GETTING STARTED IN INTERNATIONAL TRADE-STEP BY STEP

CHAPTER OBJECTIVES:
A. To understand the broad objectives of firm in international trade and to discuss the factors which
the firms do appraise for getting into International business.
B. To elaborate the various factors which helps the firm in making a decision for getting started?
C. To discuss the various strategic entry routes used by the firms in getting started in international
trade in LPG&M era.
D. To explain the factors which the firm need to analyze the competition in international market.
E. To explain the various regulatory formalities which the firm has to complete for getting started in
international trade.
CHAPTER OUTLINE:
A. Defining Firm Objective For International Markets
B. The Decision To Go International Or Not
C. Scanning International Markets
D. Mode Of Entering Into Potential Markets
E. Targeting The Markets
F. Regulatory Requirement For Getting Started

The one, who has a trade, may go anywhere.

Spanish Proverb
DEFINING FIRM OBJECTIVE FOR INTERNATIONAL MARKETS:
Organizational strategy of a company or firm is basically concerned with a number of issues but
specifically tries to cover the broad objectives of the organization. In LPG&M era, the profit making
organizations are likely to have financial profits as an objective. Such financial profits are explained as
wealth creation or wealth maximization for the firm or company and in LPG&M era each organization tries
to achieve it by increasing it presence in the market through greater sales and profits. However, some
organizations may have other broad objectives such as interacting with their stakeholders in a socially
responsible way and does not have profit as an objective for the organization but cater to render services
for cause or problem ensuring minimum returns which is just to keep the organization running.
Organizations are mainly devising their strategies to be competitive, domestically and internationally so
that shareholders risks may be reduced and chances & choices of global expansion may be brightened up.
Table : Top Ten Companies in World and India by Sales
Rank Company in World
Sales in 2007 ($ Company in India
Billion)

Sales

in

2007

(Rs. In Crore)

1.

ExxonMobil

358.6

I.O.C.

201,493.85

2.

Royal Dutch Shell

355.8

Reliance Industries

111,264.23

3.

BP

281.03

B.P.C.L.

97189.37

4.

Toyota Motor Co

203.80

H.P.C.L.

93912.34

5.

ING Group

197.93

O.N.G.C.

75529.12

6.

General Electric

172.1

S.A.I.L.

34390.93

7.

HSBC Holdings

146.5

NTPC

33875.70

8.

Berkshire Hathaway

118.25

Tata Motors

31999.47

9.

Bank of America

119.9

Tata Steel

25117.78

Sterilite Industries

24376.83

10.
JPMorgan Chase
116.5
Source: Forbes Magazine & Business Standard
THE DECISION TO GO INTERNATIONAL OR NOT:

All organizations whether non profit or profit making tries to articulate the firm or company broad
objectives in such a way so that such objectives can be achieved in an appropriate manner. For all profit
making firms, such objective can be achievement of sustainable and justifiable rate of return on assets and
capital employed. Non profit making organizations tries to focus on achieving the key concerns for which
they has come into existence. For Example, Peta tries to create awareness among masses on animal
atrocities.
Table : The Indian Companies Getting International
The saga of success of Indian companies and their phenomenal growth in the recent years can be attributed
to political will, financial and economic reforms, more use of technology and largely to the reasons of India
innate demography which enable these companies to offer product and services at low level of cost through
skilled, young and English speaking manpower of the nation. India has consistently registered a growth rate
of more than 8% and during this period Indian companies have been successful to make international forays
beginning a new chapter of investment outflow from the country. Indian companies invested almost
9Billion during 2007-08 which is more than one third of what India has received as Foreign Investment
during the same period.
In LPG&M era; the meteorite rise of companies like I.O.C., Reliance Industries; B.P.C.L.; H.P.C.L.;
O.N.G.C.; S.A.I.L.; NTPC; Tata Motors; Tata Steel; Sterilite Industries Company has been the major
contributor to Indias economic growth as these companies are in core areas of economy and are important
supplier to Indian customer. These companies have prioritized on customer's need, cost effective offer and
prompt service which has further accelerated the degree of competition amongst same industry players
resulting in better productivity. Such healthy competition among players is not only beneficial to Indian end
consumers through lower cost of service or products which has come down substantially but in the larger
periphery it has projected India as a major center of quality product at lower cost of the world. Developed

nations are looking at Indian companies as important supplier to their market as it helps these nations to
tame down inflation and outsource product and services from outside. Indian Companies can easily become
West countries darling due to the reasons of not only their quality product but also effectively banking
against its major rival China which is facing a backlash due to inferior quality products and military build
up all around the world.
In this race for international market, a new force of companies has come up which largely draw their sales
form overseas market. These companies are usually in the knowledge areas and has made a place for them
in international market and are in the areas of IT (TCS, Infosys, WIPRO, Cognizant, Tech Mahindra), ITes
& Outsourcing (Satyam & Capegemini), Drug & Pharmaceutical (Biocon, Ranbaxy, Cipla), Product
Software (Patni & Capegemini) etc. Micro, Small and Medium Scale Industry which contribute almost 40%
to Indias Export is fast improving its learning curve in their core areas of activity in Leather and Leather
Accessories, Handicrafts, Handloom, Agro & Processed Foods, Gems and Jewellery, Textiles and Hosiery.
Following factors will also help them in getting international in LPG &M era in Indias march towards a
Developed Nation:
I.

The existence of export incentives, especially exemption of export profits from income tax.

II. Export obligations imposed by the Government.

III. Till recently, easier access to the East European markets through Indias Rupee Payment
Agreements with the East European countries. BY virtue of Indias special trade relations with the
socialist bloc countries, there were particular export avenues open only to Indian subsidiaries of
MNCs and they took advantage of these opportunities. This facility has now gone.
IV. Additional leverage gained through exports in regard to relaxation of the industries (Development
& Regulation) Act, especially in respect of expansion of capacity and extension of product line.
V. Appropriateness of Indian products and technology for use in certain specific cases. For example,
Indian components are suitable for a limited number of old cars still operating in Europe. Indian
commercial vehicles are more suited to other developing countries than those produced in Europe
and North America because of their ability to withstand weather, overloading and bad roads.
In LPG&M era, Second Grade Indian companies can plan for getting into international business as they can
efficiently offer lucrative and competitively priced products or services in the niche areas as top companies
can not cater to all segments of a market. As the consumers are trendy, flexible and are extremely mobile
within their choice pool, there is hand on opportunity to second grade companies even to woo the customer
from Big Brothers but to be competitive in international markets, they will be constantly requiring a need
for innovative new products, services and schemes to lure consumers and extend their market-life in
international markets. Aggressive Mergers and Acquisitions, collaborations and licensing can be some of
the important tool which they can employ to be alive in the race for Best In The World in near future.
Source: Self Authored

Once, the broader objectives of the firm or company are decided it tries to appraise the surrounding
geopolitical and economic realities for selecting the appropriate business, it can enter. Such appraisal for
geopolitical, social, legal, technological and above all economic realties for selection of business activity is
known as company corporate strategy. A company can decide to enter to only select country with limited
no. of products and such strategy will be referred as niche strategy. Alternatively it can enter no. of
geographic markets with long range of product and such move shall be referred as diversification strategy.
The key question which the firm has to address is to enter to only select markets or go global1 however
such decision will be based on nature of product, type of market, investment involved, entry and exit
barriers, type of distribution channels. Type of logistics route and transaction cost involved in doing
business in that markets. Market selection decisions in PLG&M era are shaped on the basis of meticulous
planning, rigorous ground work, and thorough analysis of markets on the part of marketer rather than on
events.
The next step in getting started in international trade involves the analysis of nature of competition in that
market and how it is shaped such as cost leadership as adopted by Chinese and, Japanese and Koreans
firms or product differentiation as adopted by Americans, German and French firms. Cost leadership
strategy as adopted by Chinese has well paid off, particularly the decoupling of cost leadership strategy
with mass production and mass consumption strategy. China is now in league of global export champions
and Chinese ports such as Shangai and Hongkong are one among the largest ports of the world by volume
and value of traded goods. On the other hand Western m Firms particularly from US and Europe has
focused on differentiated product due to varied needs of customer. Such strategy has also paid off as the per
capita income in western countries was very high as compared to traditional markets in Asia, Africa and
Latin America. These firms has also successfully catered to high income groups in Asia, Africa and Latin
America but has problem to get aligned with the needs and requirements of critical mass of consumers.
Price sensitivity has been one reason for such firm in their product extensions & adaptations.
SCANNING INTERNTIONAL MARKETS:
The firms sustainable competitive advantages shall be based on the assessment and appraisal that how
effectively such facets of competitive advances shall synchronize with key and important features of that
market. Scanning the global markets as per the key competitive strength of the firm will be key decision as
it will provide the firm sustainable environment for growth expansion n and diversification. It is difficult to
analyze and generalize the factors which may be of help for the firm in an international markets but a
reference can essentially be made to the following elements while arriving on decision to enter into that
market for international trade. These elements of information are as follows.
Table: Factors Governing Decision Criteria for Getting Started in International Trade
The
1

decision

element

for

Decision Criteria

Firms try to enter large no. of markets if the entry and exit barriers are low and Product or Service has
short PLC.

1.

Getting Started
The decision to go international

Assessment of international market keeping in mind the competitive

or not

advantages and synergy with overall competitive strategy in light of

local

2.

and

international

competition

compared

to

domestic

opportunities.
Economy rate of growth & structure, Bureaucracy, Capital, Economic

Scanning the market

& Trading Bloc, Legal System, Political Regime & laws, Regulation
for investment & operations, Political Ideology & stability, Type &
3.

Modes of entering into markets

structure of Competition etc.

Political/Legal - laws, regulations, investment, "climate", government

4.

Targeting the markets

ideology, stability.
Competition - type, structure, operations, strategy plans, programs,

5.

Competition

in

acquisitions, mergers
Analyzing various elements which define the nature of competition in

6.

markets
Regulatory

Formalities

international
for

target market.
Formalities to be completed for getting export import license,

Getting Started
Registration cum Membership Certificate, Excise Code Etc.
Source: Adapted from, S. Carter, Global Agricultural Marketing Management
A major mistake which Indian firm usually make is that they usually try to replicate home success in
international markets which is a laid back approach. The market fundamentals in the foreign market may be
completely different from the home market such as Indian prefer cheaper and cost effective product as they
have low per capital income while Europeans prefer high quality durable product. Hence the
comprehensive analysis of following aspect must be done while devising the firm competitive strategy for
getting started in international trade in LPG&M era.
Table: Scanning Information for Decision to Go International
General

Specific Information

Information
Economic
Political
Fiscal
Social
Technology

GDP Growth, Level Of Inflation, Per Capita Income, Disposable Incomes

Risk, Instability, Attitudes Towards Foreigners
Taxes, Exchange Rates, Financial Architecture, Current Account Deficit
People, Demographics, Culture, Subculture, Pressure Groups, Interest Groups
Current Technological Stage, Rate Of Change, Available Infrastructure For Research And

Innovation
Resources
Money, Manpower, Materials, Acquisitions, Joint Ventures
Institutions
Capital And Money Markets, Regulation For Accessing Capital
Managerial
Skilled Manpower, Management Practices Etc.
Source: Adapted from, S. Carter, Global Agricultural Marketing Management
An Organization aspiring to get started in international trade should address, appraise and analyze the
issues in advance in a careful and comprehensive way. The success in international trade largely depends on
the fact that firm shall exploit its opportunities handsomely, use its strengths smartly and address &

improve its weakness patiently which may come on its way. While scanning the international markets the
firms shall properly study the all aspects of economic data which may be specific or general or both and
can be effectively used for making decisions on whether to enter markets or not. Such data analysis can
also help the firm to understand the various aspects of risks and can guide in the degree of its engagement
in that market. The general and specific information which can be of use is as follows:
Table: Specific Information to Be Scanned For Getting Started In International Trade
1. MARKET INFORMATION
Marketing Decision Statistics And

Attitudes And Behavior Of Consumers, Disposable Income, Per Capita Income,

Potential Of Market
Physical Features Of Target Market

Size Of Family, Purchase Frequency

Available Infrastructure, Communications Facilities, Money Markets, Banks

Kind Of Channels Of Distribution

Etc.
Their Type, Availability, Effectiveness And Cost Factors Influencing

Availability, Effectiveness And Cost

Distribution Channel.
Various Information Sources, Quality, Availability And Cost factors in Media

of Media for accessing Buyers

such as newspaper, Television, Telecommunication, internet cost etc.
Resources need for Doing business
Money, Manpower, Materials, Their Availability, Cost, Quality, Development
2. OVERALL BUSINESS ENVIRONMENTS
Economic Factors
Rate Of Economic Growth, Economy Structure i.e. share of Agri, Manufacturing
and Services,

Competitiveness and Conduct, Capital Adequacy, Economic

Blocs such as PTA, FTA, RTA, BIPA, BTPA, Customs Union, common Markets
Social Factors
Political/Legal Factors

etc. Role of Cartel, Trade Practices, Inflation Rates

Customs, Culture, Attitudes, Preferences for Products and Services
Legislation governing Business and Trade Such as Rules, Regulations Acts and
Overall Laws Friendliness with business, Investment Climate; Government and

Technological Factors

opposition Ideology on Trade and Investment, Political Stability.

State Funding for Research and Innovation, Trends Development in Country

Competition Factors
Trading Partner and their role in

Research
Type, Structure, Operations, Strategy Plans, Program, Acquisitions, Mergers
Trade Openness, Trade Propensity, Regional Intensity & Orientation, Trade

Target Market
Management Capability

Intensity Product and Market Diversification

Country Diplomatic Reach and Activeness Foreign Embassies, Role of NGOs
And Other Developmental Thrust.

3. FINANCIAL FACTORS
Market Access Issues

Quotas, Tariffs and Non Tariff barriers, Various Duties, SPS and Technical

Monetary And Fiscal Policy

barriers to Trade
Fiscal and Current Account Deficit, Trade balance, Balance of Payments,

Expectations of Players
Commodity Exchanges

Foreign Exchange Reserves, Interest Rates, Ease in accessing funds

Investors, Economists, Bankers, Business People
Legislation Governing Foreign Exchange; Rigidity issues, Exchange Rate
system i.e. Free Float, Managed Float, Dirty Float, Fixed Float and frequency of
regulatory interference.

Taxes

Legislation governing the Trade and Business Incentives, Dividends Tax Rules,

Earnings, Repatriation Of Profits

Spot, Forward Market
Level of Developed, Stage of Maturity
Intervention By Outside Bodies
IMF or World Bank And Their Effect On County Economic Policy
Source: Adapted from, S. Carter, Global Agricultural Marketing Management
The important guiding factors in analyzing the specific information, while selecting international markets,
is the demographic features of the markets such as Consumer attitudes to ward products, consumer
behavior, disposable income and per capita income. Cultural aspects such as do and do not shall also be
scanned so that care shall be taken in designing the product as per local requirements and needs. The
physical and natural features of the country such as its, climate, environment, topography, seasons and
issues involved in working under such circumstances are also of prime importance as it helps the marketer
to calculate the various cost involved in doing business in that country. For example if country have access
to deep water ports, the logistics cost will be very low and in case of land locked county it shall be very
high particularly while thinking of a region which are yet to be economically integrated such as Africa. The
marketer shall also assess the end user distribution cost so that sustainability of distribution model can be
assessed as cost of transportation may as much as 2% to 15% of trade transaction depending on nature of
country and physical features of the country as per OECD study entitled Logistics and Time as a Trade
Barrier2
Other features which should be carefully analyzed while scanning various factors for selecting a potential
market are the attributes of a countrys political regime. The presence of tariffs and non-tariff barriers may
make the country less competitive & attractive as domestically produced products and services are
provided protection and imports are made expensive so as to provide the protection to local industry. The
regulatory environment of business is usually shaped by political orientation of parties and marketer shall
assess the trade rules, regulations and licensing requirements as such non tariff barriers can favor the
domestic produces and make the market unattractive for foreign trade. More importantly, marketer shall see
the political order, stability and sustainability of such system as the war ridden, strife or terrorism ridden,
military and dictator ruled political regime is not good for getting started in international business. Political
instability may result in lower corporate profits, unpredictable and significant changes in country legal and
regulatory system and will affect the firm smooth operations. Such instability in political regime is
expected to impose significant costs and uncertainties upon marketers attempting to plan and implement
business strategies for that country. In case such political regime in the potential markets is manifested by
violence, war, battle, bomb attack, abductions, breakdown in civil rules and economic chaos, it may have
severe repercussions for the firm in terms of property damaged, lost sales and production disruptions. Such
risk may even become greater for the firms business assets, such as trademark, Sales Generating Assets,
and in worse case the expropriation of firm assets in a lawless political regime. The attitude of bureaucracy
2

http://www.oecd.org/findDocument/0,3354,en_2649_36363445_1_119684_1_1_1,00.html

is an important factor as time involved in getting various clearances may increase transaction cost of doing
business in potential markets. The cost of doing business in some potential markets is bench marked with
good markets as under.
Table: Bench Mark of Cost of Doing Business in Various Markets
S.R.

Germany

No.
1
Starting a business (rank)
66
2
Dealing with licenses (rank)
21
3
Employing workers (rank)
129
4
Registering property (rank)
42
5
Getting credit (rank)
03
6
Protecting investors (rank
83
7
Paying taxes (rank)
73
8
Trading across borders (rank)
07
9
Enforcing contracts (rank)
29
10
Closing a business (rank)
28
Source: Compiled from Doing Business Report 2007

India

China

Nigeria

88
155
112
110
65
33
158
139
173
133

128
153
78
21
101
83
168
38
63
75

118
129
56
170
83
46
105
137
66
72

Some other essentially important information to be scanned include the attributes of markets such as total
population, per capita income, economic growth rate, structure of the market, economic conduct, capital
intensity, economic & trading blocs, availability of resources such as raw material,

skilled human

resources, and cost & quality of such resources. Physical infrastructure such as internet access, telecommunications, stock markets, and banks are also important guiding factors as they are important for the
business sustainability and survival.
MODE OF ENTERING INTO POTENTIAL MARKETS:
Having scanned the best potential international markets which meet the corporate competitiveness criteria
of the firm, it has to evaluate the most profitable way of market entry so as to sell its products and services
to potential customers in these markets. There are several methods used in LPG&M era for international
market entry such as Exporting, Licensing, Franchising Joint Venture and Wholly Owned Subsidiary. The
entry method suitable to firm requirement shall depend on a variety of factors such as the nature of firm
product or service, the conditions for market penetration, entry and exit barriers and financial commitment
required for getting into international markets.
Exporting, which is widely used for the first time traders is accomplished by selling the products or
services directly to
intermediary,

such

a foreign firm or customer. Alternatively firm can export through an export

as

commissioned

agent,

an

export

management

company or a trading company. International joint ventures are very effective means of entry into potential
markets as it provides the firm to share domestic knowledge with the aligned firm and can use of partner
strengths effectively and hedge its risks. Joint ventures are good means for market entry in those markets
where there are entry barriers such as capital limit requirement. Licensing, another wieldy used method by

firm getting started, involves a contractual agreement whereby firm assign the rights to distribute or
manufacture its product or service to a foreign company. Wholly Owned Subsidiary requires either setting
up its own production or manufacturing facility or sub-contracting the manufacturing of its product to an
assembly operator such as Coco Cola used FOBO method for bottling in India.
Table: Comparison of Foreign Market Entry Modes
S.
No

Mode

Factors Favoring the Entry Mode

in Target Market
1. Opportunities for limited sales in

Advantages

Disadvantages

the target country;

2.

Chances for little product new

Product and adaptation.

3.

Distribution

channels

are

1.
1.

Usually close to Manufacturing

make investment in target

Sites
1.

Exporting

4.

High

production

costs

as

economies of scale can not be

generated in production and

and services uncompetitive.

2.

2.

Ease in market entry

3.

Benefits

of

utilization

High political risk in target

1.

country
If the firms is facing various
import control and investment

and resources

3.

2.

If country provides protection to

domestic industry and allows
foreign firms through licensing

Licensing

or franchising only.
3.

1.

local market information.

4.

4.

If the firms foresee large cultural

exporter.
2.
3.

1.

Ensures speed in entering the

Licensing

help

in

circumventing the various

Firm is viewed and regarded

4.

Firm foresee that licensee lacks

competitor in future.
When there are import barriers 1.

Licensing

offers

assets in target market.

2.

investment from firms is

Sometimes,

licensee

becomes

potential

competitor.
3.

Firm knowledge, technical

knowhow and R&D get
spillovers to licensees and

higher

return on investments as

In licensing, firm lack the

control of market and use of

trade barriers

ability to become a potential

Joint

1.

target market.

distance in potential market.

5.

Licensing minimizes risk and

investment of Licensor i.e.

If the firms foresee low sales

potential in target market.

Problems in accessing the

as an alien and outsider

barriers for entry.

2.

and

burden.

country.
6.

packaging

logistics costs put additional

available production facility

Liberal import policies of target

In case of far away market,

transport,

market.

logistics cost.
5.

other cost make products

Minimizes the potential risk

in trade as firms need not to

Trade barriers & tariffs and

may result in proliferation.

4.

virtually zero as product

technology offering.
This method overcomes the 1.

Usually, the license period

is limited and offsets firms
chances for long term flows
of profits.
Joint Ventures are prone to

in target market.
2.

problem

When firm have large cultural

restrictions

distance from target markets and

its way of functioning.
3.

Firms itself can employ all

3.

Ventures

Country prescribes certain % of

equity participation.

5.

2.

political

risk

and

expropriation.
6.

A local partner is better in

distribution

knowledge;

technical

skills,

natural

resources; brand name, etc.

1.

4.

Wholly

2.

Owned
3.

manage

4.
5.

Joint

Venture

helps

in 2.

operational decisions.

Joint

Joint Ventures has higher

Ventures

provide 3.

chances for learning from

risk exposure than exporting

partner.

& licensing

Firm is viewed and regarded 4.

Firms

technical

and

as insider

scientific

knowledge

get

Firm require less finances as

spill-overed to local partners

local firm also contribute

and they may eventually

something.

become competitor for firm.

1.

skills in good manner.

sales 3. Chances

of

knowhow

proliferation get minimized.

There is low political risk for the 4. The firm is viewed as an

firm.

insider.

This method has greater risk

than other modes of entry.

2.

It requires more financial

and non financial resources

There is little cultural distance in 2. Firm can apply specialized

good

It is tough to control the

foreign and local companies.

devise strategies.

has

and commitment from firm.

3.

It is possible that firm could

not

manage

working

conditions

EXPORTING

Of the various methods of foreign market entry, exporting is most commonly used by small and first time
businesses as exporting involves limited start-up costs and risks and profit under this method can be
realized as early as firm get started. The most advantages aspect of market entry through exporting is that it
involves minimal preliminary expenditures except some which incur on market research and product
promotion. Getting through export into international market can be by two basic ways. Which are?
a.

Direct Export

b. Indirect Export

the

local

resources due to change in

technology.
Source: Adapted from James Foley. The Global Entrepreneur: Taking Your Business International
1.

and

administrative, strategic and

ownership is allowed.

firm

power

combining the resources of

local market and accordingly

The

as

authority is diluted.

barriers in firms and foreign

potential in target market.

4.

disputes and are difficult to

cultural

When there are high import 1. Firm has good knowledge of

target country.

Subsidiary

3.

There are potential chances of

some

and

ownership

distance in target markets.

resources needed to tap market.

4.

of

and

The direct exporting requires the firm/ company to find a potential foreign buyer and then the firm is
supposed to make all necessary arrangements for transporting the products into destined market. Direct
exporting indicate the commitment and dedication on the part of exporter to engage in international trade in
manner that firm want to be long time player in that market and wish to develop and adapt its product as
per local requirement over a period of time. Direct Export requires the export company personnel to travel
occasionally so as to find out the buyers and also look into the changing demand and market patterns. In
direct Exporting firm has to handle the logistics part as goods are manufactured in domestic markets and
exported to foreign markets. Such handling of logistics on the part of exporter has to be prompt, speedy and
time oriented. Some of the benefits of exporting are the possibility to diversify, additional revenue for the
firm, use of excess production capacity, business operation stability, leverage of purchasing power, product
life cycle extension and product innovation, improvement & development. Following are different types of
exporting
a.

Through Sales Representatives or Agents

b. Through distributors
c.

Through foreign government buying agents

d. Through Retail Sales and

e.

Through firms own Direct Sales to End-User

The firms which can locate the direct buyers for the product use to export indirectly by using an export
intermediary. Several types of export intermediaries, whom the firm can use, are as follows.
a.

Through Commissioned agents

b. Through Export Management Companies (EMCs)

c.

Through Export Trading Companies (ETCs)

d. Through Foreign Trading Companies

2.

e.

Through Export Merchants/Export Agents/ Buying Houses

f.

Through Piggyback Exporting

LICENSING:

Licensing is also an easy, risk free and costless method to enter into international markets. Licensing
operate in a way that it permits another company in the target country to use its property as a licensee and
in exchange pay a fees or royalty on sales so incurred. The property of licensor is intangible, such as
trademarks, patents, copy rights, technical knowhow and production techniques. The licensee has to pay the
fee in exchange for the rights to use the intangible property as granted by the licensor. Licensing is very
preferred way of market entry into international market in LPG&M eta as it require little investment on the
part of the licensor. Licensing, if effectively used as an entry mode, has the potential to provide good return

to the licensor but usually it has been seen that licensee who produces and markets the product take away
returns from manufacturing and marketing activities due to vague regulatory law in developing countries.
3.

JOINT VENTURES:

Joint Ventures are market entry options whereby firm and another company or firm in target market may
join together to form a new incorporated company for business operations in that market. In joint ventures,
both the parties are supposed to provide capital and resources in the agreed proportion and accordingly they
will represent and share management and profits & loses. Such mode of entry is popular in countries where
there are restrictions on foreign ownership. For example, Venezuela, China, Vietnam
Joint Venture is also preferred way of market entry as it is good trade off between potential risks and
returns and usually joint ventures is manifested with the following common objectives for market entry in
LPG&M era. They are;
a.

Market Entry into potential market

b. Risk/Reward sharing between parties.

c.

Technology sharing between parties

d. Joint product development between parties; and

e.

Conforming to government regulations.

f.

Possible advantages from political connections

Following are advantages and disadvantages of Joint ventures:

Advantages of Joint Ventures
1. Helps to acquire new competencies or skills which are not

Disadvantages of Joint Ventures

1. Lack of full control on management of

domestically available.

the firm.

2. Helps in quick penetration of the market and also helpful

2. Sharing of profit may make it be

in rapid implementation of technological change.

impossible to recover capital invested.

3. Reducing the firm risks by sharing it with one or more

3. Potential risk of disagreement with

than one firms.

partner organization on exploring new

4. Helpful in easy and faster entry in to target market and

markets, new operations etc.

also enable quick payback

4. Blocking firm chances of other joint

5. Pooling of firm resources such as capital, technical know

ventures as existing partners may have

how and manpower with partner firms.

different views.

6. Help in avoiding the tariff barriers and non tariff barriers.

5. Fear in partner mind that other may not

7. Helpful in satisfying local content requirements due to

take unwanted advantage out of existing

partnering with local firm.

Source: Adapted from About Exporting, Austrade 2008

operations.

4.

WHOLLY OWNED SUBSIDIARY:

Wholly Owned Subsidiary, as the name suggest, is the direct ownership of production facilities in the
potential international market. It require the long term commitment on the part of firm as it involves the
transfer of resources such capital, technology, and personnel to the potential market. Wholly owned
subsidiary can also be made through the acquisition of an existing firm or the establishment in the target
market. WOS has several advantages as it provides high degree of administrative control in the business
operations of the firm and the firm has better chances to understand and analyze the consumers and
competitive environment in the target market. On the other hand such entry strategy requires a high level of
physical and capital resources to run the business in the target market.
TARGETTING THE MARKETS:
One of the most crucial steps in international trade operations, in LPG&M era, is to target the markets by
segmenting that how a particular product and service can be marketed effectively in selected market. It is
mainly defined by factors such as age, gender, per capita income, geography, psychographic & behavioral
patterns of customers, socio-economic grouping, or any other combination of the selected country
demographics. Market targeting requires studying and mapping through secondary data inputs such as lists
and reports containing demographic information of target country and to assess that what impact it may
have on the marketing of key products or services. Market Targeting can be defined as the process of
pulling apart the entire market as a whole and separating it into manageable, disparate units based on
demographics.
Following are the various types of target-market strategies which are usually used by firm in targeting the
markets overseas and the same can be categorized as one of the following:
1.

Single-segment strategy This strategy of market targeting is also known as a

concentrated strategy as the firm intend to cater to one segment and wish to have
competitive advantage in that segment by having superior products, lower prices, good
branding etc. such strategy is useful to smaller, first time firm as it provide them leverage
to cater to only one segment of market and provide them opportunity to specialize in that
product with firm limited and scare resources.

2.

Selective specialization- An extension of single segment strategy, where by firm intend

to cater to multiple-segment in the market with differentiated products. Firm offer varied
product or services with different pricing, promotion and distribution strategies and try to
cater to larger section of that particular segment.

3.

Product specialization- This strategy is good for the firm having capital intensive
products as the firm specializes in a particular product and make the necessary changes in
it so as to cater to different market segments.

4.

Market specialization. Under this strategy, the firm specializes to cater to a particular
market and offers an array of different products in various market segment of that market.
In LPG&M era such strategy is not sustainable as global market is increasingly becoming
borderless.

5.

Full market coverage Under this strategy of market targeting, the firm try to cater to
the entire market. Mass production strategy is used so as to cater to all segment of target
market. The products are usually undifferentiated under this strategy.

Benefits of Market Targeting in LPG&M era:

In LPG&M Era, there are several reasons which motivate the firms to design proper and suitable market
targeting strategies some of which are summarized as under.
1.

Suitable Understanding of customer needs:

Customer is king and may have different expectations from the manufacturer based on his demographic,
behavioral and psychographic profile. Market targeting helps the firm to understand customer needs and
accordingly designed a customer solution for each segment for the counter.
2.

Better returns for the firm:

Customers choices of the product and services are based on their disposable income and price sensitivity.
Marketer by segmenting and targeting the markets with variety of products and can sell the products in
higher income segments thereby generating additional income for the firm.
3.

Higher opportunities for Expansion and Diversification:

Good segmenting, targeting & positioning (STP) can help the firm to have greater opportunities for growth
as product and market coverage increase with good market targeting. Customer have better chances of
selecting a suitable product as per their choices if firm has good targeting strategy for selling its product in
target market.
4.

Retaining Customers for longer time:

Market targeting helps the international trader to keep a tack of changing customer choices and preferences;
because they have different set of requirement at different stages of life such as when they are young they
have different buying patterns as compared to when they become older. By designing and targeting the
products as per customer life cycle, firm can retain customer for longer period of time.
5.

Help in making target communications strategy:

Market targeting also help the firm to devise a suitable communication and promotion policy as help save
important revenue to be spend unnecessarily on wrong advertising campaigns.
6.

Help in increasing Market Share:

Creative market targeting helps the firm to achieve competitive production and marketing costs and
automatically become the preferred choice of customers and distributors. Hence it can be said that creative
market targeting offers the opportunity for smaller and first time firms, planning to get started in LPG&M
era, to compete effectively with bigger firm in the market.

COMPETITION IN INTERNATIONAL MARKETS:

The famous Competition Guru, Michael E. Porter's has given a very crisp, simple and understandable
model for assessing, analyzing and appraising the competitive strength of the firm keeping in mind its
factor conditions, related industries, demand conditions and corporate strategy. The competition diamond is
given as under.
Exhibit: Porters Competition Analysis Model

The Threat of the Entry

of New Competitors:
entry ease/barriers
geographical factors
incumbents resistance
new entrant strategy
routes to market

The Bargaining Power of

Suppliers:
brand reputation
geographical coverage
product/service level
quality
relationships with
customers
bidding
processes/capabilities

The Intensity of
Competitive Rivalry:
number and size of firms
industry size and trends
fixed & variable cost
bases
product/service ranges
differentiation, strategy

The Bargaining Power of

Customers:
buyer choice
buyers size/number
change cost/frequency
product/service
importance
volumes, JIT scheduling

The
Threat
of
Substitute Products:
alternatives
price/quality
market
distribution
changes
fashion and trends
legislative
Source: Competitive Strategy: Techniques for
Analyzing effects
Industries and Competitors, 1980
The elaboration of various aspect of analysis and appraisal of Competition Model is as follows.
1.

THE THREAT OF SUBSTITUTE PRODUCTS:

As per Porter competition model, if the close substitute of products are existing in the market it can
increases the chances of customers to switch over to the substitute products when the prices of the existing
product will increase in response to high elasticity of demand in the market. This will happen due to either
of these reasons.
A. Importer/buyer intention to substitute the product or services is flexible and higher.

B. Competitors offer better price performance of substitutes product and services.

C. Importer/ Buyer have lower switching cost to another product or services.
D. Importer/Buyer keeps on changing as he has higher perception on level of product differentiation
from one manufacturer to another.
2.

THE THREAT OF THE ENTRY OF NEW COMPETITORS

The new firms will enter into the market due to the high returns as profit is one of the driving forces for
selecting a market in LPG&M era. This will lead to rivalry/ price wars among firms and as a result the
profitability of the firm will decrease. Such kind of competition can be restrained if the entry of new firms
can be blocked by incumbents or alternately there are high entry and exit barriers making firms reluctant to
enter new markets. Otherwise such entry of new firms will decrease the profit rate towards a competitive
level (perfect competition). Firm can survive in such kind of competition if there are;
A. Entrant Competitors have greater opportunities product diversification, extension and modification
as per importer/ buyers choice.
B. Entrant competitors have high reputation, prestige and brand equity in the target markets.
C. There are low entry and exit barriers for the firms vis a vis patents, rights, etc.
D. Switching costs or sunk costs are lower for players in target segment.
E. There are lower requirement of capital for business in target segment.
F. Distribution channels and logistics are easy for the product and services allowing various players
to get into without any cost and risks involved.
G. Entrant competitors offer better product or services as it enjoys absolute cost advantages in target
segment.
H. Entrant Competitors have higher learning curve in this segment.

3.

I.

The segment is prone to possibility of price war

J.

Segment has favorable government policies vis a vis other segment

THE INTENSITY OF COMPETITIVE RIVALRY

In LPG&M era, the most important determinant of the competitiveness of any industry is the intensity of
competitive rivalry. Rivals are supposed to compete aggressively and each firm will try to differentiate
their offer from each other; and sometimes rivals happen to compete each other on the basis of non-price
factors such as technological innovation, marketing, etc. such kind of competition will be marked by
following features.
A. There will be greater number of competitors in market due to higher returns.
B. Market segment have higher growth rate of industry, economy and disposable income.
C. Market segment have intermittent industry overcapacity
D. Market segment has lower exit barriers
E. There will higher diversity of competitors as they come from different background.

F. Market segment is manifested with problem of informational complexity and asymmetry.

G. Competitors will try to maximise their share as they will have fixed cost allocation per value
added
H. Market segment will require higher level of advertising expense

4.

I.

Market segment have unsustainable economies of scale prompting others to jump in.

J.

Firms tries to have sustainable competitive advantage through improvisation

THE BARGAINING POWER OF CUSTOMERS

In LPG&M era, the customer is a king and meeting his expectations is rightly described as the market of
outputs. The customers demand new product and their ability of putting the firm under pressure is an
essential factor of competition which the firms has to handle with unique products, better designs etc. Such
bargaining power of the customer will also affect the customer's sensitivity to price changes.
A. There is less buyer concentration than the firms concentration in the market segment.
B. Importer will have a bargaining leverage as industries will like to continue operations due to high
fixed costs and minimize their losses in short run.
C. Importers / buyer buying volume are higher.
D. Importer/buyer switching costs are lower in comparison to the firms switching costs.
E. Buyer has easy cost free and prompts first hand information on the market segment.
F. Buyer due to his higher volume can integrate backward with suppliers
G. Buyer has choice; availability and affordability of substitute products from other sources.
H. Importer/Buyer is sensitive to price of product or services.

5.

THE BARGAINING POWER OF SUPPLIERS

In LPG&M era, suppliers are getting critical factors in marketing success as input has become a driving
force in managing competition. A recent oil spike is its good example and suppliers of raw materials,
components, and services are increasingly using their lever of power over the firm. Suppliers can refuse to
supply the inputs or may try to charge exorbitant prices for such unique resources.
A. Supplier has lower switching costs in comparison to buyers.
B. The suppliers product is highly differentiated and unique from competitors.
C. There is absence of substitute inputs in market segment.
D. A supplier is uniquely positioned as market segment has few suppliers and large no. of buyers.
E. Suppliers enjoy better space for forward integration than the buyers.
The porter competition model in unique in analyzing various aspects of completion and it can be of
immense use for a first time entrepreneur, getting started in international trade as it focuses on five different
aspects of potential competition.

REGULATORY REQUIREMENT FOR GETTING STARTED: Following are the regulatory

requirement which an exporter has to completer before starting an export import business.
1.

Importers- Exporters Code (IEC) No.

As per Foreign Trade policy of India no trade can be made without an IEC Code no. and such IEC code
shall be issued by a competent authority on application by the exporter. In India, Director General of
Foreign Trade, a body, under Ministry of Commerce, Government of India is authorized to grant such
license to the exporter.
Process of Getting IEC Code: Procedure
A. Application for Grant of IEC Number:
One has to make an application for grant of IEC number (Appendix 2-A) to with Registered/Head
Office of the company the Regional Authority of Director General of Foreign Trade which is nodal
agency under Ministry of Commerce for graining export licenses. Such application has to be made
under whose jurisdiction, the Registered office in case of company and Head office in case of
others, falls in the Ayaat Niryat Form and shall be accompanied by documents such as PAN No.,
Address Proof, bank Account Certificate, Company Registration no. or Partnership Deed, and a
DD of Rs. 250 in favor of DGFT at its local address of Regional office. In case of STPI/ EHTP/
BTP units, the Regional Offices of the DGFT having jurisdiction over the district in which the
Registered/ Head Office of the STPI unit is located shall issue or amend the IECs.
Only one IEC can be issued against a single PAN number. Any proprietor can have only one IEC
number and in case there are more than one IECs allotted to a proprietor, the same may be
surrendered to the Regional Office for cancellation.
B. IEC Format and Statements :
The Regional Authority of Director General of Foreign Trade concerned shall issue an IEC
number in the format as given in Ayaat Niryat Form. A copy of such IEC number shall be
endorsed to the concerned banker (as per the details given in the IEC application form). A
consolidated statement of IEC numbers issued by the Regional Authority shall be sent to the
offices of the Exchange Control Department of the RBI.
C. Validity of IEC No. :
An IEC number allotted to an applicant shall be valid for all its branches/divisions/units/factories
as indicated by exporter while applying for the same in the format of IEC.
D. Duplicate Copy of IEC Number:

Where an IEC Number is lost or misplaced, the issuing authority may consider requests for grant
of a duplicate copy of IEC number, if accompanied by an affidavit.
E. Surrender of IEC Number :
If an IEC holder does not wish to operate the allotted IEC number, he may surrender the same by
informing the issuing authority. On receipt of such intimation, the issuing authority shall
immediately cancel the same and electronically transmit it to DGFT for onward transmission to
the Customs and Regional Authorities.
2.

RCMC Registration with EPCs :

A.

Authorities Issuing RCMC:

An exporter desiring to obtain a Registration-cum-Membership Certificate (RCMC) shall declare

his main line of business in the application, which shall be made to the Export Promotion Council
(EPC) relating to that line of business. However, a status holder has the option to obtain RCMC
(Appendix 2-B) from Federation of Indian Exporters Organization (FIEO).
Notwithstanding anything stated above, exporters of Drugs & Pharmaceuticals shall obtain RCMC
from Pharmexcil only. Further, exporters of minor forest produce and their value added products
shall obtain RCMC from Shellac Export Promotion Council.
The service exporters (except software service exporters) shall be required to obtain RCMC from
FIEO. In respect of exporters having their head office/registered office in the State of Orissa,
RCMC may be obtained from FIEO office in Bhubaneswar irrespective of the product being
exported by them.
In order to give proper guidance and encouragement to the Services Sector, an exclusive Export
Promotion Council for Services shall be set up. In addition, an exporter has the option to obtain an
RCMC from FIEO or any other relevant EPC if the products exported by him relate to those
EPCs. If the export product is such that it is not covered by any EPC, RCMC in respect thereof
may be issued by FIEO.
B. Registration cum-membership:
An exporter should apply on application as given in Ayaat Niryat Form and get registered to
become a member of Export Promotion Council. On being admitted to membership, the applicant
shall be granted forthwith Registration-cum-Membership Certificate (RCMC) of the EPC
concerned, in the format given in Ayaat Niryat form subject to such terms and conditions as may

be specified in this behalf. In case an exporter desires to get registration as a manufacturer

exporter, he shall furnish evidence to that effect. Prospective/potential exporters may also, on
application, register and become an associate member of an export promotion council.
C. Validity Period of RCMC:
The RCMC shall be deemed to be valid from 1st April of the licensing year in
issued and shall be valid for five years ending 31st March of the

which

licensing

year,

it

was
unless

otherwise specified.
D. Intimation Regarding Change In Constitution:
In case of change in ownership, constitution, name or address of an exporter, it shall be obligatory
on the part of RCMC holder to intimate such change to the registering authority within a period of
one month from the date of such change. The registering authority, however, may condone delays
on merits.
E. Furnishing of Returns:
The exporter shall furnish quarterly returns/ details of his exports of different commodities to the
concerned registering authority. This will be in addition to any other returns as may be prescribed
by the registering authority. However, status holders shall also send quarterly returns to FIEO in
the format specified by FIEO.
F. De-Registration
The registering authority may de-register an RCMC holder for a specified period for violation of
the conditions of registration. Before such de-registration, the RCMC holder shall be given a show
cause notice by the registering authority, and an adequate and reasonable opportunity to make a
representation against the proposed de-registration. Upon de-registration, the concerned export
promotion council shall intimate the same to all the regional authorities.
G. Appeal Against De-registration:
A person aggrieved by a decision of the registering authority in respect of any matter connected
with the issue of RCMC may prefer an appeal to the Director General of Foreign Trade or an
officer designated in this behalf within 45 days against the said decision and the decision of the
appellate authority shall be final.
H. Directives of DGFT:

The Director General of Foreign Trade may direct any registering authority to register or deregister an exporter or otherwise issue such other directions to them consistent with and in order to
implement the provisions of the Act, the Rules and Orders made there under, the Policy or this
Handbook.
3.

Registration for Value Added Tax (VAT)

The time required to complete the registration for value added tax is around 15 days, and the cost of getting
registered is around 525 Rs. in Delhi. While time and cost may vary state to state in India. Majority of the
states in India has already replaced Sales Tax with Value Added Tax excepting one or two states. In Delhi,
Value Added Tax has come into effect from April 1, 2005 as per the provisions of the Delhi Value Added
Tax Act, 2004 being enacted by Delhi government. Delhi State Government has formulated the VAT Act
and the VAT is levied and collected as per the provisions in force from time to time.
In addition the Value Added Tax, inter-state sales are subject to levy of Central Sales Tax as per the
provisions of the Central Sales Tax Act, 1956. It is essential and mandatory to get registered with the state
concerned for Value Added Tax.
In case of Central Sales Tax Act, registration is essential and mandatory to get start any business of sales of
goods & services from one state to another in India. If one is interested to get registered under the Delhi
Value Added Tax Act, 2004, and the Central Sales Tax Act, 1956, he has to file an application in the
prescribed Form to the Sales Tax Officer of the ward in which, the headquarter/ registered office of
business is located along with the following documents as mentioned below:
1.

Latest rent receipt (if premises is taken on lease) or ownership documents, as the case may be;

2.

Proof of legal and physical possession of the business premises;

3.

Four photographs of the authorized signatory and his Identification proof;

4.

List of directors of the Company;

5.

Bank statement of the Company from the date of incorporation till the date of making the
application;

6.

Copy of first sale and purchase document;

7.

List of products for which registration is required;

8.

A copy each of the Certificate of Incorporation, Memorandum of Association and the Articles of
Association;

9.

A certified true copy of the Board Resolution;

10. A self attested copy of the Permanent Account Number of the company.

11. Bank guarantee for a sum of Rs. 100,000/- however, subject to compliance of certain additional
requirements e.g. if the premises is owned by the Company, bank guarantee of Rs. 50,000/- may
also accepted by the Department. Alternatively, in lieu of furnishing a bank guarantee surety may
also be given by an already registered dealer if the said dealer is registered for a period of at least
12 months.
After examining the aforesaid documents, registration certificate under Delhi Value Added Tax Act, 2004
and Central Sales Tax Act, 1956 shall be issued by the Department within 10 to 16 working days. Generally
a visit is made by the Sales Tax/VAT Inspector within 2 to 3 days from the date of issue of certificate of
registration and a report about the functioning of the Company/ firm is submitted by the said inspector to
the Department. It is to be understood that VAT registration will be effective from the date of application.
4. Central Excise Registration3:
The Manufacturer exporter are also required to get registered for the E.C.C. ( Appendix 2-C) which is
issued by Central Board of Excise and Customs under the rule 9 of the Central Excise Rules and other
notifications which are issued with respect to export of manufactured material and exporter entitlements
under rules 18 and 19 of the Central Excise Rules. The following types of persons are supposed to get
register for availing ECC, with jurisdictional Central Excise Officer in the Range office, who is having
jurisdiction over the exporter place of business/factory.
a.

Every manufacturer of excisable goods whether owning firm/ factory on which excise duty is leviable.
Even the Central/State Government undertakings or undertakings which are owned or controlled by
autonomous corporations have to ECC No. as per Central Excise Rules.

b. Persons whether Domestic Trader/ Merchant Exporter/ Manufacturer Exporter who desire to issue
CENVATABLE invoices under the provisions of the CENVAT Credit Rules, 2001.
c.

Persons who are having or holding private warehouses for storing/warehousing the goods/cargo.

d. Persons whether Domestic Trader/ Merchant Exporter / Manufacturer exporter who obtain excisable
goods for availing end-use based exemption notification.
e.

Exporters who are manufacturing or processing export goods from the inputs on which duty has been
paid and such exporters wish to claim duty rebate/ duty remission by using inputs received without
payment of duty and exporting the finished export goods.

Following types of persons/ business enterprises has been exempted from obtaining the registration under
the Notification No. 36/2001-CE (NT) dt.26.6.2001 by Central Board of Excise and Customs (CBEC) They
are:

Adapted form Central Excise Manual

a.

Those persons who are manufacturing excisable goods, on which the duty chargeable is at nil rate
or such persons have been fully exempted from payment of duty by gazette notification.

b. Small scale units which are under the slab exemption based on the basis value of excise clearances
under gazette notification. But such are supposed to give a declaration to the authorities as
specified under the law, once the value of their excise clearances touches Rs.90 lakh.
c.

As ready-made garments sector in India is largely disorganized, hence the provision has been
made that the job-worker for ready made garment sector need not get registered for ECC provided
the principal manufacturer shall undertake the responsibility that he will discharge the duty
liability.

d. Those persons who are manufacturing the excisable goods under the warehousing procedure as
specified under the Customs Act, 1962 shall be exempted subject to the following conditions:
i.

The said excisable goods and any intermediary or by-product including the waste
and refuse arising during the process of manufacture of the said goods under the
Customs Bond are either destroyed or exported out of the country to the satisfaction
of the Assistant Commissioner of Customs or the Deputy Commissioner of Customs,
in-charge of the Customs Bonded Warehouse4.

ii.

The manufacturer of the excisable goods is required to file a declaration in the

specified form as specified under central Excise rules and annexed with it 3 copies
for claiming the exemption of duty under the gazette notification.

iii.

Shall declare that he shall not be entitled to any drawback or rebate of duty of
excise paid on the raw materials or components used in the manufacture of the said
goods as these goods for not meant for export.

iv.

Those people who are dealing in wholesale trade or deals in excisable goods
except first and second stage dealer, as defined in Cenvat Credit Rules, 2001.

v.

100 % Export Oriented Undertaking or the units which are licensed or appointed
in Free Trade Zone or Special Economic Zone as the case may be, under the
provisions of the Customs Act, 1962.

vi.

And finally the persons who use the excisable material for any purpose but not
for the processing or manufacture of goods for which they are availing the benefit of
concessional duty exemption notification.

When a manufacturer is exempted from the Central Excise Registration, he has to file a declaration
(Appendix 2-D) for the same purpose with the Assistant Commissioner of the jurisdictional Central Excise
Division.
Application for ECC Registration
4

Ibid, Central Excise Manual chapter 2

A person/ firm have to apply for ECC on an application form which has been prescribed for the purpose
under the Section 6 of the Central Excise Act, 1944 and under the rule 9 of the Central Excise Rules for the
sake of registration. The application for ECC registration has to be made to the jurisdictional Central Excise
Officer under whose jurisdictions the premises of factory/ enterprise are located and such application for
ECC registration shall be signed by:
a.

The applicant for ECC registration or by the authorized agent of the applicant provided has
general power of attorney. The Range Officer of Central Excise department shall have the powers
if he is not satisfied to call the original documents so as to verify power of attorney.

b. All partners of the firm have to sign the application format in case the firm is unregistered
partnership firms.
c.

Managing Partner can sign the application format on behalf of all parents or other partners in case
the firm is registered partnerships.

5. Export License for Restricted Items:

In the cases where the product happen to be in the Restricted List of Export, but other than prohibited and
canalized items and also those in Schedule 2 of Appendix 6 of the book ITC (HS) Classification of Export
Import items, 2004-09, the exporter has to approach to Director General of foreign Trade under whose
jurisdiction his business premises falls, for obtaining necessary Export license in the manner in the manner
as prescribed in Trade Policy and procedures. The application for export licence for restricted items is given
in Appendix 2-E.

INTRODUCTION TO INTERNATIONAL MARKETING

International marketing (IM) or global marketing refers to marketing carried out by companies overseas
or across national borderlines. This strategy uses an extension of the techniques used in the home country
of a firm.[1] It refers to the firm-level marketing practices across the border including market identification
and targeting, entry mode selection, marketing mix, and strategic decisions to compete in international
markets.[2]According to the American Marketing Association (AMA) "international marketing is the

multinational process of planning and executing the conception, pricing, promotion and distribution of
ideas, goods, and services to create exchanges that satisfy individual and organizational objectives."[3] In
contrast to the definition of marketing only the word multinational has been added.[3] In simple words
international marketing is the application of marketing principles to across national boundaries. However,
there is a crossover between what is commonly expressed as international marketing and global marketing,
which is a similar term.
The intersection is the result of the process of internationalization. Many American and European authors
see international marketing as a simple extension of exporting, whereby the marketing mix 4P's is simply
adapted in some way to take into account differences in consumers and segments. It then follows that
global marketing takes a more standardised approach to world markets and focuses upon sameness, in other
words the similarities in consumers and segments.
The term international marketing has changed and evolved over a period of time, today marketing is based
around providing continual benefits to the customer, these benefits will be provided and a transactional
exchange will take place.
The Chartered Institute of Marketing define marketing as 'The management process responsible for
identifying, anticipating and satisfying customer requirements profitably'
If we look at this definition in more detail International Marketing is a management responsibility and
should not be solely left to junior members of staff as the decisions in global context require through
research and understanding of those markets. Marketing requires co-ordination, planning, implementation
of campaigns and a competent manager(s) with the appropriate skills to ensure success.
Marketing objectives, goals and targets have to be monitored and met, competitor strategies analysed,
anticipated and exceeded. Through effective use of market and marketing research an organisation should
be able to identify the needs and wants of the customer and try to delivers benefits that will enhance or add
to the customers lifestyle, while at the same time ensuring that the satisfaction of these needs results in a
healthy turnover for the organisation.
Philip Kotler defines international marketing as 'satisfying needs and wants through an exchange
process in a global system'
Within this exchange transaction customers will only exchange what they value (money) if they feel that
their needs are being fully satisfied, clearly the greater the benefit provided the higher transactional value
an organisation can charge.
Cateora and Ghauri (1999) International Marketing is the performance of business activities that
direct the flow of a company's goods and services to consumers or users in more than one nation for a
profit.
International marketing is often not as simple as marketing your product to more than one nation. [4]
Companies must consider language barriers, ideals, and customs in the market they are approaching. [4]
Tailoring your marketing strategies to attract the specific group of people you are attempting to sell to is
highly important and can serve the number one cause of failure or success.[4]

As with other elements of marketing, there is no single definition of international marketing. Furthermore
some authors define international marketing and global marketing differently. It can be distinguished
between different levels of international marketing: "At its simplest level, international marketing involves
the firm in making one or more marketing mix decisions across national boundaries. At its most complex
level, it involves the firm in establishing manufacturing facilities overseas and coordinating marketing
strategies across the globe."[5] Another definition sees international marketing as the international
involvement of business activities: "International marketing is the performance of business activities that
direct the flow of a company's goods and services to consumers or users in more than one nation for a
profit."[6] It can be also defined as "the application of marketing orientation and marketing capabilities to
international business."[7] "The international market goes beyond the export marketer and becomes more
involved in the marketing environment in the countries in which it is doing business."[8]
Some definition refer to the term global marketing: "Global/transnational marketing focuses upon
leveraging a company's assets, experience and products globally and upon adapting to what is truly unique
and different in each country."[8] "Global marketing refers to marketing activities coordinated and
integrated across multiple country markets."[9]
Topics covering the micro-context of international marketing
According to Kotabe, the following topics covers the micro-context of international marketing. [10]
Organisational and consumer behaviour:

organisational buying behaviour;

international negotations;

consumer behaviour;

country of origin.

Marketing entry decisions:

initial mode of entry

specific modes of entry

exporting;

joint ventures.

Local market expansaion: marketing mix decisions:

global standardisation vs. local responsiveness

Marketing mix:

product policy;

advertising;

pricing;

distribution.

Global strategy:

Competitive strategy:

conceptual development;

competitive advantage vs. competitive positioning;

sources of competitive advantage and performance implications.

Strategic alliances:

learning and trust;

recipes for alliance success;

performance of different types of alliance.

Global sourcing:

global sourcing in a service context;

benefits of global sourcing;

country of origin issues in global sourcing.

Multinational performance:

determinants of performance;

a different interpretation of performance.

Analytical techniques in cross-national research:

measuerment issues;

reliability and validity issues.

Differences between domestic marketing and international marketing

There are various differences between domestic marketing and international marketing. Due to a language
barrier it is more difficult to obtain and interpret research data in international marketing. [11] Promotional
messages needs to consider numerous cultural differences between different countries. [11] This includes the
differences in languages, expressions, habits, gestures, ideologies and more. For example, in the United
States the round O sign made with thumb and first finger means "okay" while in Mediterranean countries
the same gesture means "zero" or "the worst".[12] In Tunisia it is understood as "I'll kill you" meanwhile for
a Japan consumer it implies "money".[12] Even among the 74 English-speaking nations a word with the same
meaning can differ greatly from the English which is spoken in the United States as the following example
shows:[12]

Police: bobby (Britain), garda (Ireland), Mountie (Canada), police wallah (South Africa)

Porch: stoep (South Africa), gallery (Caribbean)

Bar: pub (Britain), hotel (Australia), boozer (Australia, Britain, New Zealand)

Bathroom: loo (Britain), dunny (Australia)

Ghost or monster: wendigo (Canada), duppy (Caribbean), taniwha (New Zealand)

Barbecue: braai (South Africa), barbie (Australia)

Truck: lorry (Britain and Australia)

Festival: feis (Ireland)

Sweater: jumper (England)

French fries: chips (Britain)

Soccer: football (the rest of the world)

Soccer field: pitch (England)

Three recent international examples of misinterpretation are: [12]

On a sign in a Bucharest hotel lobby: The lift is being fixed for the next day. During that time, we
regret that you will be unbearable.

From a Japanes information booklet about using a hotel air conditioner: Cooles and Heates: If
you want just condition of warmin your room, please control yourself.

In an Acapulco hotel: The manager has personally passed all the water served here.

The marketing concept

The concept of marketing has changed and evolved over time. Whilst in todays business world, the
customer is at the forefront, not all businesses in the past followed this concept. Their thinking, orientation
or ideology put other factors rather then the customer first. Let us examine these below.
Production Oriented: The focus of the business is not the needs of the custobmer, but of reducing costs by
mass production. By reaching economies of scale the business will maximize profits by reducing costs.
Product Orientation: The company believes that they have a superior product, based on quality and
features, and because of this they feel their customers will like it also.
Sales Orientation: The focus here is to make the product, and then try to sell it to the target market.
However, the problem could be that consumers do not like what is being sold to them.
Market Orientation: Puts the customer at the heart of the business. The organization tries to understand
the needs of the customers by using appropriate research methods, Appropriate processes are developed to
make sure information from customers is fed back into the heart of the organisation. In essence all activities
in the organisation are based around the customer. The customer is truly king!
In todays competitive world putting the customer at the heart of the operation is strategically important.
Whilst some organizations in certain industries may follow anything other then the market orientation
concept, those that follow the market orientation concept have a greater chance of being successful.

International Business Environment

The world has a long, rich history of international trade among nations that can be traced back to early
Assyrian, Babylonian, Egyptian, and Phoenician civilizations. These and other early civilizations
recognized that trade can be tied directly to an improved quality of life for the citizens of all the partners.
Today, the practice of trade among nations is growing by leaps and bounds. There is hardly a person on
earth who has not been influenced in some way by the growing trade among nations.
Why International Trade?
One of the most logical questions to ask is, why do modern countries trade with one another? There are
numerous reasons that countries engage in international trade. Some countries are deficient in critical raw
materials, such as lumber or oil. To make up for these various deficiencies, countries must engage in
international trade to obtain the resources necessary to produce the goods and/or services desired by their
citizens. In addition to trading for raw materials, nations also exchange a wide variety of processed foods
and finished products. Each country has its own specialties that are based on its economy and the skills of
its citizens. Three common specialty classifications are capital, labor, and land.
Capital-intensive products, such as cars and trucks, heavy construction equipment, and industrial
machinery, are produced by nations that have a highly developed industrial base. Japan is an example of a
highly developed industrial nation that produces large quantities of high-quality cars for export around the
world. Another reason Japan has adapted to producing capital-intensive products is that it is an island
nation; there is little land available for land-intensive product production. Labor-intensive commodities,
such as clothing, shoes, or other consumer goods, are produced in countries that have relatively low labor
costs and relatively modern production facilities. China, Indonesia, and the Philippines are examples of
countries that produce many labor-intensive products. Products that require large tracts of land, such as
cattle production and wheat farming, are examples of land-intensive commodities. Countries that do not
have large tracts of land normally purchase land-intensive products from countries that do have vast
amounts of suitable land. The United States, for example, is one of the leading exporters of wheat. The
combination of advanced farming technology, skilled farmers, and large tracts of suitable farmland in the
Midwest and the Great Plains makes the mass production of wheat possible.
Over time a nation's work force will change, and thus the goods and services that nation produces and
exports will change. Nations that train their workers for future roles can minimize the difficulty of making a
transition to a new, dominant market. The United States, for example, was the dominant world
manufacturer from the end of World War II until the early 1970s. But, beginning in the 1970s, other
countries started to produce finished products more cheaply and efficiently than the United States, causing
U.S. manufacturing output and exports to drop significantly. However, rapid growth in computer
technology began to provide a major export for the United States. Practically speaking, the United States
has been slowly transformed from a manufacturing-based economy into a new Information Age-based

economy that relies on exporting cutting-edge technology as high tech software and computer companies
proliferate.
Political Environment
Each country varies regarding international trade and relocation of foreign plants on its native soil. Some
countries openly court foreign companies and encourage them to invest in their country by offering reduced
taxes or some other investment incentives. Other countries impose strict regulations that can cause large
companies to leave and open a plant in a country that provides more favorable operating conditions. When
a company decides to conduct business in another country, it should also consider the political stability of
the host country's government. Unstable leadership can create significant problems in recouping profits if
the government falls of the host country and/or changes its policy towards foreign trade and investment.
Political instability is often caused by severe economic conditions that result in civil unrest.
Another key aspect of international trade is paying for a product in a foreign currency. This practice can
create potential problems for a company, since any currency is subject to price fluctuation. A company
could lose money if the value of the foreign currency is reduced before it can be exchanged into the desired
currency. Another issue regarding currency is that some nations do not have the necessary cash. Instead,
they engage in counter trade, which involves the direct or indirect exchange of goods for other goods
instead of for cash. Counter trade follows the same principles as bartering, a practice that stretches back
into prehistory. A car company might trade new cars to a foreign government in exchange for high-quality
steel that would be more costly to buy on the open market. The company can then use the steel to produce
new cars for sale.
In a more extreme case, some countries do not want to engage in free trade with other nations, a choice
known as self-sufficiency. There are many reasons for this choice, but the most important is the existence of
strong political beliefs. For example, the former Soviet Union and its communist allies traded only with
each other because the Soviet Union feared that Western countries would attempt to control their
governments through trade. Self-sufficiency allowed the Soviet Union and its allies to avoid that possibility.
However, these self-imposed trade restrictions created a shortage of products that could not be produced
among the group, making the overall quality of life within the Soviet bloc substantially lower than in the
West since consumer demand could not be met. When the Berlin Wall came down, trade with the West was
resumed, and the shortage of products was reduced or eliminated.
Economic Environment
An important factor influencing international trade is taxes. Of the different taxes that can be applied to
imported goods, the most common is a tariff, which is generally defined as an excise tax imposed on
imported goods. A country can have several reasons for imposing a tariff. For example, a revenue tariff may
be applied to an imported product that is also produced domestically. The primary reason for this type of
tariff is to generate revenue that can be used later by the government for a variety of purposes. This tariff is
normally set at a low level and is usually not considered a threat to international trade. When domestic
manufacturers in a particular industry are at a disadvantage, vis--vis imports, the government can impose

what is called a protective tariff. This type of tariff is designed to make foreign products more expensive
than domestic products and, as a result, protect domestic companies. A protective tariff is normally very
popular with the affected domestic companies and their workers because they benefit most directly from it.
In retaliation, a country that is affected by a protective tariff will frequently enact a tariff of its own on a
product from the original tariff enacting country. In 1930, for example, the U.S. Congress passed the
Smoot-Hawley Tariff Act, which provided the means for placing protective tariffs on imports. The United
States imposed this protective tariff on a wide variety of products in an attempt to help protect domestic
producers from foreign competition. This legislation was very popular in the United States, because the
Great Depression had just begun, and the tariff was seen as helping U.S. workers. However, the tariff
caused immediate retaliation by other countries, which immediately imposed protective tariffs of their own
on U.S. products. As a result of these protective tariffs, world trade was severely reduced for nearly all
countries, causing the wealth of each affected nation to drop, and increasing unemployment in most
countries. Realizing that the 1930 tariffs were a mistake, Congress took corrective action by passing the
Reciprocal Trade Agreements Act of 1934, which empowered the president to reduce tariffs by 50 percent
on goods from any other country that would agree to similar tariff reductions. The goal was to promote
more international trade and help establish more cooperation among exporting countries.
Another form of a trade barrier that a country can employ to protect domestic companies is an import
quota, which strictly limits the amount of a particular product that a foreign country can export to the
quota-enacting country. For example, the United States had threatened to limit the number of cars imported
from Japan. However, Japan agreed to voluntary export quotas, formally known as "voluntary export
restrictions," to avoid U.S. imposed import quotas. The power of import quotas has diminished because
foreign manufacturers have started building plants in the countries to which they had previously exported in
order to avoid such regulations.
A government can also use a nontariff barrier to help protect domestic companies. A nontariff barrier
usually refers to government requirements for licenses, permits, or significant amounts of paperwork in
order to allow imports into its country. This tactic often increases the price of the imported product, slows
down delivery, and creates frustration for the exporting country. The end goal is that many foreign
companies will not bother to export their products to those markets because of the added cost and
aggravation. Japan and several European countries have frequently used this strategy to limit the number of
imported products.
Cultural Environment
Before a corporation begins exporting products to other countries, it must first examine the norms, taboos,
and values of those countries. This information can be critical to the successful introduction of a product
into a particular country and will influence how it is sold and/or marketed. Such information can prevent
cultural blunders, such as the one General Motors committed when trying to sell its Chevy Nova in
Spanish-speaking countries. Nova, in Spanish, means "doesn't go"and few people would purchase a car

named "doesn't go." This marketing errorresulting simply from ignorance of the Spanish languagecost
General Motors millions in initial salesas well as considerable embarrassment.
Business professionals also need to be aware of foreign customs regarding standard business practices. For
example, people from some countries like to sit or stand very close when conducting business. In contrast,
people from other countries want to maintain a spatial distance between them and the people with whom
they are conducting business. Thus, before business-people travel overseas, they must be given training on
how to conduct business in the country to which they are traveling.
Business professionals also run into another practice that occurs in some countriesbribery. The practice
of bribery is common in several countries and is considered a normal business practice. If the bribe is not
paid to a businessperson from a country where bribery is expected, a transaction is unlikely to occur. Laws
in some countries prohibit businesspeople from paying or accepting bribes. As a result, navigating this legal
and cultural thicket must be done very carefully in order to maintain full compliance with the law.
Physical Environment
Other factors that influence international trading activities are related to the physical environment. Natural
physical features, such as mountains and rivers, and human-made structures, such as bridges and roads, can
have an impact on international trading activities. For example, a large number of potential customers may
live in a country where natural physical barriers, such as mountains and rivers, make getting the product to
market nearly impossible.
World Trade Organizations and Agreements
After World War II, the world's leading nations wanted to create a permanent organization that would help
foster world trade. Such an organization came into being in 1947 when representatives from the United
States and twenty-three other nations signed the document creating the General Agreement on Tariffs and
Trade (GATT), which now includes more than one hundred countries as signatories. The threefold purpose
of GATT was to (1) foster equal, nondiscriminatory treatment for all member nations;(2) promote the
reduction of tariffs by multilateral negotiations; and (3) foster the elimination of import quotas. GATT
nations meet periodically to review progress toward established objectives and to set new goals that
member countries want to achieve. The goals and objectives of GATT vary and change over time as trade
issues evolve based on domestic and world economies.
Likewise, representatives from Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Spain, and the United Kingdom came together to form the European Economic
Community (EEC)sometimes called the Common Marketin 1958. The purpose of the EEC was to
create equal and fair tariffs for all of the nations in the organization so that trade could flourish in Europe.
The EEC has generally been regarded as successful.
The United States and Canada signed the U.S. Canadian Free Trade Agreement in 1989, which provided for
the removal of all trade barriers between the two countriessuch as tariffs, quotas, or other trade
restrictionswithin a ten-year period. This act helped promote even more trade between the two countries,
thus further strengthening an already strong trade relationship.

The United States, Canada, and Mexico signed the North American Free Trade Agreement (NAFTA) in
1994 in order to create a free-trade zone among the three countries. Leaders of these three countries
realized that a large North American free-trade zone could compete effectively against the EEC and other
trading blocs that might develop in the future. This competitive factor was a driving force in the nations'
signing of the agreement, each believing that, over the long run, all three would benefit from the agreement.
In addition to feeling the impact of trade agreements and trade organizations per se, international trade is
affected more indirectly by the financial stability and general economic well-being of all countries in our
increasingly interconnected world. Thus two other international organizations ultimately affect the health of
world trade.
To further promote trade among countries, the Allied nations of World War II met in 1944 in Bretton
Woods, New Hampshire, to help set postwar global financial policies and thereby avoid future financial
crises. The International Monetary Fund (IMF) was created as a result of that conference, its mission being
to provide loans to countries that are in financial trouble. The IMF dictates the terms of the loans, which
may include cutting domestic subsidies, privatizing government industries, and moderating trade policies.
To fund these loans, IMF members make annual contributions, with each country's contribution determined
by its size, national income, population, and volume of trade. Larger contributing countries, such as Britain
and the United States, have more say as to what countries get loans and the terms of the loan.
The World Bank, with approximately 157 members, is another international organization to which the
United States is a major contributor. The World Bank's mission is to help less developed countries achieve
economic growth through improved trade. It does so by providing loans and guaranteeing or insuring
private loans to nations in need of financial assistance. The World Bank has been characterized as (1) a lastresort lender, (2) a facilitator of development projects so as to encourage the inflow of private banking
funds, and (3) a provider of technical assistance for fostering long-term economic growth.
Summary
The world has a long history of international trade. In fact, trading among nations can be traced back to the
earliest civilizations. Trading activities are directly related to an improved quality of life for the citizens of
nations involved in international trade. It is safe to say that nearly every person on earth has benefited from
international trading activities.

LEGAL FRAMEWORK OF TRADE DOCUMENTATION:

International Trade Documentation has commercial as well as regulatory purposes for
a international trader. According to Customs Act 1962, no one is allowed to load or
unload the goods form the vessel without the permission of customs officials. Section
40 of customs Act 1962 says:

Export goods are subject to approval of proper officers of customs before

being loaded to the ship or airlines and can not be loaded without his
permission. As per Customs Act 1962, the person-in-charge of the ship/ truck/
rail/ airlines is supposed not to allow the loading at a customs station except 5
(a)

Of export goods, other than baggage and mail bags, unless a

shipping bill or bill of export or a bill of transshipment, as the
case may be, duly passed by the proper officer, has been handed over
to him by the exporter;

(b)

Of baggage and mail bags, unless their export has been duly
permitted by the proper officer.

Section 45 to 50 is important for getting cleared the goods in case of imports while
section 51 & 52 are important in case of getting the goods cleared in a export
business. Similarly exporter has to take care that which type of shipping bill is to be
submitted for availing the benefits of duty drawback under section 74 & 75 of
customs Act 1962. Foreign Exchange Regulation s Act 1999 deals with the documents
which are to be submitted by the exporters for realizing the export proceeds with the
prescribed time under the act and subsequent rules.
In the similar fashion various other sections of custom Act put bar on loading and
unloading of cargo at various stages of export & import process. It is better for an
exporter to understand the role and importance of these documents in the beginning
of export business so as to avoid any unforeseen situation in future.
WHY EXPORT DOCUMENTATION IS IMPORTANT:Trade documentation is necessary and an integral part of international trade
operations due to variety of reasons. When exporter sells his goods in international
markets he has to prepare various documents as transportation of cargo from one
country to another is full of various regulatory and commercial requirements. Another
country may have some legislation in place for quality control and inspection of
certain items such as sanitary photo-sanitary requirements and technical barriers to
trade. When exporter gives goods to shipping company he must have some
documents to prove the delivery of goods and title of goods. Such goods have to be
5

Excerpted from Indian Customs Act 1962

insured and crosschecked by customs official for whom one again require some
documents such as packing list, insurance certificate and shipping bill. The various
reasons for careful understanding of international trade documentation are as
follows.
A. Trade practices of a country
B. Legal requirement
C. Commercial requirements
D. Creating superficial non tariff barriers to restrict country trade
In addition to above specific points the explanation of some of the important aspects
of documentation can be elaborated as under for the easy, straight forward and
handy understanding of trade documentation process in LPG&M era.
1. There are certain documents which are essentially required as they are
needed as per the regulations of importing and exporting country and other
international conventions for the transportation of goods from one country to
another country and such essential documents in international trade are bill of
lading, packing list, commercial invoice, import license, certificate of origin,
inspection certificate, and insurance certificate etc.
2.

Countries maintain their data base of imports of various items and

commodities so as to keep a vigil on avoidable imports to control the outflow
of foreign exchange. Such information is of prime importance to statistical
department of country and failure to submit such documents or forms
properly, may invite a fine or unnecessary delay in clearing and transiting the
goods to destination through foreign Customs Stations, for example Many
countries such as Mali request for customs invoice as it helps Mali Customs
Administration, not only for easy collection of revenue but also help them to
check, control and record the necessary information for avoiding sensitive
imports in a foreign exchange deprived country.

3. Trade Documents provide the complete information about the goods and
services such as HS code, description of goods, price, quality an quantity of
goods to be exported, mode of payments, incoterms and date of shipment etc
so which help the importing countries customs department in easy cross
checking, duty assessment and clearance of goods to the importer. It helps in
time and cost saving in trade transactions and help exporters, importer and
end user to have low cost of product for trade, use and consumption. Trade
Documents, in certain cases, also help in furnishing the information required

by importing country so as to administer the exchange control regulations or

import quotas of the country.
4. In certain cases importing country demands certain documents so as to arrive
on conclusion regarding the safeguard of public and animal health and to
ensure that such commodities shall not be imported which may cause the
spread of plant diseases. Such documents are furnished for control of Sanitary
Phyto-sanitary and Technical Barriers to trade. For Example; Germany imposes
restrictions on import of honey from Nepal as Nepalese Honey was considered
to be having pesticides due to high use of pesticides, insecticides by farmers
on their agricultural crops. Recently Pakistan has not allowed a passage to
Indian trucks carrying wheat, which was to be exported to Afghanistan, on the
fear that some pilferage on way to journey of Indian wheat may spread bio
made diseases in Pakistan agriculture.
5. Customs Official job is not only the evaluation, determination and collection of
export or import duties on the cargo being exported/imported; but has a wider
spectrum of functions such as looking after whether the goods are permitted
for export/import or not. Now days, customs department act in tandem with
other federal crime prevention agencies such as Police, Intelligence Services,
Para Military Forces and Coast Guard as there is a greater threat to national
and international security due to international smuggling of radioactive items,
opium RDX and other hazardous materials. Customs officials have to comply
with the Foreign Trade Policy of the country on the Open/ Channelized/
Prohibited/ Restricted trade categories of export and import as exporter has to
get his goods checked by customs official and get a let export seal proving
that goods meant for export are as per country rules & regulations. The
exporter is duty bound to provide such information to customs through export
documents. Customs officials ask the exporter to authenticate the documents
submitted and ask for certificate in this regards if documents submitted are
found to be false, exporter is subject to penalty and even in certain cases his
goods may be confiscated. Trade Documents helps the customs to see, verify
and inspect the cargo of exporter and importer.
6. Exporter has to declare that these goods are meant for exports through trade
documents which the exporter declare that these goods are meant for exports
and ensure that he may avail right insurance cover for the same as
transportation of goods in international trade is full of risks. Exporter has to
submit such export documents indicating that goods are insured to shipping

company,

importers

and

banks

while

negotiating

the

documents

for

realization of export proceeds.

7. There are certain countries which, in order to control their imports and keep a
check on them through sound information system; ask that the commercial
invoice by the exporter has to be prepared on the forms of these countries. In
international trade; such forms are known as customs invoices. On the other
hand certain other countries demand the consular invoice along with the
commercial invoice or legalization/visaed of commercial invoice so as to get
the details of export shipments coming to their country. Such documents
create several non tariff barriers for exporter and countries demand it so as to
control their imports from certain countries. Knowledge of such various
invoices, which have to be prepared, is essential for exporter Hence sound
understanding & knowledge of trade documentation is important part of
international trade for an exporter and importer.
8. Certain documents such as short shipment certificate etc are required so as to
prove that only the part of goods has been shipped, provided it was either
agreed in International Sales Contract or mentioned in Letter of Credit. Short
shipment certificate help the exporter to realize even partial payment hence it
is important & integral part of international trade documentation process.
Hence it can be said that the export documentation is an integral and essential part
of international trade and no trade activity between two countries can be
harmonious, sustainable and continuously growing until the exporters are not well
trained and informed on trade documentation practices of the country. Government
of India has given immense emphasis to the same and has asked the several trade
promotion organizations & institutions to provide the training to exporters &
importers in trade documentation etc. Indian Institute of Foreign Trade set up under
Ministry of Commerce has been playing an vital role in this regard since its
foundation in 1963.
VARIOUS ASPECTS OF EXPORT DOCUMENTATION:
The major concern of importing as well as exporting country parties in international
trade is the accuracy of export documents as it helps the importer in making prompt
duty payments which comes to doldrums if export documents are not correct or
discrepant. Banks may not negotiate the documents for purchase or discount if
exporter has submitted inaccurate trade documents. Similarly exporting country also

emphasize

that

exporter shall submit

the accurate

documents

to customs

department with right description so that customs may take least time in assessing
for duty if any and also for clearing the goods promptly. Hence it is advisable that,
new exporters should consider obtaining the training, advice or suggestions or
outsource services from freight forwarder before for exporting the goods with right,
accurate and proper documentation. It is usually advisable that exporter should take
the services of reliable, competent and dynamic freight forwarder, so as to ensure
the compliance in essential documents in international trade. Freight forwarder
provides an invaluable source of information and help to exporter regarding the
information on markets, packing trend keeping in mind nature of goods, shipping
costs, as well as documentation & procedure for trade transactions. Interestingly, the
role of freight forwarder has significantly increased and is continuously increasing in
the previous some decades due to rapid expansion of trade not only in India but
globally.
Documentation is of prime importance in the financing, transport/ carriage and
control of goods in international trade. It is only through documents that financing of
shipments, transportation of cargo, and ensuring of payments is possible. Export
documents helps in implementing completion and transfer of goods to importer.
Hence Export documentation is mandatory in order to ensure that exporters cargo
shall arrive to destination on time and exporter may realize his payment for the
consignment promptly and safely. It is the duty of exporter to ensure the correct &
accurate documents in trade transactions so that whole cycle of trade may run
smoothly without any legal, regulatory or commercial hiccups. Several aspects of
export documentations are as follows.
I. It is Easy process:
Small and first time exporters are usually worried about the trade documentation
practices as they find it very complicated and cumbersome process. But the fact is, it
is very easy to understand and prepare export/import documents and trader himself
can use his own expertise in preparing them provided he must go for a training
program on trade documentation practices for a hand on knowledge on various
aspects of trade documentation. Several TPOs established under Ministry of
Commerce, help to a first time exporters. These organizations use to conduct short
term awareness program/ management development program for to exporter s and
importers aware about trade documentation framework. As the volume of trade grow,
exporters can engage a shipping and forwarding agent who are supposed to take

care of job of documentation preparation, reservation of shipping space, clearance of

cargo from customs and getting all documents prepared for negotiation with the
banks for payments.
2. Documentation an integral part of international Trade:
AS already mentioned, trade documentation is an important and integral part of
export import business. Correct filing of documents and other regulatory procedures
must be followed when an exporter export or import the goods & services in a
overseas. There are no doubts international trade involves lot of documentation and
it is advisable that exporters should be well informed to prepare them rather to
consider it clerical & cumbersome. The documentation is one of the major differences
between trading in the home country and trading with a foreign country as no major
documentation is required in domestic business but in international trade it is must
as regulatory environment is different.
3. Correct documentation essential:
A number of documents as specified under rules & regulations of that country must
accompany each export shipment. They must be the correct, precise, non discrepant
documents and it is not easy to do so because the documentation differs from
country to country, product to product & region to region. In case the trade
documents are found to be incorrect, incomplete and discrepant, importer can not
get the custody of cargo from his port as and when they arrive. He may have to
request for fresh, complete, non discrepant documents and also to pay the
demurrage charges to port authorities or a penalty to customs as the case may be.
Under such circumstances, importer will think twice of giving repeat orders to same
exporters hence the knowledge of trade documentation is essential to exporter.
4. Helpful in transportation:
Trade documents such as bill of lading/airway bill/ transit Challan bill are proof of
transportation of goods from place of origin to place of destination. Bill of lading
carries the tile of goods as is a contract of affreightment of cargo. In case of
loss/misplacement of cargo, these documents help in claiming the cargo insurance
from the insurance company. These documents also help the exporter in claiming
credit insurance from ECGC in case non payment/ default by the importer. Hence
trade documents not only help in smooth transportation but also are corroborative
evidence of shipment from originating country to destined country.
5. Provide clarity in exports deals:

Trade documents clarity and transparency in international sales deals. One major
purpose of the trade documentation is to provide a specific and complete description
of the goods, to customs officials, shipping company, banks duty drawback
directorate and importers.
Conclusively; it can say that whether or not the exporter uses a Shipping and
Forwarding Agent, he should be well informed about the international trade
documentation because it plays such an extensive role in international trade
transactions.
THE MAJOR DOCUMENTS USED IN INTERNATIONAL TRADE
Major export document used in India

Common

export

document used in US
1. Pro-forma Invoice

Major

export

document

used

Australia7
1. Export

1. Shippers

2. Commercial Invoice

Export

Booking

3. Packing List

Declaration

form

4. Shipping Instruction

2. Inspection

5. intimation of Inspection

Certificate

6. Certificate of Inspection / Quality Control

Origin

7. Insurance Declaration

3. Dock

2. Bill of
of

Lading
3. Airway Bill

Receipt

4. Packing List

8. Certificate of Insurance

and Warehouse

9. Shipping Order

Receipt

of Marine

10. Mates Receipt

4. Destination

Insurance

11. Bill of Lading / Combined Transport

Document

in

Control

5. Certificate

6. Export

Statement

Declaration

12. Application for Certificate of Origin

5. Letter of Credit

13. Certificate of Origin

6. Bill

Form

of

7. Bills of

14. Bill of Exchange

Exchange

15. Shipment Advice

7. Bill of Lading

8. invoices

16. Letter to the Bank for Collection /

8. Temporary

9. Documenta

Negotiation of Documents

Import

17. ARE ( I & II) Form

Certificate

18. Shipping Bill / Bill of Export

ATA CARNET

19. Export Application / Dock Challan / Port

6
7

Exchange

9. Commercial

Excerpted from http://www.export.gov/logistics/exp_docs_forms.asp.

www.business.vic.gov.au/BUSVIC/STANDARD/1001/PC_60015.html - 22k.

ry Letter of
/

Credit
10. Insurance
Against

Trust Copy of Shipping Bill

20. Receipt for Payment of Port Charges

invoice
10. Insurance

21. Vehicle Chit

22. Exchange Control Declaration (SDF/GR /

certificate
11. Export Packing

PP/ SOFTEX/VOP) Forms

NonPayment
11. Certificate
of Origin

List

23. Freight Payment Certificate

12. Import License

24. Insurance Premium Payment Certificate

13. Consular
Invoice

14. Certification
Sources: Author Compilation based on Secondary data.
DOCUMENTATION PRACTICES IN INDIA8
The present trade documents which are used in India are designed as per UN layout
key which were internationally adopted by major developing countries in 1988. India
adopted such documentation procedure since 1991. Such documents are divided into
two categories such as commercial documents and regulatory documents. There are
16 commercial documents and 8 regulatory documents in India which are used at
pre-shipment stage of export transaction. They are elaborated in two categories as
follows.
1. Commercial and
2. Regulatory.
The Commercial documents are those which help in effecting physical transfer of
goods and their title from the exporter to the importer. Such documents involve the
full process of trade deals from stage of transportation, negotiation and realization of
sales proceeds. On the other hand, regulatory documents are those which have been
prescribed by different Government Departments / Bodies in compliance of the
requirements of various Rules and Regulations under relevant laws like Foreign
Exchange Management Act 1999. Export Quality Control and Inspection Act 1963,
Customs Act 1962, Central Excise Act 1944, Foreign Trade Development and
Regulations Act 1992, Multimodal Transportation Act 1993, Customs Valuation Act
1975, Excise Valuation Act 1985 etc. The following are the 16 Commercial documents
generally involved at the pre-shipment stage and are further divided into Principal
Commercial Documents and Auxiliary Commercial Documents and are tabled as
under:
8

Standard copy of all trade documents is given in Appendix 1.

BOX: MAJOR COMMERCIAL DOCUMENTS USED IN INDIA

Principal Commercial Documents
Auxiliary Commercial Documents
1. Commercial Invoice
1. Pro-forma Invoice
2. Packing List
2. Shipping Instruction
3. Certificate of Inspection / Quality 3. intimation of Inspection
Control
4. Insurance Declaration
4. Certificate of Insurance
5. Shipping Order
5. Bill of Lading / Combined Transport 6. Mates Receipt
Document
7. Application for Certificate of Origin
6. Certificate of Origin
8. Letter to the Bank for Collection /
7. Bill of Exchange
Negotiation of Documents
8. Shipment Advice
Source: Author Constructions
Out of the above 16 commercial trade documents, 14 have been either standardized
or aligned to one another. Two documents, namely bill of exchange and shipping
order can not be standardized simply because that they have different data elements
and are quite different from the other documents used as commercial documents in
International Trade , however the efforts are still on to standardized the documents as
it will help in transactional cost reduction in a era when documents are usually
electronically generated, prepared and exchanged among parties of trade deals.
2. Regulatory documents
Followings are the regulatory documents which the exporter has to comply with the
rules and regulations of the country. They are:
1. Application for Remission of Excise (ARE I & II)
2. Shipping Bill / Bill of Export
3. Export Application / Dock Challan / Port Trust Copy of Shipping Bill
4. Receipt for Payment of Port Charges
5. Vehicle Chit
6. Exchange Control Declaration (SDF/GR / PP/ SOFTEX/ VOP) Forms
7. Freight Payment Certificate
8. Insurance Premium Payment Certificate
Out of the above 8 Regulatory documents, four have already been standardized. In
fact, these four documents have been reduced to only three. The receipt for payment
of Port Charges has been incorporated in the Export Application / Dock Challan / Port
Trust Copy of Shipping.
COMMERCIAL DOCUMENTS IN INTERNATIONAL TRADE:

1. Performa Invoice
Performa invoice is first and important documents of conveying exporter idea about
the prices, description, quantity and quality for sale of goods to importer. Exporter
provides all the information with respect to export purposes to importer and such
information may includes
a. Tentative prices of per unit of commodity
b. Tentative description of goods
c. Tentative idea about shipping terms
d. Tentative idea about payments terms
e. Quality benchmarks of the commodity
f.

Mode of shipment

g. Expected time required by export for delivering date etc.

Exporter also expresses his desire for letter of credit or other mode of payments such
as D/P, D/A, Open Account/Advance Payment from importer in case importer is
satisfied with the description, prices, mode of shipment, payment mode of goods on
the basis of Performa invoice. For preparing a performa invoice exporter need to do
the following things.
I. Complete description of commodities, goods and services which the importer is
planning to import. Tentative idea about the value, weight, and dimensions of
the shipment such as cubic dimension of the cargo and packaging of cargo etc
clearly expressed in performa invoice.
II. Exporter shall clearly express his idea and interest about his preferred mode of
transportation. However such tasks and activities are duly taken care by the
freight forwarder who shall be consulted on all such issues such as
determination of charges with respect to the freight or mode of transportation,
insurance premium, the charges for legalization of invoices and the charges for
handling the letter of credit. In case the goods are to be transited through
inland transportation or multimodal transportation, the exporter should provide
the details of possible charges which may so incur.
III. Process of packing the cargo and an elaboration on packing material to be used
such as crates, pallets, or containers for safely transporting the goods from
exporter country to importer keeping in mind the nature of goods as the ship to
be booked may vary on the nature of cargo for example for cars shipments, RORO ship, for fruits shipments, Reefer ship etc.

IV. The name of the place to which cargo is destined by clearly indicating the name
of port and city along with international shipping codes.
Pro-forma invoice is issued by the exporter to an importer whereby he provides the
detailed knowledge about the consignment. Sometimes, exporter sends the Performa
invoice to importer so that importer can avail an import license (in case required)
from the authorities so as to purchase the cargo from exporter. It is to be considered
that Performa invoice is not a demand for payment.
2. Commercial Invoice
Commercial Invoice is rightly referred as the bill for exports of the goods from the
exporter to the importer. Commercial Invoices are often used by custom official to
decide the actual value of cargo while assessing customs duties. Governments world
wide use the commercial invoice so as to restrict/control imports as commercial
invoice will often specify the whole description about the export and import.
As a matter of practice, some exporters are using the same invoice (Commercial
Invoice) for domestic and international trade operations. In certain countries of the
world a commercial invoice is demanded in the specified forms of the country which
his also referred as customs invoice. In some cases, importing countries insist on
legalization/ visaed commercial invoice as such invoice is known as consular
invoice. This is done by importing country so as to keep the tack on the imports of
the country. If at any point of time country realized that imports are increasing and
country doesnt have the foreign exchange to make payment it can control / restrict
certain items from importing lists.

Such arrangement is also used to provide

preferential tariffs to friendly country and to avoid the enemy countries for the
trading. It has sometimes been used as diplomatic weapon to settle other issues with
trading countries through use of non tariff barriers.
The commercial invoice includes important information such as the dates of shipping
of cargo, packing marks as per importer requirements and IEC code and name of
exporter, terms of payments, name of the consignee, trade terms such as incoterms,
description of goods including HS classification, numbers of units to be sold, total
price of the cargo, mode of transportation, per unit price, and any other important
information which is required in the importers country. Commercial Invoice is
prepared by exporter and it is addressed to importer by giving full details of the cargo
to be exported.

The countries which require the commercial invoice to be legalized/ visaed do so as

maintain the actual database for imports into the country and country can control if it
so desired with the help of feedback from consular invoice. Some countries demand
consular invoice or legalized/visaed commercial invoice as they make assessment of
duty payable on the basis of commercial invoice, such practices are used in
landlocked and island nations as they want to control/ regulate imports in their
porous borders. In majority of the countries there is no need of a consular invoice as
such countries make the assessment of duty payable on the basis of commercial
invoice. However in certain cases, the exporter may have to provide the Performa
invoice along with the export quotation as demanded and requested by the foreign
buyer as documentation practices vary from country to country.
In summary it can be said that commercial invoice is prepared by the exporter and is
supposed to have all those details which are required to importer and regulatory
authority so as to completion of trade transaction and facilitation of customs
clearance of cargo. Commercial invoice must be signed and must have date.
3. Packing List or Cargo Manifest:
Customs officials use packing list to check what is being exported or imported while
importer uses it to know without opening the carton/packing that goods are of
specified nature as requested by importer in exporter order. Cargo manifest or
packing list provides all the information with respect to all the items in the box, crate,
pallet, and container including their type, dimensions, and weight of the container so
as to help the customs to known that what is inside the carton or packet.
It is important to note that in cases where quantities, weights or contents of the
various packing cases vary in an export shipment, it is mandatory for exporter to
prepare a separate packing list for each carton mentioning its color, contents, weight
and measurements. Packing list usually includes the outside dimension of each
carton/pack, the total cubic content and total weight of the shipment to be exported.
In some countries, cargo manifests or packing lists is not a mandatory document
required by the Customs authorities, but it serves the important purposes of cross
checking the cargo by customs officials from various importing countries in addition
to supplementing the commercial invoice which accompanies the export shipment.
Usually, the export packing list is more detailed and informative than a domestic

packing list, as it summaries the material in each individual carton/ packet and
describes the type of package, such as a box, crate, drum, or carton.
4. Shipping Instruction
The significance of furnishing the shipping instructions to freight forwarder clearly,
precisely is immense. In the modern times when export activities has become so
complex, it is rightly said that the appointing a freight forwarder is a kind of
extension to exporter export department. The Freight Forwarder has to be apprised
the various aspects of shipment, through shipping instructions and process of
shipping it. Freight forwarder needs to know as much about the transaction as
exporter know so as to comply with all of importer's requirements for successful and
effective execution of contract and for keeping the importer loyal for future purposes.
In case exporter make an error or mistake in furnishing the exact and accurate
shipping instructions to freight forwarder following types of unnecessary problems
may come in trade transactions. Some of them are as follows:
I. There may be failure to collect/ negotiate against a letter of credit as that the
forwarder was not known that there was a letter of credit involved in trade
transaction.
II. There may be mistake on the part of freight forwarder in insuring the shipment
as per importer desired risk cover.
III. Forwarder may make mistake to ship the goods on wrong incoterms such as
freight prepaid instead of collect basis.
IV. Freight forwarder may make mistake in preparing the certain essential
documents which are important for letter of credit negotiation as freight
forwarder would have thought that the exporter would prepare them.
V. Fright forwarder may make mistake in returning the original documents to the
shipper so as to distribute them, instead of sending them to a bank and/or
consignee for payment negotiation/purchase or discounting of export proceeds.
5. Intimation of Inspection: As per the Export Quality Control and Inspection Act
1963, an exporter is required to make an application in duplicate in the prescribed
form for intimating to the export inspection agency to carry out the pre-shipment
inspection works. Such inspection may be carried out at exporter premises or at
prescribed export agency. The intimation for the same purpose has to be given to the
EIA through 'Intimation for Inspection' as per standardized pre-shipment export
document. Exporter is also required to attache the following documents along with

application for Intimation of Inspection to be the submitted to the nearby Export

Inspection Agency:
a) Copy of the Commercial Invoice for description of goods to be exported.
b) Requisite fees for inspection of cargo in a crossed cheque/draft or Indian
Postal Order.
c) Copy of letter of Credit.
d) Description of packing specifications as instructed by importer.
e) Copy of the export order/contract, which indicate that goods are strictly
according to the prescribed specifications of importer.
Exporter inspection agency, on the satisfaction that goods to be exported meet to
standards quality norms as per Export Quality Control and Inspection Act 1963 or as
per importers specifications shall issue a certificate of inspection within 4 to 5 days
from the date of receipt of application of the exporter.
6. Certificate of Inspection:
Pre-shipment inspection has to be done by Export Inspection Agency which worked
under the administrative control of Export Inspection Council depending upon the
nature of products, standard quality norms or as per importer specifications. Such
inspection usually takes place from consignment to consignment basis at the
premises of exporter. If quality control facilities are not available at the exporter
premises, the inspections of consignment can be done at port of shipment. Exporter
shall give an application in writing to the concerned export inspection agencies for
pre-shipment inspection well in advance so as to ensure that shipment is inspected
well in advance from the date of shipment. Sometimes inspection is also done by
concerned commodity board officials such as Tea Board, Coffee Board due to specific
nature of goods requiring expertise. In cases where the pre-shipment inspection is
made mandatory by a particular agency as named by importer, export inspection has
to take place essentially by the agency as named by importer.
An application has to be submitted by exporter to concerned export inspection
council along with requisite fees and following documents.
a. Photo state copy of the Commercial Invoice for export consignment.
b. Photo state copy of letter of credit in favor of exporter
c. Packing specifications ( standard and as per importers request)
d. Photo state copy of the export order or Export Sales Contract

On the submission of above documents, Export Inspection Agency requires at least 4

to 5 days so as to conduct quality test of consignment of exportable goods. On its
satisfaction

about

the

exportable

quality

of

consignment

as

per

importer

requirement/standards it issues the certificate of inspection to the exporter in the

prescribed pro-forma in five copies.
Exporter submits the original copy of such inspection certificate to Customs
authorities along with shipping bill / bill of export at the time of export consignment
clearance by Indian Customs. Second copy of export inspection is to be sent to the
importer while sending the shipping advice along with various export documents.
Third copy shall be retained by the exporter for any future reference. Fourth copy is
to be sent to export Inspection Council at its headquarters at New Delhi and fifth
copy shall be retained by the concerned Export Inspection Agency for future
references.
7. Insurance Declaration
The standard Insurance declaration which is part of standardized documents is based
on the format which is approved by the Institute of London Underwriters. It is
suggested that open cover/policy holders may be supplied with blank forms of these
documents and such forms can be reproduced from the standardized master
document which can be sent by exporter to nearby office of General Insurance
Corporation for declaration of cargo so as to get the insurance cover for the
exportable goods. General insurance company should issue the certificate of
insurance to exporter after completion of necessary entries and certification by the
Company.
8. Certificate of Insurance:
As international trade transportation is full of risks and ocean carriers doesnt take
any responsibility for loss/piracy/damage/pilferage etc to the cargo if the cargo is
shipped without the insurance cover. Ocean carriers consider it negligence on the
part of exporter. Hence it is mandatory for the exporter to arrange the cargo/marine
insurance for his export shipment. The insurance certificate indicates the amount
insured of the shipments and also describes that what kind of risks are covered under
the particular policy of various Institute Cargo Clauses of A, B & C.

9. Shipping Order Shipping order is issued by the conference shipping lines for
intimating the exporter about the reservation of space of shipment. Shipping order
also describes that the specific vessel along with shipping dates and specified port of
departure.
10. Mate's Receipt Mate receipt is a declaration/intimation which is issued by an
officer of a vessel whereby he indicates that the goods have been received on board
on his vessel for shipment to destined country or port of destination. Mate receipt is a
document which is signed by the mate of a vessel whereby he acknowledges receipt
of cargo by the vessel. The person whos has mate's receipt is entitled to the bill of
lading. It is to be noted that Mates receipt issued by the officer of the ship is to be
exchanged with Bill of lading at subsequent stage. A claused or dirty mate receipt is
issued in case the ship mate has received the goods which are not properly packaged
or insurance cover is not taken If Mate receipt is dirty the bill of lading shall also carry
dirty title as the mate's receipt are suppose to indicate/acknowledge that the
shipping company has received the cargo in what condition stated therein. Mate
receipt is normally a basic document, which is given to shipping company in return
for the bill of lading. It is to be noted that mate receipt is a document of title, as long
as it is not marked Non-negotiable
11. Bill of Lading and Airway bill:
A. Bill of Lading:
A bill of lading is a contract of affreightment between the exporter/consignee of the
goods and the carrier/shipping company. There are several types of bills of lading and
these include the following:
1. Shipped bill of lading: Under the Carriage of Goods by Sea Act 1924, the shipper
can demand that the ship owner supplies bills of lading proving that the goods have
been actually shipped. For this reason most bill of lading forms are already printed as
shipped bills and commence with the wording: "Shipped in apparent good order and
condition". It confirms that the goods are actually on board the vessel.

Exhibit: Kinds of Bill of Lading

a. A straight bill of lading is a non-negotiable document. The straight bill of
lading is prepared to a named consignee. Straight bill of lading is also an

acknowledgement of payment of freight and shipping company ensures that it shall

transport the goods to destination.
b. An Order bill of lading is a document that is prepared to the order the foreign
importer or its bank for the payment and custody of goods. It is negotiable.

This is the most satisfactory type of receipt, and the shipper prefers such a bill as
there is no doubt about the goods being on board and consequent dispute on this
point will not arise with the bankers or consignee, thereby facilitating earliest
financial settlement of the export sale.
2. Received bill of lading: This arises where the word "shipped" does not appear on
the bill of lading. It merely confirms that the goods have been handed over to the
ship-owner and are in his custody. The cargo may be in his dock warehouse/transit
shed or even inland. The bill has therefore not the same meaning as a "shipped" bill
and the buyer under a C.I.F. contract need not accept such a bill for ultimate financial
settlement through the bank unless provision has been made in the contract.
Forwarding agents will invariably avoid handling "received bills" for their clients
unless special circumstances obtain.
3. Through bills of lading: In many cases it is necessary to employ two or, more
carriers to get the goods to their final destination. The on carriage may be either by a
second vessel (e.g. to the Seychelles Islands via Mombasa or Bombay) or by a
different form of transport (e.g. to destinations in the interior of Canada). In such
cases it would be very complicated and more expensive if the shipper had to arrange
on carriage himself by employing an agent at the point of transshipment.
4. Groupage Bill of Lading: Forwarding agents are permitted to "group" together
particular compatible consignments from individual consignors to various consignees,
situated usually in the same destination country/area, and dispatch them as one
consignment. The ship-owner will issue a groupage bill of lading, whilst the
forwarding agent, who cannot hand to his principals the ship owners bill of lading,
will issue to the individual shippers a Certificate of Shipment sometimes called
"house bills of lading". At the destination, another agent working in close liaison with
the agent forwarding the cargo will break bulk the consignment and distribute the
goods to the various consignees. This practice is on the increase, usually involving

the use of containers and particularly evident in the continental trade and deep sea
container services. It will doubtless increase with containerisation development and is
ideal to the shipper who has small quantities of goods available for export.
Advantages of groupage include less packing: lower insurance premiums; usually
quicker transits; less risk of damage and pilferage; and lower rates when compared
with such cargo being dispatched as an individual parcel/consignment.
5. Transshipment Bill of Lading: This type is issued usually by shipping companies
when there is no direct service between two ports, but when the ship-owner is
prepared to transship the cargo at an intermediate port at his expense.
6. Clean Bills o Lading: Each bill of lading states "in apparent good order and
condition", which of course refers to the cargo. If this statement is not modified by
the ship-owner, the bill of lading is regarded as "clean" or "unclaused". By issuing
clean bills of lading the ship-owner admits his full liability of the cargo described in
the bill under the law and his contract. This type is much favored by banks for
financial settlement purposes.
7. Claused Bills of Lading: If the ship-owner does not agree with any of the
statements made in the bill of lading he will add a clause to this effect, thereby
causing the bill of lading to be termed as "unclean", "foul", or "claused". There are
many recurring types of such clauses including: inadequate packaging; "unprotected
machinery; "second hand cases; wet or stained cartons"; "damaged crates"; "two
cartons missing"; etc. The clause "shipped on deck at owner's risk" may thus be
considered to be a clause under this heading. This type of bill of lading is usually
unacceptable to a bank.

Undoubtedly, to the shipper, the most useful type of bill of lading is the clean,
negotiable "through bill" as it enables the goods to be forwarded to the point of
destination under one document, although much international trade is based on free
on board (F.O.B.) or cost, insurance, freight (C.I.F.) contracts and, with regard to the
latter, the seller has no further interest in the movement of the goods once they
reach their port of destination.
Both F.O.B. and C.I.F. are two widely used types of contract of sale. F.O.B. means that
the price quoted by the vendor includes the price of the goods and all expenses up to

and including the cost of loading the goods on to the vessel. It does not include the
cost of sea freight. In the case of C.I.F., the price quoted includes the cost of the
goods, the cost of insuring the goods to destination, and the freight or cost of
transport.
The ocean bill of lading means that it is a:
a. A document carrying title of ownership.
b. A contract of carriage between the shipping company and the
exporter/consignee.
c. A receipt for goods which is given by the shipping company to the
exporter.
d. The bill of lading confirms where goods are to be delivered
e. Ensures process of payment of freight charges.
f.

Name of the person to whom the goods are consigned.

The bill of lading is a document which describes all legal responsibilities and liability
between exporters, importer and shipping company. As the original bill of lading is a
negotiable document and exporter shall try to prepare it in such a manner that he
shall retain the title of cargo and title shall be delivered to importer only when he
makes the payments to issuing bank in turn for documents.
Order bills of lading play a significant role in international transactions in cases where
the mode of payment is letter of credit or documentary collections. It is the usual
practice that bill of lading shall be on board bills of lading, as it provide the proof
to the importer that his cargo has been placed on board to shipment and he will
receive his cargo once he receive documents in exchange for payment to LC issuing
bank.
Bill of lading is a document which acknowledges that exporter has delivered that
cargo to shipping company. It also ensures that goods are on board for shipment to
importers country or named port of destination. Bill of lading also provides the
information of goods loaded on ship by indicating the listing of cargo item by item.
Bill of lading serves the following three main purposes:
I. It is an acknowledgment by the shipping company that it has received the
goods on board for shipment to destination.

II. It is kind of contract between exporter and shipping company where by shipping
company undertakes the responsibility of transporting the cargo to destination
in exchange for payment of freight charges.
III. Bill of lading is document which indicates and records the transfer of title or
ownership from the exporter/ consignor to the importer/ consignee on payments
by importer to exporter.
B. Airway Bill
The airway bill is a non-negotiable instrument meaning that it doesnt carry the title
of goods as in case of bill of lading. Airway bill refers that goods has been received by
the carrier. Airway bill is issued by the cargo airline carrier or by consolidator of the
cargo. The airway bill refers that the airlines/carrier has accepted the goods and it
obligates to the carrier to carry the consignment to the airport of destination of
importer country. Airway bill is also documentary evidence that contract has been
executed. The airway bill also serves the purposes of providing guidance to
airlines/carrier's staff for handling, dispatching and delivering of the shipments to
destined port in importer country. Some important features of airway bill are as
follows.
a.

Airway Bill is non-negotiable

b. Airway bill cannot be used as a collection instrument for receiving

payments.
c. Airway bill has provision for insurance but some carriers dont provide
such coverage hence exporter shall take care.
d. Airway bill is not a document of title to the goods.
13. Certificate of Origin
Certificate of Origin is a document, which is used to avail the preferential tariff rates
as per some agreements such as GSP, GSTP, & NAFTA. Certificate of origin indicates
that the goods have been manufactured from the originating country material hence
they shall be entitled to preferential duties.

In certain cases countries which are

giving such preferential treatment require legalization of the document from their
country consular for exporter entitled to such preferential benefits. Certification for
origin of goods in other cases can also be availed from Chamber of Commerce such
as PHDCCI or FICCI. However the certificate of origin provided by Chambers of

Commerce is general has to be authenticated by importer country Chamber of

Commerce.
14. Bill of Exchange:
Bill of exchange is a non-interest-bearing written order which is used in international
trade as it provides a sort of guarantee to exporter to get a specified and fixed sum
of money from importer at a predetermined future date as has been agreed between
exporter and importer in export sales contract.
Bills of exchange are just like the cheque, hundi or promissory notes. Bills can be
withdrawn by individuals or banks. Bill of exchange is also a transferable by
endorsements of importer.
15. Shipping Advice Shipping advice is prepared so as to provide information to
the overseas importer about the shipment of goods. This document is sort of
intimation to the importer that goods has been shipped to importer as per agreed
terms and condition in sales contract and commercial invoice.
16. Letter of Credit
Letter of credit is issued by the Importer's bank and it serves as financial instrument
to the exporter for meeting the contract. Exporter uses this important document in
financing the transactions for pre-shipment credit. It is sound proof of contract to
exporter. In this document, the opening bank takes the responsibility of payment to
the exporter subject to submission of stated documents. The liability for payment
shift from importer to issuing bank and exporter become satisfied for payment to be
made subject to execution of contract. The exporter must comply with all the terms
and conditions in the Letter of Credit so as to avail the payment from the advising
banks through negotiation of documents with issuing bank.

Standardized Pre-Shipment Export Documents

Measurements
Standard Size of Paper for
Standard Size of Paper
Commercial Documents
for Regulatory
Documents
Paper
A-4
Full Scape Paper
Size:
Length
297mm
34.5 cms
Width
210mm
21.5 cms
Margins:

Top
Left
Right
Bottom
Inside
Measurements:
Length
Width
Tolerance Limits:

10mm
20mm
6mm
7mm

I.5 cms
1.8 cms
0.5 cms
1.5 cms

280mm
184mm

31.5 cms
19.2 cms

_
+ 1mm

_
+ 1mm

Source: UN Layout Key

REGULATORY DOCUMENTS IN INTERNATIONAL TRADE:

In LPG&M era, state has an important role to play in regulation, facilitation promotion
and control of foreign trade of the country for an orderly relations with partner
countries. Accordingly, Ministry of Commerce takes keen interest in regulation,
promotion, facilitation and control of foreign trade activity of the nation through its
various institutions, organs, organizations and departments. For an effective
regulation of Indian foreign trade, following regulatory documents has been specified
by the government.
1. Application for Remission of Excise:
Application for Remission of Excise is the export document which is filed for claiming
the duty paid on inputs of exported goods. It is to be filed along with shipping bill for
the export clearance and exporter shall be prepare five copies of ARE forms to be
used at various purposes of duty drawback claims. ARE form is similar to the
erstwhile AR.4 and has been simplified and introduced in 2001. ARE form shall bear
the running serial number beginning from the first day of the financial year so as to
facilitate the duty drawback claims and for the sake of continuity. For example for
assessment year 2008, the serial number shall from 1.4.2008 and may accordingly
continue. On A.R.E.1 submission, exporter has to give certain declarations as
stipulated under Central Excise Manual. ARE form should be either signed by the
exporter or his authorized agent. The different copies of ARE.1 forms which an
exporter has to prepare, should be of different colors indicated as under:

Table : Color Scheme of ARE used in Central Excise Clearance of

Exports

Original
Duplicate
Triplicate
Quadruplicate
Quintuplicate
Source: Central Excise Manual

White
Buff
Pink
Green
Blue

It is advisable that the copies of ARE.1 shall contain a color band on the top or on the
right hand side according to the color symmetry as given above.
2. Shipping Bill/ Bill of Export:
As per provision of the Indian Customs Act 1962, goods cannot be loaded on board
the carrier unless permission from the customs authorities has not been obtained.
Such permission to exporter is accorded on a document prescribed by the customs
authorities. In cases where the goods are sent by sea, this document is known as
Shipping Bill and when goods are sent by land/rail it is known as bill of export. Bill of
Export is also known as Application for Export. Export consignment through post
parcel requires custom declaration form to be filled in by the exporter. Shipping Bill/
Bill of Export is a document which is essentially required by the Customs
Authority/officials for allowing shipment for export purposes with let export seal.
The various types of the Shipping Bill are mentioned below by having distinction to
the export goods:
a) Export duty/ cess
b) Free of duty/ cess
c) Entitlement of duty drawback
d) Entitlement of credit of duty under DEPB Scheme
e) Re-export of imported goods
The following are the documents required for the processing of the Shipping Bill:
a) SDF/GR forms (in duplicate) for shipment to all the countries.
b) 4 copies of the packing list or cargo manifest mentioning the contents,
quantity, gross and net weight of each package of the cargo to be exported.
c) 4 copies of invoices which contains all relevant particulars like number of
packages, quantity, unit rate, total f.o.b./ c.i.f. value, correct & full description
of goods to be exported.
d) Export Sales Contract, L/C, and Purchase Order of the overseas buyer as the
case may be.

e) ARE I & II (both original and duplicate) and commercial invoice/ legalized
invoice/ customs invoice (as the case may be).
f)

Pre-shipment Inspection/ Examination Certificate of quality control.

The shipping bill is presented in the following types of formats as given below:
a) White Shipping Bill in 3 copies for export of duty free of goods.
b) Green Shipping Bill in 4 copies for the export of goods which are under claim
for duty drawback.
c) Yellow Shipping Bill in 3 copies for the export of dutiable goods.
d) Blue Shipping Bill in 7 copies for exports under the DEPB scheme.
For the goods which are cleared by Land Customs, Bill of Export is used instead of
shipping bill for clearing the goods by Land custom station. However the color
schemes of various types of bill of export are same as in case of shipping bill.
3. Dock Challan / Export application/Dock trust copy of Shipping Bill
Port trusts in India have prescribed their own documents for payment of port charges
and handling shipment through their respective ports. Differing widely in sized and
layout, these documents are known differently at different ports, for example: Dock
challan at Kolkata, Export Application in Chennai and Cochin and Port Trust
Copy of Shipping Bill at Bombay. As these entire document essentially serve the
same purpose, the introduction of a standard and uniform document for all the port,
preferably with the same name such as Shipping Note as practiced in USA, will go a
long way towards facilitating trade and reducing the cost involved in printing different
sized of document for different ports. The aligned Port Trust Document has been
prepared after taking into consideration the information requirements of the port
trust document of some of the major ports in the country.

Information regarding

receipt and shipment of cargo and payment of port charges can be recorded on the
reverse of the document.
4. Receipt for Payments of Port charges:
Maintenance of port in efficient manner is prerequisite for effective foreign trade for
any country. Keeping this in mind, exporter pays some charges for use of port
facilities so as to maintain the port in proper way. Port authority uses this money in
port developments and providing better facilities to exporters & importers. Usually

freight forwarder pay such charges on the behalf of exporter and then chares the
same from exporter through their fess.
5. Vehicle Chit:
Vehicle chit is given by the customs official when the goods enter to customs
designated areas so that the duty can be assessed and let export seal can be availed
from the customs for loading the cargo to the ship.
6. Exchange Control Declaration Forms:
The Foreign Exchange Management Act 1999 and subsequent rules has prescribed
certain forms to be used by exporters for declaring the foreign exchange which they
shall be bringing to the country through the exports in following forms. It is to be
noted that declaration has to be made with appropriate forms as mentioned below for
all exports as per Foreign Exchange Management Act Rules and regulations to RBI.

(a)Exchange Control Declaration

SDF/GR refers to proof of exports to all

the countries except by post. SDF

SDF /GR Form

Forms are used for exports more than

25000$ and less than that GR form will
be

used.

SEZ/

EOU

have

certain

exceptions in use of GR form even in

(b) PP Form

case of export less than 25000$.

PP forms refer to exports to all
countries by parcel post, except in the
case where export is made on 'value

(c) VP/COD Form

payable' or 'cash on delivery' basis.

VP/COD for refers to exports made to
all countries by parcel post, under
arrangements

(d) SOFTEX FORM

to

realize

through

postal

channels

value

payable

or

such

cash

as
on

delivery basis.
Used by the exporters who are into
Software exports business?

Source: Foreign Exchange Manual

proceeds

7. Freight Payment Certificate: A Certificate showing that freight for the goods
meant for export has been paid. Freight payment certificate is a document which
indicates that the freight for the consignment has been paid to the shipping
company. It is a supplementary evidence to avail second bill of lading in case the
original has been lost.
8.

Insurance

Premium

Payment

Certificate:

Shipping

company

demand

Insurance premium payment Certificate for the insurance cover of the goods. The
carriage of goods through ship is full of risks and company usually does not want to
be responsible in case of pilferage/loss/piracy etc. and insist that insurance cover
shall be taken by the exporter for the goods to be exported.