Impact of Purchase Contract on

Firms’ Profitability and Productivity

in EXIM Business
INDURIA MARKETIN

PITHWA

Dewang Pandya
Roll No. 15
 INTRODUCTION
The paper presents a framework, along the
dimensions of strategy & cost to manage
EXIM business effectively and efficiently.

This study also reveals, how the company can

use its resources to improve its profitability
 LITERATURE SURVEY
• International Trade is different in several aspects from domestic trade. This is
typically because of involvement of multiple agencies who have their own rules and
regulations with respect to export – import transactions voluminous
documentation, and country specific requirements.

• Since the parties to the transaction are at a distance and since a Letter of Credit type
of a documents is the only link, it is all the more important that the twin objectives
of customer satisfaction and profitability of the transaction be given more focus.
 
• Delay in delivery, damages in transit, missing components, faulty documentation
pose serious threat to the possibility of continuing business relationship and directly
contribute to erosion of profitability.

Jacob George, Export Import Contracts

REFERENCES
 
• Prof. A. Zadoya, The International Business

• Jacob George, Export Import Contracts

• Dr. Hamid Hosseini, A Managerial Perspective on IB

• World Congress 2008 - Achieving high Performance in Global Business, April 10-12, 2008. Hyatt
Regency Atlanta, Atlanta, GA

• EXIM Commercial Manual_01-02-10, Thermax Limited

• www.ICC.org
•  
• www.thermaxindia.com
•  
The Contemporary Causes of Globalization

• Several basic motives have compelled

firms to become more global in both
their orientation and actions:
– To leverage core competencies
– To acquire resources and supplies
– To seek new markets
– To better compete with rivals

5
International Business vs. Domestic Business
International business can differ from domestic business for a number of
reasons, including the following:
– CURRENCY
The countries involved may use different currencies, forcing at least one party to convert its
currency into another.

– LEGAL COMPLIANCE
The legal systems of the countries may differ, forcing one or more parties to adjust their practices
to comply with local law.

– CULTURAL DIFFERENCE
The cultures of the countries may differ, forcing each party to adjust its behavior to meet the
expectations of the other.

– RESOURCES
The availability of resources differs by country; the way products are produced and the types of
products that are produced vary among countries.

6
 The International Operations

Foreign- Environment
(Uncontrollable)

Cultural Forces
Economic Environment
Domestic- Environment
Forces Uncontrollable
(Uncontrollable)
Country Market A

Controllable (s) Competitive Environment

Political/Legal Forces
Uncontrollable
Forces
Price Product Country Market A
Competitive
Political/Legal Structure
Forces
Environment
Promotion Place
Uncontrollable
Country Market A
Economic Cultural Level of
Climate Forces Technology
Geography and
Infrastructure

Structure of
Distribution
7
 WHY GROWTH OF IB
– Expansion of technology
Transportation and communication are quicker and less costly

– Liberalization of cross-border movements

• Government barriers reduced because:
– desire for better access to greater variety of goods and services
– domestic producers forced to be more competitive
– lowered trade barriers to their own exports

– Development of supporting services by business and governments to

• Ease the flow of goods and services sold abroad
• Reduce risks of IB

– Increase in global competition

Firms have become more global to maintain competitiveness

8
EXTERNAL INFLUENCES
– Physical and societal factors— must understand
• Politics that affect whether and how IB occurs
• Domestic and international law determines what managers can do in IB
• Economics
• Geography—determine location and availability of world’s resources
– Competitive environment
• Varies by industry, company, and country
– strategies differ across companies
» e.g., importance of controlling labor costs
» e.g., influence of local and international competitors
– size of market differs across countries

9
 International Business:
The Choice of Entry Mode

• Importing and exporting

• International investments
– Foreign direct investments (FDI)
– Portfolio investments
• Licensing
• Franchising
• Management contracts
10
INCOTERMS

Effective use of the most

common terms for international
sales!

in Global Business: Leadership, Outsourcing, & Risk

Management
11
 Common Terms
• Pre-carriage:
– Initial transport of goods from the seller to the main carrier
– Usually by truck, rail, or inland waterway
• Main carriage:
– Primary transport of goods
– Longest part of the journey & from one country to another
– Usually by sea or air, but may be by truck, or rail
• On-carriage:
– Transportation from arrival point in the destination country
to buyer, which can be by any mode
• Carrier:
– Any party who arranges for the primary transportation by
truck, plane, ship, rail, etc.

12
 Common Terms
• Delivery:
The term delivery is used in two contexts in Incoterms:
–The seller bringing the goods to the named point
–Traditional sense of the buyer receiving the goods
• Customs clearance:
Clearing the goods for export or import means
–Paying the duties, taxes and administrative costs
–Performing administrative matters related to:
• Clearance and Customs formalities
• Import and/or export regulations
• Typically, the Shipper (exporter) clears the goods for
export the Buyer (importer) clears the goods for
import

13
 Organization of Incoterms 2000
Incoterms are divided into four (4) categories:

• “E” term – Seller makes the goods available to the buyer at the
seller’s premises or other place named by the seller

• “F” terms – Seller is responsible to deliver the goods to the

export shipment point and carrier designated by the buyer

• “C” terms – Seller is responsible for contracting carriage of

goods to the place of destination, but does not assume risk of
loss or damage to goods, or additional costs due to events
occurring after shipment

• “D” terms – Seller is responsible for all costs and risks

associated with delivering goods to the named place in the
country of destination

:g High Performance in Global Business: Leadership,

Outsourcing, & Risk Management

14
 The Thirteen Incoterms
All modes of transport Sea and inland waterway
including multi-modal transport only

• EXW – Ex Works • CIP – Carriage and Insurance

• FCA – Free Carrier Paid To
• CPT – Carriage Paid To • DES – Delivered Ex Ship DEQ
• – Delivered Ex Quay
DAF – Delivered at Frontier
• FAS – Free Alongside Ship
• DDU – Delivered Duty
Unpaid • FOB – Free Onboard
• DDP – Delivered Duty Paid • CFR – Cost and Freight
• CIF – Cost, Insurance, and
Freight

:: Leadership, Outsourcing, & Risk Management 15

1) Documentary Sales Transaction
 2) Bill of Lading

Federal Bill of Lading Act, 49 U.S.C.A. § 80101-80116 (governs transferability)

Harter Act, 46 U.S.C.A. § 190-196 (governs form and content)
Carriage of Goods by Sea Act, 46 U.S.C.A. § 1300-1315 (governs form and content)
 3) Letter of Credit

Governed by:
-UCC Article 5
-International Chamber Commerce’s Uniform Customs and Practices for
Documentary Credits (UCP)
 Other Shipping Documents
Certificate of Origin
• Commercial Invoice

• Policy of Marine Insurance

• Certificate of Inspection

• Import License

• Certificate of Origin

• OUR FREIGHT BROKER WILL TAKE CARE OF ALL OF THIS!

NEXT
 THERMAX LIMITED
• Provide sustainable Integrated solutions in
Energy and Environment

• Engineering expertise in Heating, Cooling,

Power, Chemicals, Water and Waste
Management
 THERMAX TODAY
• Group turnover of over INR 3500 Cr
Six core business in Energy and Environment
1 Boilers and Heaters for Industry
2 Boilers for Utilities and Power
3 Absorption Coolers
4 Water & Waste Treatment Solutions
5 Chemicals
6 Air Pollution Control
7 Power (Turnkey Projects)

• ISO 9000 and 9001, 14001 and OHSAS 18001 Certified Units
• Manufacturing plants spread over 250,000 Sq. mtr in Pune, 400,000 Sq. mtr in Vadodara & 175,000 Sq.
mtr in China
• Manufactures to international standards – ASME, EN, GOST, BS, DIN, UDT, IBR, PED etc.
• International Sales & Service network spread over South East Asia, Middle East, Africa, Russia, Europe
and Latin America
 CASE STUDY
• Problem is How Purchase contract for Import
affects Firm’s Profitability and Productivity
• Welding Consumable requirements for
fabrication of Boiler Pressure Parts
• We (as end User) raised the inquiry no.
111271, 111300 & 111332, Dtd. 19/02/10 NEXT
• Our Buyer placed the PO No. 70162, 63 & 66
Dtd. 17/03/10 NEXT NEXT
 PROCESS FLOW OF IMPORT
USER GROUP PLACE THE INDENT

HOD Confirmed and Unit Head Approved it

Buyer Placed the PO

TL/SAVLI/COMP/.001.REV.0 Date: 28-02-10

Comparative Statement for Welding Consumables for LANCO INFRATECH Project (Ref. Dewang mail dtd 24-02-10)

Sr. no. Description Qty. Unit Nivek Agencies, Mumbai Indian Agencies, Baroda Bohler Welding Group, Mumbai Meridian Exports, Mumbai

  Brand     Kobe Bohler Bohler Bohler

        Unit Rate Total Unit Rate Total Unit Rate Total Unit Rate Total
1 ER90S-B9, Dia. 2 500 Kgs. 1715.9 857950.00 2865 1432500.00 1881.33 940663.50 1800 900000.00
  Total 500 Kgs.                
  SUB TOTAL 1   857950.00   1432500.00   940663.50   900000.00
  Disccount (In % age / Rs) 0.00% 0.00 0.00% 0.00 5.00% 47033.18 0.00% 0.00
  SUB TOTAL 2   857950.00   1432500.00   893630.33   900000.00

Extra at Actual
Incl (Rs. 165.90 x Incl (appx. Rs.
  ED @8.24% Excl OR incl 82950.00 150000.00 239928.00 Cenvate appx. 54000.00
500 kgs. = 82950) 300/kgs)
Rs. 108/Kgs.

Total Custom Duty E

  SUB TOTAL 2-A   857950.00   1432500.00
xtra Rs. 239928
 
(Incl 1133558.33   954000.00
CVD) & CVD Rs. 14
  CST 2% / VAT 5% 2.00% 17159.00 5.00% 71625.00 4847 will0.00%
be refunda 0.00 2.00% 19080.00
ble
  SUB TOTAL 3   875109.00   1504125.00   1133558.33   973080.00
  LESS (ED + VAT) / CVD   82950.00   221625.00   144847.00   54000.00
  Sub Total 4 (after deducting ED +VAT)   792159.00   1282500.00   988711.33   919080.00

  Transportation Free 0.00 Free 0.00 Extra (From German 35399.50 Free 0.00
y to Savli)-By Air

  Total   792159.00   1282500.00   1024110.83   919080.00

100% Advance thru

  Payment Term   60 Days   60 Days     60 Days
TT/Sight LC

Not in ex-stock and will 120 kgs. Ex-stock and 114 Kgs.ex-stock and
Ex-Stock OR 3-4
Delivery:   take @ 6-8 wks OR   balance 4-8 wks OR     balance will be 6-8 wks or
Wks
asap. asap asap
 

(1) Nivek has quoted price for Dia. 2.4 mm as Dia. 2.0 mm not available in Ex-stock and can't committe on Dia. 2 (2) We well discussed with Dewang Pandya (Welding Cell) and has recomanded to place order to Bohler
Welding (Import) being L2 + we need mater
Contd.
• Payment and Delivery terms
• L/C and FOB at Hamm, GmbH
• L/C not accepted by Seller’s Banker
• Amendment of L/C and Charges NEXT
• Nominate a Freight Forwarder
• Booked the material on 22/06/10
 IMPACT ON FIRM
• Job was loaded in shop
• Because of consignment delayed for 3 months, We
badly required consumables
• We have to purchase from local dealer, who is
Highest qouted
• Have to justify the matter and generate file note, got
it approved from competent authority for deviation
and audit purpose
• Financial Loss to the org. is INR 4,38,196
• Impoted material have Inventory cost
 CORRECTIVE ACTIONS
• We have demanded for 60 days payment credit with
the Manufacturer
• They consider our request
• Germany based Insurance company has audited our last
5 years transactions and qualify us for 30 days credit
• Shop Buyer is not a right person for EXIM business, mgt.
decide to handover activities to EXIM cell
• We asked for VMI (Vendor Managed Inventory)
• Best negotiate with vendor and make rate contract
• Now a days we operate smoothly
 VMI

P
r
Thermax Loss to company o
N Supplier
Stores d
u
c
t
i
o
n
Thermax
VMI Supplier d
Stores
a
t
e

Days
 The VMI Model
Managing inventory outside the four walls

A VMI implementation program must include:

1. A way for the supplier to monitor the status

of inventory at the customer site
2. The normal time period between deliveries
to the customer
3. A method of transmitting COLLABOARATIVE
FORECAST information to the supplier
31