UNIT 3

EXPORT MANAGEMENT

CONTENT

 Export Procedure and Document

 Export Finance
 Export Promotion
 Export Pricing

3.1 Introduction

Exports form the vital component of foreign trade. In this chapter, we shall study
briefly about the export procedures and the documents required in this process.
Besides, we will also study about the finance required for carrying out the foreign
trade activities; the organisations extending financial support and the role of
"Export Credit Guarantee Corporation" of India Limited (ECGC) and also about
export promotion.

3.2 Export Procedure

Exporting involves lot of formalities and procedures and it is a lengthy and

complicated process. First of all, an exporter is required to register his business
with various government agencies. The Government of India has introduced a
compulsory pre-shipment inspection of certain selected goods to ensure that high
quality standards are maintained. Relevant documents have to be prepared or
obtained before shipment. Post-shipment procedure involves a number of steps
which include despatch of documents by C&F agents to the exporter, shipment
advice to importer, presentation of documents to banks, realisation of export
proceeds and following up of export sales. We shall discuss in greater detail about
the various procedures and formalities.
1. Registration:

Unlike domestic business, an exporter is required to get his business registered

with various government agencies. The following are some of the main steps:

a) To decide the nature of business: Exporters generally start their business

on a small-scale like sole proprietorship or partnership. This is because,
there is lot of uncertainty in export business. When the scale of operation
is enhanced, there should be more of inputs and the business can be made
as private limited company or joint-stock company, depending upon the
size and scale of operation.
b) To open a bank account: The exporter should open a bank account, ad in
this, he should be very careful in selecting the bank. He should open current
account in such a bank which would support him in business. As far as
possible, he should open an account in a bank which is authorise to deal in
foreign exchange. The exporter must maintain cordial relation with his
banker. A good bank is the most dependable support to the exporter.
c) To fix Credit limit: The exporter must apply to the bank and get pre
shipment and post-shipment credit limit fixed. This will enable the exporter
to know how much capital he should rise from other sources and the value
of orders he should entertain.
d) To obtain Communication facility: Communication through any medium
has to be established. FAX has become very common in modern days and
it is also very popular. It is the latest means of communication. In case of
established exporters, they can own FAX facility; but a new comer can
obtain the facility provided by FAX agents
e) To obtain Income-Tax Number: The exporter must possess income-tax
number from income-tax authorities. A new comer in export business can
get a temporary number from income-tax authorities; later on, when he is
settled in business, he can get permanent number.
f) To obtain Code Number: Every exporter is required to obtain a Code
Number from the Reserve Bank of India. The exporter must quote income
tax number allotted to him by the income-tax authorities on the CNX form
which is used for obtaining code number. The exporter must collect two
copies of code number application form from the Exchange Control
Department (Exports) of RBI. In a sealed envelope, the exporter is required
to put two copies of CNX form, a copy of income-tax number certificate
and a confidential report about the financial standing from the bank and
forward it to RBI. As per the EXIM POLICY (1992-1997), exporters are
required to obtain Import-Export Code (ICE) number. The exporter is
required to apply to the Chief Controller of exports and imports to obtain
ICE code number. This will entitle to import or export any item of no
prohibited goods. This code number is made compulsory now. It is s
applicable for export of services like consultancy or construction contracts.
g) To register with ECGC: Export Credit and Guarantee Corporation which
is a division of Ministry of Commerce provides credit insurance to experts
against commercial and political risks involved, while collecting payment
from abroad. The ECGC policy helps to overcome the non-payment risks
from the foreign buyers. A policy with ECGC also helps to get liberal credit
from the bank. This is because, ECGC gives various kinds of pre shipment
and post-shipment financial guarantees to the bank on behalf of the
exporter.
h) To apply for exemption from sales Tax: The goods meant for exports are
eligible for exemption from both State and Central Sales Taxes. The export
firm should be registered with sales tax authorities and follow the
necessary procedure laid down by them.
i) To register with Export Promotion Council: There are different export
promotion councils for different types of business like Engineering Export
Promotion Council, Chemical Export Promotion Council, Textile Export
 Promotion Council, etc. The firm should have registration cum
membership certificate. A registered exporter becomes eligible to get
export incentives and benefits offered by the Ministry of Commerce.
Further, the export promotion council will guide the exporter with plenty
of market information and literature connected with it.
j) To become member of Chamber of Commerce, Productivity Council
and Indian Institute of Foreign Trade (IIFT): The exporters must take
up the membership of local chamber of commerce, productivity council
and other trade promotion organisations like IIFT in order to avail the
services rendered by these organisations and benefit thereby. The IIFT is
an autonomous body which conducts short-term and long-term residential
training programme for exporters. When the business is well established,
it is advisable to take membership in IIFI.
2. Quotation and Indent
After registration, the exporter gives a quotation or an offer for sale to the
foreign buyer. It is usually in the form of Proforma Invoice. This gives
information regarding (i) Name and address of the buyer or Consignee; (ii)
Description of goods to be sold; (iii) Price; (iv) Condition of sale; and (v)
other provisions such as delivery schedules, payment terms, and escalation
clause due to rising prices. Costs, etc. The seller would like to quote his
price and ‘ex-works' in his own currency and leave the rest to the foreign
purchaser. On the other hand, the buyer or the importer would always
prefer to have the good delivered to his own warehouse free of all charges,
at an exclusive price quote in his own currency. The first type of price
quotation is called 'ex-factory' or ‘loco' while the second type is called
'franco' quotation. In a competitive world the exporter must go as far as he
can to meet the importer's wishes. The quotation is an offer of sale made
by the seller to the buyer and it must include in a clear-cut manner all terms
and conditions on which the goods are offered for sale. These relate to
 quantity, quality, prices, terms of delivery discounts, payments etc. When
the proforma invoice is accepted by the buyer it becomes a confirmed order
and it is a signal for the exporter to proceed with the formalities connected
with the export of the goods mentioned.
3. Shipping and Credit Enquiry
Then the exporter may have to arrange for booking of shipping space in
advance of actual sending of goods. Usually, the exporter hands over this
responsibility to a shipping and freight broker who is specialised in this
work. He possesses full knowledge of the various shipping lines and gives
expert advice as to which line is cheaper. The shipping company issues a
shipping order to the exporter when it agrees to carry the exporter's goods.
The shipping order is a document containing instructions to the Captain of
the ship to accept goods on board the ship from the exporter or his agent.
Then, the creditworthiness of the importer should be thoroughly verified.
He may be requested to open an account in the form of letter of credit with
a bank having branches in both exporting and importing countries.
4. Preparation for Export
In case an export commission house is acting as an agent of the importer,
it will be in charge of collection of goods as per indent from exporters, i.e.,
local producers and manufacturers. Once the goods for exports are
collected or manufactured, the export commission house will have to look
after packing and marking of goods as per usage or as per special
instructions of importer. If exporter is also a manufacturer, the indent or
order is sent to the factory with all specifications and the deadlines for
delivery.
a) Arrangement for Shipment: The manufacturer exporter, or
merchant exporter can get exemption from the sales tax and refund
of excise duty and customs duty. Certain legal formalities have to
be performed before the goods are released for shipment. 'Form 14'
 is required for exemption of sales tax, and 'Form AR-4' is needed
for exemption or refund of excise duty.
b) Pre-Shipment Inspection: We have compulsory quality control
for export of goods. Export Inspection Council (EIC) does the pre-
shipment inspection. Emphasis is on quality control and not on
inspection for export. This is done to prevent export of inferior
quality goods which would bring bad name for the country. Under
the Export Inspection Council, effective controls are exercised
during the procurement of materials and components and process of
production in case of some of the 'Panel' items. The EIC relies on
rigorous periodical checks of the factory's own system of process
control through a panel of experts. The units approved by the panel
are declared as "Export Worthy". Exports of such units are allowed
without much formality. It is, thus, advisable for manufacturers to
get themselves recognised as "export worthy" units.
c) Forwarding Agent: In order to look after all shipping and customs
formalities and the actual loading of the goods on board the ship, a
specialist called Forwarding Agent may be appointed by the
exporter. These forwarding agents are expert in their line of
business and on nominal commission offer valuable services to the
exporter. In particular, they perform the following function
 Negotiations of shipping contract;
 Customs formalities;
 Marine insurance; and
 Loading of goods and securing Bill of Lading.

Sometimes, the forwarding agents may be entrusted with the work

of packing, marking, etc., of the goods to be exported.
 d) Packing: It may be done either by the manufacturer himself or it
may be entrusted to 'Packing Agents'. Packing for export is a highly
specialised work. Firstly, packing must not only provide adequate
protection for the goods, but must also be in accordance with the
requirements of the shipping company and of the customs
authorities. Secondly, the goods clearly marked must be packed
strictly as per contract; otherwise the buyer may perhaps refuse to
take delivery. The forwarding agents are experienced in the general
routine of exports and know the special requirements of the
importing country with reference to packing etc.
e) Marking: Each package should be stamped with a distinct mark
pointing out the name of the importer and port of destination. The
gross weight, i weight with package and the weight along with
measurements should be marked on the package.
5. Customs and Exchange Formalities
The necessary steps to be undertaken under this are as follows:
a) Shipping Bills: The shipping bill or custom challan contains
detailed description of the goods, viz., quantity, quality, value,
numbers, marks measurement, the port of destination, the name of
the ship carrying the goods, etc. The exporter is required to fill in
three copies of shipping bills
b) Export Permission Forms: It is an application to export. This
application form should be filled in duplicate and the exporter
submits four copies of shipping bill and two copies of application to
export to the landing and shipping dues office. This office collects
shipping dues or charges, retains one copy of application and returns
to the exporter the other along with three copies of shipping bills.
c) Customs House: The exporter is required to present a copy of
application three copies of shipping bill, export licence (for
 verification) to the customs house. Shipping bills for dutiable goods
differ from those for free goods. The customs house will register
details of export in its books and will return to the exporter a copy
of shipping bill with necessary endorsement. The original and
duplicate copy of the shipping bill are retained by the customs house.
Export duty, if any, will have to be paid. The customs house will
direct the examining officer or appraiser to carry out physical
examination of goods at the dock with reference to value description
quality etc. A custom export pass will be issued in favour of the
exporter who has gone through all customs formalities to the
satisfaction of the customs house
d) Export Licence: At present, every exporter is required to procure
an export licence from the controller of exports for those
commodities for which licences are required. The licence is valid for
three months, though the period can be extended by licensing
authority.
e) Exchange Control: The exporter has to fill in four GR Forms. One
copy would be given to the customs house at the time of shipment
and three copies of GR Forms should be given to the authorised
exchange dealer along with one copy of invoice and take other
shipping documents. The exchange dealer, ie, the foreign exchange
bank will forward two copies of GR Forms to the Reserve Bank of
India.
6. Mate's Receipt
After having received back the two copies of shipping bill and one copy of
the Application to Exporter, the shipper makes arrangements to place the
goods on board the ship. He has to hand over one copy of the shipping bill
at the dock while the goods are taken in. The Captain of the ship or the
Mate who is his assistant cannot allow the shipping of the goods, unless
 the shipper presents to either of them a copy of the shipping bill and the
shipping order. The Mate issues A receipt after examining the packing and
counting of the packages. This receipt is called the "Mate's Receipt. If the
Mate is not satisfied with the packing of the goods, a remark to that effect
is made on the receipt. A receipt with this remark thereon is regarded as a
clean Mate's Receipt. This remark is transferred to the Bill of Lading when
the exporter gets it in exchange for the Mate's Receipt.
7. Insurance
While the work connected with the shipping of the goods is being carried
out the exporter makes arrangements with some Marine Insurance
company for insuring the goods to safeguard them against marine risks.
Usually, the goods are insured for the amount which covers not only the
value of the goods, but also reasonable profit (generally 15 per cent of the
value of the goods) and reasonable expenses expected to be incurred in the
event of the loss or destruction of the goods by the perils of the sea.
8. Bill of Lading
The exporter approaches the Shipping Company, presents the Mate'
Receipt and in exchange receives a document known as Bill of Lading.
Actually, the exporter himself fills in the details regarding the goods,
destination, name of the ship, etc., in the blank forms of the Bill of Lading.
The authorised person, on behalf of the Shipping Company, checks, signs
and returns this Bill of Lading to the exporter along with the freight note,
as soon as the freight charges are also paid by the exporter. Freight Note
is, thus, a receipt of having paid the requisite freight to the shipping
company by the shipper. Sometimes, the importer agrees to pay the freight
according to the contract between the exporter and importer. In such a case,
the exporter gets the Bill of Lading duly signed and stamped by the
Shipping Company and marked with the words 'Freight Forward'. When
the goods in such a case reach the importer's destination, he presents the
 Bill of Lading along with the payment of freight and then only the importer
can take charge of the goods. A Bill of Lading may be defined as a
document wherein the steamship company gives its official receipt for
goods shipped in one of its vessels and at the same time contracts to carry
to the port of destination. The possession of this document, i.e., Bill of
Lading gives the title, i.e., the ownership to the goods and it is feely
transferred by endorsement and delivery. The exporter sends this bill of
lading to the importer who can take possession of the goods by presenting
the same to the shipping company at his station port The Bill of Lading is
said to be 'Clean' if it is signed without any adverse remarks on it. A clean
Bill of Lading is an evidence of the goods having been packed in good
condition at the time of loading.
9. Other Shipping Documents
a. Letter of Indemnity: If the Bill of Lading contains some adverse
remarks regarding packing of the goods, the importer may refuse to
take delivery or may claim damage. In order to avoid this trouble,
the exporter gives to the shipping company a Letter of Indemnity by
which he agrees to indemnify the shipping company, in return for a
clean Bill of Lading, for any claim on the part of the importer in
respect of the goods.
b. Consular Invoice: In those countries where advalorem duties are
charged, is in the interest of the importer to present to the customs
authorities of the importing country the document called 'Consular
Invoice' in order to save time d trouble while taking delivery of the
goods. This invoice has to be sent to him the exporter who fills in a
special form and gets it duly certified by the consulate the importing
country stationed in the exporting country. The customs authorities
of the importing country consider this invoice as a genuine statement
of the contents and value of the goods. This document, thus rids the
 importer of the trouble of opening all the packages at the time of
assessing the duties by the customs house.
c. Certificate of Origin: Trade Agreements between two countries
may offer a differential treatment in respect of import duties to the
goods sent from one country to the other; "the most favoured nation'
treatment, as it is often called. In these cases, the importer will get
some advantage in import duties, as the goods have been purchased
from the favoured nation, as per trade agreement. In order to prove
that the imported goods originated from the exporting country with
whom the trade agreement has been entered into, the importer has to
present to Customs authorities the certificate called, 'Certificate of
Origin'. This document certifies the name of the country in which
the goods are manufactured. The exporter of goods will obtain this
certificate from the chamber of Commerce and send it to the
importer to make use of it.
10. Securing Payment
The exporter can resort to a number of alternatives for securing payment
of export dues from the importer. This depends on his contact with the
importer.

3.3 Export Finance

Finance is an essential requirement for any kind of business. So is the case with
exporter. The various sources available have to be explored in order to fulfil the
financial requirements of the exporter. We can define export finance as "the
credits required by exporters for financing their export transactions from the time
of getting an export order to the time of the full realisation of the payment from
the importers."
From the time of an export order is received and confirmed, the exporter needs
finance at pre-shipment stage and also at post-shipment stage.

Finance is required at pre-shipment stage for the following purposes

 To purchase raw materials and other inputs to manufacture goods;

 To assemble the goods in the case of merchant exporters;
 To store the goods in suitable warehouses till the goods are shipped;
 To pay for packing, marking and labelling of goods;
 To pay for pre-shipment inspection charges;
 To pay for consultancy services;
 To import or purchase from the domestic market heavy machinery and
other capital goods to produce export goods;
 To pay for export documentation expenses.

Finance is needed at the post-shipment stage for the following:

 To pay to agents/distributors and others for their services.

 To pay for publicity and advertising in the overseas markets.
 To pay for port authorities, customs, and shipping agent's charges.
 To pay towards export duty or tax, if any.
 To pay towards ECGC premium.
 To pay for freight and other shipping expenses
 To pay towards marine insurance premium, especially when it is a CIF
contract,
 To pay towards various expenses in connection with visits abroad for
market surveys, or for some other purpose.
 To pay for collecting information on overseas markets either before or after
shipment of goods.
 To pay towards such expenses regarding participation in exhibitions and
Trade Fairs in India and abroad.
  To pay for representatives abroad in connection with their stay abroad.
 To pay for any other activity in connection with export of goods.

Pre-shipment credit or 'Packing Credit: This is an advance granted to the

exporters by the banks for meeting their such financial requirements as purchase
of raw materials and its processing, packing, storing and shipping of goods. It is
a short term credit which is available to all exporters.

Post-Shipment Finance: This is provided to meet working capital requirements

after the actual shipment of goods. It bridges the financial gap between the date
of shipment and actual receipt of payment from overseas buyer thereof. This
finance is extended to the actual exporter who has shipped the goods or to an
exporter in whose name, export documents are transferred.

The amount of post-shipment finance depends upon whether it is short-term,

medium-term or long-term. It also depends upon the value of capital goods and
equipment or turnkey projects. Any loan upto Rs. 10 Crores for financing export
of capital goods is decided by commercial bank which can refinance itself from
EXIM Bank. In case of export contract above Rs. 10 crores, but not more than
Rs. 50 crores, the EXIM bank has the authority to decide whether export finance
could be provided. Contracts above Rs. 50 crores need the clearance from the
working group on Export Finance, consisting of representatives from EXIM
Bank. RBI, ECGC and the bankers of the exporter. In case of large contracts,
representatives from Ministries of Commerce and Finance also act as members
of Working Group. The period of post-shipment finance may be short-term,
medium-term or long Short-term is usually 90 days. The loan is provided by
commercial bank. Medium-term is usually between 90 days and 5 years, and the
commercial bank together with EXIM Bank gives medium term loans. The long-
term is the period above 5 years to 12 years and it is provided by EXIM Bank in
case of sale of capital goods, complete plants and turnkey projects
3.4 Role of Commercial Banks in Export Finance

A major part of export finance is provided by commercial banks. They also

provide other services and facilities to the exporters. Hence, the services of
commercial banks to the exporters can be grouped under two heads, viz., (1) Fund
Based Service; and (ii) Non-Fund Based Service.

1. Fund Based Service: The Commercial banks provide fund based activities
at Pre-shipment stage and also at Post-shipment stage by providing finance
for a normal period of 180 days at a very concessional rate of interest. The
various forms of advances are: (a) Cash Packing credit loan (b) Advance
against hypothecation (c) Advance against pledge and (d) Other forms. At
the post shipment stage, the commercial banks provide finance normally
for a period of 90 days at a concessional rate of interest.
2. Non-Fund Based Service:
a. RBI has authorised commercial banks to issue guarantees and
furnish bid bonds in favour of overseas buyers. Prior permission of
RBI is not required except in case of exports of capital goods under
deferred payments, construction contracts, consultancy and
technical services contract and turnkey projects. Thus, the
commercial banks render most valuable service to exporters by
performing Guarantee Service in various ways: (
b. Performance Guarantee This is generally required in export of
capital goods and also in case of turnkey and construction projects;
c. Guarantee for loans in foreign currency sanctioned by a financial
institution abroad to Indian exporters who raise funds in foreign
currencies for financing their operations with their projects abroad.
d. The banks also issue advance payment guarantee to the overseas
buyer who normally makes certain advance payment to the Indian
exporter against a bank guarantee.
 e. Banks also issue guarantee for payment of retention money by the
overseas party who would release the retention money to the Indian
party, only after receiving guarantee from bank.
f. Bank issue Bid Bonds so as to enable exporters to participate in
various global tenders.
3. Other Services rendered by commercial bank to the exporter:
a. They collect export proceeds from the importer and credit the same
to exporter's account
b. The banks assist the exporter in the collection of useful information
on the credit-worthiness of the foreign buyer through their foreign
agents/branches.
c. The banks also provide information on import trade control and
exchange control regulations.
d. The banks provide foreign exchange remittance facilities.
e. The banks issue bank drafts in case of payment of freight charges
and such other charges.
f. The banks send the duplicate copy of GR form to the RBI, after
realisation of export proceeds.
g. The banks also provide information on the exchange rates of various
countries.
h. The banks also issue bank certificates, in respect of export sales
value which are useful for claiming incentives.
3.5 Role of RBI in Export Finance

The Reserve Bank of India, the Central Bank of our country does not directly
provide finance to the exporters. But it adopts several policies for initiating
measures and encourage commercial banks and other financial institutions to
provide liberal credit to exporters. RBI has developed various schemes to
encourage commercial banks to provide export credit to the export sector. The
 schemes of RBI are: (a) Export Bills Credit Scheme; 1963; (b) Pre-shipment
Credit Scheme 1969; (c) Export Credit Interest Subsidy Scheme 1968; (d)
Refinance under DBK Credit Scheme 1976.

3.6 Role of Exim Bank in Export Finance

The Export-Import Bank of India came into existence on January, 1, 1982 and
started functioning from March 1, 1982. It has its headquarters in Mumbai and its
branches of offices in important cities in India and abroad. Exim Bank was
established for the purpose of financing medium and long term loans to the
exporters thereby promoting foreign trade in the country. It took over the
functions of international wing of IDBI.

The main objectives of Exim Bank are as follows:

 Providing financial assistance (medium and long term) to exporters and

importers.
 Functioning as the principal financial institution for co-ordinating the
working of institutions engaged in providing export finance.
 Promotion of foreign trade of India.
 To deal with all matters that may be considered to be incidental or
conducive to the attainment of above objectives.
3.7 Functions of EXIM Banks

3.8 Export Promotion

Export promotion forms the vital aspect of export management. The international
market is highly competitive and a country can acquit itself well only by
undertaking all measures in the field of export promotion. In the Chapter on
Balance of Payments, we had studied about the importance of export promotion
in bridging the balance of payments deficits by increasing exports and reducing
the imports.

An exporter has to compete not only with his country exporters, but also with
other country exporters. Such stiff competition has to be won, by making
available high quality goods at a competitive price. While making the quality
high, it is not possible for an exporter to keep the price low. He needs various
concessions and rebates to make the price competitive. The assistance or help is
given by the government to help him sell high quality variety products at
reasonable price. The incentive given by the government help him sell high
quality variety products at reasonable price. Hence, the starting point in export
promotion is the policy of the government relating to promotion of export and the
 various incentives measures undertaken by the government in order to encourage
the prospective exporter. The assistance given in the form of exemptions from
certain taxes, draw back of duties and simplified procedures in the operation of
foreign exchange will go a long way in helping the exporter in his effort to
compete in the international market.

3.9 Export Policy Measures

Export Policy measures refer to those measures which are introduced through
export policy announced by the Government from time to time. In our country,
in recent years, Import-Export Policy has provided a stable framework so as to
minimise year to year uncertainties and enable entrepreneurs to plan their
activities in a long term perspective. In recent years some changes were made in
the policy in order to improve the quality of incentives and their administration
and to simplify and rationalise policy and procedures. IN particular, some
modifications were made in the Export-Import Policy to give further impetus to
export promotion.
3.9 Financial and Fiscal Incentives and Assistance

The Government of India has introduced a series of financial and fiscal measures
to encourage exporters and to promote exports. These measures include

a. Duty Drawback Scheme (DBK): DBK means refund of custom duties paid
on the import of raw materials components and packing material. DBK
also involves refund of central excise duties paid on indigenous material
used in the manufacture of export products.
b. Exemption of Sales Tax
c. Exemption of Excise Duty: Export goods are exempted from Central
Excise Duty. There are two systems of excise clearance: (i) Export under
rebate; and (ii) Export under bond. In the case of export under rebate, first
duty is paid, then a refund is claimed and in case of export under bond,
 duty is not paid, but an indemnity bond is executed in favour of excise
authorities.
d. Refund of Octroi duty
e. Exemption of Income-tax
f. Concessions in Railway freight and Air freight
g. Finance at low rates of interest
h. Marketing Development Assistance
i. Export Credit Risk Insurance.
3.10 Export Marketing Assistance

Apart from providing financial assistance to develop export markets, the

Government of India also provides non-financial marketing assistance to promote
and market our export goods and services. These measures includes:

a. Market Orientation Tours

b. Overseas Market Surveys
c. Trade Fairs and Exhibitions
d. Bilateral Agreements
e. Sponsoring Trade Delegations and study-cum-sales teams
f. Collection and dissemination of market information
g. Export Packaging Assistance
h. Training Facilities
i. Buyer-Seller meets, etc.
3.11 Export Production Assistance

The exporters are provided with a number of facilities and assistance in respect
of production of goods for export purpose. These measures include

a. IRMAC Scheme: The STC, MMTC, Export houses and other similar
agencies have Industrial Raw Materials Assistance Centres. Such
centres import raw materials and components in bulk and then
 supply to Registered Exporters and Actual users against valid import
licences. Such scheme enables exporters to get timely supply of raw
materials at reasonable prices.

b. Priority in allotment of foreign exchange for the import of Capital

goods and equipment.
c. Priority in supply of indigenous or raw materials at international
prices
d. Technical and Managerial Guidance.
e. Quality Control Assistance and Guidelines.
f. Granting of permission for foreign collaboration.
g. Reorientation of industrial licensing and import licensing policy
towards export.
h. Relaxation of MRTP Act provisions etc.
3.12 Institutional and Infrastructural Measures

The Government of India has established a number of organisations which are

entrusted with the promotional efforts in organisations include:

 Export Promotion Councils (EPCs)

 Commodity Boards (CBS)
 Indian Institute of Foreign Trade (IIFT)
 Indian Institute of Packaging (IIP)
 Export Inspection Council (EIC)
 Export Credit and Guarantee Corporation of India (ECGC)
 Export-Import Bank of India
 Free Trade Zones / Export Processing Zones (FTZ/EPZ)
 Indian Council of Arbitration
 Federation of Indian Export Organisations (FIEO) etc.
3.13 Export Pricing

Export pricing involves fixing the price of export product or service which the
exporter intends to sell in the overseas markets. Export pricing is much more
difficult than domestic pricing because the exporter has to take into account, not
only the cost of production, but also the influence and impact of the conditions
prevailing in the international market. Therefore export pricing is not just an
arithmetical calculation, but a practical proposition based on market situation.
The success of an export firm largely depends on its effective pricing policy.

3.14 Objectives of Export Pricing

1. Survival: The main objective of pricing is survival in the competitive

market. An exporter faces competition not only from his fellow-exporters,
but also from other countries exporters. In such competitive markets, one
of the marketing tools which can make the exporter survive in the
competition is pricing Making price competitive, thereby earning less
profit in order to survive, could be one of the objectives of pricing. Keeping
prices competitive and maintaining low prices is a short-term objective, as
every exporter aims at increasing profits at a later stage.
2. Maximum Sales Growth: As an exporter survives the competition, the
objective shifts to having maximum sales growth. Depending upon
competition and sensitivity of market to price, the final pricing decision
needs to be taken. There are two alternatives available for this purpose: (a)
Setting lower prices to overseas buyers will lead to higher sales volume,
thereby earning more profits. For this, market should be highly price-
sensitive. Such low prices discourage competition and thereby sales are
increased. (b) Setting higher prices to indicate superior quality of the
product. Such indication leads consumers to rate products higher compared
to that of competitors. Due to this perception of the consumers, sales
volume of the product will increase.
 3. Maximum Current Profit: An exporter may determine his objective of
securing maximum profits. A price which would generate such a profit is
to be established. For this purpose, it is necessary to have complete
information of cost and demand. A price which can generate maximum
cash flows or a higher rate of return is determined. But this objective is of
a short term nature and at times this objective may turn out to be very
dangerous in the export markets.
4. Establishing Leadership: Another objective behind pricing is to establish
not only a superior quality image, but also emphasis on leadership or
number one position in the export markets. By charging a higher price and
making a noticeable difference in the price as compared to that of
competitors this objective can be fulfilled.
3.14 Factors Determining Export Price
Determining export price depends upon several factors. The exporter has to
evaluate all these factors before arriving at a conclusion in determining the price
of the commodity to be sold in the international market. The exporter cannot be
led purely by the arithmetic of costing. The following factors determine the export
pricing decision:
1. Costs: This is one of the important factors which should be taken into
consideration, since costs constitute a large part of the price and the
exporter should cover up direct costs such as raw materials and also
indirect costs such as distribution overheads.
2. Demand: Price of goods to a great extent depends upon demand curve. For
instance, an increase in demand may lead to an increase in price, even
though there is no rise in costs.
3. Competition: The competition in foreign market decides the pricing of
export products. The exporter has to compete, not only in the home market
but also in the foreign market. There is much greater possibility of
developing countries exports being substituted by products coming from
 developed countries, if there is price advantage. Therefore, the price should
be reasonably fixed within the range of those competitors
4. Attitude of foreign consumers: Overseas buyers generally develop
prejudice against products manufactured in developing countries. This
factor must be taken into account while fixing the price, as goods from
developed countries command higher prices, as compared to the goods
from developing ones.
5. Product Differentiation and Brand Image: If products are well
differentiated and if they have built up a brand image for themselves,
manufacturers are in a position to charge comparatively higher prices.
Brand names like Colgate, Dunlop, Bata etc., and command higher prices
due to their brand image.
6. Quality and Price Relationship: Consumers tend to rely on price as an
indicator of a product's quality, especially in the case of prestige products.
Generally, it is believed that lower prices lead to higher sales, but it may
not be the case. It is also to be noted that buyers in developed countries are
willing to pay higher prices as compared to those from developing ones.
7. Marketing Policies: The price is also affected by channels of distribution,
sales promotion policies, after-sales-services etc. For instance, longer the
chain of distribution, higher could be the price.
8. Assistance and Incentives: Government of the exporting country provides
a number of financial incentives and other assistance. Such incentives and
help will have a bearing on export prices. Besides, nature of consumers,
customs duties, international agreements, Government control measures,
exchange and inflation rate etc., also decide the pricing factor of exported
commodities.
3.15 What should be the suitable Export Pricing Policy?

As we have seen already, pricing the commodity of the international market is

very important, as it is highly competitive and extremely sensitive to the price
factor. The individual exporters have practically no control over the price. In
respect of export pricing, the concept of Marginal Pricing comes in very handy.
If an exporter is able to realise his marginal costs including the additional costs
incidental to exports, he will not suffer a loss, so far his export transactions are
concerned. In fact, profitability in export operation should be assessed in relation
to direct costs and not in relation to full costs. In the context of exports,
profitability should be measured in terms of contribution from exports towards
fixed costs.

Reasons for recommending marginal pricing in exports:

 As sales in the domestic market bear the burden of overheads, shipped

goods to foreign markets may be required to cover the direct cost.
 India's products are not popular or well-known in foreign countries. Hence,
they have to be priced at a low level.
 Low price can be used as an effective technique in securing large foreign
market, particularly in the case of newly introduced products.
 India's foreign market lies mostly with low national income countries and
therefore, the commodities have to be priced at a lower level.

When it is recommended that marginal cost pricing should be the basis of export
pricing, it does not mean that the Indian exporters should only charge the marginal
costs and no more. The idea is that direct costs set the lower limit to which one
can go to get an export contract, without affecting the overall profitability of the
firm. Only Variable Costs should be recovered from export market. The rationale
behind is that fixed costs do not change according to volume of production up to
a certain level. Variable costs change by volume of production. Marginal cost
therefore move around variable costs. This suggests that export price should be
equal to marginal cost, which can fully recover variable costs. Any excess price
of marginal cost should be attributed to fixed cost and the excess thereof to the
profit.

Thus:

Export Price Cost of Production - Fixed Cost + Variable Cost.

Under this approach, the exporter is guided to keep that price for the export
products which will not affect profit.

Advantages:

 Enhances the existing export market and creates new market

 When there are large exports, it brings more profit and recovers fixed cost
also.
 Demand is created for the product in foreign market.