EXPORTS PROCEDURES AND DOCUMENTATION

1Q. Briefly discuss the modes of entering export business. Export mode Firms products are manufactured in the domestic market or a third country and then transferred either directly or indirectly to the host market. In establishing export channels a firm has to decide which functions will be the responsibility of the firm itself and which will be taken care of by external agents. There are two major types of export modes: a) Indirect export: In this method an exporter uses the services of some specialized agencies such as merchant exporters and export houses or trading houses for exporting goods.

b) Direct export: It is the method of exporting goods directly to the foreign buyers by the manufacturer himself or through his agent situated in the foreign country.

Meaning of direct exporting Direct exporting means you export directly to a customer interested in buying your product. You are responsible for handling the market research, foreign distribution, and logistics of shipment and for collecting payment. Such exporters are also known as manufacturer exporters. Even goods supplied on consignment basis are considered to be direct export.

The advantages of this method are: The following are the advantages of direct exporting: a) Profitability: Potential profits are greater because of elimination of intermediaries. b) Direct control: Greater degree of control over all aspects of the transaction. c) Direct contact: Customers provide faster and more direct feedback on your product and its performance in the marketplace. d) Develop a better understanding of the marketplace. e) Export incentives: Direct exporters get 100% benefit of incentives given by the government. In case of indirect exports, the benefit of incentives is

Disadvantages of direct exporting:

a) High degree of risks: Direct exporters are prone to more risks as they shoulder the twin responsibility of manufacturing as well as marketing. They are also subject to the risks of domestic as well as overseas markets. b) It takes more time, energy and money than you may be able to afford. c) Lack of specialization: since a direct exporter looks after numerous activities of production, distribution, marketing, he cannot do justice to any one of them, creating chaotic situation in the organization. d) Not suitable for manufactures: Small firms, especially SSIs and cottage industries, may find it difficult to export directly due to inadequate infrastructure and knowledge about the foreign markets.

Meaning of Indirect exporting: Indirect exporting means selling to an intermediary, who in turn sells your products either directly to customers or to importing wholesalers an exporter use the services of domestic based specialized agencies as listed below Merchant exporters Export houses Trading Houses Export Consortia Government agencies

There are several reasons which may compel a firm to export goods indirectly:

o Small size of business o Lack of adequate capital and infrastructure o Stiff competition in the international market Advantages of indirect exporting: a) Less risk: Indirect exporters are prone to comparatively less risks as the risk of marketing gets transferred to export market intermediaries. At the same time, these intermediaries are specialized in their own field. b) Less investment: since indirect exporters concentrate only on manufacturing as assembling of goods they require a lesser amount of capital than the direct exporters. c) Specialization: since indirect exporters concentrate only on manufacturing aspect, they can exercise their task with a greater degree of specialization leaving the responsibility of marketing to export marketing intermediaries. d) Availability of imported inputs: Indirect exporters can import raw materials components, spare parts,etc., for export production through intermediaries such as export house, trading houses,etc Disadvantages of direct exporting: - Higher start-up costs and higher risks as opposed to indirect exporting; - Greater information requirements; - Longer time-to-market as opposed to indirect exporting.