EID/U1 Topic 5 Preliminaries of Exports
Starting an export business is not an easy task; it needs a proper guidelines and understanding of the foreign market. The base of every successful business is proper planning and proper knowledge of all the aspects of business.
So, these are the preliminaries that one should consider before starting an export business.
- Selection of business
- Selection of mode of operation
- Selection of name for the business
- Selection of product
- Select effective way of business correspondence
- Selection of Markets
- Selection of prospective Buyers
- Selection of Channel of Distribution
- Understanding risks in International trade
Selection of business
The first and the foremost important thing for a prospective exporter have to decide about the kind of business for export. The proper selection of business will depend upon:
- Ability to raise finance
- Capacity to bear the risk
- Desire to exercise control over the business
- Nature of regulatory framework applicable to you
Selection of mode of operation
You can do export by many ways like:
Be a Merchant Exporter: By this you can buy the goods from actual manufactures and then export these goods.
Be a Manufacturer: By this you can manufacture the goods by your own and then export them.
Be a Sales Agent/Commission Agent/Indenting Agent: By this you can export the goods on behalf of another seller and charging commission.
Selection of name for the business
After taking the final decision about the form of business organization, naming the business is an essential task for every exporter. The name and style should be attractive, short and meaningful and indicating the nature of business.
Selection of product
It’s important that you know the products you are selling, so if you have a particular interest in a certain product that you are familiar with, this will bode you well when it comes to sell. It will be effectively targeting the right markets. The selected product must be in demand in the countries where it is to be exported. Besides, while selecting the product, it has to be ensured that you are familiar with government policy and regulations in respect of product selected for export. As well as, you should also know import regulations in respect of such commodities by the importing countries.
Select effective way of business correspondence
You must also be keeps in mind that the aim of your business correspondence is not only to finalize the buyer’s order but also to obtain the necessary information about the buyer’s expectation from your product. The best way of correspondence is that you must use a beautiful letter head on airmail paper and a good envelope, nicely printed, giving fully particulars of your firm’s name, telephone, telex and fax number etc. Your language should be polite, soft, brief and to the point, giving a very clear picture of the subject to be put before the customer and preferably in the language of the importing country.
Selection of Markets
Foreign markets should be selected carefully. You must consider the various factors like political embargo, scope of exporter’s selected product, demand stability, preferential treatment to products from developing countries, market penetration by competitive countries and products, distance of potential market, transport problems, language problems, tariff and non-tariff barriers, distribution infrastructure, size of demand in the market, expected life span of market and product requirements, sales and distribution channels. For this purpose you should collect adequate market information before selecting one or more target markets. This information can be collected from the following sources:
- Export Promotion Council (EPCs)/Commodity Boards
- Federation of Indian Export Organization (FIEO)
- Indian Institute of Foreign Trade (IIFT)
- Indian Trade Promotion Organization (ITPO)
- Indian Embassies Abroad
- Foreign Embassies in India
- Import Promotion Institutions Abroad
- Overseas Chambers of Commerce and Industries
- Various Directories, Journals, Market Survey Reports etc.
Selection of prospective Buyers
You can collect addresses of the prospective buyers of the commodity from the following sources:
- Enquiries from friends and relatives or other acquaintances residing in foreign countries.
- Visiting/ participating in International Trade Fairs and Exhibitions in India and abroad.
- Contact with the Export Promotion Councils, Commodity Boards and other Government Agencies.
- Collecting addresses from various Private Indian Publications Directories available on cost at Jain Book Agency,C-9, Connaught Place, New Delhi-1. (PH. 3355686, Fax.3731117).
- Collecting information from International Trade Directories/ Journals/periodicals available in the libraries of Directorate General of Commercial Intelligence and Statistics, IIFT, EPCs, ITPO etc.
- Making contacts with Trade Representatives of Overseas Govt. in India and Indian Trade and Other Representatives/ International Trade Development Authorities abroad.
- Reading biweekly, fortnightly, monthly bulletins such as Indian Trade Journal, Export Service Bulletin, Bulletins and Magazines issued and published by Federation of Exporters’ Organizations, ITPO, EPCs, Commodity Boards and other allied agencies. A list of Indian Trade Periodicals containing names and addresses of importers is given in Appendix 6 of this book.
- Visiting Embassies, Consulates etc. of other countries and taking note of addresses of importers for products proposed to be exported.
- Advertising in newspapers having overseas editions and other foreign newspapers and magazines etc.
- Contacting authorized dealers in foreign exchange with whom exporter is maintaining bank account.
Selection of Channel of Distribution
Some of the channels of distribution in exporting business are as follows:
- Exports through Export Consortia
- Export through Canalizing Agencies
- Export through Other Established Merchant Exporters or Export Houses, or Trading Houses
- Direct Exports
- Export through Overseas Sales Agencies
After the selection of channels of distribution you should negotiate with them without any conflict. Finally, when you received a confirm order from your prospective buyer. You should proceed to enter into a formal export contract with the overseas buyer. An export contract should not contain any ambiguity regarding the exact specifications of goods and terms of sale including export price, mode of payment, storage and distribution methods, type of packaging, port of shipment, delivery schedule etc.
Understanding risks in International trade
While selling abroad, you must consider the following risks:
(i) Credit risk
(ii) Currency risk
(iii) Carriage risk
(iv) Country risk
These risks can be insured to a great extent by taking appropriate steps.