1.

INTRODUCTION

1.1 INTRODUCTION TO THE INDUSTRY The Indian Textile Industry is one of the largest in the world with a massive raw material and textile manufacturing base. Our economy is largely dependent on the textile manufacturing and trade in addition to other major industries. About 27% of the foreign exchange earnings are on account of export of textiles and clothing alone. The textiles and clothing sector contributes about 14% to the industrial production and 3% to the gross domestic product [GDP] of the country. Around 8% of the total excise revenue collection is contributed by the textile industry. So much so, the textile industry accounts for as large as 21% of the total employment generated in the economy. Around 35million people are directly employed in the textile manufacturing activities. Indirect employment including the manpower engaged in agricultural based raw-material production like cotton and related trade and handling could be stated to be around another 60million. Indian textile industry is constituted of the following segments: Readymade Garments, Cotton Textiles including Handlooms, Man-made Textiles, Silk Textiles, Woollens Textiles, Handicrafts, Coir, and Jute. The Apparel Export Promotion Council [AEPC] represents over 8000 small, medium, and large exporters. The country ranks sixth among the top garment exporting countries globally. Nearly 78% of garments are exported from India are cotton-based. The main products are ladies garments, blouses, skirts, T-Shirts and trousers.

INDIAN EXPORT AND IMPORT SCENARIO (2009)

Indian textile trade has undergone massive restructuring following the 1991 liberalization policies. Indian textile exports fell from $200.9 billion in 2008 to $165 billion in 2009. India was ranked 22nd in the world in terms of textile export volume. The graph below shows the countries who have contributed to the total volume of textile exports; Figure 1.1.1 Indian Textile Export Partners, 2009 1

During this period, the growth rate was recorded as 18.11% and the bigger surprise was that the import sector had experienced a growth rate of 34.30%. India was ranked 15 th in the world in terms of import volume. The graph below shows the countries who have contributed to the total volume of textile imports; Figure 1.1.2 Indian Textile Import Partners, 2009

OUTLOOK FOR INDIAN TEXTILE INDUSTRY

The outlook for textile industry in India is very optimistic. It is expected that Indian textile industry would continue to grow at an impressive rate. Textile industry is being modernized by an exclusive scheme, which has set aside $5bn for investment in improvisation of machinery. India can also grab opportunities in the export market. The textile industry is anticipated to generate 12mn new jobs in various sectors.

TECHNOLOGY IN TEXTILE INDUSTRY

Textile technology, once considered a handicraft, has become a highly sophisticated, scientific and engineering activity of new types of fibres and technologies. The field encompasses different areas of engineering such as mechanical, electrical, computer, chemical, instrumentation, electronic and structural engineering. Apparel and fashion technology, a part of textile technology has become an important activity for the designing, fashioning and marketing of garments. All this requires knowledge of latest technology and the present day textile-design students are poised to take up the challenge.

VISION OF INDIA 2010 FOR TEXTILES

Textile economy to grow to $85billion by 2010 Creation of 12 million new jobs in textile sector. To increase Indias share in world trade to six per cent by 2010. Achieve export value of $40 billion by 2010. Modernization and consolidation for creating a globally competitive industry.

1.1 INTRODUCTION TO THE COMPANY

1.1.1

About the company

Set up as an SSI unit in the year 1992 with a minimum investment of Rs.1 Cr. Currently having a net worth of Rs.7 Cr

Purely an Export Oriented Unit [EOU] It is a Partnership firm promoted by Mrs. & Mr.Duraisamy with an equal share in the company

Located 13kms from the knit city Tirupur and 35kms away from the airport. Well equipped with modern machines occupying an area of 25,000 sq. feet Manufacturer and Exporter of knitted garments to top end customers in the International Market.

Produces styles for kids, children, ladies and mens outer wears, night wears and sports wears

Specialized in mercerized knitted fabric garments It employs about 120 people including contract labour Equipped with modern high-speed sewing machines, picoting & zig zag machines, button hole & button stitch machines, Vacuum Steam Iron Tables, Stain removers and Fusing machines and others which serve the purpose of completion of an order 3

Lead Time of 1,25,000 pieces in a month of the basic styles It has a separate in-house stitching unit under the name of Sree Jayram Exports which is now concentrating on the domestic sale of knitted garments

Imports raw material, knitted processed fabric from overseas, adds value to it and exports the same

1.1.1 Vision The vision of the Company is to become a leading manufacturer and exporter of apparel by continuously excelling in Quality, Service and Customer Satisfaction using the best technology, processes and people.

1.1.2

Mission
To become the most preferred one-stop source for ready-made garments & ready to cut

fabrics To constantly update the technology and skill sets t`o cater to the ever changing needs of the apparel & textile industry.

1.1.3

Quality Policy
The company is committed to achieve total customer satisfaction by producing superior

products at competitive price and timely delivery with total involvement and excellence.

1.1.4

Details of PON SANGER EXPORTS

4

IEC Code Number : 3293006876 (See Annexure 1 ) AEPC Registration Number : 202640 (See Annexure 2)

1.1.1

ORGANISATION CHART

Figure 1.2.1 Organisation Structure of PON SANGER EXPORTS

PONN SANGER EXPORTS

Managing Director

Partne r

Communicatio n Marketing Development &

General Manager

Factory Manager

Export Manager

Accounts Manager

Merchandiser

Manager (Raw materials & fabric) Stores Department

In-house Quality control

Production Manager

Finished Warehouse In charge

Sampling in charge Pattern Master Cutting In charge Time Officer Line Inspector Supervisors (checking,

1.1.1 Ponn Sanger Overseas Buyers and Suppliers share Their high profile customers are not only happy but also satisfied which has earned them recognition and unflattering loyalty from prominent buyers overseas. Fig.1.2.2 Overseas Buyers of the firm

Overseas Buyers:
SWC , USA Design In Motion , USA Henrich Opermayer , Germany GMBH , Germany

Fig.1.2.3 Overseas Suppliers of the firm

Overseas Suppliers:
Taiwan and China are the main Players of imports here 6

Upon the request of the specific Buyer, Ponn Sanger imports the Raw material, the fabric

Kind not manufactured in home Country

1.1.1

Domestic Suppliers Share to Export

Fig.1.2.4 Domestic Suppliers of the firm

1.2 NEED FOR THE STUDY

Export in simple words means selling goods abroad or it refers to the outflow of goods and services and inflow of foreign exchange. 7

Each country has its own rules and regulations regarding the foreign trade. For the fulfillment of all the rules and regulations of different countries an exporting company has to maintain and fulfill different documentation requirements. The documentation procedure depends on the type of goods, process of manufacturing, type of industry and the country to which goods is to be exported.

In order to complete an order for Knitted garment, many activities like communication between different departments, the process of outsourcing raw material, payment process, quality control, packing and shipment of goods etc. are undertaken. Different departments work in synchronicity & various documents are prepared in the process. Hence, a single mistake or lack of proper planning can lead to the rejection of the whole order or increase the cost.

Todays world is the global village in which each country is trading with other countries in the form of export or import. This field has a great scope because today each company whether it is small or big wants to engage in foreign trade.

Hence, it is very important to study the export procedure and documents involved in it. Hence, selecting this project is a judicious decision.

1.3 OBJECTIVES OF THE STUDY

a) To understand the Apparel Business Processes

8

b) To understand the working of various departments of PONN SANGER EXPORTS

contributing towards processing of an export order

c) To study the Export Documentation in PONN SANGER EXPORTS

i. ii.

Pre Shipment procedure Post Shipment procedure

1.1 SCOPE OF THE STUDY

The aim of this project report is to unfold stepwise all complexities involved in the export business right from receiving an export order to final realization of export proceeds. It gives a detail 9

idea of how different departments in Apparel export firm are synchronization so that an export order is processed.

This project would be helpful to fulfill many loopholes of manufacturing, processing and analyzing the export order as well as documentation.

It will also look into the steps taken to manage risks in the point of the firm.

1.2 LIMITATION OF THE STUDY

It takes into account only the practical implications of documentation

Only Knitwear exports have been analyzed

10

Disclosure of certain sensitive information, e.g. the commissions for the Post-Shipment formalities

Formalities at both the stages of shipment are subject to change by the home or foreign Countrys norms

2. REVIEW OF LITERATURE

Review of literature shows the previous studies carried out by the researcher in this field in order to gain insight into extent of research. The research problem can be more understood and made specific referring to theories, reports, records and other information made in similar studies. This will

11

provide the researcher with the knowledge on what lines the study should proceed and serves to narrow the problem. Thomas A. Cook (1994)1 says, One of the major pitfalls in an international sale is the quality of the documentation supporting the transaction. A mistake in spelling, execution, language or number of copies will cause substantial delays in obtaining clearance and require additional expenditures to complete the process. Many potential exporters shy away from exporting due to the fear of the potential headaches caused by export documentation. In reality, while the process is complicated and has a steep learning curve, with the right approach and support from several resources the process can be simplified and the inherent obstacles lifted. Most of the necessary documents required for an export transaction are the invoice, packing list, export declaration and the bill of lading. Other documents that may be required include: payment instruments (letters of credit, sight drafts), health/sanitary certificates, certificates of origin, export/import licenses, SGS inspection certificates, carnets (customs passes), certificates of insurance and required import documents. In addition to knowing the specific documents, the exporter will need to know language, the number of copies, required signatories, format, notarization, consularization, and the shipping instructions.

Laurel Delaney (2006), describes AES Direct, a free online process for filing Shipper's Export Declarations. AES stands for Automated Export System. Here are some highlights:

1.

Ensures export compliance - It returns a confirmation number to verify that you successfully

filed your export documentation.

2.

Corrects errors - Get immediate feedback when data is omitted or incorrect, and correct errors

at any time.

12

3. 4.

Eliminates paper review - Eliminates time delays of handling paper. Stays up-to-date with trade agreements - AES conforms to NAFTA and GATT, making it

easier to do business in multiple countries.

5.

Evaluates and measures potential markets - Provides accurate and timely export statistics.

Koch and John (2007) say the subsequent need is to reduce the risk of loss to the small business

exporter if and when their foreign customer does not pay the exporter's sales invoice. Again, there are solutions to mitigate these risks of loss, which result from two sets of risk of loss event perils: 1. Foreign "Commercial" Risk of Loss Events This event occurs in the foreign client's inability or failure to pay invoices due to Bankruptcy/Insolvency, Slow-Pay Behavior (Protracted Default) , Devaluation of Foreign Currency 2. Foreign 'Political' Risk of Loss Events This event occurs when a foreign country's regulations and statutes allow Confiscation of Goods, Suspension of Import Licenses, War, Civil Strife, Rebellion, Currency Inconvertibility Sales made under irrevocable letters of credit (LCs) are a traditional tool used to mitigate risk of loss. An LC places the U.S. exporter's bank and their foreign customer's bank inside the trade transaction, reducing the risk of loss to both parties for failure of either one to live up to the export sales/purchase contract. The exporter's commercial bank will assist with the LCs if the bank provides international banking services, or if the bank uses another correspondent bank that maintains an international banking department. There are some drawbacks to LCs. Not all foreign buyers can pay under an LC because of the high fees, often 2-3% of shipment value. An LC requires a credit relationship between the foreign importer and its bank, which might divert precious working capital from the foreign buyer's other local credit needs.

13

Corinne Campbell (2009): says, The True Cost of Exporting is the cost of export documentation, a necessary expense that can be eased by knowing whats required. Here are some ways to tighten up on export documentation. Organizing the right documentation and paperwork makes the export process simpler, smoother and cheaper. When it comes to a paper trail in export, it doesnt matter if you are shipping large volumes or just sending a few samples: the goods have to get there and the exporter has to get paid. Not having the right paperwork can result in an importer not being able to accept the goods and the exporter not being paid, which is costly in terms of time and money. Export documentation covers the spectrum of: shipping documents, commercial documents, inspections, permits and consular stamps. Each requires preparation time, courier costs and fees with its associated risks of mistakes adding to delays and considerable costs. Documentation must be precise because slight discrepancies or omissions may prevent merchandise from being exported, result in non-payment, or even result in the seizure of the exporters goods by customs. Most documentation is routine for freight forwarders and customs brokers, but the exporter is ultimately responsible for the accuracy of its documents. The number and kind of documents the exporter must deal with varies depending on the destination of the shipment. Because each country has different import regulations, the exporter must be careful to provide all proper documentation. It is important to do your research with customs, your industry association, government departments, freight forwarders and the overseas buyer to be fully aware of the procedures per product and per country of export. It would be a waste of time and money to go through researching the specific needs of your export and not having the internal knowledge to implement a process. Training yourself and your staff in the intricacies of export including documentation, logistics, finance as well as cultural issues can make the difference between being successful for years to come or failing after the first shipment. International trade carries high levels of risk. Knowing how to avoid the pitfalls is the key to success.
Posner and Martin (2000) in his study found that it is surprising that many traders do not use Inco

terms to help them draft their export documentation. The International Chamber of Commerce's 14

(which has an international membership from over 130 countries) Guide to Inco terms 2000 is a superb helpline to the companion Inco terms 2000, which came into force on 1 January 2000. A definition of EXW EX Works says there is not only a color chart showing the seller's primary duty but it also describes the documents required, the optional documents that may be required and the buyer's primary duty.

Foreign Trade Policy 2009-2014 Special Focus Initiatives:

Government of India shall make concerted efforts to promote exports in all sectors by specific sectoral strategies that shall be notified from time to time Rs. 325 crores would be provided under promotional schemes for textile for exports made with effect from 1st April 2009. EPCG Scheme at zero duty has been introduced for certain engineering products, electronic products, basic chemicals and pharmaceuticals, apparel and textiles, plastics, handicrafts, chemicals and allied products and leather and leather products. Technical textiles have now been added under Focus Product Scheme. Under DEPB Scheme, a.Duty credit scrip under Chapter 3 i.e. Promotional measures and under DEPB scheme will now is issued without waiting for realization of export proceeds. The exporters will be required to submit proof of export proceeds realization with the time limits prescribed by RBI. This provision is now applicable. b.DEPB scripts were earlier used for payment of duty only on imported items that were under free category but now this utilization is now extended for payment of duty for import of restricted items as well.

Under EPCG Scheme, a. In case of decline in exports of a product(s) by more than 5%, the export obligation for all exporters of that product(s) is to be reduced proportionately and this provision is extended for the next year. b.Reduction in customs duty under EPCG scheme from 5% to 3%. 15

Additional funds of Rs. 1200 crores have been allotted for CST/TED/Drawback refunds. Allowing payment of interest on delayed payments of Terminal excise duty and central sales tax.

An additional fund of Rs. 1400 crores is provided to clear the backlog claims of TUF.

Government of India, Rates of Duty Drawback, 2010-20119:

1. The drawback rates have been determined on the basis of certain broad parameters including, inter alia, the prevailing prices of inputs, standard input/output norms (SION), share of imports in the total consumption of inputs and the applied rates of duty. The incidence of duty on HSD/Furnace Oil has been factored in the drawback calculation. The incidence of service tax paid on taxable services which are used as input services in the manufacturing or processing of export goods has also been factored. The Commissioners may ensure that the exporters do not avail of the refund of this tax through any other mechanism while claiming the all industry rate of drawback.

2. The Drawback Schedule includes several new items. These include coffee (raw beans), in bulk, coffee (roasted and /or decaffeinated), in bulk, tea, in bulk, tea in consumer packs including tea bags(sachets), instant coffee, parts/components of harness and saddler made of leather or non leather including textiles or synthetic materials, stainless steel, jeweler, brass bushes and optical fibre cables. The Schedule may please be perused for details.

3. The drawback rates have undergone changes in line with the changes in prices of inputs, duties etc. Thus the Drawback rates have been decreased in most cases. The more important changes in textile sector are discussed below: -

Cotton Yarn and Fabrics: The earlier drawback rate for grey cotton yarn of less than 60
counts was 6% (grey) / 7.1% (dyed). The rate for cotton yarn of 60 counts and more was 9.5% (grey) / 10.6% (dyed).

16

The new rate now is 4% for cotton yarn (grey) and 5% for cotton yarn (dyed) irrespective of the counts of the yarn. As for cotton fabrics, the new rate is 4.6% (grey) / 5.5% (dyed) with a drawback cap of Rs.14per kg (grey) / Rs.20per kg (dyed). The new drawback rate for lungies and Real Madras Handkerchiefs is 5.5% with a cap of Rs.20/kg, the same as applicable for dyed fabrics. In the case of denim fabrics the new rate is 5.7% with a cap of Rs.21.5/kg as against the earlier rate of 8.5% with a cap of Rs.32/kg.

Ready Made Garments: In the readymade garment sector, the new drawback rate for knitted blouses/shirts/tops of cotton is 8.8% with a cap of Rs.42 per piece as against the earlier rate of 11% with a cap of Rs.53 per piece. The new rate for knitted blouses/shirts/tops of man-made fibre is 10.5% with a cap of Rs.44 per piece as against the earlier rate of 11.5% with a cap of Rs.48 per piece. For knitted blouses/shirts/tops of cotton and manmade fibre blend, the new drawback rate is 9.8% with a cap of Rs.44 per piece as against the earlier rate of 11.2% with a cap of Rs.50 per piece. The drawback rates on woven garments have been revised accordingly.

3. RESEARCH METHODOLGY

2.1 RESEARCH DESIGN

Our primary objective of doing this project is to get the first hand knowledge of functioning of an export unit. Since we are not comparing two different entities on the basis of their financial results, rather we are learning the export procedure. Hence exploratory research design is the need of the hour. Further there are few reasons which made me to use Exploratory Qualitative research: It is not always desirable or possible to use fully structured or formal methods to obtain information from respondents.

17

People may be unable & unwilling to answer certain questions or unable to give truthful answers.

People may be unable to provide accurate answer to question that tap their sub consciousness.

2.1 RESEARCH TOOLS USED

In Primary data, Qualitative research through In-Depth Interviews has been adopted. For interviews nonstructured open-ended questions were used.

In Secondary data, both internal & external research was done. For internal research Ready to use documents available with the organization were used. For external research Internet website & published books were consulted.

Using the sales turnover of past five years, simple percentage are calculated for basic styles and for the companys buyers.

Using the statistical technique of least square method future trend for this concern has been forecasted

3. ANALYSIS AND INTERPRETATION

3.1 To understand the Apparel Business Process involved in PONN SANGER EXPORTS

The textile and apparel supply chain accounts for a good share in terms of number of companies and people employed. The apparel industry here is divided into four main segments. At the top of the supply chain, there are fiber (raw material) producers using either natural or synthetic materials. Raw fiber is spun or knitted into fabric by second segment. The third segment of the supply chain is the apparel manufacturer which converts fabric into garment with many processes involved. The final segment is the retailers who are responsible for making apparels available to consumers.

18

It has been explained using the T angle apparel supply chain. This shows how buyer, suppliers and garment manufacturer are linked to each other. The T angle illustrates how information flows from the buyer to the apparel manufacturer. The information normally, sketches of the garment given by the buyer, are studied by the manufacturer and accordingly list of raw materials required is made. The different swatch (standard for type of yarn, colour of the yarn and piece of accessories) are sent to different suppliers for development. The supplier develops and sends it to manufacturer and which is forwarded to buyer. Once approved by buyer, the orders are placed with the suppliers with approved samples. When the raw materials are received as per the specifications given to the supplier, in-house manufacturing starts with the production. The different process of manufacturing results in the final garment product which is finally dispatched to the Buyer. The Buyer then retails the same through stores to the ultimate consumers.

Figure 3.1.1 The T angle of the Apparel Supply Chain

19

3.1.1. Description of the Buyer Side of the Apparel Supply Chain

The buyer side is normally involved with designing of the garment, production of samples, order collection, apparel retail.

Apparel Design Designing of Apparel is either done in-house or contracted to design companies. The first step

in designing is the analysis of the consumer which the Company is targeting. The apparel design is influenced by various parameters like other designer collection presented in the fashion cities of the world, fashion reviews from earlier seasons, fashion magazine also plays an important input for the design efforts and most important is the feedback gained from the sales of the similar products that were developed earlier. Production of samples and order collection The next step after the design in apparel supply chain is the production of the samples. 20

Once the designs are developed, decisions regarding the fabric like cotton or polyester and quantity etc are made. Based on fabric and quantity decided, decisions related to country and manufacturers are made. Once decision is made, developed designs are sent to different manufacturers and are asked to develop proto samples (the stage brings design from paper to cloth for design appearance). Normally, during proto stage manufacturer figure stands between 5 and 8. Once proto are developed, number of manufacturers is reduced to 2 to 3 depending on the total quantity of the article and also on selected manufacturer production capacity or volumes. The order quantities are placed to different manufacturers and manufacturer is asked to develop size-sets (alternate sizes of the garment are developed example S: Small, L: Large, XXL: Extra Large). Once size-set is approved, sale samples (samples developed for advertising and see the market response towards the article) are made. Finally, with everything in place two identical pieces are developed one for the buyer and other for the manufacturer called as sealer (sealer sample is identification or standard for production). This sample is stamped by the buyers and the manufacturer can proceed with the production.

Apparel Retail Apparel products are made available to consumers in a variety of retail outlets. Specialty

stores offer a limited range of apparel products and accessories specialising in a specific market segment. Apparel sales also take place through wholesalers or mass merchandisers such as Wal-Mart, Kmart and Target. These retailers offer a variety of hard and soft goods in addition to apparel. Departmental stores like Macys, Nordstrom offer a large number of national brands in both hard and soft goods categories. Off-price stores, such as Marshalls and T.J.Maxx buy excess stock of designerlabel and branded apparel from retailers and are able to offer lower prices but with incomplete assortments. The apparel sale is also shared by mail order companies, e-tailors through internet, and factory outlets etc.

3.1.2 Description of the Supplier Side of the Apparel Supply Chain

21

The suppliers in the apparel manufacturing are quite diversified. It involves suppliers of different raw materials such as fibre and yarn producers, fabric manufacturers and other rawmaterials.

Fiber and Yarn Production Fibres are categorised into two groups: natural and man-made. Natural fibre includes plant

fibres such as cotton, linen, jute etc and animal fibre such as wool. Synthetic fibres include nylon, polyester, acrylic etc. Synthetic fibre production usually requires significant capital and knowledge. Natural and synthetic fibres of short lengths are converted into yarn by spinners, throwsters and texturizers. Different types of fibres can also be blended together to produce yarn such as grindle etc.

Accessory Production Surface embellishments have taken the apparel section to a great extent. A variety of buyers

desire to use different embellishment for their customers. Those traditional like buttons and hooks to rubber prints and design made items. The manufacturer depends on these suppliers specializing in accessory for the supply chain and order execution.

3.1.3 Description of the Manufacturer Side of the Apparel Supply Chain

Fabric production This segment of supply chain transforms the yarn into fabric by process of knitting. In

knitting, yarn is interloped by latched and spring needles i.e. two different loops are mingled together with needle adjustment. Grey Yarn may be knitted by a simple procedure to produce grey fabric and which are then dyed for a specific color. Instead, dyed yarns may also be knitted but not dyed. Once the approvals regarding the raw-material are made by the buyer, the manufacturer can proceed with the production.

22

Apparel Production The process proceeds once the fabric is produced; it is either dyed or washed. The dyed

(coloured) yarn fabric is washed and grey fabric is dyed into a specific colour. After dyeing or washing, fabric is finished by removing water in the tumbler and later pressed in stenter which also maintains width of the fabric. Now the fabric is ready for garmentising i.e. it is ready to be cut and stitched into the garment.

Garmentising starts with the design of the garment to be made (usually on the paper called specs). Patterns (usually made up of thicker and stronger paper) are made from the design which is then used to cut the fabric (cutting usually happens in the form of layers). An efficient layout of the patterns on the layers of fabric is crucial for reducing the wasted material. CAD systems are used for pattern layout and are integrated together with cutting systems. In apparel manufacturing, all the stages are labour intensive as they are not suitable for any kind of automation.

In the stitching section, garment is usually assembled using the progressive bundle system (PBS). In PBS, the work is delivered to individual work stations from the cutting department in bundles. Sewing machine operators then process or sew them in batches i.e. first few are operation are joining the different parts together and then further amendments related to design are carried out. The supervisors direct and balance the line activities and check the quality. This involves large work in progress (WIP) inventories and minimal flexibility. For faster apparel production, use of unit production system which reduces the buffer sizes between the operations or modular assembly systems and allows a small group of sewing operators to assemble the entire garment.

Finishing, Packaging and Dispatch of Apparel Garments produced are labelled, packaged and usually shipped to a warehouse. The garments

are then shipped to the retailers warehouse. In an effort to reduce time from placement of the product order to the consumers purchase of the apparel, several practices are gaining popularity. There is 23

increased automation and use of electronic processing in the warehouses of both manufacturers and retailers.

3.2 Working of various departments contributing towards processing of an export order PON SANGER EXPORTS 3.2.1 Manufacturing Process and Production

24

Figure 3.2.1.1 Fabric Process Flow Chart

Testing of Yarns, Count, knit ability, wash ability, spirality, strength, shade (if yarn Yarn Inhouse KNITTING Trial of 1st lot of fabric in Dyeing.

100% fabric Quality check Bulk Knitting Batch Preparation

Knit Set Approval

Recipe formulation (automatic color kitchen)

WAREHOUSE

FINISHING

Dyeing Process

100 % Fabric Quality Checking

Shade Color Fastness Approval

Figure 3.2.1.2 Garment Process Flow Chart

Fabric Audit Batch wise Physical Parameters, Trims Matching Automatic Fabric Layering Batch 25 Wise

WAREHOUSE

CUTTI NG

Issue to Stitching

CAD marker - As per approved garment

100% Panel Inspection

100% Needle Detection SHIPM ENT Final Audit finally dispatched. in supply chain: 26 PACKI NG FINISHI NG

100% Garment Checking WASHI NG STITCHI NG

100% Garme nt Checkin

The above two diagrams show detailed picture of PON SANGER EXPORTS Apparel Manufacturing and Supply Chain. The manufacturer supply chain starts when yarn is in-house and ends when garment is produced and is ready for dispatch. The entire process is divided into two segments i.e. the process and the production. The process involves yarn inspection, knitting, dyeing or washing and finishing. In the process, the yarn is converted to fabric then it is either dyed or washed and finally finished. The production involves fabric cutting, stitching, and garment being finished and

3.2.2 PONN SANGER: Departments Functions and Operations

Company mainly deals in two segments of the apparel supply chain i.e. one manufacturing of fabric and other manufacturing of garment. These two segments are two different processes but are very much linked in the supply chain. The Company has different departments each having specified functions and responsibilities. Description of each department will follow in respect to how they occur

Yarn Department Yarn (thread) is one of the most important raw-materials for the garment manufacturing.

Company purchases yarn from other spinning mills across the country and also sometimes from other countries such as China and Taiwan. Yarn department is responsible for placing order of yarn to the mills. Their responsibility is to make sure yarn is ordered from right supplier, delivered in right time with desired quality and maintain stock listing of yarn. Yarn department is also responsible for checking the quality i.e. strength, color and quantity of the yarn delivered. The decision regarding the yarn quantity, quality and strength is decided by PPC i.e. production, planning and control department. PPC places the order one month in advance.

Knitting Department Knitting department is responsible for producing knitted fabric i.e. fabric from yarn. For

fabric production, two types of machines are normally used i.e. circular knitting machine and flat knitting machine. Knitting department receives orders from PPC stating article or style number and quantity of fabric required. The knitting department makes the production planning for all knitting machines based on request from PPC and also calculates and orders required yarn from the yarn department. Planning is usually done for every week.

Washing and Dyeing Department The department is responsible for two different stages in garment manufacturing. For grey

(not colored) fabric, department is responsible for coloration of fabric and for dyed (colored) fabric, department is responsible for washing. The process of dyeing is time consuming and as different color checks are required. The department receives order from the PPC stating article and quantity required. The department makes the production plan for the dyeing and the washing machine based on order from the PPC and also sends request to knitting department for the dispatch of the fabric. Planning is done on weekly basis. Dyeing is sent to the processing unit in Tirupur or Erode. Selection is based on

27

the basis of cost, finish, loyalty and credit terms. The processed fabric is imported from China and Taiwan incase when it cannot be done in India. This is upon the request of the buyer specifically.

Finishing Department The department is responsible for finishing of the fabric with a proper procedure so that it is

ready for garment production. Whether the fabric is dyed or washed, it follows the same process in the finishing department. Once the fabric is washed or dyed, it needs to be tumbled in tumbler (sort of big washing machine) responsible for removing water and maintain the fabric width and shrinkage. After which fabric is dried in a Stenter (dryer) and packed in layer and is ready for garment production. The finishing departments receive orders from PPC again stating the article or style number and the quantity. The department sends the fabric to the mentioned cutting section.

Cutting Department The department is responsible for cutting of the fabric into different parts of the garment. This

department is mainly responsible for cutting and avoiding wastage. To ensure minimum wastage, proper set of tools such as CAD and others are used in the process. The PPC by using CAD and other tools issues article average with a draft or diagram of how different patterns should be placed on to the layer. The cutting department based on their experience and expertise either accepts the proposed average or sometimes gives a better average by few percent. The department makes production plan for all cutting stations based on article or style requested. This also works on weekly basis. Once fabric is cut different parts of the same garment are bundled together.

Stitching Department The department is responsible for stitching different parts of garment together. The process

takes place in the assembly line system. The assembly line system is the set of many different stitching machines each for a specific purpose. These machines are arranged in an orderly fashion depending on how different parts of garment should be attached. Assembly line method is used for large production. PPC decides on the article or style to be produced with quantity. The stitching

28

department makes necessary production planning i.e. time line in accordance with each article. The stitching process is the most time consuming and labour intensive process in the entire garment production. The planning is done weekly.

Finishing and Packaging Department This is final stage before the garment is ready to be shipped. As the garment is already

finished, it requires a series of quality checks. The garment goes through the quality checks like color test, washing test, stitching test etc. After which it is steam pressed, labeled, packed into garment bags and finally, put into the cartons. Once all cartons are packed and labeled, external quality check takes place and goods are shipped. The PPC department gives the details of the PO to be finished, packed and dispatched.

Merchandising Department The department acts as a liaison between the buyer and manufacturing division. On one hand,

the department is responsible for notifying changes in the product to the PPC and also to make sure that article is produced as per planning by the PPC and within dispatch time limits. On the other hand, it has to continually update buyer with planning and production status. The department takes care of all correspondence with buyer and is responsible for communicating it to PPC. The department also takes care of necessary sampling such as proto, size set and final which is necessary prior to production.

Production Planning and Control (PPC) Department The department is responsible for making plans for the entire organization i.e. all the

departments. PPC being in the centre of all departments also controls their functionality. The PPC sends production plan to different departments on weekly basis and daily for any amendments. The PPC keeps check on different departments by requesting planning and production reports for each day. PPC only receives orders from the Management. With order quantity and dispatch date, it does the planning for product cycle. The top management is in continuous contact with PPC. 29

Figure 3.2.2.1 The PPC link with other departments

3.3 To understand the Export Procedure in PONN SANGER EXPORTS

It is essential that a person engaged in international trade be aware of the various procedures involved. The business of exports is heavily document-oriented & one must get acquainted with the entire procedure. Failure to comply with documentary requirement may lead to financial loss.

The procedural aspect of export operations are quite formidable and for that matter even an experienced exporter is overwhelmed by the magnitude of procedural requirements at every stage of export execution right from the time an export order is obtained until the realization of export procedures and the benefits thereof.

30

31

Fig.3.3.1 Export procedure flow chart

32

3.3.1 Pre-Shipment Procedure 33

On receiving the requisition & purchase order from merchant (See Annexure 3 and 4), documentation department issues an invoice. Two invoices are prepared i.e. commercial invoice & custom invoice. Commercial invoice is prepared for the buyer & Custom invoice is prepared for the Custom authorities of both the countries.

Packing list is prepared which details the goods being shipped. GSP certificate is prepared if the consignment is exported to EU or countries mentioned in the GSP list.

Buying house inspects the goods & issues an inspection certificate. Certificate of origin is also issued and attached, if required. Following documents are given to Customs for their reference: Custom Invoice Packing list IEC certificate Purchase Order or L/C, if required. Custom annexure

On receipt of above documents, customs will issue clearance certificate. After custom clearance a set of documents with custom clearance receipt are sent along with the consignment to the forwarder. Forwarder books the shipment & as per the size of the cartons calculates CBM & decides which container to be used.

Following documents are sent to buying house for their reference, as per buyers requirement: Invoice Packing List GSP (if exports to Europe) Certificate of Origin (if required) Wearing Apparel sheet A copy of FCR/ Airway Bill/ Bill of Lading

34

Buying house then intimates the buyer about the shipment & gives the details regarding it. Buying house will send a set of these documents to the buyer. Buyer collects the consignment from the destination port by showing the following documents: Invoice Packing List Bill of lading/ FCR/ Airway Bill

On shipment of goods, exporter will send the documents to the importers bank.

3.3.2 Post-Shipment Procedure

A foreign buyer will make the payment in two ways: 35

 TT ( telegraphic transfer) i.e. Wire Transfer (Advance payment, as per the clause 50% advance & remaining 50% on shipment) Letter of Credit If the payment terms are a confirmed L/C then the payment will be made by the foreign bank on receiving the following documents: Invoice Packing list B/L Any other required by the buyer or the country of import. The payment terms can be: At Sight Within 15 days from Bill of Lading or Airway Bill date. Within 30 days from Bill of Lading or Airway Bill date. Within 60 days from Bill of Lading or Airway Bill date. Within 90 days from Bill of Lading or Airway Bill date. After shipment, exporter sends the documents to the buyers bank for payment. As the buyers bank receive the documents it will confirm with the buyer for release of payment. On confirmation, it will make the payment in the foreign currency. The transaction will be Bank to Bank. The domestic branch will credit the exporters account, as against the respective purchase order or invoice, in Indian rupees by converting the foreign currency as per the current bank rate. If the payment is through wire transfer, the payment will be made as per the terms agreed by the exporter (Advance payment, as per the clause 50% advance & remaining 50% on shipment).

3.3.3 Export Documents An export trade transaction distinguishes itself from a domestic trade transaction in more than one way. One of the most significant variations between the two arises on account of the much more intensive documentation work. The documents mentioned in the pre & post shipment procedure are discussed below: 36

1. Invoice: It is prepared by an exporter & sent to the importer for necessary acceptance. When the buyer is ready to purchase the goods, he will request for an invoice. Invoice is of 3 types: a. Commercial invoice: It is a document issued by the seller of goods to the buyer raising his claim for the value of goods described therein, it indicates description of goods, quantity, value agreed per unit & total value to be paid. Normally, the invoice is prepared first, & several other documents are then prepared by deriving information from the invoice. (See Annexure 5) b. Consular invoice: It is certification by a consul or Government official covering an international shipment of goods. It ensures that exporters trade papers are in order & the goods being shipped do not violate any law or trade restrictions. c. Customs invoice: It is an invoice made on specified format for the Custom officials to determine the value etc. as prescribed by the authorities of the importing country.

2. Packing list: It shows the details of goods contained in each parcel / shipment. Considerably more detailed and informative than a standard domestic packing list, it itemizes the material in each individual package and indicates the type of package, such as a box, crate, drum or carton. Both commercial stationers and freight forwarders carry packing list forms. (See Annexure 6)

3. Certificate of Inspection: It is a type of document describing the condition of goods and confirming that they have been inspected. It is required by some purchasers and countries in order to attest to the specifications of the goods shipped. This is usually performed by a third party and often obtained from independent testing organizations. (See Annexure 7)

4. Certificate of Origin: Importers in several countries require a certificate of origin without which
clearance to import is refused. The certificate of origin states that the goods exported are originally manufactured in the country whose name is mentioned in the certificate. Certificate of origin is required when: - (See Annexure 8)

37

The goods produced in a particular country are subject to preferential tariff rates in the foreign market at the time importation.

The goods produced in a particular country are banned for import in the foreign market.

2. GSP: It is Generalized System of Preference. It certifies that the goods being exported have
originated/ been manufactured in a particular country. It is mainly useful for taking advantage of

preferential duty concession, if available. It is applicable in countries forming European Union. It has total of 12 columns to be declared by the exporter. They are:
1. Exporters name, address and country 2. Importers name, address and country 3. Means of transport and route 4. For official use(to be filled by the officials) 5. Item no.

6. Marks and no. packages 7. No. and kind of packages and description of goods 8. Origin criterion 9. Gross weight or quantity 10. No. and date of invoice 11. For certification of competent authority- in this column the competent authority will stamp and sign for the certification of the form. 12.Declaration by the exporter in this column the exporter declares the above details are correct and country where the goods produced for export and name mentioned

of the importing country and

then stamped and signed by the authorized representative of exporter with place an date. This form A GSP is sent between the countries, which have bilateral agreements. This certified original form will be used by importing country to import the consignment with deduction in import duty.

38

6. IEC Certificate: It is an Import-Export Code Certificate issued by DGFT, Ministry of

Commerce, and Government of India. It is a 10 digit code number. No exports or imports will be effected without the IEC code. It is mandatory for every exporter. (See Annexure 1)

7. Wearing Apparel Sheet: It is like a check list which gives the detail regarding the content &
design of the garment packed. (See Annexure 4)

8. Bill of Lading: The bill of lading is a document issued by the shipping company or its agent
acknowledging the receipt of goods on board the vessel, and undertaking to deliver the goods in the like order and condition as received, to the consignee or his order, provided the freight and other charges as specified in the bill have been duly paid. It is also a document of title to the goods and as such, is freely transferable by endorsement and delivery. (See Annexure 9)
A bill of lading normally contains the following details: The name of the company The name and address of the shipper / exporter The name and address of the importer / agent The name of the ship Voyage number and date The name of the ports of shipment and discharge Quality, quantity, marks and other description The number of packages Whether freight paid or payable The number of originals issued The date of loading of goods on the ship The signature of the issuing authority.

6. Airway Bill: An airway bill, also called an air consignment note, is a receipt issued by an airline
for the carriage of goods. As each shipping company has its own bill of lading, so each airline has 39

its own airway bill. Airway Bill or Air Consignment Note is not treated as a document of title and is not issued in negotiable form.

7. Mate's Receipt: Mate's receipt is a receipt issued by the Commanding Officer of the ship when
the cargo is loaded on the ship. The mate's receipt is a prima facie evidence that goods are loaded in the vessel. The mate's receipt is first handed over to the Port Trust Authorities. After making payment of all port dues, the exporter or his agent collects the mate's receipt from the Port Trust Authorities. The mate's receipt is freely transferable. It must be handed over to the shipping company in order to get the bill of lading. Bill of lading is prepared on the basis of the mate's receipt. It contains information relating to ; Description of packages. Condition of goods / packages loaded on the vessel. Name of the vessel Date of loading Port of delivery Name of the address of the shipper exporter Name and address of the importer / consignee. Other required details.

Importance of Mates receipt:The main importance of mates receipt is that is serves as an acknowledgement of the goods loaded on the ship. After loading, the goods remain in the custody of the captain / mate of the ship. 1. It enables the agent of the exporter to pay port trust dues. After making payment of port dues, the agent collects the mates receipt and submits it to the customs preventive officer.

40

2. It enables the shipping agent of the exporter to present the mates receipt to the customs preventive officer to record the certificate of shipment of all copies of shipping bill and other documents. 3. The export agent can obtain bill of lading on the basis of mates receipt from the shipping company.

6. Shipping Bill: Shipping bill is the main customs document, required by the customs authorities
for granting permission for the shipment of goods. The cargo is moved inside the dock area only after the shipping bill is duly stamped, i.e. certified by the customs. Shipping bill is normally prepared in five copies: Customs copy Drawback copy Export promotion copy Port trust copy Exporter's copy

Types of Shipping Bill 1. Manual Shipping Bill 2. Computer generate EDI shipping bill

Manual Shipping Bill: It will be prepared in quadruplicate and two additional copies in the prescribed format. It contains exporters name and address, Invoice no. and date, shipping bill no., Number and description of packages, Quantity, weight and value of goods, Name of vessel in which goods are to be shipped, Country of destination, total amount of duty, port at which goods to be discharged, and any other details if applicable. It will be filled by the customs agent and signed by both the exporter and customs agent. This document used for the customs clearance of the exporting goods. After customs

41

clearance the shipping bill will be numbered with date and duly stamped and signed with Let export permission by the customs official. After this only customs agents will allow the goods to clear through sea or air. Computer Generated EDI It also contains the same details as that of manual shipping bill prepared by customs, which is having an on line EDI (Electronic Data Interchange) system. This will be signed by the CHA (Customs House Agent) and customs official with Let export permission. When goods are manufactured in India on which drawback duty is allowed, the shipping bill used is called the drawback shipping bill.

6. Letter of Credit: This method of payment has become the most popular form in recent times; it
is more secured as company to other methods of payment (other than advance payment). A letter of credit can be defined as an undertaking by importers bank stating that payment will be made to the exporter if the required documents are presented to the bank within the variety of the L/C.

Contents of a Letter Of Credit A letter of credit is an important instrument in realizing the payment against exports. So, needless to mention that the letter of credit when established by the importer must contain all necessary details which should take care of the interest of Importer as well as Exporter. Let us see shat a letter of credit should contain in the interest of the exporter. This is only an illustrative list. Name and address of the bank establishing the letter of credit Letter of credit number and date The letter of credit is irrevocable Date of expiry and place of expiry Value of the credit Product details to be shipped

42

Port of loading and discharge Mode of transport Final date of shipment Details of goods to be exported like description of the product, quantity, unit rate, terms of shipment like CIF, FOB etc.

Type of packing Documents to be submitted to the bank upon shipment Tolerance level for both quantity and value If L/C is restricted for negotiation Reimbursement clause

Fig 3.3.3.1 Steps in an Import Transaction with Letter of Credit 3.3.4 Terms of Shipments Inco terms

The INCOTERMS (International Commercial Terms) is a universally recognized set of definition of international trade terms, such as FOB, CFR & CIF, developed by the International Chamber of Commerce (ICC) in Paris, France. It defines the trade contract responsibilities and liabilities between buyer and seller. It is invaluable and a cost-saving tool. The exporter and the importer need not undergo a lengthy negotiation about the conditions of each transaction. Once they

43

have agreed on a commercial terms like FOB, they can sell and buy at FOB without discussing who will be responsible for the freight, cargo insurance and other costs and risks.

The purpose of Inco terms is to provide a set of international rules for the interpretation of the most commonly used trade terms in foreign trade. Thus, the uncertainties of different interpretations of such terms in different countries can be avoided or at least reduced to a considerable degree. The scope of Inco terms is limited to matters relating to the rights and obligations of the parties to the contract of sale with respect to the delivery of goods. Inco terms deal with the number of identified obligations imposed on the parties and the distribution of risk between the parties.

More Clarification on Inco terms

EXW (At the named place)

Ex Works: Ex means from. Works means factory, mill or warehouse, which are the sellers premises. EXW applies to goods available only at the sellers premises. Buyer is responsible for loading the goods on truck or container at the sellers premises and for the subsequent costs and risks. In practice, it is not uncommon that the seller loads the goods on truck or container at the sellers premises without charging loading fee. The term EXW is commonly used between the manufacturer (seller) and export-trader (buyer), and the export-trader resells on other trade terms to the foreign buyers. Some manufacturers may use the term Ex Factory, which means the same as Ex Works. FCA (At the named point of departure)

Free Carrier: The delivery of goods on truck, rail car or container at the specified point (depot) of departure, which is usually the sellers premises, or a named railroad station or a named cargo terminal or into the custody of the carrier, at sellers expense. The point (depot) at origin may or may not be a customs clearance centre. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks.

44

In the air shipment, technically speaking, goods placed in the custody of an air carrier are considered as delivery on board the plane. In practice, many importers and exporters still use the term FOB in the air shipment.

FAS (At the named port of origin)

Free Alongside Ship: Goods are placed in the dock shed or at the side of the ship, on the dock or lighter, within reach of its loading equipment so that they can be loaded aboard the ship, at sellers expense. Buyer is responsible for the loading fee, main carriage/freight, cargo insurance, and other costs and risks In the export quotation, indicate the port of origin(loading)after the acronym FAS, for example FAS New York and FAS Bremen. The FAS term is popular in the break-bulk shipments and with the importing countries using their own vessels.

FOB (At the named port of origin)

Free on Board: The delivery of goods on the board the vessel at the named port of origin (Loading) at sellers expense. Buyer is responsible for the main carriage/freight, cargo insurance and other costs and risks. In the export quotation, indicate the port of origin (loading) after the acronym FOB, for example FOB Vancouver and FOB Shanghai.

Under the rules of the INCOTERMS 1990, the term FOB is used for ocean freight only. However, in practice, many importers and exporters still use the term FOB in the air freight. In North America, the term FOB has other applications. Many buyers and sellers in Canada and the USA dealing on the open account and consignment basis are accustomed to using the shipping terms FOB Origin and FOB destination.

FOB Origin means the buyer is responsible for the freight and other costs and risks. FOB Destination means the seller is responsible for the freight and other costs and risks until the goods are delivered to the buyers premises which may include the import custom clearance and payment of 45

import customs duties and taxes at the buyers country, depending on the agreement between the buyer and seller. In international trade, avoid using the shipping terms FOB Origin and FOB Destination, which are not part of the INCOTERMS (International Commercial Terms).

CFR (At the named port of destination)

Cost and Freight: The delivery of goods to the named port of destination (discharge) at the sellers expenses. Buyer is responsible for the cargo insurance and other costs and risks. The term CFR was formerly written as C&F. Many importers and exporters worldwide still use the term C&F.

CIF (At named port of destination)

Cost, Insurance and Freight: The cargo insurance and delivery of goods to the named port of destination (discharge) at the sellers expense. Buyer is responsible for the import customs clearance and other costs and risks. In the export quotation, indicate the port of destination (discharge) after the acronym CIF, for example CIF Pusan and CIF Singapore. Under the rules of the INCOTERMS 1990, the term CIFI is used for ocean freight only. However, in practice, many importers and exporters still use the term CIF in the air freight. CPT (At the named place of destination)

Carriage Paid To: The delivery of goods to the named port of destination (discharge) at the sellers expenses. Buyer assumes the cargo insurance, import custom clearance, payment of custom duties and taxes, and other costs and risks. In the export quotation, indicate the port of destination (discharge) after the acronym CPT, for example CPT Los Angeles and CPT Osaka.

CIP (At the named place of destination)

46

Carriage and Insurance Paid To: The delivery of goods and the cargo insurance to the named place of destination (discharge) at sellers expense. Buyer assumes the importer customs clearance, payment of customs duties and taxes, and other costs and risks.

DAF (At the names point at frontier)

Delivered at Frontier: The delivery of goods at the specified point at the frontier on sellers expense. Buyer is responsible for the import custom clearance, payment of custom duties and taxes, and other costs and risks.

DES (At named port of destination)

Delivered Ex Ship: The delivery of goods on board the vessel at the named port of destination (discharge) at sellers expense. Buyer assumes the unloading free, import customs clearance, payment of customs duties and taxes, cargo insurance, and other costs and risks.

DEQ (At the named port of destination

Delivered Ex Quay: The delivery of goods to the Quay (the port) at the destination on the buyers expense. Seller is responsible for the importer customs clearance, payment of customs duties and taxes, at the buyers end. Buyer assumes the cargo insurance and other costs and risks.

DDU (At the named point of destination)

Delivered Duty Unpaid: The delivery of goods and the cargo insurance to the final point of destination, which are often the project site or buyers premises at sellers expense. Buyer assumes the 47

import customs clearance, payment of customs duties and taxes. The seller may opt not to insure the goods at his/her own risks.

DDP (At the named point of destination)

Delivered Duty Paid: The seller is responsible for most of the expenses, which include the cargo insurance, import custom clearance, and payment of custom duties, and taxes at the buyers end, and the delivery of goods to the final point of destination, which is often the project site or buyers premise. The seller may opt not to insure the goods at his/her own risk.

E-term, F-term, C-term & D-term: Inco terms 2000, like its immediate predecessor, groups the term in four categories denoted by the first letter in the three-letter abbreviation.

Under the E-TERM (EXW), the seller only makes the goods available to the buyer at the sellers own premises. It is the only one of that category.

Under the F-TERM (FCA, FAS, &FOB), the seller is called upon to deliver the goods to a carrier appointed by the buyer.

Under the C-TERM (CFR, CIF, CPT, & CIP), the seller has to contract for carriage, but without assuming the risk of loss or damage to the goods or additional cost due to events occurring after shipment or discharge.

Under the D-TERM (DAF, DEQ, DES, DDU & DDP), the seller has to bear all costs and risks needed to bring the goods to the place of destination. All terms list the sellers and buyers obligations. The respective obligations of both parties

have been grouped under up to 10 headings where each heading on the sellers side mirrors the equivalent position of the buyer. Examples are Delivery, Transfer of risks, and Division of costs. This layout helps the user to compare the partys respective obligations under each Inco terms.

48

3.3.5 Realisation of Export Proceeds Once the goods have been physically loaded on board the ship, the exporter should arrange to obtain his payment for the exports made by submitting relevant documents. A complete set of documents normally submitted for the purpose of negotiation is called a negotiable set of documents, which usually consist of the following: 1. 2. 3. 4. 5. 6. Bill of exchange Bill of lading Commercial invoice Packing list Inspection certificate GSP certificate

Negotiation 49

A complete set of negotiable documents is presented to the negotiating bank through whom the documentary letter of credit has been advised. Where the exporter has complied with all the terms and conditions of the letter of credit while submitting his documents to the negotiating bank, the documents are deemed to be clean. The letter of credit opened by the buyer through his bank (opening bank) authorizes drawing a bill of exchange against which payment will be made by the opening bank on behalf of the buyer, provided the terms and conditions specified in the letter of credit are complied with. Bill of exchange It is the negotiable instrument through which the amount of export invoice / invoices will be collected from the corresponding bank specified by the importer through exporters bank. It contains number and date drawn on, credit no., corresponding bank address, the amount to be collected , terms of payment, importers name and address with invoice no. and bill of lading or airway bill no. the drafts drawn are of two types. 1. Sight draft 2. Usance draft If the letter of credit stipulates payment at sight, the exporter draws a sight draft on the buyer or his bank. When sight drafts are drawn by the exporter, he expects the buyer to arrange for payment immediately on presentation of the draft. Until payment for the draft is made, shipping documents will not be handed over to the buyer to enable him to clear the goods. (See Annexure 10) When the exporter has offered credit terms for payment, a Usance draft is usually drawn by the negotiating bank of the exporter. It is drawn for the payment after a specified period. The buyer on whom the draft is drawn retires the draft after 30days, 60days or 90days as agreed between him and the exporter at the time of concluding the contract. The letter of credit opened by the buyer will clearly specify the credit period which has been agreed upon and would mention that the draft should be drawn for 30,60 or 90 days, as the case may be.

50

For a credit period beyond 180 days, the exporter has to obtain the prior permission of the exchange control authorities in India. The bill of exchange drawn should correspond to the conditions stipulated in the letter of credit. Besides the negotiation of the documents, the banker has to perform other formalities. As part of the negotiation set of documents, the exporter has submitted the duplicate copy of the GR-1 form. After negotiation are complete, and payment is physically received by the bank, the duplicate copy of the GR-1 form is sent to the RBI after due checks. The exporter requires a commercial invoice attested by the bank for his use in claiming incentives. The bank attests the extra copies of the commercial invoice supplied by the exporter and returns them to him. To enable the exporter to claim incentives applicable for exports, a certificate known as Form I or Bank Certificate is required. The Form I or Bank certificate describes the product exported, its value, the details of the invoice, the bill of lading against which the export was made, the rate of conversion for the exchange for the exchange used, etc. the case of CIF contracts, the bank certificate specifies the fob value, freight and insurance under separate headings as evidenced in the bill of lading, insurance policy and invoice. The bank certificate also indicates the GR-1 form number against which the export was made. The original copy of the bank certificate is furnished to the exporter and the duplicate copy is sent to the JDGFT of the area. A third copy may be kept for its official records.

51

3.3.6 Realisation of Export Incentives: The incentives the exporter will get in todays context and the manner in which they can be obtained are as follows: 3.3.6.1. Duty Drawback: This refers to a rate fixed by the government based on the customs duty and excise duty components which go into the production of an export product. This does not refer to the finished product excise duty, but to the excise and customs duty paid on all the raw materials and components which go into the production. Every year the Department calls for latest data on these through the Export Promotion Councils, determines the drawback rate and publish it for the exporters by June of the year. When the shipping bill is submitted to the customs for the shipping of goods, it consists of a set of five copies. The duplicate copy is known as the Drawback copy, and this will contain all the

52

details like description of the product, the port of destination, the total amount of drawback as per government notification etc. this copy is endorsement by customs and sent directly by them to the drawback cell in the customs department situated in the port from which goods were exported. The exporter can approach this cell for his drawback payment with any additional details they may ask for.

3.3.6.2. Excise Rebate: Finished goods which are subject to excise duty for home consumption are exempt from the duty when they are exported. The scheme is also applicable where the exported goods contain excisable goods in their manufacture. The exporter can avail of this facility in either of the following methods, where finished goods are excisable:

i.

Export under Bond: Under this method, the exporter has to execute a bond in favour of Central Excise

Authorities. The amount of the bond will be equal to the duty on the estimated maximum outstanding of goods leaving the factory without paying the duty and pending acceptance of their proof of export by excise authorities. No excise need to be paid by the exporter. ii. Refund of Duty: If the duty is already paid, after export is made, the exporter should make a claim with the Central Excise Authorities. After verification of the claim, the excise authorities will arrange for the refund of the central excise. Where the excisable materials have been used in the manufacture, similar to the above arrangement, the exporter can avail of the facility of manufacturing under bond or he can claim refund after duty is paid.

53

TURN OVER OF PON SANGER EXPORTS

Table 3.1 Turn Over of PON SANGER EXPORTS (In crores) YEAR 2005 2006 2007 2008 2009 SALES (RS) 21.74 24.94 40.67 48.63 27.33 3.2 15.73 7.96 -21.3 VARIATION (RS) PERCENTAGE 13.31 15.27 24.90 29.77 16.735

Interpretation
The above table indicates the total export position from the year 2005-2009. The sales turn over increases from the year 2006 -2008 and reduce in the year 2009 with the variation value of 21.3 54

Figure 3.1 Turn Over of PON SANGER EPORTS

SALES IN BABY PRODUCTS

Table 3.2 Sales in Baby Products (In crores) YEAR 2005 2006 2007 2008 2009 SALES (RS) 0.86 2.49 2.03 2.91 1.91 1.63 -0.46 0.88 -1 VARIATION (RS) PERCENTAGE 8.43 24.41 19.90 28.52 18.72

Interpretation
The above table indicates the export position of baby products from the year 2005-2009. In the years 2007 and 2009 the variation values are negative. In the years 2006 and 2008 the variation values are positive. Figure 3.2 Sales in Baby Products

SALES IN FISHER PANT

Table 3.3 Sales in Fisher Pant (In crores) YEAR SALES (RS) 55 VARIATION (RS) PERCENTAGE

2005 2006 2007 2008 2009

2.6 4.49 4.47 6.32 1.91 1.89 -0.02 1.85 -4.41

13.13 22.68 22.58 31.93 9.65

Interpretation The above table indicates the export position of fisher pant from the year 2005-2009. In the years 2007 and 2009 the variation values are negative. In the years 2006 and 2008 the variation values are positive. Figure 3.3 Sales in Fisher Pant

SALES IN LADIES TOP

Table 3.4 Sales in Ladies Top (In crores) YEAR 2005 2006 2007 2008 2009 SALES (RS) 6.08 5.98 11.79 12.64 6.28 -0.1 5.81 0.85 -6.36 VARIATION (RS) PERCENTAGE 14.21 13.98 27.56 29.55 14.68

Interpretation The above table indicates the export position of ladies pant from the year 2005-2009. In the years 2006 and 2009 the variation values are negative. In the years 2007 and 2008 the variation values are positive. 56

Figure 3.4 Sales in Ladies Top

SALES IN PYJAMAS

Table 3.5 Sales in Pyjamas (In crores) YEAR 2005 2006 2007 2008 2009 SALES (RS) 1.73 1.49 2.84 4.37 3.82 -0.24 1.35 1.53 -0.55 VARIATION (RS) PERCENTAGE 12.14 10.45 19.92 30.66 26.80

Interpretation The above table indicates the export position of pyjama from the year 2005-2009. In the years 2006 and 2009 the variation values are negative. In the years 2007 and 2008 the variation values are positive. Figure 3.5 Sales in Pyjamas

SALES IN T-SHIRTS

Table 3.6 Sales in T-Shirts (In crores) YEAR SALES (RS) VARIATION (RS) PERCENTAGE

57

2005 2006 2007 2008 2009

4.78 1.74 8.13 10.21 7.1 -3.04 6.39 2.08 -3.11

14.95 5.44 25.43 31.94 22.21

Interpretation The above table indicates the export position of t-shirts from the year 2005-2009. In the years 2006 and 2009 the variation values are negative. In the years 2007 and 2008 the variation values are positive. Figure 3.6 Sales in T-Shirts

SALES IN SWIM WEAR

Table 3.7 Sales in Swim Wear (In crores) YEAR 2005 2006 2007 2008 2009 SALES (RS) 3.91 5.23 7.72 8.75 3.28 1.32 2.49 1.03 -5.47 VARIATION (RS) PERCENTAGE 13.53 18.10 26.72 30.28 11.35

Interpretation

58

The above table indicates the export position of swim wear products from the year 20052009. In the years 2009, the variation values are negative. In the years 2006 to 2008 the variation values are positive. Figure 3.7 Sales in Swim Wear

EXPORTS TO UNITED STATES

Table 3.8 Exports to United States (In crores) YEAR 2005 2006 2007 2008 2009 SALES (RS) 2.71 3.74 7.38 17.02 10.16 1.03 -9.64 6.86 6.42 VARIATION (RS) PERCENTAGE 6.61 9.12 18 41.50 24.77

Interpretation The above table indicates the export position to United States from the year 2005-2009. In the years 2007, the variation values are negative. In the years 2006, 2008 and 2009 the variation values are positive. Figure 3.8 Exports to United States

EXPORTS TO EUROPE

59

Table 3.9 Exports to Europe (In crores) YEAR 2005 2006 2007 2008 2009 SALES (RS) 6.52 9.97 7.32 14.59 5.46 3.45 -2.65 7.27 -9.13 VARIATION (RS) PERCENTAGE 14.87 22.73 16.69 33.26 12.45

Interpretation The above table indicates the export position to Europe from the year 2005-2009. In the years 2007 and 2009, the variation values are negative. In the years 2006 and 2008 the variation values are positive. Figure 3.9 Exports to Europe

EXPORTS TO CANADA

Table 3.10 Exports to Canada (In crores) YEAR 2005 2006 2007 2008 2009 SALES (RS) 10.87 6.23 4.06 9.72 5.19 -4.64 -2.17 5.66 -4.53 VARIATION (RS) PERCENTAGE 30.14 17.27 11.26 26.95 14.39

Interpretation 60

The above table indicates the export position to Canada from the year 2005-2009. In the years 2006, 2007 and 2009, the variation values are negative. In the years 2008 the variation values are positive. Figure 3.10 Exports to Canada

FUTURE TREND ANALYSIS OF SALES

Future trend With the available data for the past five years from 2005 2009, the future trend of this concern in export has been forecasted.

Methodology: The methodology adopted here is the least square method.

Formulae: na + b X =Y aX + b X 2 = XY By solving the above equations we get the values of a and b.

a = Y / n b = XY / X 2 61

Then substituting the values of a and b in the linear equation we get Y = a + bx

Table 3.11 Future Trend Analysis (In crores) YEAR 2005 2006 2007 2008 2009 TOTA L Y (RS) 21.74 24.94 40.67 48.63 27.33 163.31 X -2 -1 0 1 2 0 X2 4 1 0 1 4 10 XY (RS) -43.48 -24.94 0 48.63 54.66 34.87

Calculation Y = a + bx a = Y / n = 163.31 / 5 = 32.66 b = XY / X 2 = 34.87 / 10 = 3.48 X = (x 2007) x = year for which the sales is estimated. Substituting the value of a and b in the formula we get the future exports 2010 = 32.66 + 3.48(3) =43.10 crores 2011 = 32.66 + 3.48(4) =46.58 crores 2012 = 32.66 + 3.48(5) =50.06 crores 62

2013 = 32.66 + 3.48(6) =53.54 crores 2014 = 32.66 + 3.48(7) =57.02 crores

Interpretation From the analysis it is found that future sales trend gradually increases year by year. Future years sales when compared to present situation are good.

Figure 3.11 Future Trend Analysis

4. FINDINGS AND INFERENCE

The documentation paper works are simplified than the previous years.

63

 This has led to the emergence of a business environment ,widening both the scope and scale of opportunities open to sellers Though many documents prevail in documentation, only certain documents play a vital part in the company. It uses the Inco terms as FOB and C&F mostly. From the companys procedure, the following has been inferred; Figure 4.1Forward System followed in PON SANGER EXPORTS

Europe Countries offer tax benefits for the imports. This is not provided by the U.S. 8-10% is kept as the profit margin. The firm pays a tax of 33% for the imports from Taiwan and China. 64

 The shipment carry days are 18days to Europe and 26-30days to U.S. The firm pays its bank Canara Bank, an amount of $25 for each FOREX conversion. There seem to be a relative increase in the sales turnover of PON SANGER EXPORTS up to 2008 and a noticeable fall during the year 2009. The product wise sales turn over and variations are fluctuating year by year.

From the past export analysis for the country United States, the export variations are positive with an increase of Rs.9.64 crores from the year 2008. From the past export analysis for the country Europe, the export has drastically reduced from the year 2008 to 2009 with the variation of Rs.9.13 crores. From the past export analysis for the country Canada, the exports reduced year by year except for the year 2008 which increased with the variation of Rs.5.66 crores. As an overall study, we can find that the firm has enjoyed more benefits and sought more profits in the year 2008. Year 2009 has been seen as less profitable than the year 2007 and 2008. From the future trend analysis, the export of the company increases year by year.

5. SUGGESTIONS

As only certain documents are put in use, the other documents have no power in the company which will be supportive to reduce the export procedures. 65

 As many of the documents are part in the use of documentation and procedures which may delay and tend to loss the customers. The company has to speed up the paper work. Update of available export incentives. The company should check the exchange rates before entering into particular markets which will help in achieving more profits. The company can improve its sales by improving its quality and promotional activities. The company has to improve their infrastructure facilities which will increase the exports. If all the processing units are brought under one roof, it will reduce the processing time of goods and it will lead to timely delivery of goods to the customers. Try for ISO certifications, which will value the company higher. Require more knowledge on the incentives offered by the Government. Can opt for Market Development Assistance from the Government of India, for Exhibition and Stalls overseas.

6. CONCLUSION

The study was conducted to know the process involved in an apparel firm and to study about the various departmental functions which coordinates to complete the export cycle. The export procedure of the firm has been seen clearly and other related aspect has been known. 66

From the analysis it is found that the performance of the company is satisfactory, but the company is facing problem regarding excess of documents which causes delay in transportation. Therefore necessary steps should be taken to limit the number of documents so that the company can make distribution at right for the company and it helps the company to have competitive advantage over its competitors.

There are signs of good future for PON SANGER EXPORTS, AVINASHI because of growing demand for Indian knitwear in the world market.

7. BIBLIOGRAPHY
Books

1. Balagopal
2007

T.A.S, Export Management, Himalaya Publishing House, nineteenth edition

67

2. Jeevanandam.C.,

Foreign Exchange- practice, concepts and control, Sultan Chand and

Sons, tenth edition 2007 3. Kothari C.R., Research Methodology, Method & techniques, New Age International. Pvt. Ltd, Second Edition, 1985

4. Mahajan M.I., A guide on export 5. Dr.Varma.M.M.

edition 2006

policy, procedure and documentation, Tata McGraw hill

publishing company ltd, Third Edition 2005 & Aggarwal R.K, Foreign Trade Management, King Book, second

6. Puri, V. K., Exporters Guidelines, A Basic Book on How to Export as per Govt. Policy &
Procedures, 2nd Edition, JBA Publishers, 2008-09

7. Paul, Justin & Aserkar, Rajiv, Export Import Management, 2nd Edition, Oxford
University Press, 2009, Chapter 2, pp. 17-29.

Reference Site

http://www.sebi.gov.in/dp/splfinal.pdf as retrieved on April 20, 2010

Overcoming the obstacles to export documentation1, Thomas A. Cook.

http://search.barnesandnoble.com/Export-Import-Procedures-and-Documentation/Thomas-EJohnson

Export Documentation Made Easy2, Laurel Delaney

http://www.allbusiness.com/business-planning-structures/starting- a- business/38782071.html

Export Trade Sector Using Available Trade Finance Tools and Resources5, Koch and John. http://www.allbusiness.com/trade-development/trade-development-finance/88904661.html 68

True cost of export documentation7, Corinne Campbell. http://www.dynamicbusiness.com/articles/articles-export/true-cost-of-exportdocumentation2043.html Guide to Inco terms 2000, Posner and Martin8. http://www.allbusiness.com/legal/international-law-foreign-investmentfinance/918569-1.html

All Industry Rates of Duty Drawback, 2008-099. http://www.cmai.in/download/circulars/Pre_Budget_Memorandum.pdf Foreign Trade Policy 27th August 2009 - 31st March 2014 http://dgftcom.nic.in/exim/2000/policy/ftp-plcontent0910.pdf

8. ANNEXURE
Interview Questions

Mr. T.Kumar, Masters of Foreign Trade 69

Export Manager, PON SANGER EXPORTS, AVINSAHI

a) How an export order is processed? b) What role the different departments play for the completion of the export order? c) What role does merchandising department play in an Apparel export house? d) What are the different documents prepared & used for the export? e) How important are these documents?

f) What are the Inco-terms? How are they important?

g) What is a Letter of credit? What is its significance? h) How does Government render its help to your firm and how do you utilize it? i) Are you looking for a wider market?

j) Do banks you work with offer their best help?

Annexure 1 Certificate of IEC Annexure 2 AEPC Annexure 3 Performa Invoice Annexure 4 PO Annexure 5 Commercial Invoice

70

Annexure 6 Packing List Annexure 7 Inspection Certificate Annexure 8 Certificate of Origin Annexure 9 Bill of Lading Annexure 10 Bill of Exchange

71