Module 4 EXIM Trade

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Module 4

EXIM Trade


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Trade - Trade is the voluntary exchange ofgoods, services, or

both. Trade is also called commerce.

Market - A mechanism that allows trade is called a market.

Barter system - The original form of trade was barter, the directexchange of goods and services.

Money Medium of exchange money.

Earning - As a result, buying can be separated from selling, or

earning.

Promotion of Trade - The invention of money (and later credit,

paper money and non-physical money) greatly simplified and

promoted trade.

Trade ?


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Specialization - Due to specialization and division of labor, most

people concentrate on a small aspect of production, trading for other

products.

Competitive Advantage - Trade exists between regions becausedifferent regions have a competitive advantage in the production of

some tradable commodity, or because different regions' size allows

for the benefits ofmass production. A

Price Differences - As such, trade at market prices between

locations benefits both locations.

Why trade exists?


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International Trade

International trade is exchange ofcapital, goods, and services acrossinternationalborders orterritories.

International trade is a major source of economic revenue for any

nation that is considered a world power.

It represents a significant share ofGDP.

It has been present throughout much ofhistory, its economic, social,and political importance has been on the rise in recent centuries.

Industrialization, advanced transportation,globalization,MNCs, and

outsourcingare all having a major impact on the international tradesystem.

Increasing international trade is crucial to the continuance of

globalization.

Without international trade, nations would be limited to the goods and

services produced within their own borders.


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Difference b/w International trade and

domestic trade

Points ofDifference International Trade Domestic Trade

Usage of differentCurrencies

Same type of currencyused

Different countries used differentcurrencies

Mobility in FactorOf Production

Quite restricted Free to move and entrepreneurshipfrom one state to another within thesame country

Restrictions More No

Movement ofGoods

Restricted due tocomplicated custom

procedures and tradebarriers like tariff,quotas or embargo

Easier to move goods without muchrestrictions. Maybe need to pay salestax,

BroaderMarkets Yes. Broader markets Limited market due to limits inpopulation

Language AndCultural Barriers

Communicationchallenges due tolanguage and cultural

barriers

Speak same language and practicesame culture


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Export Strategy

Export as an entry mode to a foreign market

Export strategy an entry mode depends on ownership

advantages of the company, the location advantages of the market,

and the internalization advantages.

Firms with low levels of ownership advantage either do not enter

foreign market of if they do, enter through low-risk modes such as

exporting.

The choice of exporting as an entry mode is not just a function of

ownership, location and internalization advantages. It also must fit

the companys strategy. Companies consider some questions in

evaluating the export option.


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Evaluating Export Option

What do we want to gain from exporting?

Is exporting consistent with our other goals?

What demands will export place on our key resources?

How will we meet the demands? Does export help us leverage our core competency without undue

risk of diffusion?

Does export fit into the current configuration of our value chain?

Can our existing coordination methods also deal with the managerial

demands created by export transaction?

Are the projected benefits of export worth the costs, or would our

resources be better used for developing new domestic business?


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Strategic Advantages of Exports

Expands sales

Diversification

Economies of scale

Less risky than FDI Potential of greater profitability

Ways of Exports

Directly to customers

Export to companies

Export semi-finished goods that are used as inputs in

their manufacturing


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Phases of Export Development

Pre-engagement

Companies selling goods and services solely in the domestic market

Those companies considering but not currently exporting

Initial Exporting

Companies that do periodic, marginal exporting

Companies that see lots of potential in export markets

Companies unable to cope with exporting demands

Advanced

Companies become regular exporters

Companies gain extensive overseas experience

Companies may use other strategies for entering markets

Phase 1

Phase 2

Phase 3


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Problems faced by New Exporters

Failure to obtain qualified export counseling in developing a plan

to guide export expansion

Insufficient commitment by the top management to overcome

the initial difficulties and financial requirements of exporting.

Misestimating the complexity and costs of ocean shipping and

customs clearance to export transactions

Poor selection of overseas agents or distributors

Chasing orders from around the world instead of establishing a

base of profitable operations and manageable growth

Neglecting export markets and customers when the domestic

market booms

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Problems faced by New Exporters

Failure to treat international distributors on an equal basis with

their domestic counterparts

Unwillingness to modify products to meet other countries regulations

or cultural preferences. Failure to print service, sales, and warranty messages in locally

understood languages.

Failure to consider use of an export management company or other

marketing intermediary (if company does not have personnel to direct

specialized export functions)

Failure to prepare for disputes with customers

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1. Request for goods

2. Receipt of order and commodity production Credit check of buyer

2a. Export - intermediaries customers brokers freight forwarders

3. Inland shipping A. Truck B. Rail C. Air D. Water

4.Seaport/airport (export): A. Warehouse, B. Insurance, C. Customs, D. Loading, E. Port Authority / Control

5. Shipping

6. Seaport/airport (Import): A. Unloading, B. Port Authority / Control

7. Financial transaction: A. Buyers bank receives shipping invoice, B. Money is credited to sellers bank

8. Import intermediary customs broker

9. Customs release

10. Inland shipping: A. Truck B. Rail C. Air D. Water

11. Receipt of goods by buyer: A. Immediate sale, B. Warehousing, C. Further refinement / incorporation into other goods

International business transaction chain


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Exporter

(US)

ExporterBank of NY

Importer

(India)

ImporterSBI -Bank

6 Goods Shipped to Importer

7 Exporter

Presents

Draft to

Bank

10 and 11

Exporter

Sells Draft to

Bank

14 Bank of NY presents Matured Draft

and gets payment

8 Bank of NY presents Draft to SBI

13

Importer

Pays

Bank

12 SBI Bank

tells Importer

DocumentsArrive

3 Importer

Arranges for

LoC

4 SBI sends LoC to Bank of NY

9 SBI Returns Accepted Draft

2 Exporter agree to fill Order

1 Importer Orders Goods

5 Bank of

NY Informs

Exporter ofLoC

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Export Trade Procedure

1. Registration

2. Register with Export Promotion Council

3. Dispatching Samples

4. Appointing Agents

5. Specimen Copy of Agreement

6. Acquire an Export License7. Acquire Export Credit Insurance

8. Arranging Finance

9. Rates of Interest

10. Understanding Foreign Exchange Rates & Protect Against Their Adverse

movement11. Forward Contracts

12. Procuring/Mfg. Goods for Export and their Inspection by Govt. Authorities

13. Labeling, Packaging and marking Goods

14. New Excise procedure


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Common Export Documents

1. Shippers Export Declaration

2. Commercial invoice

3. Certificate of Origin

4. Bill of Lading

5. Temporary Import Certificate / ATA CARNET6. Insurance certificate

7. Export Packing List

8. Import License

9. Consular Invoice

10. Air Way Bill

11. Inspection Certification

12. Dock Receipt and Warehouse Receipt

13. Destination Control Statement


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Shippers Export Declaration (SED)- The SED is the most common of all

export documents. It can be electronically filed using the AESDirect online

system.

Commercial Invoice - A bill for the goods from the seller to the buyer.

These invoices are often used by governments to determine the true value of

goods when assessing customs duties. Governments that use the commercial

invoice to control imports will often specify its form, content, number of

copies, language to be used, and other characteristics

Certificate of Origin - The Certificate of Origin is only required by some

countries. In many cases, a statement of origin printed on company

letterhead will suffice. Special certificates are needed for countries with

which the Countries have special trade agreements.


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Bill of Lading - A contract between the owner of the goods and the carrier (as

with domestic shipments). For vessels, there are two types: a straight bill of

lading which is non-negotiable and a negotiable or shipper's order bill of lading.

The latter can be bought, sold, or traded while the goods are in transit. The

customer usually needs an original as proof of ownership to take possession of

the goods.

Temporary Import Certificate / ATA CARNET - An ATA Carnet (a. t. a.

"Merchandise Passport") is a document that facilitates the temporary importation of

products into foreign countries by eliminating tariffs and value-added taxes

(VAT) or the posting of a security deposit normally required at the time of

importation.

Insurance Certificate - Used to assure the consignee that insurance will cover

the loss of or damage to the cargo during transit. These can be obtained from

freight forwarder.


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Export Packing List - Considerably more detailed and informative than a

standard domestic packing list, it itemizes the material in each individual

package and indicates the type of package, such as a box, crate, drum, or

carton. Both commercial stationers and freight forwarders carry packing list

forms.

Import License - Import licenses are the responsibility of the importer.

Including a copy with the rest of other documentation, however, can

sometimes help avoid problems with customs in the destination country.

Consular Invoice - Required in some countries, it describes the shipment of

goods and shows information such as the consignor, consignee, and value of

the shipment. If required, copies are available from the destination countrys

Embassy.


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Air Way Bills - Air freight shipments are handled by air waybills, which can

never be made in negotiable form.

Inspection Certification - Required by some purchasers and countries in

order to attest to the specifications of the goods shipped. This is usually

performed by a third party and often obtained from independent testing

organizations.

Dock Receipt and Warehouse Receipt - Used to transfer accountability

when the export item is moved by the domestic carrier to the port of

embarkation and left with the ship line for export.

Destination Control Statement - Appears on the commercial invoice, and

ocean or air waybill of lading to notify the carrier and all foreign parties that

the item can be exported only to certain destinations.

Module 4 EXIM Trade

Documents

Transcript of Module 4 EXIM Trade