Export Import Trade and

Documentation
Unit-1
Dr.D.Sathishkumar
Foreign Trade
Understanding the process and procedures of
export and import has become more important
due to the ever increasing momentum of
globalization
The WTO is the only global international
organization dealing with the rules of trade
between nations.
The competition to capture more market share has
intensified in the world
In such a scenario, companies need to formulate
their business strategy based on exporting and
importing in a systematic way that increases
profit and reduces cost.
 Meaning
Foreign trade - trade between the different countries of the
world. It is also called as International trade, External trade
or Inter-Regional trade.
It consists of imports, exports and entrepot.
The inflow of goods in a country is called import trade
outflow of goods from a country is called export trade.
Many times goods are imported for the purpose of re-export
after some processing operations. This is called entrepot
trade.
Foreign trade basically takes place for mutual satisfaction
of wants and utilities of resources.
Why Export-Import trade?
In a developing country like India, the real
barometer of sustained economic
development is the growth index of exports.
Sustained growth in exports can be
accelerated by conducive framework .
In order to succeed in the era of
globalization, it makes for entrepreneurs to
plan for export business as part of their
business strategy
A first time exporter should be aware of the
steps involved in export business.
Export Managment
Special branch of management science

Follows all principles and philosophies of

management science

In general Export management means

what export manager does
Meaning of export management
Activities directly or indirectly associated with
exports

Activities before shipment & after shipment

Systematic & scientific approach-to manage

marketing activities

All management science to achieve desired

objectives

Finding opportunities for marketing in overseas

market
Scope of export management
Export formation & procedure
Export pricing
Export services
Export production & quality control
International marketing research
Advertising & publicity
Export financing
 Steps for exporting
Selecting the Right Name
Registration
Opening a bank account
Quoting the Permanent Account Number
Registering with sales tax office
Obtaining the IEC Number
Registration with Export Promotion Councils
Registration with Export credit Guarantee
Corporation
Registration with chambers of commerce
Export license
 Export-Import Documentation and
Steps
Like any decision in business, the decision to
go in for exporting or importing is motivated
by the idea of comparative advantage and
achieving international competitiveness

The business of exports and imports is heavily

document oriented and one must get
acquainted with the entire procedure.
Steps for Successful Exporting
Most exports take place between two
independent companies.

The systematic understanding of various

stages and steps in an export transaction
would help companies conduct their
export businesses successfully.

Some of the steps involved in an export

transaction can be listed as follows
Step 1
Those interested in Export-Import
business need to apply to the Director
General of Foreign Trade( DGFT) for
getting IEC Number

This step is applicable for the first time

exporters only

IEC number is not mandatory in the case

of imports for personal use
Step 2

The exporter has to register with the

concerned export promotion council
Step 3

The exporter can go in for procuring

orders by sending a sample, if required
Step 4

With export orders in hand the exporter

starts manufacturing goods or buying
them from other manufacturers
Step 5

Exporters make arrangements for quality

control and obtains from the inspector of
quality control confirming the quality of
goods
Step 6

Exportables are despatched to

ports/airports for transit
Step 7

The export firm has to apply to an

insurance company for marine/air
insurance cover
Step 8
After the completion of these formalities,
the exporter contacts the clearing and
forwarding agent for storing the goods in
warehouses

The exporter can also store the goods

personally
The forwarding agent presents a document
called shipping bill, which is required for
allowing shipment by customs authority
Step 9

After loading the goods into the ship, the

assistant of the captain of the ship issues a
receipt known as Mates Receipt
Step 10
When the port payments are made, exporter
gets the Bill of Lading from the official agent
of the shipping company

Bill of lading when the exporter hands over

the goods to the shipping company, the
shipping company issues a set of bills to
exporter.
It is a receipt signifying physical acceptance
of cargo by the shipping company
 Step 11

The exporter applies to the relevant chamber

of commerce for obtaining certificates of
origin ( goods are originated from India).
Step 12

The exporter sends a set of documents to

the importer stating the date of shipment,
name of vessel etc
Step 13

The exporter presents all the important

documents at his bank which has to be
done within 21 days after the shipment
Step 14

The exporters bank sends these documents

to the importers bank which should make
the payment on or before the due date
 Export Documentation Framework
Unlike domestic business, an exporter is
dealing with a large number and more
challenging uncertainties.
Even when the exporter has received an order,
his life doesnt become easy as its successful
execution is full of hurdles.
Therefore an exporter has to follow certain
procedural routines while executing an export
shipment and be fully aware of the drill.
 FINDING YOUR CUSTOMERS

Once you have selected the market, the next step is to

find a prospective customer. This you can get
From the directory of importers of the country
By writing to the Embassy of India in that country for
assistance
By writing to the chamber of commerce of that
country
By means of participation in a Fair/Exhibition abroad
either directly or through the Export Promotion
Council
By participating in international fair if organized
locally
Through the personal contacts in that country.
 FINDING YOUR CUSTOMERS

By these processes one can only have the list of

customers. One has to dialogue or correspond with
these customers by sending samples, getting feedback
from the customers etc. to ultimately select the
customer with whom to deal with. It is necessary to
know the financial standing of the company which
can be obtained through the bank channel or through
the office of ECGC.
Foreign Inquiry
Exporter may receive inquiries directly.
An inquiry or enquiry is a request from the
prospective buyer to keep him informed of the
terms and conditions of sale.
Any export inquiry has to be attended with speed
and particular care.
Here importers are in advantageous position as
many exporters compete to clinch the deal.
As export business is highly competitive,
exporters without waiting for inquiries can
identify potential buyers
Foreign Inquiry
Exporter has to react with speed and
elegance by submitting the offer through
proforma invoice with detailed literature
about product specifications, quality,
price, mode of transport etc
An offer is a proposal which may be in the
form of a letter or proforma invoice
It is desirable to send samples as they
speak better about the quality .
Steps for Export shipment
Procedure- Preliminary
To focus better on the issue, let us take an
example of an exporter Aaara from
Mumbai , who deals with automobile
parts.
The first step is he receives an enquiry
from abroad for supplying a certain spare
parts in good numbers.

Now we will see the step-by-step route

that Aaara needs to follow.
 Generation of Foreign Enquiry
This is the beginning of an export transaction
This reflects the buyers interest and specific
requirements
In this case Aaara should have received the
following details:
Vehicle model number
Size/technical specifications
Quantity required
Packing requirements
Price specifications FOB, CIF etc
Mode of shipment
Mode of payment etc
Quotation
Aaara must go through all the details in
the enquiry and in case there is need for
some clarifications, he must immediately
get in touch with the buyer

Based on the details of the enquiry, Aaara

will prepare his quotation which is called
Proforma Invoice and submit the same to
his buyer for approval
 Proforma Invoice
Proforma invoice is the starting point of an
export contract. As and when the exporter
receives the trade inquiry from the importer,
exporter submits the proforma invoice to the
importer
The proforma invoice contains details such as
name and address of the exporter, name and
address of the importer, nature of goods, mode
of transportation, accepted quotation, name of
the country of final destination etc.
Order Receipt and acceptance
If the buyer is satisfied with the quotation, he will
approve the same and place a firm order to Aaara.
If the importer wants certain changes in the offer
from Aaara, he will ask Aaara and after
negotiations/discussions, changes will be made
and the quotation will have to be re-submitted.
The buyer will approve this new quote and place
order to Aaara.
On receipt of the order, Aaara must immediately
acknowledge the acceptance of the same.
 Scrutinizing Export Order
Before the export order is finalized, it is highly
essential to examine the terms and conditions
carefully
There are some of the conditions which warrant
careful examination
Product description including specifications,
style, color, packing conditions etc
Marking and labelling requirements
Price , terms of payment(FOB,CIF) including
currency
Terms of shipment
Inspection requirements etc.
Thus exporter has to examine all the clauses.
Payment by Documentary Credit
Export orders normally stipulate that the buyer
should open a letter of credit in favor of the
exporter

Out of all the terms of payment the most secure

methods of payment and most widely followed in
international marketing is letter of credit payment

It is an authority for payment for the exporter

provided he does not violate any of its clauses.
Letter of Credit
A Letter of credit is an authority issued by
buyer through his banker to the exporter
through his bank stating that the payment
will be made
Payments method through a documentary
L/C has number of advantages:
When L/C is established, the exporter may
be sure that the payment would not pose a
problem
L/C in India is an important document for
commercial bank which advances pre-
shipment finance.
 L/C offers advantages to both buyer and
seller. As seller is concerned, a L/C ensures
him the payment for the goods he sells,
provided he follows the instructions.
Buyer has to have botheration of arranging
for the L/C, but it may enable him to avail
certain discounts and a lower price from the
seller and buyer is assured that the shipment
will be made by the date specified in the
letter of credit.
Parties in Letter of credit
The opener- is the buyer (the importer). It is
opened at the request of the buyer.
The issuer-also called as issuing bank i.e. (bank
in the importing country issues letter of credit
at the request of the importer.
The Beneficiary- he is the seller or exporter.
Kinds of Letter of credit
Clean letter of credit- it is a draft without
any documents attached to it.
Documentary letter of credit- the draft
must be accompanied by the documents
specified in the letter of credit.
Revocable letter of credit- it may be
revoked at any time without the consent
of beneficiary. Since it does not protect
the beneficiary, exporters, do not prefer
on the basis of this type
 Irrevocable credit- it may not be revoked without
the consent of all the parties concerned.
Confirmed letter of credit- if L/C is confirmed by
bank in exporters country, it becomes confirmed
L/C. The issuing bank sends L/C through its branch
bank located in the exporters country with the
request to add its confirmation.
Red clause credit- is an authority to the
negotiating bank to make advances to the
beneficiary for the purpose of purchasing the
relevant goods.
How Letter of credit Works?
You (buyer) entered in to a contract with your
overseas supplier to import a machinery for
production at your factory. As per your contract
each other, you (buyer) need to open a Letter of
credit (LC). In this case, Letter of credit is opened
by your bank and beneficiary of letter of credit is
your overseas seller of machinery. Letter of credit
is a guarantee given by your bank (not you) to
your buyers bank on account of your buyer. The
amount under LC is transferred as per the terms
and conditions mentioned in Letter of credit.
Procedures to open a Letter of Credit.

You can approach your bank to open a

Letter of credit. The concerned officer at
bank helps you in filling up necessary
application to open an LC. Since the LC is
opened on the basis of your purchase
contract, a copy the same has to be
produced with along with other required
documents.Your bank may ask you to
keep certain percentage of margin
amount with bank.
What is margin amount while opening
Letter of Credit.
Bank is guaranteeing the payment. In turn, what
guarantee are you providing to bank against the
amount of LC.
So a margin amount will be blocked in your bank
account to make the payment under the said
letter of credit.
If you are a new account holder for your bank
and bank does not know your other financial
status, you can not expect any financial support
from your Bank.You need to keep 100% margin
amount with your bank. If the LC amount is for
USD 10000, your amount of USD 10000 will be
blocked from your account to pay LC amount to
your overseas seller
 But if you may have a good relationship
with your banker for the past many years,
and your banker knows your fixed assets,
your fixed investments with bank, other
financial transactions and are happy with
the credit worthiness, bank decides the
amount of margin to be collected from
you to open the Letter of Credit. It may
0% to 100%