merchant exporters further the goods under bond or LUT [letter of undertaking] they become legible to receive a refund on ITC only under the condition that they have received a remittance of rupees one crore or 10% of export turnover, whichever is higher, in the previous financial year. When merchant exporters export goods after paying IGST, they can claim their refund of IGST.

An EndNote

Manufacturer exporters and merchant exporters, both, are essential to steer exports turnover in a country. They are almost synonymous with each other in terms of benefits and incentives received from the Ministry of Commerce. Though, they do differ in their area of operation with merchant exporters being contributory in bringing more exports to the country by boosting the small manufacturers or MSME.

 

How to choose the best mode of transport in the import-export trade

Transportation mode is an integral part of international trade, and it’s planning. It is essential that cargo to be transported through international boundaries in an import-export transaction is cost effective as well as methodical. The transportation of goods usually occurs by the four modes of transport when it comes to international trade, i.e., rail, road, air, and sea.

The most optimal mode of transport for an export-import operation depends on a multitude of factors such as the size, weight, value and type of goods to be transported, the country of destination and laws pertaining in it, the time period within which the goods should reach the destination and any other special requirements involving transportation of sensitive items. Once decided upon, the importer or the exporter themselves can handle the logistics or carried through with the help of a freight forwarder.

Different modes of transport

The different modes of transportation in the import-export trade are the ocean, air, and land. Each mode of transport has its drawbacks and its benefits, and it is completely on the discretion of the parties involved to select the mode, which helps to maintain a balance between cost, time, and service. Often more than one mode of transport, i.e., multimodal transport is used to deliver the consignment to its destination hub finally.

Road transport

When the consignment is carried through a network of roads to reach the destination, it is considered to be a part of road transport. Thus, goods can be transported by road transport through borders with lesser custom documentation. It does have limited reachability in terms of size and weight carrying capacity. Other factors, which cause problems in road transit are the traffic on roads, the poor conditions of the roads and the weather disturbances.

Benefits of road transport
• Cost-effective
• Doorstep delivery
• Flexible
• Also, easily traceable

Rail transport

Goods to be carried through medium to long distances can be transported through the rail. They are optimal to carry large quantities of goods that are bulky such as cement, coal, fertilizers, iron ore, etc. They involve a lesser time period than shipping cargoes through ocean route.

Key advantages of rail transport include:

  • Safe and reliable
  • Dependable transit time
  • Also, ideal for carrying large volumes and heavy consignment of goods
  • Can cover long distances
  • Well within time deliveries at economical cost

A few rail-road transportation companies around the world are:

  • CSX
  • Norfolk Southern
  • Union Pacific Corporation
  • Canadian National Railway
  • DB Cargo
  • DB Schenker
  • CONCOR

Ocean transport

The oldest mode of transporting cargoes from one country to another, they are rated to be the least expensive mode of transportation. They are considered ideal to carry large volumes of consignments over long distances but the transit time is much longer than any other mode of transport. Whereas a cargo transited by air may take up to 3-7 days, shipped through ocean route it may be get delivered in 1 to 50 days.

Sea transport accounts for almost 90% of the global trade and is used to carry commodities in bulk such as agricultural commodities, iron ore, petroleum, crude oil, engines or propellers, minerals, metals, etc.
It operates through a limited network of sea routes and once the consignment reaches the last port, goods are further transported to the destination through land transport. Sea transport does face limitations in the form of unforeseen perils owing to natural environmental disturbances, which are more or less covered under cargo insurance.

Appraisal of the beneficial aspects of ocean transportation:

  • Multifarious options in carriers
  • Extensive network around the world
  • Most reasonably priced mode of transport
  • Ideal for almost any range of products in large volumes
  • Also, optimal for products with long lead time

Some biggest shipping companies in the world:

A.P. Moller –Maersk Group
Mediterranean Shipping Company
CMA CGM S.A.
COSCO Shipping Corporation Ltd.
Hapag-Lloyd
Evergreen Marine Corporation
OOCL
Yang Ming Marine Transport Corporation
MOL [Mitsui O.S.K. Lines Ltd.]
NYK Line [Nippon Yusen Kabushiki Kaisha]

Air transport

It is the newest mode of transportation to be introduced in the international trade, and it has been forecasted that the world air transport should rise 4.2% per year, owing to a growth in the world’s GDP in the next fifteen years.
Air Transport is the safest and the quickest mode of transport, ideal for goods that need to be delivered within a short span of time. It is extensively used by the retail industry to fulfill the inventory gap, as and when required.

They are an expensive mode of transport involving airport taxes and high airfares yet are being used by a large number of exporters and importers for goods that are most safe when transited through the air such as fragile items or perishable items involving food, flowers, and pharmaceutical items.

Air transport does witness limitations in the way of being one of the most costly means, and not ideal for large-sized goods and heavyweight products. Once the goods reach the destination airport, another mode of transport take it to its final place of delivery.

Pivotal benefits of air transportation:

  • Speediest mode of transit
  • On time arrivals and departures
  • Safe and ensured cargo delivery
  • Also, involvement of lesser documentation and formalities in comparison to other modes

Some top-notch airfreight companies:

  • FedEx Express
  • UPS Airlines
  • DHL Express Group
  • Emirates Skycargo
  • Cathay Group
  • Qatar Airways
  • Lufthansa Group
  • Air France- KLM
  • Korean Air
  • Cargolux Group
  • ABX Air
  • AeroLogic

Multimodal transport

Multimodal transport is a balanced and effective combination of more than one means of transportation to ensure the doorstep delivery of the consignment. It can be a combination of rail-road transport or sea-air modes to enable the importers and exporters quick, reliable and cost-effective transit of goods.

Indispensable benefits of multimodal transport:

  • By using a combination of modes of transport goods will reach right to the hands of the importer.
  • One document can handle all transport means
  • Also, hassle-free delivery and timely delivery

Factors affecting the choice of mode of transport

There are various modes of transporting goods in international trade thus one can select can only after working on the requirements related to the size, weight, transit time involved and transportation cost of the mode.

Cost

Transportation cost depends on the size and volume of the cargo other than the distance factor. To transport large volumes of cargo over a long distance at cost effective prices, sea transport is the most appropriate mode. Air transport is best for light and quick delivery of products.

Reliability and safety

A critical factor in deciding the mode of transport is the reliability and regularity in their transit. Each mode of transport experiences certain setbacks in its course. Thus a buyer must make himself completely aware before taking a decision on the model that would be the most appropriate.

Protection of goods from damage, loss, and theft owing to man-made or natural occurring incidents or happenings can be insured by cargo insurance against damage and loss during the transit time by air, land or ocean. There are various types of cargo insurance that buyers consider to safeguard themselves from any unforeseen loss.
Sea transport covers 90% of the global trade. The shipment can either be transported through free on board [FOB] or by cost insurance and freight [CIF] as considered beneficial by the importer and exporter thus making a considerable difference to the appropriation of the type of mode to be undertaken.

Type of goods

This is one of the most vital considerations that a company must work on before determining the mode of transport in an import-export. Goods can be general, fragile, perishable, dangerous or sensitive. Thus, it is essential to consider the transport, which after complete information appears to be most optimal for the type of goods. It also depends on the norms one must comply with.
Sea transport is ideal for heavy and bulky goods in large volumes. On the other hand, air transport should be one’s mode of transport for perishable and fragile goods. Dangerous items such as transportation of animals have to undergo several formalities and rail transport can be the best option in such case.

An EndNote

Thus, there are numerous ways of transporting goods in international trade.  It is only after working on the priorities, the pros, and cons of each mode and several other factors that one can choose the most efficient and effective means of shipment.