Framework of IM

Scope of IM
1.
2.
3.
4.

Establishment of a branch abroad

Joint ventures
Licensing arrangements
Consultancy services

Similarities between IM & DM

1.
2.
3.
4.
5.
6.
7.
8.
9.

Objective
Deals with goods & services
Generate consumer satisfaction
Generate faith
Freedom to consumers
Similar technical attributes
Existence on research & development
Susceptible to environmental changes
Contribution to economic growth

Dissimilarities btwn IM & DM

1.
2.
3.
4.
5.
6.
7.

Different market aspects

Difference in legality
Difference in monetary system
Difference in mobility of factor of production
Different documents & procedures
Difference in political environment
Difference in technological environment

Significance of IM
1. Helpful in importing industrial inputs
2. Optimum utilization of resources
3. Employment generation
4. Leads to economic growth
5. Less demand at domestic level
6. Relatively profitable
7. Less business risks
8. Enhanced productivity
9. Better trade relations
10.
Generates political harmony
11.
International unions
12.
Technological upgradation
13.
Obsolete products

14.
15.
16.
17.
18.
19.

Social responsobilty
Legal restraints
Improvement in stardard of living
Helpful in utilization pf excess capacity
Contributution of exports to national imcome
Helpful in meeting debt obligation

Reasons for exporting

1. Surplus production
2. Relatively more profitable
3. Due to legal restrains
4. Diversify business risk
5. For making import payments
6. Social responsibility
7. Obsolete products
8. Shortage of demand
9. Rise in productivity
10.
Technological advancements
11.
Stiff competition
Modes of entering foreign markets
1. Exports
2. Licensing
3. Franchising
4. Joint venture
5. Contract manufacturing
6. Management contract
7. Turnkey contract
8. Counter trade
9. Direct investment
10.
Consortia
Concept of EPRG
1.
2.
3.
4.

Ethnocentric approach
Polycentric approach
Regiocentric approach
Geocentric approach

Difficulties/hindrances/problems of international marketing

1.
2.
3.
4.

Different rules & regulations

Difference in languages
Long distance
Involves high risk

5. More transportation cost

6. Presence of intermediaries
7. Difference in culture
8. Excessive customs formalities
9. Economic integration
10.
Transfer obsolete technology
11.
Difference in policies & practices
12.
Procedural formalities
13.
Policy of self-sufficiency
14.
Requires insurance
15.
Difference in market aspects
16.
Difficulty in payment
17.
Lack of knowledge
18.
Inflation

Foreign Trade and Economic Growth

Impact of foreign trade on economic growth
Merits of foreign trade
1.
2.
3.
4.
5.
6.
7.

Fuller utilization of natural resources

Variety of goods
Price stability
Focuses on efficiency & quality
Economies of large scale production
Helps to increase cooperation among nations
Helps during natural calamities

8. Increases transport & communication facilities

9. Transfer of technical know-how
10.
Physical differences
11.
Better economies relations
12.
Different stages of economic development
13.
Specialization
14.
Increase in standard of living
15.
Consumer is benefitted
16.
Theory of comparative cost
Demerits of Foreign trade
1. Adverse effect on industries
2. Over exploitation of natural resources
3. Threats to internal harmony
4. Shortage of goods
5. Impact of harmful goods
6. More economic dependence
7. Political interference
8. Increase rivalry among nations
9. Difficult during war timings
10.
Less development of industries
Basis of international trade
1. Outlet for surplus production
2. Differences in cost
3. Differences in availability of factors
4. Stage of economic development
5. Product differentiation
6. Saturated domestic markets
7. Relative profitability
8. Restriction on expansion
9. Diversify business risks
10.
Due to regiocentric approach
11.
Social obligation
12.
Development in the means of communication and technology
13.
Liberalization
14.
Integration of economies
15.
Consumer is benefitted
16.
Theory of comparative cost
Problems in International Trade
TRADE BARRIERS:1. Tariff Barriers

(i) Specific duty

(ii)
Ad-valorem duty- in this either the value is assessed or a
fixed %agevof total CIF is imposed as duty
(iii)
Anti-dumping duty
2. Non tarrif barriers
(i) Quota system
(ii) Restriction on foreign exchange
(iii)
Administration & technical control
(iv)
State trading
(v) Cosular formalities
NON-TRADE BARRIERS
1.
2.
3.
4.
5.
6.
7.
8.
9.

Language barriers
Less mean of transport & communication
Restrictions of imports & exports
More risk uncertainty
Long distance
Difficulty in collection of information
Excessive documentation & procedure
Problems in payment
Lack of information on different market facts

Identifying Foreign Markets

Criteria for classying world markets
1. On the basis of business portfolio
i. Primary markets
ii. Secondary markets
iii. Tertiary markets
2. On the basis of stages of demand
i. Existing markets
ii. Potential markets
a. Latent markets
b. Incipient markets
3. On the basis of stages of development
i. Industrially developed economies
ii. More developed developing economies
iii. Raw material exporting economies
iv. Subsistence economies
4. On other basis
i. Population
ii. Gross national product
iii. Socio-economic and other factors
Considerations in selecting a new market/ Process of selection of
foreign market
1. Development of data to be analyzed
a. Overall market indicators
b. Geographical indicators
c. Economic indicators

d. Political , legal & regulatory indicators

e. Transport & communication
f. Special development projects
2. Collect data and convert into comparable indicators
a. Comparability
b. Availability
c. Accuracy
d. Cost
Sources of market information
i. The ministry of commerce & industry
ii.
Indian mission abroad
iii.
Chambers of commerce & trade associations
iv.
Indian Trade associations
v. Trading corporations
vi.
Govt agencies
vii.
International agencies
viii.
Central banks
ix.
National banks
x.
Foreign banks
xi.
Published data
xii.
Embassies
xiii.
Internet
3. Establish an appropriate weight for each indicator
4. Analyze the data & shortlist the markets
5. Select the appropriate market from the market

Multinationals-Their role in international

marketing
Characteristics of MNCs
1. Large size
2. Worldwide activities
3. Multinational management
4. Multinational ownership
5. Huge financial resources
6. Activities are varied
7. Oligopoly form of market
8. Advance technology
9. Brand reputation
10.
Transfer of resources
Merits of MNCs/ Factors in favour of MNCs
1. Large financial resources
2. Foreign exchange
3. Marketing services
4. Modern techniques & management
5. Employment opportunities
6. Exports
7. Completion
8. Knowledge
9. Industrialization
10.
Standard of living
11.
Availability of products
12.
World economic unity
Demerits of MNCs/ Factors against MNCs
1.
2.
3.
4.

Technology
Flow of funds
Unbalanced growth
Morality & ethics

5. Political interference
6. Evasion of taxes
7. Threat to the indigenous producers
8. Production of prohibited goods
9. Small scale industries
10.
Brain drain
11.
Non essential goods
12.
Inappropriate technology
13.
Bargaining power
14.
Monopoly
15.
Demonstration effect
16.
Multiple collaboration
17.
Exploitation of resources
18.
Loss of culture
19.
Economic power
20.
Profit oriented

Trends in Indias foreign trade

Foreign trade during the Pre-independence period
1.
2.
3.
4.

Volume of trade
Composition of foreign trade
Direction of trade
Balance of trade

Foreign trade during the Post-independence period

1. Volume of trade
2. Composition of trade
3. Direction of trade
Main features of foreign trade
1. Increasing share of GNP(gross national product)
2. Reduction in indias share in world trade
3. Less trade with the developing countries
4. State control in foreign control
5. Liberalized exchange rate system
6. Dependence on few ports
7. Foreign trade by govt
8. Export import ratio
9. Oceanic trade
10.
Dependent trade
11.
Change in volume, composition, direction and balance of trade
Trends in balance of payments:Causes of adverse Balance of payments
1. Developmental imports
2. Import of consumption goods
3. Slow growth of exports
4. Foreign competition
5. Fluctuation in exports
6. Increase in import prices
7. Payment of interest
8. Increase in domestic demand
9. Import of war equipments
10.
Setting up embassies
11.
Difficulties for non-traditional exports
12.
Gulf crisis
13.
Disintegration of USSR

Measures to correct adverse balance of payments

1. Restriction on imports
2. Import substitutions
3. Export promotion
4. Devaluation
5. Encouragement to foreign tourists
6. Trade agreements
7. Less consumption of crude oil
8. Deflation
9. Setting up special economic zones
10.
Encouragement to foreign investment

Foreign Trade policy in india (EXIM)

New Exim policy 2009-14: The Union Commerce Ministry, Government of
India announces the integrated Foreign Trade Policy FTP in every five year.
This is also called the Export-import policy or The EXIM policy of the Indian
Government and is regulated by the Foreign Trade Development and
Regulation Act, 1992. DGFT (Directorate General of Foreign Trade) is the

main governing body in matters related to EXIM Policy. This policy is updated
every year with some modifications and new schemes. New schemes come
into effect on the first day of financial year i.e. April 1, every year.
New EXIM policy 2009-2014
Union minister Mr. Anand Sharma announced the EXIM policy for the
5 yr period 2009-2014 on 27th august 2009 with the long term
objective of doubling Indias share in global trade by 2020
Objectives of EXIM policy
(i)

(ii)

The short term objective of the policy is to arrest and reverse

the declining trend of exports and to provide additional support
especially to those sectors which have been hit badly by
recession in the developed world. The policy is empowered with
objective of achieving an annual export growth of 15% with an
annual export target of US$ 200 billion by March 2011. In the
remaining three years of this Foreign Trade Policy i.e. upto
2014, the country should be able to come back on the high
export growth path of around 25% per annum. By 2014, policy
expects to double Indias exports of goods and services.
The long term objective of policy for the Government is to
double Indias share in global trade by 2020.

Key strategies to achieve these objectives: In order to meet these

objectives,
(i)

(ii)

(iii)

The Government would follow a mix of policy measures including

fiscal incentives, institutional changes, procedural rationalization,
and enhanced market access across the world and diversification of
export markets. Improvement in infrastructure related to exports;
Bringing down transaction costs, and providing full refund of all
indirect taxes and levies, would be the three pillars, which will
support us to achieve this target.
Endeavour will be made to see that the Goods and Services Tax
rebates all indirect taxes and levies on exports.

Salient features of New Foreign Trade Policy

1. Special Focus Initiatives
i. Agriculture and village industry
ii. Handlooms and handicrafts
iii. Gems and jewellery

iv. Leather goods and footwear

v. Marine sector
vi. Electronics and IT hardware manufacturing industries
vii. Sports goods and toys
viii. Green products and technologies
2. Promotional measures
i. Assistance to states for developing export infrastructure and allied
activities (ASIDE)
ii. Market access initiative (MAI)
iii. Market development assistance (MDA)
iv. Towns of export excellence (TEE)
v. Test houses
3. Reward/ Incentive schemes
i. Served from India scheme (SFIS)
ii. Vishesh krishi and cram udyog yojana (VKGUY) / Special agriculture
and village industry scheme
iii. Focus market scheme (FMS)
iv. Focus product scheme (FPS)
v. Market linked focus products scrip (MLFPS)
4. Duty exemption & remission schemes
i. Advance authorization scheme
ii. Duty free import authorization (DFIA) scheme
iii. Duty entitlement passbook (DEPB) scheme
iv. Gems and jewellery replenishment authorization
5. Status holders
6. Export promotion capital goods (EPCG) scheme
i. Zero dut EPCG scheme
ii. Concessional 3% duty EPCG scheme
7. Export oriented units (EOUs), Electronics hardware technology parks
(EHTPs), Software technology parks (STPs) and Bio-technology parks
(BTPs)
8. Special economic zones
9. Free trade & warehousing zones (FTWZs)
10.
Simplification of products
11.
Reduction of transaction cost
Critical Evaluation of EXIM Policy 2009-2014
Positive features:1. Identification of three major pillars - improvement in exports related
infrastructure, lowering of transaction cost and providing full relief on
all indirect taxes and levies.
2. Special thrust to the employment-oriented sectors
3. Enhanced market access

4.
5.
6.
7.
8.

Enhanced duty credit scrip advantage

Initiatives relating to import of capital goods
Means to enhanced indias competiveness
Procedural simplification and reduced transaction cost
Setting up of SEZs

Negative Features:1.
2.
3.
4.
5.
6.

Not compatible with the WTO rules

Limited benefits for textile units
Limited use of market linked focus products scheme
Unable to counter global trends
Not useful for merchant exporters
Unable to provide comprehensive and competiveness enhancement
strategy
7. Short term benefits
8. No attention to reduce logistics costs

Export finance and methods of payments

Export finance includes all credit facilities and payment techniques adopted
at the pre-shipment as well as post shipment stage. Hence export finance
can be defined as a finance need for the enlargement of exports at all the
levels of export.
Characteristics of export finance

i.
ii.
iii.
iv.
v.

Two countries n two currency hence high risk

Foreign payments are fluctuating as 2 currencies are involved
Time lag between sending the goods by the exporter and receiving by
the importer
Transportation cost
Devaluation

Scope of export trade

i.
ii.
iii.
iv.
v.
vi.
vii.

Shipping companies or airline companies

Insurance companies
Government
Central bank
EXIM bank
Export credit guarantee corporation
Banks to the exporter n importer

Sources of Export finance

1) Internal sources
2) External sources
a) Commercial banks
b) World banks
i) IBRD (international bank for reconstruction and development)
ii) IDA (international development association)
iii) IFC (international finance corporation)
c) Regional development banks
3) Other sources
a) Own resources of the exporter
b) Middleman
c) Banks
d) Importers
e) Factors
Modes of payment in export trade
1)
2)
3)
4)
5)

Advance payment
Payment by opening account
Payment through documentary bills
Payment on consignment basis
Payment of letter of credit
a) Parties to a letter of credit
i) Importer- who opens the letter of credit
ii) Exporter- in whose favour letter of credit is opened
iii) Opening bank- importers bank
iv) Negotiating/beneficiarys bank- exporters bank

b) Types of letter of credit

i) Revocable and irrevocable
ii) Confirmed and unconfirmed
iii) Assignable and non assignable
iv) Ancillary letter of credit
v) Fixed and revolving letter of credit
vi) Documentary and clean letter of credit
vii) Red clause and green clause letter of credit
Determinants of terms of payment
i.
ii.
iii.
iv.
v.
vi.

Buyers knowledge
Financial condition of the buyer
Cost involved in the collection
Restriction on exchange
Competition
Security of payment

Export financing
A. SHORT TERM FINANCE
1) Pre-shipment finance
i) Requirements for getting the pre-shipment
ii) Scope
iii)Forms of pre shipment finance
(1)Extended packing credit loan
(2)Packing credit loan
(3)Secured shipping loan
(4)Combination of clean and secured advance
(5)Inland/import letter of credit
(6)Running account facility
(7)Letter of credit or firm credit
(8)Advance against duty drawback
(9)Pre-shipment credit in foreign currency scheme (PCFC)
2) Post-shipment finance
i) Forms of post-shipment finance
(1)Purchase of export documents
(2)Advance against export sent on collection
(3)Advance against goods sent on consignment basis
(4)Advance against undrawn balance
(5)Advance against claims of duty drawbacks
(6)Negotiation of export documents drawn under letter of credit
B. MEDIUM AND LONG TERM FINANCE
1) Medium term finance- it extends to a period beyonf 6 months and less
than 5 years for export

2) Long term finance- it extends to a period beyond 5 years for turnkey

projects, that involves project reports, designing, civil construction etc.
i) Sources of medium and long term finance
(1)Projects exports
(2)Post shipment export denominated in foreign currency scheme
(PSCFC)
(3)External borrowings
(4)Export import bank

Export documents and procedures

Documents for exports : traditional system
A. General Documents
1) Documents related to trade
2) Documents related to regulations
3) Documents related to incentives and assistances
4) Documents related to importing country
B. Specific documents
1) Regulatory documents
i) Export license
ii) Certificate of origin
iii) GR forms inspection certificate
iv) Customs invoice
v) Legalized invoice etc
2) Operational documents
i) Shipping bill
ii) Bill of lading

iii) Commercial invoices

iv) Packing lists
v) Marine insurance policy
vi) Weight n measurement related documents
New system of documentation
Master document: An improvement over traditional system of
documentation
List of export documents
1) Documents related to goods
a) Export invoice
i) Custom invoice
ii) Consular invoice
iii) Combined invoice
b) Certificate of origin
c) Packing list
d) Certificate of inspection
2) Document related to shipment
a) Mates receipt
b) Bill of lading
c) Shipping bill
i) Duty free shipping bill
ii) Dutiable shipping bill
iii) Drawback shipping bill
d) Cart ticket
e) Airway bill
3) Documents related to payment/ foreign exchange
a) Letter of credit
i) Revocable and irrevocable letter of credit
ii) Confirmed and unconfirmed letter of credit
iii) Assignable and non assignable letter of credit
iv) Ancillary letter of credit
v) Fixed and revolving letter of credit
vi) Documentary and clean letter of credit
vii) Red clause and green clause letter of credit
b) Bill exchange
i) Exporter (the drawer)
ii) Importer (the drawee)
iii) Exporters bank (the payee)
c) Certificate of inspection
d) GR- 1 form
e) GR- 3 form

Export procedure
1) RBI code number
2) Registration for availing benefits
3) Importer-exporter code (IEC) number
Procedure for an Export Order
1) Receipt of enquiry
2) Scruitinisation of the order
a) Terms and conditions of the contract
b) Terms n modes of payment
c) Mode of delivery n its schedule
d) Required documents
e) Rules n regulations of both importing n exporting country
3) Giving acknowledgement
4) Arrangement of goods
5) Payment of excise duty
6) Inspecting goods
7) Arranging insurance
8) Shipment of goods
9) Preparation of shipping bill
10) Getting mates receipt
11) Informing importer about shipment
12) Submitting documents to bank
13) Receiving payment

Export assistance and promotion in India

Export promotion measures/ export assistance and incentives in
India by the Govt.
A. PRODUCTION FACILITIES
1) Infrastructural facilities
i) Export processing zones (EPZs)/free trade zones (FTZs)
ii) 100% export oriented units (EOUs)
iii) Technology parks
iv) Special economic zones (SEZs)
v) Free trade n warehousing zones (FTWZs)
vi) Assistance to states for developing export infrastructure and allied
activities (ASIDE)
2) Import facilities under export incentives schemes
i) Export promotion capital goods scheme (EPCG)
a) Zero duty EPCG Scheme
b) Concessional 3% duty EPCG scheme
ii) Duty exemption n remission schemes
a) Duty exemption schemes
I. Advance authorization scheme
II.
Duty free import authorization (DFIA) scheme
b) Duty remission schemes
I. Duty entitlement passbook (DEPB) scheme
II.
Duty drawback (DBK) scheme
iii) Gems n jewellery replenishment authorization
iv) Deemed exports
v) Served from India scheme (SFIS)
vi) Vishesh krishi n gram udyog yojana (VKGUY) scheme
vii) Manufacture under bond
3) Finance for export production
i) Packing credit
ii) Packing credit guarantee
B. MARKETING FACILITIES
1) Status holders
2) Market access initiative (MAI)

3) Market development assistance (MDA)

4) Towns of export excellence (TEE)
5) Brand promotion n quality
6) Focus market scheme (FMS)
7) Focus product scheme (FPS)
8) Market linked focus products scrip (MLFPS)
9) Trade fairs n exhibitions
10)
Trade representatives
11)
Export risk insurance
12)
Export finance
13)
Quality control n pre-shipment inspection
14)
Packaging for exports
C. OTHER FACILITIES
1) Tax concessions
2) Awards to exporters
3) Devaluation of Indian currency
4) Full convertibility of rupee
D. INSTITUTIONAL INFRASTRUCTURE
1) Department of commerce of the ministry of commerce n industry
2) Deliberative n consultative organizations
3) Commodity specific organizations
4) Service institutions
5) Govt. trading organizations
6) Agencies for export promotion at the state level.