EXPORT MADE EASY!
HOW TO START AND EXCEL IN YOUR EXPORTS AND MAKE OPTIMUM OUT OF EXPORT PROMOTION SCHEMES
[Question and answer format of this article on Exports appeared in one of the issues of Silk Mark Vogue. The author is Shri. Ajay Srivastava ITS, Director (Ministry of Commerce, Govt. of India), a renowned expert on foreign trade]
START UP TOOLS FOR EXPORTS
I am happy selling in domestic market. Why should I enter in Export business?
There is a strong reason. As customs duties are coming down and country is signing a number of Free Trade Agreements, there will be intense competition from foreign companies for Indian market. Unless you benchmark quality and pricing with international standards, you risk losing your domestic business. Thus, in order to survive in the domestic market you must be able to compete globally. In addition, exports bring money, expertise and prestige to your firm.
I do not have the sufficient knowledge, resources, people and expertise for international trading. It’s a complex job. How do I go about it?
You have the product expertise – the most important knowledge you require. Rest of the skills can be outsourced or better still, learned.You can learn through a number of good websites or books. You will be amazed to know there are thousands of 1-2 people export firms in the world that focus on getting high quality product and market and outsource other function to the experts. Otherwise to begin with, you can involve a merchant exporter at mutually beneficial terms, who will export the goods supplied by you.
Exporting involves dealing with unknown buyers; I may not get my money back. What is your advice?
Money is almost 100% assured in export and imports if one follows certain rules like exporting under irrevocable L/C. In addition back up is provided by export Insurance. There are established rules for doing international business. You just need to acquaint yourself.
I am starting my export business.What registrations do I require for exporting?
You need to complete the following start up formalities for commencing export.
- Open a Current Account: The bank should be authorised to deal in foreign exchange
- Shop & Establishment Act Regn: Though exports are exempt from local taxes, a registration will take care of local content of your business
- Excise Regn: No need for registration by merchant exporters. However Rule 174 of central Excise prescribes registration for manufacturers
- Sales Tax Regn: Export goods are free from sales tax. However, require registration with the local sales tax authorities for purchasing goods from manufacturers, local traders etc.
- PAN Number: Permanent Account Number has been made compulsory for the firm’s aspiring to start export business. Thus even if your turn over is zero and no taxes to pay you have to obtain PAN.
- Import Export Code number: IE code is a permanent number granted by DGFT. You require a PAN no & a bank account to apply for IE code.
What are the steps involved in exporting a product; please give an overview of a typical export cycle?
Ten steps involved in a typical export cycle are:
- Receipt of a trde enquiry
- Responding to enquiry by sending your offer quotation or proforma invoice
- Firm order confirmation from the buyer
- Scrutiny of order for discrerpancies in L/C and other trade terms
- Confirm order acceptance to overseas buyer
- Source the goods from factory or from market
- Give necessary documents to Custom House Agent for custom clearance
- Transport the goods to docs & after port formalities ship the goods
- Submit complete shipment documents to Bank for receiving money
- Claim Govt. incentives
What are the essential areas of export trade that I must master to become a successful exporter?
The vital areas in export trade are:
- Develop essential trade knowledge
- Develop product & market intelligence
- Choose the best suppliers and service providers
- Obtain necessary registrations
- Identify potential buyers of your product
- Reduce cost of transaction in shipping, customs, travel etc.
- Identify mega potential products that are just suitable for you
- Maximising your return by identifying most appropriate export promotion schemes for your product
- In case of doubt, talk to experts
I have an order for supplying 400 gents shirts to a buyer based in Canada who offered me to pay in FOB terms. DEPB on this item is @ 10%. I must get 30% as profit on the Ex factory cost of the products. What is the minimum FOB I should quote to the buyer?
You have to add up your costs and profit and find out the minimum FOB value by taking into account the DEPB available to you. Following steps will make the calculation clear:
|A||Let’s assume that minimum acceptable FOB price in Rupees is A|
|B||DEPB/Drawback @ 10%||Rs 10,000||10% of A|
|C||Minimum money that must be realised||1.1A||A+0.1A|
|D||Ex factory cost of shirts||Rs 60,000|
|E||Packing, transportation and other expenses upto on board ship||Rs 12,000|
|F||Minimum acceptable profit margin is 30% of ex factory price||Rs 18,000||30% of D|
|G||Total cost + profit||Rs 90,000|
|H||Minimum acceptable FOB price in Rupees A||Rs 81,818||A+0.1A=
What are the business practices that have been adopted by successful Fast Track exporters?
Both domestic and global markets are undergoing rapid transformation. Indian exporters would need to adopt the following business practices in order to prosper or even survive.
- Export market intelligence
- Direct relationship with buyers
- Clear product market strategy for exports
- Strong R&D skills
- Access to latest technology
- Competetive raw material sourcing skills
- Highest manufacturing and quality standards
- Timely execution of orders
- Moving up the global value chain
- Clear Export thrust
- Enterpreneurial zeal