MCom 2nd Year Direct Exporting Study Material Notes
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Direct Exporting hereby means the sale in the foreign market directly by the producer. The producer may sell the goods on his own to foreign buyers or to the middleman or middlemen located in the overseas market. In both these cases, the export is direct, i.e., the producer does not use any independent middleman in the channel between the home country and the overseas market.
This way is adopted by the firms having a considerable export business but the investment and risk involved in direct exporting are great, however, the returns are potential. (MCom 2nd Year Direct Exporting Study Material Notes)
ORGANISATIONAL ARRANGEMENT FOR DIRECT EXPORTING
The following organizational arrangement is done by the direct exporting firm:
1. Domestic Based Export Department. The export may be done by a domestic export department or division. The following types of domestic-based organizations are involved in direct exporting:
(i) Build-in export Division/department;
(ii) Separate export division/department;
(iii) Export sales subsidiary; and
(iv) Co-operative export firm or Export combination.
2. Domestic Company Setup Overseas Sales Branches. The company firm may set up overseas sales branches or subsidiaries, instead of or in addition to, a domestic marketing department. An overseas sales branch helps a company/ firm to carry out the marketing activities in the foreign market very effectively and efficiently. Apart from that, a firm should also establish storage and warehousing facilities in order to widen the market. (MCom 2nd Year Direct Exporting Study Material Notes)
3. Employing Travelling Salesmen. A company may also recruit Travelling salespersons for the overseas market. These traveling salesmen may be home-based or may be attached to foreign branches or subsidiaries.
4. Contacting with Foreign Based Distributions. Direct exporting may also be carried out by establishing contacts with foreign-based distributors gents. These distributors would purchase the goods from producers and sell them in the overseas market. Whereas the agents would sell on the producer’s behalf on a commission basis.
TYPES OF FOREIGN INTERMEDIARIES
1. Importers. Importer means one who imports the products in large pa quantities either as an agent for a foreign buyer or for resale. These include large import houses and trading houses. Usually, importers buy on their own account and may sell the goods to distributions or industrial buyers, institutional buyers or wholesalers, etc.
2. Distributors. Those who buy directly from the exporters and hold huge stocks or a product have an exclusive right to sell the product in a particular area or to a particular type of customer. They may resell the product to Wholesalers, retailers, or consumers.
3. Wholesalers. Though they often buy goods from the importers or distributors, however, these are also wholesalers who purchase directly from the exporters. (MCom 2nd Year Direct Exporting Study Material Notes)
4. Retailers. Big retailers may purchase directly from export houses Departmental stores, supermarkets or other types of chain stores are among the most popularly known retailers. Other retailers may depend on wholesalers or distributors.
5. Government Departments. In some countries, government departments buy huge quantities of certain goods on a long-term basis. These goods are essential commodities for mass consumption or goods required in government departments.
6. State Buying Organisations. In many countries, the imports of goods are done by government organizations, like state trading organizations. In India, imports of several goods are channelized, i.e., only designated government agencies can import these goods.
7. Customers. Customers can also play the role of intermediaries in foreign markets.
8. Joint Venture/Licensing. Joint ventures (enterprises in which both ownership and management are shared by firms in two or more countries) are very common between firms in developed and developing countries. Firms from developed countries may supply technology and participate in equity in joint ventures in developing countries. Joint ventures are very common in the food processing industry. International collaboration like licensing or franchising is also very popular nowadays.
EXPORT PROCESSING ZONE (EPZ)
EPZs, are industrial estates from enclaves from the national customs territory of a country and are usually situated near seaports or airports. The entire production of such a zone is normally intended for exports. Such zones are provided with well-developed infrastructural facilities. Industrial plots/sheds are normally made available at concessional rates.
Units in these zones are allowed foreign equity even up to 100 percent. EPZ units can import capital goods, raw materials, etc. for export production without payment of duty. Domestically procured items are also eligible for duty exemption.
A Free Trade Zone (FTZ) is different from an EPZ. Goods imported to a free trade zone may be re-exported without any processing in the same for But, goods exported by units in an EPZ are expected to have undergone sou value addition by manufacturing or other processing. A Freeport is one were imports from which exports are free from trade barriers. An FTZ may be a part of an adjacent seaport; the rest of the port is subject to the national customs regulation.
The main objective of EPZ are as follows:
(i) To earn foreign exchange,
(ii) To facilitate the transfer of technology by foreign investment and other means,
(iv) To contribute to the overall development of the economy. Examples of EPZ
(i) The Kandla Free Trade Zone (set up in 1965 10 km away from Kandla Port, Gujrat State).
(ii) Santa Cruz Electronics Exports Processing Zone (SEEPZ) (set up in 1974 near Santa Cruz Air Port, Mumbai). (iii) Five more free trade zones were set up in Chennai, Chochin Noida, (U.P.), Falta (W. Bengal), and Vizag (A.P.). A hundred percent export-oriented unit (EOU) refers to an industrial unit that offers for exports its entire production, excluding permitted levels of rejects.
EOU was allowed in industries in respect of which the export-potential and export targets were considered by the relevant Export Promotion Council. EOU was not normally encouraged in respect of products subject to export control quota ceilings which can be reached by existing units in the industry. (MCom 2nd Year Direct Exporting Study Material Notes)
EXPORT HOUSES VS. TRADING HOUSES
Export House is defined as a registered exporter holding a valid Export House certificate issued by the Director General of Foreign Trade.
The objective of the scheme is to recognize established exporters as Export House, Trading House, Star Trading House, and Superstar Trading House with a view to building the marketing infrastructure and expertise required for promotion. Such Homes should operate as highly professional and dynamic institutions and act as an important instrument of export growth.
Merchant and manufacturer exporters EOUS and units located in EPZ/EHTP/ STP may be recognized as Export Houses, Trading Houses, Star Trading Houses, and Super Trading Houses subject to the fulfillment of the criteria laid down by the government.
CRITERIA FOR RECOGNITIONS OF EXPORT HOUSES AND TRADING HOUSES
|Category||FOB Criterion||NFE Criterion|
|Export Houses Trading Houses Star Trading Houses Superstar Trading Houses||Average FOB value of exports made during the preceding three licensing years in rupees.||FOB value of exports made during the preceding licensing year in rupees||Average NFE value of exports made during the preceding three licensing years, in Rupees||NFE value of exports made during the preceding three licensing years, in rupees|
|15 crores 75 crores 375 crores 1,125 crores||22 crores 112 crores 560 crores 1,680 crores.||12 crores 62 crores 312 crores 937 crores|
For the purpose of recognition, weightage is given to certain categories of exports as indicated below provided such export are made in freely convertible currency:
(i) Double weightage on FOB or NFE on the export of:
(a) Products manufactured by small-scale/tiny/cottage units respectively.
(b) Fruits and vegetables, floriculture, and horticulture produce products.
(c) Goods manufactured in the North Eastern States.
(ii) Double weightage on exports to specified developing countries.
(iii) Double weightage on FOB value and Triple weightage on NFE On exports of products manufactured by handlooms and handicraft sector (including handloom silk), hand-knitted, carpet, carpet made of silk, etc.
Export Houses/Trading Houses/Star Trading Houses/Superstar Tradin Houses are entitled to a special import license as per the criteria laid down, relate to the export/net foreign exchange earnings the amount of entitlement is lowes for Export House (6% on FOB basis and 7.5% on NFB basis) and highest for 4 Superstar Trading Houses (12% and 15%),