Subject- IB Unit- 3 By- K.R.

Ansari

Latest Trends in India’s foreign trade

India’s Foreign Trade (Merchandise): May, 2015
A. EXPORTS (including re-exports)
Exports during May, 2015 were valued at US $22346.75 million (Rs. 142572.92 crore) which
was 20.19 per cent lower in Dollar terms (14.14 per cent lower in Rupee terms) than the level of
US $27998.50 million (Rs. 166045.09 crore) during May, 2014.Cumulative value of exports for
the period April-May 2015-16 was US $ 44401.47 million (Rs 280973.36 crore) as against US
$53632.58 million (Rs 320763.69 crore) registering a negative growth of 17.21 per cent in Dollar
terms and 12.40 per cent in Rupee terms over the same period last year.
B. IMPORTS
Imports during May, 2015 were valued at US $32752.99 (Rs.208965.06 crore) which was 16.52
per cent lower in Dollar terms and 10.19 per cent lower in Rupee terms over the level of imports
valued at US $ 39233.24 million (Rs. 232672.72 crore) in May, 2014. Cumulative value of
imports for the period April-May 2015-16 was US $65800.01 million (Rs 416345.69 crore) as
against US $ 74953.27 million (Rs 448266.65 crore) registering a negative growth of 12.21 per
cent in Dollar terms and 7.12 per cent in Rupee terms over the same period last year.
C. CRUDE OIL AND NON-OIL IMPORTS:
Oil imports during May, 2015 were valued at US $8538.67 million which was 40.97 per cent
lower than oil imports valued at US $14464.88 million in the corresponding period last year. Oil
imports during April-May, 2015-16 were valued at US $ 15981.59 million which was 41.76 per
cent lower than the oil imports of US $ 27442.71 million in the corresponding period last year.
Non-oil imports during May, 2015 were estimated at US $24214.32 million which was 2.24 per
cent lower than non-oil imports of US $24768.36 million in May, 2014. Non-oil imports during
April-May, 2015-16 were valued at US $ 49818.42 million which was 4.86 per cent higher than
the level of such imports valued at US $ 47510.56 million in April-May, 2014-15.
D. TRADE BALANCE
The trade deficit for April-May, 2015-16 was estimated at US $ 21398.54 million which was
higher than the deficit of US $ 21320.69 million during April-May, 2014-15.

INDIA’S FOREIGN TRADE (SERVICES): APRIL, 2015 (As per the RBI Press Release
dated 15th June, 2015)
A. EXPORTS (Receipts)
Exports during April, 2015 were valued at US $ 13012 Million (Rs. 81654.46 Crore).
B. IMPORTS (Payments)
Imports during April, 2015 were valued at US $ 7324 Million (Rs. 45960.44 Crore).
C. TRADE BALANCE
The trade balance in Services (i.e. net export of Services) for April, 2015 was estimated at US $
5688 Million.

Exim Policy or Foreign Trade Policy is a set of guidelines and instructions established by
the DGFT in matters related to the import and export of goods in India.
The Foreign Trade Policy of India is guided by the Export Import in known as in short EXIM
Policy of the Indian Government and is regulated by the Foreign Trade Development and
RegulationAct,1992.
DGFT (Directorate General of Foreign Trade) is the main governing body in matters related
to Exim Policy. The main objective of the Foreign Trade (Development and Regulation) Act is to
Subject- IB Unit- 3 By- K.R. Ansari

provide the development andregulation of foreign trade by facilitating imports into, and
augmenting exports from India. Foreign Trade Act has replaced the earlier law known as the
imports and Exports (Control) Act 1947.
EXIM Policy
Indian EXIM Policy contains various policy related decisions taken by the government in the
sphere of Foreign Trade, i.e., with respect to imports and exports from the country and more
especially export promotion measures, policies and procedures related thereto. Trade Policy is
prepared and announced by the Central Government (Ministry of Commerce). India's Export
Import Policy also know as Foreign Trade Policy, in general, aims at developing export
potential, improving export performance, encouraging foreign trade and creating favorable
balance of payments position.
Objectives of EXIM Policy:
The principal objectives of this Policy are:
1) To facilitate sustained growth in exports to attain a share of atleast 1 % of global merchandise
trade.
2) To stimulate sustained economic growth by providing access to essential raw materials,
intermediates, components, consumables and capital goods required for augmenting production
and providing services.
3) To enhance the technological strength and efficiency of Indian agriculture, industry and
services, thereby improving their competitive strength while generating new employment
opportunities, and to encourage the attainment of internationally accepted standards of quality.
4) To provide consumers with good quality goods and services at internationally competitive
prices while at the same time creating a level playing field for the domestic produce.

The new policy would boost exports and create jobs while supporting the Centre’s 'Make In
India' and 'Digital India' programmes. The broad objective is to focus on support to services
and merchandise exports, number of very important initiatives such as focus on export of high
value addition products, Focussed on improving ease of doing business, debottlenecking, to
make services globally competitive and Market diversification.
Moreover, FTP would focus on defence, pharma, environment-friendly products and value-
added exports. The govt. will continue to incentivise units located in special economic zones,
with a focus on employment-creating sectors and also promote e-commerce.
Key Highlights of EXIM policy 2015-20
 Increase exports to $900 billion by 2019-20, from $466 billion in 2013-14
 Raise India's share in world exports from 2% to 3.5%.
 Merchandise Export from India Scheme (MEIS) and Service Exports from India Scheme
(SEIS) launched.
 Higher level of rewards under MEIS for export items with High domestic content and
value addition.
 Chapter-3 incentives extended to units located in SEZs.
 Export obligation under EPCG scheme reduced to 75% to Promote domestic capital
goods manufacturing.
 FTP to be aligned to Make in India, Digital India and Skills India initiatives.
 Duty credit scrips made freely transferable and usable For payment of custom duty,
excise duty and service tax.
 Export promotion mission to take on board state Governments.
Subject- IB Unit- 3 By- K.R. Ansari

 Unlike annual reviews, FTP will be reviewed after two-and-Half years.

 Higher level of support for export of defence, farm Produce and eco-friendly products.

Balance of Payment (BOP) - Concept & Definition

According to Kindle Berger, "The balance of payments of a country is a systematic record of all
economic transactions between the residents of the reporting country and residents of foreign
countries during a given period of time".
The balance of payment record is maintained in a standard double-entry book-keeping method.
International transactions enter in to the record as credit or debit. The payments received from
foreign countries enter as credit and payments made to other countries as debit.
Balance of Payment is a record pertaining to a period of time; usually it is all annual statement.
All the transactions entering the balance of payments can be grouped under three broad accounts;
(1) Current Account, (2) Capital and Financial Account
The Current Account pertains to goods and services, income, and current transfers.
The capital and financial account pertains to (i) capital transfers and acquisition or disposal of
nonproduced, nonfinancial assets and (ii) financial assets and liabilities.

The Current Account (CA)

A positive value for the current account is called a current account surplus; a negative value is
called a current account deficit. The current account mainly consists of 4 types of transactions:
1. Exports and imports of goods
{Exports of goods are credits (+) to the current account
{Imports of goods are debits (-) to the current account
The difference between exports and imports of goods is called the merchandise trade balance.
2. Exports and imports of services
{Exports of services are credits to the current account (+)
{Imports of services are debits to the current account (-).
This category consists of items such as tuition paid to universities by international students,
money spent on travel by tourists, banking, insurance, consulting services etc.
3. Interest payments on international investments.
{Interest, dividends and other income received on assets held abroad are credits (+)
{Interest, dividends and payments made on foreign assets held in are debits (-).
4. Current transfers
{Remittances by residence working abroad, pensions paid by foreign countries to their citizens
living in the country. aid offered by foreigners to the country count as credits (+).
{Remittances by foreigners working in the country., pensions paid by the country to its citizens
living abroad, aid offered to foreigners by the country count as debits (-)
As expected the country runs a deficit in current transfers.
The sum of these components is known as the current account balance. A negative number is
called a current account deficit and a positive number called a current account surplus. As
expected, given that it runs a surplus only in the services component of the current account, the
country runs a substantial current account deficit.
Intuitively, think of credits to the current account as transactions involving receipt of income to
country resident and debits to the current account as transactions involving payment of income to
foreigners. The transactions can involve goods, services, investment income, pension income or
other current transfers.
Subject- IB Unit- 3 By- K.R. Ansari

The Financial Account

The current account does not include the purchase and sale of financial and non-financial assets.
All such transactions are reflected in the financial account portion of the BOP accounts.
Once again, a positive value for the financial account is called a financial account surplus, a
negative value is called a financial account deficit.
The financial account is where the BOP accounts starts to get tricky. Since assets can be sold as
well as bought, we need to track the sale of assets as well as their purchase. The easiest way is to
record the sale of assets in the BOP in the exact opposite way we record the purchase of assets
(i.e. think of a $500 sale as a purchase of a -$500 asset). Therefore,
The financial account consists primarily of four types of transactions:
1. Foreign Direct Investment
Purchases of country capital assets (factories, machines, companies) by foreigners are credits (+)
Purchases of foreign capital assets (factories, machines, companies) by country residents are
debits (-)
Sales of country capital assets by foreigners count as debits to the financial account (-)
Sales of foreign capital assets by country residents count as credits to the financial account (+)
2. Portfolio Investment
Purchases of country securities (stocks, bonds, CDs, money-market accounts) by foreigners are
credits (+)
Purchases of foreign securities (stocks, bonds, CDs, money-market accounts) by country
residents are debits (-)
Sales of country securities by foreigners count as debits to the financial account (-)
Sales of foreign securities by country residents count as credits to the financial account (+)
3. Other Investments - Loans and Currency
Increases in loans & trade credits to country residents by foreigners (purchase of domestic IOUs
by foreigners) count as credits (+)
Increases in loans & trade credits to foreigners by country residents (purchase of foreign IOUs
by domestic residents) counts as debits (-)
Repayments of loans & trade credits to country residents by foreigners (sale of domestic
IOUs by foreigners) count as debits (-)
Repayments of loans & trade credits to foreigners by country residents (purchase of foreign
IOUs by domestic residents) counts as debits (+)
Increases in $ holdings by foreigners counts as a credit (+)
Increases in holdings of foreign currency by country residents counts as a debit (-)
Decreases in $ holdings by foreigners counts as a debit (-)
Decreases in holdings of foreign currency by country residents counts as a credit (+)
4. Reserve Assets
Increases in dollar reserves held by foreign central banks count as credits (+)
Increases in holdings of foreign currency reserves by country central banks count as debits (-)
Decreases in dollar reserves held by foreign central banks count as debits (-)
Decreases in holdings of foreign currency reserves by country central banks count as credits (+)
The Capital Account
The capital account is designed to capture one-sided financial transactions, i.e. transactions in
which one country gifts financial assets to another country with no expectation of receiving
anything in kind.In today's world, this implies one major type of transaction - debt forgiveness
and relief.
Subject- IB Unit- 3 By- K.R. Ansari

{Forgiveness of country’s debt by foreigners count as credits (+)

{Forgiveness of foreign debt by country entities count as debits (-)
Errors and Omissions:
Errors and omissions is a balancing item so that total credits and debits of the three accounts
must equal in accordance with the principles of double entry book-keeping so that the balance of
payments of a country always balances in the accounting sense.

Trade barriers are restrictions imposed on movement of goods between countries. Trade
barriers are imposed not only on imports but also on exports. The trade barriers can be broadly
divided into two broad groups: (a) Tariff Barriers, and (b) Non-tariff Barriers.
Tariff Barriers
Tariff is a customs duty or a tax on products that move across borders. The most important of
tariff barriers is the customs duty imposed by the importing country. A tax may also be imposed
by the exporting country on its exports.However, governments rarely impose tariff on exports,
because, countries want to sell as much as possible to other countries. The main important tariff
barriers are as follows:
1. Specific Duty: Specific duty is based on the physical characteristics of goods. When a fixed
sum of money, keeping in view the weight or measurement of a commodity, is levied as tariff, it
is known as specific duty.
2. Ad valorem Duty: These duties are imposed “according to value.” When a fixed percent
of value of a commodity is added as a tariff it is known as ad valorem duty. It ignores the
consideration of weight, size or volume of commodity.
The imposition of ad valorem duty is more justified in case of those goods whose values cannot
be determined on the basis of their physical and chemical characteristics, such as costly works of
art, rare manuscripts, etc. In practice, this type of duty is mostly levied on majority of items.
3. Combined or Compound Duty: It is a combination of the specific duty and ad valorem
duty on a single product. For instance, there can be a combined duty when 10% of value (ad
valorem) and Re 1/- on every meter of cloth is charged as duty. Thus, in this case, both duties are
charged together.
4. Sliding Scale Duty: The import duties which vary with the prices of commodities are
called sliding scale duties. Historically, these duties are confined to agricultural products, as their
prices frequently vary, mostly due to natural factors. These are also called as seasonal duties.
5. Countervailing Duty: It is imposed on certain imports where products are subsidised by
exporting governments. As a result of government subsidy, imports become more cheaper than
domestic goods. To nullify the effect of subsidy, this duty is imposed in addition to normal
duties.
6. Revenue Tariff: A tariff which is designed to provide revenue to the home government is
called revenue tariff. Generally, a tariff is imposed with a view of earning revenue by imposing
duty on consumer goods, particularly, on luxury goods whose demand from the rich is inelastic.
7. Anti-dumping Duty: At times, exporters attempt to capture foreign markets by selling
goods at rock-bottom prices, such practice is called dumping. As a result of dumping, domestic
industries find it difficult to compete with imported goods. To offset anti-dumping effects, duties
are levied in addition to normal duties.
8. Protective Tariff: In order to protect domestic industries from stiff competition of
imported goods, protective tariff is levied on imports. Normally, a very high duty is imposed, so
Subject- IB Unit- 3 By- K.R. Ansari

as to either discourage imports or to make the imports more expensive as that of domestic
products.
Note: Tariffs can be also levied on the basis of international relations. This includes single
column duty, double column duty and triple column duty.
NON-TARIFF BARRIERS
A non tariff barrier is any barrier other than a tariff, that raises an obstacle to free flow of goods
in overseas markets. Non-tariff barriers, do not affect the price of the imported goods, but only
the quantity of imports. Some of the important non-tariff barriers are as follows:
1. Quota System: Under this system, a country may fix in advance, the limit of import
quantity of a commodity that would be permitted for import from various countries during a
given period. The quota system can be divided into the following categories:
(a) Tariff/Customs Quota (b) Unilateral Quota
(c) Bilateral Quota (d) Multilateral Quota
• Tariff/Customs Quota: Certain specified quantity of imports is allowed at duty free or at
a reduced rate of import duty. Additional imports beyond the specified quantity are permitted
only at increased rate of duty. A tariff quota, therefore, combines the features of a tariff and an
import quota.
• Unilateral Quota: The total import quantity is fixed without prior consultations with the
exporting countries.
• Bilateral Quota: In this case, quotas are fixed after negotiations between the quota fixing
importing country and the exporting country.
• Multilateral Quota: A group of countries can come together and fix quotas for exports as
well as imports for each country.
2. Product Standards: Most developed countries impose product standards for imported
items. If the imported items do not conform to established standards, the imports are not allowed.
For instance, the pharmaceutical products must conform to pharmacopoeia standards.
3. Domestic Content Requirements: Governments impose domestic content requirements to
boost domestic production. For instance, in the US bailout package (to bailout General Motors
and other organisations), the US Govt. introduced ‘Buy American Clause’ which means the US
firms that receive bailout package must purchase domestic content rather than import from
elsewhere.
4. Product Labelling: Certain nations insist on specific labeling of the products. For
instance, the European Union insists on product labeling in major languages spoken in EU. Such
formalities create problems for exporters.
5. Packaging Requirements: Certain nations insist on particular type of packaging materials.
For instance, EU insists on recyclable packing materials, otherwise, the imported goods may be
rejected.
6. Consular Formalities: A number of importing countries demand that the shipping
documents should include consular invoice certified by their consulate stationed in the exporting
country.
7. State Trading: In some countries like India, certain items are imported or exported only
through canalising agencies like MMTC. Individual importers or exporters are not allowed to
import or export canalised items directly on their own.
8. Preferential Arrangements: Some nations form trading groups for preferential
arrangements in respect of trade amongst themselves. Imports from member countries are given
Subject- IB Unit- 3 By- K.R. Ansari

preferences, whereas, those from other countries are subject to various tariffs and other
regulations.
9. Foreign Exchange Regulations: The importer has to ensure that adequate foreign
exchange is available for import of goods by obtaining a clearance from exchange control
authorities prior to the concluding of contract with the supplier.
10. Other Non-Tariff Barriers: There are a number of other non – tariff barriers such as
health and safety regulations, technical formalities, environmental regulations, embargoes, etc.

Custom Tariff Rationalization

Rationalization of tariffs is an essential element in a strategy to promote sustainable and
equitable development. It is open economies that have been the most successful in taking
advantage of the opportunities provided by globalization, and this is especially true among
developing countries. Tariff rationalization is especially important in promoting the
competitiveness of domestic industries. Recognition of the national interest in tariff reform is
critical in order to avoid the folly of entering multilateral, regional and bilateral trade
negotiations with the false view of tariff reductions as .concessions. to other countries.
Consideration of the effects of tariff changes on all relevant national stakeholders, including
consumers and industrial users of protected goods is necessary to make informed tariff
rationalization decisions.

Aim for simplicity and transparency in the design and implementation of tariff reform
• Keep tariff schedules simple and rates reasonable. Do not allow exceptions based on end uses
or users.
• Eliminate deep-seated sources of corruption in import administration. Simplicity and
transparency of rules will help. But more might be necessary. Indonesia removed its customs
service from almost all aspects of import administration for 10 years in order to reduce the costs
of international trade.

Identification of Foreign Market

Step One – Country Identification
The World is your oyster. You can choose any country to go into. So you conduct country
identification – which means that you undertake a general overview of potential new markets.
There might be a simple match – for example two countries might share a similar heritage e.g.
the United Kingdom and Australia, a similar language e.g. the United States and Australia, or
even a similar culture, political ideology or religion e.g. China and Cuba. Often selection at this
stage is more straightforward. For example a country is nearby e.g. Canada and the United
States. Alternatively your export market is in the same trading zone e.g. the European Union.
Again at this point it is very early days and potential export markets could be included or
discarded for any number of reasons.
Subject- IB Unit- 3 By- K.R. Ansari

Step Two – Preliminary Screening

At this second stage one takes a more serious look at those countries remaining after undergoing
preliminary screening. Now you begin to score, weight and rank nations based upon macro-
economic factors such as currency stability, exchange rates, level of domestiv consumption and
so on. Now you have the basis to start calculating the nature of market entry costs. Some
countries such as China require that some fraction of the company entering the market is owned
domestically – this would need to be taken into account. There are some nations that are
experiencing political instability and any company entering such a market would need to be
rewarded for the risk that they would take. At this point the marketing manager could decide
upon a shorter list of countries that he or she would wish to enter. Now in-depth screening can
begin.

Step Three – In-Depth Screening

The countries that make it to stage three would all be considered feasible for market entry. So it
is vital that detailed information on the target market is obtained so that marketing decision-
making can be accurate. Now one can deal with not only micro-economic factors but also local
conditions such as marketing research in relation to the marketing mix i.e. what prices can be
charged in the nation? – How does one distribute a product or service such as ours in the nation?
How should we communicate with are target segments in the nation? How does our product or
service need to be adapted for the nation? All of this will information will for the basis of
segmentation, targeting and positioning. One could also take into account the value of the
nation’s market, any tariffs or quotas in operation, and similar opportunities or threats to new
entrants.
Step Four – Final Selection
Now a final shortlist of potential nations is decided upon. Managers would reflect upon strategic
goals and look for a match in the nations at hand. The company could look at close competitors
or similar domestic companies that have already entered the market to get firmer costs in relation
Subject- IB Unit- 3 By- K.R. Ansari

to market entry. Managers could also look at other nations that it has entered to see if there are
any similarities, or learning that can be used to assist with decision-making in this instance. A
final scoring, ranking and weighting can be undertaken based upon more focused criteria. After
this exercise the marketing manager should probably try to visit the final handful of nations
remaining on the short, shortlist.
Step Five – Direct Experience
Personal experience is important. Marketing manager or their representatives should travel to a
particular nation to experience firsthand the nation’s culture and business practices. On a first
impressions basis at least one can ascertain in what ways the nation is similar or dissimilar to
your own domestic market or the others in which your company already trades. Now you will
need to be careful in respect of self-referencing. Remember that your experience to date is based
upon your life mainly in your own nation and your expectations will be based upon what your
already know. Try to be flexible and experimental in new nations, and don’t be judgemental –
it’s about what’s best for your company – happy hunting.

Product development is the process of designing, creating and marketing new products or
services to benefit customers. Sometimes referred to as new product development, the discipline
is focused on developing systematic methods for guiding all the processes involved in getting a
new product to market.
Product development involves either improving an existing product or its presentation, or
developing a new product to target a particular market segment or segments. Consistent product
development is a necessity for companies striving to keep up with changes and trends in the
marketplace to ensure their future profitability and success. A competitive product development
strategy should include a company-wide commitment to creating items that fulfill particular
consumer needs or characteristics. These characteristics might include consumers' desire for the
following: products that are high-quality or low-cost; products that provide the consumer with
speed or flexibility; or products that offer some other form of differentiation that posits them a
desirable purchase.
The new product development process:
Successful new product development process consists of eight major steps;
#1. Idea generation:
Systematic search for new-product ideas
-internal sources
-customers
-competitors
-distributors
-suppliers
-others
#2. Idea Screening
This step is crucial to ensure that unsuitable ideas, for whatever reason, are rejected as soon as
possible. Ideas need to be considered objectively, ideally by a group or committee.
Specific screening criteria need to be set for this stage, looking at ROI, affordability and market
potential. These questions need to be considered carefully, to avoid product failure after
considerable investment down the line.
#3. Concept development & testing
Subject- IB Unit- 3 By- K.R. Ansari

Product concept is a detailed version of the new-product idea stated in meaningful consumer
terms concept development - a new product idea is developed into alternative product concepts
concept testing - calls for testing new-product concepts with groups of target customers
#4. Business Analysis
Once the concept has been tested and finalised, a business case needs to be put together to assess
whether the new product/service will be profitable. This should include a detailed marketing
strategy, highlighting the target market, product positioning and the marketing mix that will be
used.
This analysis needs to include: whether there is a demand for the product, a full appraisal of the
costs, competition and identification of a break-even point.
#5. Product Development
If the new product is approved, it will be passed to the technical and marketing development
stage. This is when a prototype or a limited production model will be created. This means you
can investigate exact design & specifications and any manufacturing methods, but also gives
something tangible for consumer testing, for feedback on specifics like look, feel and packaging
for example.
#6. Test Marketing
Test marketing (or market testing) is different to concept or consumer testing, in that it
introduces the prototype product following the proposed marketing plan as whole rather than
individual elements.
This process is required to validate the whole concept and is used for further refinement of all
elements, from product to marketing message.
#7. Commercialisation
When the concept has been developed and tested, final decisions need to be made to move the
product to its launch into the market. Pricing and marketing plans need to be finalised and the
sales teams and distribution briefed, so that the product and company is ready for the final stage.
#8. Launch
A detailed launch plan is needed for this stage to run smoothly and to have maximum impact. It
should include decisions surrounding when and where to launch to target your primary consumer
group. Finally in order to learn from any mistakes made, a review of the market performance is
needed to access the success of the project.

CONCEPT OF INTERNATIONAL MARKETING LOGISTICS

According to Council of logistics management:
“Logistics is the process of planning, implementing and controlling the efficient, effective
flow and storage of goods, services and related information from point of origin to point of
consumption for the purpose of conforming the customer requirement”.
Word, ’Logistics’ is derived from French word ‘loger’, which means art of war pertaining to
movement and supply of armies. Basically a military concept, it is now commonly applied to
marketing management. From the point of view of management, marketing logistics or physical
distribution has been described as ‘planning, implementing and controlling the process of
physical flows of materials and final products from the point of origin to the point of use in order
to meet customer’s needs at a profit. As a concept it means the art of managing the flow of raw
materials and finished goods from the source of supply to their users. In other words, primarily it
involves efficient management of goods from the end of product line to the consumers and in
some cases, include the movement of raw materials from the source of supply to the beginning of
Subject- IB Unit- 3 By- K.R. Ansari

the production line. These activities include transportation warehousing, inventory control, order
processing and information monitoring. These activities are considered primary to the effective
management of logistics because they either contribute most to the total cost of logistics or they
are essential to effective completion of the logistics task. However, the firms must carry out
these activities as essential part of providing customer with the goods and services they desire.

A distribution channel is a set of interdependent organizations that help make a product

available for use or consumption by the consumer or business user. Channel intermediaries are
firms or individuals such as wholesalers, agents, brokers, or retailers who help move a product
from the producer to the consumer or business user.

A company’s channel decisions directly affect every other marketing decision. Place decisions,
for example, affect pricing. Marketers that distribute products through mass merchandisers such
as Wal-Mart will have different pricing objectives and strategies than will those that sell to
specialty stores. Distribution decisions can sometimes give a product a distinct position in the
market. The choice of retailers and other intermediaries is strongly tied to the product itself.
Manufacturers select mass merchandisers to sell mid-price-range products while they distribute
top-of-the-line products through high-end department and specialty stores. The firm’s sales force
and communications decisions depend on how much persuasion, training, motivation, and
support its channel partners need. Whether a company develops or acquires certain new products
may depend on how well those products fit the capabilities of its channel members.
Functions of Distribution Channels
Distribution channels perform a number of functions that make possible the flow of goods from
the producer to the customer. These functions must be handled by someone in the channel.
Though the type of organization that performs the different functions can vary from channel to
channel, the functions themselves cannot be eliminated. Channels provide time, place, and
ownership utility. They make products available when, where, and in the sizes and quantities that
customers want. Distribution channels provide a number of logistics or physical distribution
functions that increase the efficiency of the flow of goods from producer to customer.
Distribution channels create efficiencies by reducing the number of transactions necessary for
goods to flow from many different manufacturers to large numbers of customers. This occurs in
two ways. The first is called breaking bulk. Wholesalers and retailers purchase large quantities
of goods from manufacturers but sell only one or a few at a time to many different customers.
Second, channel intermediaries reduce the number of transactions by creating assortments—
providing a variety of products in one location—so that customers can conveniently buy many
different items from one seller at one time. Channels are efficient. The transportation and
storage of goods is another type of physical distribution function. Retailers and other channel
members move the goods from the production site to other locations where they are held until
they are wanted by customers. Channel intermediaries also perform a number of facilitating
functions, functions that make the purchase process easier for customers and manufacturers.
Intermediaries often provide customer services such as offering credit to buyers and accepting
customer returns. Customer services are oftentimes more important in B2B markets in which
customers purchase larger quantities of higher-priced products.
Subject- IB Unit- 3 By- K.R. Ansari

Role of Documentation in International Trade

Before engaging in trade with other countries, it is important to be familiar with the framework
conditions, laws and regulations of the countries with which one intends to do
business. Furthermore, there are a number of requirements relating to import and export of
products, chemicals and waste. A list of important factors that you should know something about
follows below.
Trade documents provide important information about goods to the seller and buyer, carriers,
insurance companies and banks, and to public authorities in the exporting/importing countries.
Importance or Needs of trade documents
1. It provides written record of transactions that have taken place.
2. It helps to maintain books of accounts.
3. It helps to assess the rate of tax and revenue.
4. It helps the government to publish statistics regarding the business activities.

Trade Documents Used in International Trade

1. Indent or order.
The order for the goods placed by the importer to the exporter or his agent is known as
indent. It shows the nature of products, quantity, shipping mark, etc.
2. Bill of lading
Bill of lading is an important documents used in foreign trade when the goods are sent
through the ships. It contains the details of the goods, details of the consignor and the ship which
carries the goods. Bill of lading is a document of title to the goods. This means that the holder is
entitled to claim the goods from the shipping authority when the ship reaches its destination.
3. Airway bill (Air consignment note)
Air way bill is similar to bill of lading but it is used only when the goods are sent by the
air. It is issued by the aircraft authority as an evidence of the contract of carriage between the
exporter and the carrier. It is not a document of title to the goods.
4. Consular invoice.
Consular invoice is issued by the consul (Foreign ambassador) of the importing country
resident in the exporting country. It is issued for the purpose of reducing the falsification on the
price of goods with the intention of evading the duty.
5. Certificate of insurance
Certificate of insurance is issued by an insurance company. In order to reduce the chance
of risk, the goods must be insured with the insurance company. This certificate is enclosed with
the goods if the goods have been insured properly.
6. Shipping note. (Dock receipt)
When the goods are delivered to the docks, they are accompanied by a shipping note
formally requesting the port authorities to handle them. This document furnishes the details of
the goods, ship and the destination port. A copy of the note is signed by the port authority and
retained by the exporter as a proof of delivery to the port; it is then referred as dock receipt.
7. Mate’s receipt.
A receipt signed by the mate (captain or his agent of the ship) to say the cargo (goods)
has been received on board in good condition after examining the goods.
8. Certificate of origin.
 Subject- IB Unit- 3 By- K.R. Ansari

It is a document stating the name of the country that produced the specified goods which
are ready to export. It is often required before the importation of goods. Certificate of origin can
be used to prevent the evasion of duty on goods.
9. Letter of credit.
Letter of credit is a document issued by the importer’s bank to the exporter giving a
guarantee of payment to the exporter. It can also be the source of repayment of the transaction
meaning that the exporter will get paid with the redemption of the letter of credit.
10. Customs declaration form.
This is the document issued by the customs authority in order to examine the concerned
goods easily for calculating duties therein. It is to be filled by both the exporter and the importer
respectively and furnishes the details of the goods.

E & OE (Errors and Omissions Excepted)

E & OE stands for the Errors and Omissions Excepted. It tells that if an error is made or
something is omitted from the trade documents, the seller reserves the right to correct the
mistakes.

Export Pricing
Pricing and costing are two different things and an exporter should not confuse between the two.
Price is what an exporter offer to a customer on particular products while cost is what an
exporter pay for manufacturing the same product.
Export pricing stands for the price that exporters arrive at for products to be sold to customers. It
is the most important factor when it comes to export promotion and dealing with international
market and competition. Furthermore, in terms of arriving at the ideal pricing exporters are
required to keep the prices low, keeping in mind the different benefits as well as expenses that
also come under the export umbrella. Exporters do not follow a fixed formula when it comes to
pricing their wares. It varies from exporter to exporter including the type of exporter and the
agency through which the export will be done.
Some of the vital factors that play a role in helping businesses determine the export pricing are:
 Product range on offer
 On time delivery of products
 Supply stability and continuity
 After-sales services
 Brand image
 Product differentiation
 Purchase rate
 Quality and price
 Specialty or unique value items and gifts
 Credit rate offered
 Perception about products from a particular country of origin
 Campaigns for marketing and sales
 Promptness in acceptance and claims settlement
To determine the pricing of exported products, these three standard methods are usually
employed by exporters:
 Subject- IB Unit- 3 By- K.R. Ansari

 Domestic pricing: This is the most common pricing method. The export price is arrived at after
taking into consideration the domestic price of the item alongside the addition of export costs
such as insurance, packaging and shipping.
 Cost modification: To bring down the price, this method has proven to be very handy to
exporters. Through this method, prices of the products are kept low by exporters while making
use of cheap materials, abridging their products or changing their marketing plans.
 Incremental cost pricing: The method involves arriving at a basic unit cost, which includes
production and selling costs of the products for export alongside the desired gain to be obtained
from the products.
Depending on the pricing approach an exporter may take up, there are several pricing
strategies that could be put to use. These strategies can be broadly divided into the following:
Competitor-orientated pricing strategy: This strategy involves coming up with prices that
enable exporters to compete with their peers. It encompasses the following pricing approaches -
 Commodity based pricing
 Competition based pricing
 Follow the leader based pricing
Cost-orientated pricing strategy: It involves adopting approaches that are very cost specific
and include
 Early cash recovery pricing
 Cost-plus pricing
 Satisfactory ROI pricing
Market-orientated pricing strategy: Adopting an approach that keeps in mind market
dynamics is what this strategy advocates and involves –
 Penetration pricing
 Market skimming pricing
 Payment ability pricing
To arrive at the appropriate pricing approach and corresponding strategy, exporters need to begin
at the point of costing. This is because the right costing is the foundation upon which the final
export price of a product rests. At the same time, businesses must bear in mind that costing and
pricing are totally two different areas of concern.

Methods of Payment in International Trade

To succeed in today’s global marketplace and win sales against foreign competitors, exporters
must offer their customers attractive sales terms supported by the appropriate payment methods.
Because getting paid in full and on time is the ultimate goal for each export sale, an appropriate
payment method must be chosen carefully to minimize the payment risk while also
accommodating the needs of the buyer. There 4 types of payment in international trade. These
payment types are cash-in-advance, open account, documentary collections, documentary
credits (Letters of Credit). During or before contract negotiations, you should consider which
method is mutually desirable for you and your customer.
Cash-in-advance :
Cash in advance is a payment method in international trade in which an order is not processed
until full payment is received by the supplier in advance. Sometimes cash in advance is called
cash with order. We always should keep in mind that in cash in advance payment is received
before the ownership of the goods is transferred. Cash in advance posses highest risk to the
importer, lowest risk to the exporter.
Subject- IB Unit- 3 By- K.R. Ansari

Open Account :
Open account means that buyers pay the cost of the goods after goods have been shipped by the
supplier. In an international trade transaction open account defines as a sale where the goods are
shipped and/or delivered before payment is due, which is usually in 30 or 60 days. Open account
posses highest risk to the exporter, lowest risk to the importer.

Documentary Collections :
International trade procedure in which a bank in the importer's country acts on behalf of an
exporter for collecting and remitting payment for a shipment. The exporter presents the shipping
and collection documents to his or her bank (in own country) which sends them to its
correspondent bank in the importer's country. The foreign bank (called the presenting bank)
hands over shipping and title documents (required for taking delivery of the shipment) to the
importer in exchange for cash payment (in case of 'documents against payment' instructions) or a
firm commitment to pay on a fixed date (in case of 'documents against acceptance' instructions).
A documentary collection (D/C) is a transaction whereby the exporter entrusts the collection of a
payment to the remitting bank (exporter’s bank), which sends documents to a collecting bank
(importer’s bank), along with instructions for payment. Funds are received from the importer and
remitted to the exporter through the banks involved in the collection in exchange for those
documents.

Documentary Credits :
Documentary credits, also known as letters of credit, are one of the payment methods in
international trade. Letter of credit defined by International Chamber of Commerce publication
of UCP 600 as "any arrangement, however named or described, that is irrevocable and thereby
constitutes a definite undertaking of the issuing bank to honour a complying presentation."

What are the key points of consideration when choosing an international payment method?

Financial Needs of the Parties : Open account payment term is a credit granted by the exporter
in favor of the importer. In contrast, cash in advance is a credit granted by the importer in favor
of the exporter. Letters of credit available by deferred payment and documentary collections
Subject- IB Unit- 3 By- K.R. Ansari

payable with time drafts are also financial credits supplied to buyers. For these reasons financial
needs of the parties is a key element determining the payment terms in international trade
transactions.

Negotiation power of the parties : Sometimes exporters are in pressure to sell their products. If
balance of the trade power diminishes in favor of one party than stronger party may want to
benefited from the situation and dictates most favorable payments terms.

Country risk of exporter and importer : As an example if importer sits in a developed country
whereas exporter sits in a risky country than importer may do not want to take risks and choose
the most secure payment method for himself.

Sector of the transaction parties : Occupying sector of the exporter and importer may be one of
the key element choosing the payment method and payment terms. For example food sector
practicing open account payments or documentary collections, on contrary oil sector uses letters
of credit.

Willingness to take risks of the parties : Willingness to take risks is one of the key factor
determining the payment method in international trade. Sometimes exporters want to take extra
risk sometimes importers tend to trust their suppliers. A risk taking exporter may ship the goods
against open account terms whereas a risk taking importer may decide to pay in advance. If both
parties want to limit their risks then they will choose either documentary collections such as cash
against goods, cash against documents or documentary credits such as commercial letters of
credit, standby letters of credit.

Legal Legislation : If you want to export to Algeria you have to choose letter of credit as a
payment method. This is an Algerian legislation and every exporter that makes business with
Algeria has to obey this rule. "At the beginning of August 2009, the Algerian government
released the ‘Complementary Finance Law 2009’ which decreed that all imports into the
country, with a value exceeding $1000, would require a documentary letter of credit (LC)"

Country practices : Middle East countries tend to use letters of credit intensely when importing
goods. Chinese exporters also use letters of credit in great volumes. USA importers using
documentary collections for small value purchases. German importers would like to pay 30 days
after bill of lading date under open account payment terms.