Introduction to International Business [1 ed.] 9789350440292, 9789350245637

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Introduction to International Business Dr. P. SUBBA RAO Professor of Business Administration The University of Papua New Guinea Papua New Guinea

Australia and Dean Professor and Head Faculty of Commerce and Management Sri Krishnadevaraya University Anantapur - 515 003 (A.P.)

India

K4»JI 'GJIimalaya GJlublishing GJiollse MUMBAI • DELHI • NAGPUR •

BANGALORE • tttvoERABAD

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CONTENTS CHAPTER 1: International Business: Nature, Theories and Competitive Advantages

1 - 40

(A) EVOLUTION OF INTERNATIONAL BUSINESS (B) NATURE OF INTERNATIONAL BUSINESS (C) REASONS FOR INTERNATIONAL BUSINESS (D) STAGES OF INTERNATIONALIZATION (E) APPROACHES OF INTERNATIONAL BUSINESS (F) THEORIES OF INTERNATIONAL BUSINESS (G) COMPETITIVE ADVANTAGE OF INTERNATIONAL BUSINESS (H) PROBLEMS OF INTERNATIONAL BUSINESS (I)

COMPETITIVE ADVANTAGE IN A GLOBAL SETTING

CHAPTER 2: Modes of Entering International Business

41- 79

(A) INTERNATIONAL BUSINESS ANALYSIS (B) MODES OF ENTRY (C) COMPARISON OF DIFFERENT MODES OF ENTRY

(D) FUNCTIONAL ALLIANCES (E) MANAGING CONFLICT SITUATIONS (F) BREAK-UP OF ALLIANCES

CHAPTER 3: Globalisation (A) MEANING AND DEFINITION (B) FEATURES OF GLOBALISATION (C) STAGES OF GLOBALISATION (D) GLOBALISATION OF MARKETS (E) GLOBALISATION OF PRODUCTION (F) GLOBALISATION OF INVESTMENT (G) GLOBALISATION OF TECHNOLOGY (H) ADVANTAGES OF GLOBALISATION (I)

DISADVANTAGES OF GLOBALISATION

(J)

ESSENTIAL CONDITIONS FOR GLOBALISATION

(K) GLOBALISATION AND INDIA

80 - 104

CHAPTER 4: Multinational Corporations

105 - 130

(A) MNCs AND INTERNATIONAL BUSINESS (B) DEFINITIONS AND DISTINCTIONS AMONG INTERNATIONAL COMPANIES, MNCs, GLOBAL COMPANIES AND TNCs (C) ORGANISATION DESIGN AND STRUCTURE OF MNCS (D) MERITS AND DEMERITS OF THE MNCs (E) MNCS IN INDIA (F) THE INDIANISATION OF TRANSNATIONAL

CHAPTER 5: International Markets Intelligence

131 - 142

(A) INTERNATIONAL MARKETING INTELLIGENCE (B) INFORMATION REQUIRED (C) INTERNATIONAL MARKETING INFORMATION SYSTEM

(D) MARKETING RESEARCH

CHAPTER 6: Foreign Trade Procedures

143 - 182

(A) EXPORT PROCESS (B)

IMPORT PROCESS

(C) FINANCING TECHNIQUES

(D) BANKS AND OTHER FINANCIAL INSTITUTIONS (E) EXCHANGE RATE DETERMINATION (F)

CONVERTIBILITY OF THE RUPEE AND ITS IMPLICATIONS

(G) BALANCE OF TRADE AND PAYMENTS

CHAPTER 7: Export Promotion (A)

183 - 194

INSTITUTIONAL INFRASTRUCTURE

(B) LEVELS OF EXPORT PROMOTION INSTITUTIONS IN INDIA

Skill Development I.

LIST AT LEAST 3 MNCS OF G-7 COUNTRIES OPERATING IN INDIA ALOl'TG WITH PRODUCTS THEY MANUFACTURE

II. LATEST NEWS AFFECTING INDIA THROUGH WORLD BANK, WTO, IMF ETC. Ill. TWO DOCUMENTS USED IN EXPORT TRADE IV. DOCUMENT USED IN IMPORT TRADE V. PREPARATION OF A CHART ON DIFFERENT CURRENCIES OF DIFFERENT COUNTRIES (SELECTED) VI. TABLE OF AT LEAST ONE MONTH DATA OF FORFIGN EXCHANGE RATE OF AT LEAST 2 CURRENCIES

195 - 217

Chapter Outline (A)

EVOLUTION OF INTERNATIONAL BUSINESS

(B)

NATURE OF INTERNATIONAL BUSINESS

(C)

REASONS FOR INTERNATIONAL BUSINESS

(D)

STAGES OF INTERNATIONALIZATION

(E)

APPROACHES OF INTERNATIONAL BUSINESS

(F)

THEORIES OF INTERNATIONAL BUSINESS

(G)

COMPETITIVE ADVANTAGE OF INTERNATIONAL.BUSINESS

(H)

PROBLEMS OF INTERNATIONAL BUSINESS

(I)

COMPETITIVE ADV ANT AGE IN A GLOBAL SETTING

The beverages you drink might be produced in India, but with the collaboration of a USA company. The tea you drink is prepared from the tea powder produced in Sri Lanka. The spares and hard-disk of the computer you operate might have been produced in the United States of America. The peifume you apply might have been produced in France. The television you watch might have been produced with the Japanese technology. The shoes you wear might have been produced in Taiwan, but remarketed by an Italian company. Your air-travel services might have been provided to you by Air-France and so on so forth. Most of you have the experience of browsing internet and visiting .different web sites, knowing the products and services offered by various companies across the globe. Some of you might have the experience of even o,dering and buying the products through internet. This process gives you the opportunity of transacting in the international business arena without visiting or knowing the various countries and companies across the globe. You get all these even without visiting or knowing the country of the company where they are produced. All these activities have become a reality due to the operations and activities of international business. Thus, international business is the process of focusing on the resources of the globe and objectives of the organisations on global business opportunities and threats, in order to produce, buy, sell or exchange of goods/services worldwide.

2

I

Introduction to International Business

(A) EVOLUTION OF INTERNATIONAL BUSINESS

I

The origin of international business goes back to human civilization. Historically periods of greater openness to trade have been characterized by stronger but lopsided global growth. The concept of internatiomil business-a broader concept relating to the integration of economies and societies, dates back to -the 19th century. The first phase of globalization began around 1870 and ended with the World War I (1914) driven by the industrial revolution in UK, Germany and USA. The import of raw material by colonial empires from their colonies and exporting finished goods to their overseas possessions was the main reason for the sharp _increase in the trade during this phase. The ratio of trade to GDP was as high as 22.1 in 1913. Later various Governments initiated and imposed a number of barriers to trade to protect their domestic production that led to decline in the ratio of trade to GDP to 9.1 during 1930s. The international trade between two world wars has been described as "a vast game of beggar-my-neighbour." Advanced countries experienced sever set back consequent up on the imposition of trade barriers as they produce in excess of domestic demand and a decline in the volume of international trade. Added to this, the break down of the gold standard resulted in vacuum in the field of international trade. Then the world nations felt for the need for international cooperation in global trade and balance of payments affairs. These efforts resulted in the establishment of International monetary Fund (lMF) and International Bank for Reconstruction and Development (IBRD-popularly known as the World Bank). The prolonged recession before the World War II in the west, led to and international consensus after the World War II that a different approach towards international trade was required. Consequently 23 countries conducted negotiations in 1947 in order to prevent he protectionism policies and to revive the economies from recession aiming at the establishment of the International Trade Organization. This attempt of the advanced countries ended with the General Agreement on Trade and Tariffs (GATT) that provided a framework for a seri~s of 'rounds' of negotiations by which tariffs were reduced. Efforts to convert the General Agreement on Trade and Tariffs (GATT) into World Trade Organization (WTO) were intensified during 1980s and ultimately GATT was replaced by the WTO on pI January '.995. Envisaging the trade liberalizations. The efforts oflMF, World Bank and WTO along with the efforts of individual countries due to economic limi.tations of the closed economies led to the globalization of business. Globalization gave fillip to international business p_a~icularly dur~ng 199Os. The business across the borders of the countries had been carried on since times immemorial. But, the business had been limited to the international trade until the recent past. The post-Wodd War II period witnessed an

International Business: Nature, Theories and Competitive Advantages

3

unexpected expansion of national companies into international or multinational companies. The post 1990s period has given greater fillip to international business. In fact, the term international business was not popular before two decades. The term international business has emerged from the term 'international marketing', which, in turn, emerged from the term 'export trade.' International Trade to International Marketing: Originally, the producers 'used to export their products to the nearby countries and gradually extended the exports to far-off countries. Gradually, the companies extended the operations beyond trade. For example, India used to export raw cotton, raw jute and iron ore during the early 1900s. The massive industrialisation in the country enabled us to export jute products, cotton garments and steel during 1960s. India, during 1980s could create markets for its products, in addition to mere exporting. The export marketing efforts include creation of demand for Indian products like textiles, electronics, leather products, tea, coffee etc., arranging for appropriate distribution channels, 'attractive package, product development, pricing etc. This process is true not only with India, but also with almost all developed and developing economies. International Marketing to International Business : The multinational companies which were producing the products in their home countries and marketing them in various foreign countries before 1980s, started locating their plants and other manufacturing facilities in foreign/host countries. Later, they started producing in one foreign country and marketing in other foreign countries. For example, Uni Lever established its subsidiary company in India, i.e., Hindustan Lever Limited (HLL). HLL produces its products in India and markets them in Bangladesh, Sri Lanka, Nepal etc. Thus, the scope I)f the international trade is expanded into international marketing and international marketing is expanded into international business.

I

(B) NATURE OF INTERNATIONAL BUSINESS

I

The 1990s and the new millennium clearly indicate rapid internationalisation and globalisation. The entire globe is passing at a dramatic pace through the transition period. Today, the international trader is in a position to analyse and interpret the global, social, technical, economic, political and natural environmental factors more clearly. Conducting and managing international business operations is a crucial venture due to variations in political, social, cultural and er.onomic factors, from one country to another country. For example, most of the African consumers prefer less costly products due to their. poor economic conditions, whereas the German

Introduction to International Business

4

consumers prefer high quality and high priced products due to their higher ability to buy. Therefore, the international businessman should produce and export less costly products to most of the African countries and vice versa to most of the European and North American countries. High priced and high quality Palmolive soaps are marketed in European countries and the economy priced Palmolive soaps are exported and marketed in developing countries like Ethiopia, Pakistan, Kenya, India, Cambodia etc. Characteristic features of international business include: • Accurate Information : International business houses need accurate information to make an appropriate decision. Europe was the most opportunistic market for leather goods and particularly for shoes. Bata based on the accurate data could make appropriate decision to enter various European countries. •

Timely Information : International business houses need not only accurate but timely information. Coca-Cola could enter the European market based on the timely information, whereas Pepsi entered later. Another example is the timely entrance of Indian software companies into the US market compared to those of other countries. Indian software companies also made timely decision in the case of Europe.

•

Size of the Business : The size of the international business should be large in order to have impact on the foreign economies. Most of the multinational companies are significantly large in size. In fact, the capital of some of the MNCs is greater than our annual budget and GDPs of the some of the African countries.

•

Market Segmentation : Most of the international business houses segment their markets based on the geographic market segmentation. Daewoo segmented its market as North America, Europe, Africa, Indian subcontinent and Pacific markets.

•

Potentiality of Markets : International markets present more potentials than the domestic markets. This is due to the fact that international markets are wide in scope, varied in consumer tastes, preferences and purchasing abilities, size of the population etc. For example, the IBM's sales are more in foreign countries than in USA. Similarly, Coca-Cola's sales, PROCTER and Gamble's sales and SATY AM Computer's sales are more in foreign countries than in their respective home countries.

The population jor the year 2000 indicates that: USA's population would be 300 million, Mexico's 126 million, Brazil's 205 million, Indonesia's 223 million, Pakistan's 138 million, Nigeria's 154 million and Bangladesh's 146 million. The size of the popUlation, sometimes, may not determine the size of the market. This is due to the backwardness of the economy and low

International Business: Nature, Theories and Competitive Advantages

5

purchasing power of the people. In fact, the size of Eritrea - an African country is roughly equal to that of the United Kingdom in terms of land area and size of the population. But, in terms of per capita income it is one of the poorest countries in the world with an estimated per capita income of US $ 150 per annum. Therefore, the international business houses should consider the consumers' willingness to buy and also ability to buy the products. In fact, most of the multinational companies which entered Indian market after 1991 failed in this respect. They viewed that almost the entire Indian population would be the customers. Therefore, they estimated that the demand for consumer durable goods would be increasing in India after globalisation. And they entered the Indian market. The heavy inflow of these goods and decline in the size of Indian middle class resulted in a slump in the demand for consumer durable goods. Therefore, the international business houses should accurately estimate the size of the customers who are willing and able to buy the products/ services rather than just the size of the population of the foreign countries. •

Wider Scope : Foreign trade refers to the flow of goods across national PQlitical borders. Therefore, it refers to exporting and importing by international marketing companies plus creation of demand, promotion, pricing etc. As stated earlier, international business is much broader in its scope. It involves international marketing, international investments, management of foreign exchange, procuring international finance from IMF, IBRD, IFC, IDA etc., management of international human resources, management of cultural diversity, international marketing, management of international production and logistics, international strategic management and the like. Thus, international business is broader in scope and covers all aspects of the system.

•

Inter-country Comparative Study : International business studies the business opportunities, threats, consumers' preferences, behaviour, cultures of the societies, employees, business environmental factors, manufacturing locations, management styles, inputs and human resource management practices in various countries. International business seeks to identify, classify and interpret the similarities and dissimilarities among the systems used to anticipate demand and market products!. The system presents inter-country comparison and inter-continental comparison. Comparative analysis helps the management to evaluate the markets, finances, human resources, consumers etc. of various countries. The comparative study also helps the management to evaluate the market potentials of various countries.

The study also indicates the degree of consumer acceptance of the product, product changes and developments in different countries. Managements of

Introduction to International Business

6

international business houses can group the countries with similar features and design the same products, fix similar price and formulate the same marketing strategies. For example, Prentice-Hall grouped India, Nepal, Pakistan, Bangladesh, Sri Lanka etc. into one category based on the customers' ability to pay and designed the same quality product and sold them at the same price in all these countries. Similarly" Dr. Reddy's Lab does the same for its products to sell in the African countries.

Differences In Government Policies, Laws And Regulations Sovereign governments ena~t and implement the laws, and formulate and implement policies and regulations. The international business houses should follow these laws, policies and regulations. MNCs operating in India follow our labour laws, business laws anct policies and regulations formulated by the Indian Government. For example, international business is required to enter into joint venture with the domestic company to enter Malaysia. Important among them include: •

Host Country's Monetary System: Countries regulate the price level, flow of money, production levels etc. through their monetary systems. In addition, they regulate foreign exchange rates also through the monetary system. The tools of monetary system include bank rate, cash reserve ratio, statutory liquidity ratio etc. Governments also regulate remittance of the profit of international business houses to other countries. International companies should obey these regulations. The Indian Government introduced full convertibility on current account; in fact, many Governments introduced full convertibility on current account as a part of economic liberalisation.

•

National Security Policies of the Host Countries : Every country formulates the policies for its national security. Multinational companies should abide by these national security policies. For example, USA is a free economy as far as carrying out the business compared to many other countries in the world. However, USA also imposes restrictions regarding the business operations which affect the national security.

•

Cultural Factors : Cultural and custom factors vary widely from one country to the another. These factors include dressing habits, eating habits, religious factors and tht.: like. Multinational companies should consider these factors of the host country while operating in that country. For example, the culture of the Fiji people is that they attend to the family activities at least three times a day. Therefore, the companies operating !'1 that country allow their workers to go home three times a day. (See Box 1.1)

•

Language: Language is an important factor in international business. Even though 'English language' is a major language in business operations in the world, there are still a large number of 'non-English' speaking countries.

International Business: Nature, Theories and Competitive Advantages

7

Therefore, international business houses should train their employees in the local language of the host country . Added to this , there would be many languages in use in many countries like ours. Therefore, the business houses should train their employees in the local languages also.

In Switzerland, foreign dishwasher manufacturers expected the same rapid sales as they had first obtained in other West European markets; but sales in Switzerland were so slow that research had to be done to find out why (this research should, of course, have been done before not after market entry). The research showed that the Swiss housewife had a different set of values compared to, her French and English counterparts; she was very conscious of her role as strict and hardworking and her responsibility for the health of her family. To the Swiss housewife dishwashers simply made life easy, and this conflicted with her Calvinistic work ethic. As a result of this research, dishwasher manufacturers had to change their advertising - promoting, instead of ease and convenience, hygiene and health. They did this by emphasizing that because dishwashers used temperature higher than hand-hot, the process was more hygienic than washing up by hand. Thereafter, they had no probllim selling automatic dishwashers in Switzerland.

Source: Edgar P. Hibbert , "International Business", Macmillan, 1997, p. 70 .

•

I

Nationalism and Business Policy: Nationalism is a dominating factor of the social life Of the people of the host countries. In fact, nationalism also affects the business operations of the multinational corporations dramatically and drastically . The US people used the slogan, 'Be American and Buy American Made', when the US automobile industry failed to meet the competition of Japanese automobile companies operating in USA. Similar incidents are also observed in developing countries. Therefore, international business houses should be cautious of nationalism and its after effects.

(C) REASONS FOR INTERNATIONAL BUSINESS

I

We have discussed the characteristic features of international business and the precautions that the multinational companies should take while operating in foreign countries. Now, we study the factors affecting international business . •

To achieve Higher Rate of Profits : As we have discussed in various courses/subjects like Principles and Practice of Management, Managerial Economics and Financial Mangement that the basic objective of the business firms is to earn profits. When the domestic markets do not

8

Introduction to International Business

promise a higher rate of profits, business firms search for foreign markets which hold promise for higher rate of profits. Thus the objective of profit affects and motivates the business to expand its operations to foreign countries. For example, Hewlett Packard earned 85.4% of its profits from the foreign markets compared to that of domestic markets in 1994. Apple earned US $ 390 million as net profit from the foreign markets and only US $ 310 millions as net profit from its domestic market in 1994. •

Expanding the Production Capacities beyond the Demand of the Domestic Country : Some of the domestic companies expanded their production capacities more than the demand for the product in the domestic countries. These companies, in such cases, are forced to sell their. excess production in foreign developed countries. Toyota of Japan is an example. (See Box 1.2 for Economies of Developed Countries).

United States In the US, the rate of growth of Gross Domestic Product (GOP) rose by 2.6 per cent in the second quarter of 1996 over the corresponding period of 1995 - much higher than the first quarter growth rate of 1.7 • per cent. Recent data present a contradictory picture. While some surveys point to a stronger rate of growth of industrial production in the third quarter of 1996, the growth rate of durable goods orders fell by 0.8 per cent between May and June 1996. Canada The Canadian economy's growth rate is likely to pick up in 1996. An index of business confidence shows higher real spending on machinery and equipment in the first half of 1996, reflecting a high level of producer confidence. On the consumption side, however, the picture is less promising. Japan In recent months, the prospects of a sustained recovery in Japan have improved although the Economic Planning Agency has warned that the recovery is still fragile, and that expansionary trends have yet to be confirmed. Recently, there have been increasing signs of an upturn in private consumption, led by improving job opportunities and rising wages. Australia Despite stronger-than-expected economic growth in the first quarter of 1996, the Reserve Bank of Australia (RBOA) lowered the cash rate by 0.5 per cent to 7 per cent in end-July 1996. The governor of the RBOA said that the lower, and declining, rate of growth of wages suggested that economic growth had fallen below its potential levels. Moreover, recent indicators of consumer spending point to a softer private consumption growth rate in the second quarter of 1996 while excess capacity and high inventories suggest that industrial production growth is likely to remain depressed over the next few months.

Source: Adaptedfrom Business Today, August 7-21, 1996, pp. 48-49.

International Business: Nature, Theories and Competitive Advantages

9

•

Severe Competition in the Home Country : The countries oriented towards market economies since 1960s experienced severe competition from other business firms in the home countries. The weak companies which could not meet the competition of the strong companies in the domestic country started entering the markets of the developing countries.

•

Limited Home Market : When the size of the home market is limited either due to the smaller size of the population or due to lower purchasing power of the people or both, the companies internationalise their operations. For example, most of the Japanese automobile and electronic firms entered US, Europe and even African markets due to the smaller size of the home market. ITC entered the European market due to the lower purchasing power of the Indians with regard to high quality cigarettes.

Similarly, the mere six million population of Switzerland is the reason for Ciba-Geigy to internationalise its operations. In fact, this company was forced to concentrate on global market and establish manufacturing facilities in foreign countries. •

Political Stability Vs Political Instability : Political stability does not simply mean that continuation of ~e same party in power, but it does mean that continuation of the same policies of the Government for a quite longer period. It is viewed that USA is a politically stable country. Similarly, UK, France, Germany, Italy and Japan are also politically stable countries . Most of the African countries and some of the Asian countries are politically instable countries. Business firms prefer to enter the politically stable countries and are restrained from locating their business operations in politically instable countries. In fact, business firms shift their operations from politically instable countries into politically stable countries.

•

Availability of Technology and Managerial Competence : Availability of advance:d technology and managerial competence in some countries act as pulling factors for business firms from the home country. Compapies from the developing world are attracted by the developed countries due to these reasons. In fact, American companies, in recent years, depended on . Japanese companies for technology and management expertise. 2 (Box 1.3 presents information regarding latest technology in computers).

•

High Cost of Transportation : Initially companies enter foreign countries through their marketing operations. At this stage, the companies realise the challenge from the domestic companies. Added to this, the home companies enjoy higher profit margins whereas the foreign firms suffer from lower profit margins. The major factor for this situation is the cost of transportati0n of the products.

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Introduction to International Business

International Business Machines Corporation unveiled the fastest computer in the world, which the US government will use to simulate nuclear weapons tests. The supercomputer, able to process more in a second thaI" one person with a calculator could do in 10 million years, was made for the US department of energy's Accelerated Strategic Computing Initiative (ASCI). The system could ease congressional opposition to the United States signing the Comprehensive Test Ban Treaty, banning all actual nuclear weapons testing worldwide.

Source: Adapted from the Economic Times, 30th June, 2000.

Under such conditions, the foreign companies are inclined to increase their profit margin by locating their manufacturing facilities in foreign countries where there is enough demand either in one country or in a group of neighbouring countries.

For example, Mobil which was supplying the petroleum products to Ethiopia, Kenya, Eritrea, Sudan etc., from its refineries in Saudi Arabia, established its refinery facilities in Eritrea in order to reduce the cost of transportation. Similarly, Caterpillar located its manufacturing facilities at different centres in order to reduce the cost of transportation. This company produces high-value-added parts in limited locations and less valued and non-critical components and assembles the final products in a . . number of foreign countries. •

Nearness to Raw Materials : The source of highly qualitative raw materials and bulk raw materials is a major factor for attracting the companies from various foreign countries. Most of the US based and European based companies located their manufacturing facilities in SaudiArabia, Bahrain, Qatar, Oman, Iran and other middle east countries due to the availability of petroleum. Theses companies, thus, reduced the cost of transportation.

•

Availability of Quality Human Resources at Less Cost : This is a major factor, in recent times, for software, high technology and telecommunication companies to locate their operations in India. India is a major source for high quality and low cost human resources. unlike USA, developed European countries and Japan. Importing human resources from · India by these firms is costly rather than locating their operations in India. Hence, these companies started their operations in India, China and Thailand.

•

Liberalisation and Globalisation : Most of the countries in the globe liberalised their economies and opened their countries to the rest of the

International Business: Nature, Theories and Competitive Advantages

11

globe. These changed policies attracted the multinational companies to extend their operations to these countries. •

To Increase Market Share: Some of the large-scale business fims would like to enhance their market share in the global market by expanding and intensifying their operations in various foreign countries. Companies that expand internally tend to be 'oligopolistic'3. Smaller companies expand internationally for survival while the larger companies expand to increase the market share. For example, Ball Corporation, the third largest beverage cans manufacturer in USA, bought the European packaging operations of Continental Can Company. Then it expanded its operations to Europe and met the Europe demand which is 200 per cent more than that of USA. Thus, it increased its global market share of soft drink cans.

•

Tariffs and Import Quotas : It was quite common before globalisation that governments imposed tariffs or duty on imports to protect the domestic company. Sometimes Government also fixes import quotas in order to reduce the competition to the domestic companies from the competent foreign companies. These practices are prevalent not only in developing countries but also in advanced countries.

For example, Japanese companies are tough competitors to the US companies. USA imposed tariffs and quotas for import of automobiles and electronics from Japan. Harley-Davidson of USA sought and got five years of tariffs protection from Japanese imports. Similarly, Japan places high tariffs on imports of rice and other agricultural goods from the USA. To avoid high tariffs and quotas, companies prefer direct investment to go globally. For example, companies like SONY, Honda and Toyota preferred direct investment in various countries by establishing subsidiaries or through joint ventures in various foreign countries including the USA and India. Similarly, General Electricals and Whirlpool also have foreign subsidiaries. Xerox, Canon, Philips, Unilever, Lucky Gold Star, South Korean Electronics Company, Pepsi, Coca-Cola, Shell, Mobil etc. established manufacturing facilities in various foreign countries in order to avoid tariffs, import duties and quotas. Having discussed the need for international business, we shall discuss the stages of international business.

I

(0) STAGES OF INTERNATIONALIZATION

I

The stages of internationalization have been changing at a fast rate after 1990s. Many factors contributed to the changing scenario of internationalization . These factors include:

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Introduction to International Business

• • • • • • • • • •

Globalization of various economies including the former communist countries and socialist pattern of societies. Establishment of World Trade Organization on pI January 1995 in the place of General Agreements on Trade and Tariffs. Information technology revolution and its wider applications to business across the globe. Higher growth rate of transport technology and consequent reduction in cost, increase in speed and efficiency. Enlargement of European Union from 15 members to 25 members. Higher growth rate of GDP of China, India, South Korea, Singapore, Malaysia, Thailand, Brazil and Mexico. Spread of production activities of multinational companies in the newly globalised economies in addition to the developed economies. Increase in business alliances in degree and variety like alliances, joint ventures, mergers, amalgamations and takeovers, Increased globalisation of culture. Increase in educational opportunities and career-orientation among the people of developing countries particularly China and India. These factors resulted in enhancement of opportunities for higher value addition in developing countries. Consequently developing countries started attracting multinational companies to establish their manufacturing facilities in their countries.

These factors contributed for the significant change in the scenario of international business and resulted in the variations in the operations of international companies. These variations in the scenarios generally categorized into five stages. viz., domestic company, international company, multinational company, global company and transnational company. Now, we study each scenario in detail.

STAGE - 1 : DOMESTIC COMPANY Domestic company limits its operations, mission and vision to the national political boundaries. This companies focuses its view on the domestic market opportunities, domestic suppliers, domestic financial companies, domestic customers etc. These companies analyse the national environment of the country, formulate the strategies to exploit the opportunities offered by the environment. The domestic companies' unconscious motto is that, "if it is not happening in the home country,

it is not happening. "4 I

The domestic company never thinks of growing globally. If it grows, beyond its present capacity, the company selects the diversification strategy of entering into new domestic markets, new products, technology etc. The domestic company does not select the strategy of expansion/penetrating into the international markets.

International Business: Nature, Theories and Competitive Advantages

13

STAGE- 2 : INTERNATIONAL COMPANY Some of the domestic companies, which grow beyond their production and/ or domestic marketing capacities, think of internationalizing their operations. Those companies who decide to exploit the opportunities outside the domestic country are the stage two companies. These companies remain ethnocentric or domestic country oriented. These companies believe that the practices adopted in domestic business, the people and products of domestic business are superior to those of other countries. The focus of these companies is domestic but extends the wings to the foreign countries. These companies select the strategy of locating a branch in the foreign markets and extend the same domestic operations into foreign markets. In other words, these companies extend the domestic product, domestic price, promotion and other business practices to the foreign markets. Normally internationalisation process of most of the global companies starts with this stage two process. Most of the companies follow this strategy due to limited resources and also to learn from the foreign markets gradually before becoming a global company without much risk. The international company holds the marketing mix constantly and extends the operations to new countries. Thus, the international company extends the domestic country marketing mix and business model and practices to foreign countries.

STAGE- 3 : MULTINATIONAL COMPANY Sooner or later, the international companies learn that the extension strategy (i.e., extending the domestic product, price and promotion to foreign markets) will not work. The best example is that Toyota exported Toyopet cars produced for Japan in Japan to the USA in 1957. Toyopet was not successful in the USA. Toyota could not sell these cars in the USA as they were over priced, underpowered and built like tanks. Thus, these cars were not suitable for the US markets. The unsold cars were shipped back to Japan. Toyota took this failure as a rich learning experience and as a source of invaluable intelligence but not as failure. Toyota based on this experience designed new models of cars suitable for the US market. The international companies turn into mu1tinational companies when they start responding to the specific needs of the different country markets regarding product, price and promotion. This stage of multinational company is also referred to as multidomestic. Multidomestic company formulates different strategies for different markets; thus, the orientation shifts from ethnocentric to polycentric. 5 Under polycentric orientation the offices/branches/subsidiaries of a multinational company work like domestic company in each country where they operate with distinct policies and strategies suitable to the country concerned. Thus, they operate like a domestic company of the country concerned in each of their markets.

14

Introduction to International Business

Philips of Netherlands was a multidomestic company of this stage during 1960s. It used to have autonomous national organisations and formulate the strategies separately for each country. Its strategy did work effectively until the Japanese companies and Matsushita started competing with this company based on global strategy. Global strategy was based on focusing the company resources to serve the world market. Philips strategy was to work like a domestic company, and produce a number of models of the product. Consequently, it increased the cost of production and price of the product. But the Matsushita's strategy was to give the value, quality, design and low price to the customer. Philips lost its market share as Matsushita offered more value to the customer. Consequently, Philips changed its strategy and created "industry main groups" in Netherlands which are responsible for formulating a global strategy for producing, marketing and R&D. 6

STAGE- 4 : GLOBAL COMPANY A global company is the one which has either global marketing strategy or a global strategy. Global company either produces in home country or in a single country and focuses on marketing these products globally, or produces the products globally and focuses on marketing these products domestically. Harley designs and produces super heavy weight motorcycles in the USA and markets in the global market. Similarly, Dr. Reddy's Lab designs and produces drugs in India and markets globally. Thus, Harley and Dr. . Reddy's Lab are examples of global marketing focus. Gap procures products in the global countries and markets the products through its retail organisation in the USA. Thus, Gap is an example for global sourcing company. Harley Davidson designs and produces in the USA and gains competitive advantage as Mercedes in Germany. The Gap understands th ... US consumer and gets competitive advantage.

STAGE- 5 : TRANSNATIONAL COMPANY Transnational company produces, markets, invests and operates across the world. It is an integrated global enterprise that links global resources with global markets at profit. There is no pure transnational corporation. However, most of the transnational companies satisfy many of the characteristics of a global corporation. For example, Coca-Cola, Pepsi-Cola etc.

Characteristics of a Transnational Company The characteristics of a transnational company include: geocentric orientation, scanning or information acquisition, long-run visions etc. We discuss these characteristics in detail.

15

International Business: Nature, Theories and Competitive Advantages

(i) Geocentric Orientation : A transnational company is geocentric in its orientation. This company thinks globally and acts locally. This company adopts global strategy but allows value addition to the customer of a domestic country. This company allows adaptation to add value to its global offer. Table 1.1 presents scenarios of international business.

Stege and Company

Domestic

International Multidomestic Global

Transnational

Strategy Model

Domestic N.A.

International Co-ordinated Federation

View of World

2

3

4

5

Multidomestic Decentralized Federation

Global Centralized Hub

Global Integrated Network

Home Country Extension Markets Markets

National or Resources

Global Markets and Resources

Global Markets

Orientation

Ethnocentric

Ethnocentric

Polycentric

Mixed

Geocentric

Key Assets

Located in home country

Core centralized, others dispersed

Decentralized and selfsufficient

All in home country except marketing or sourcing

Dispersed Interdependent and specialized

Role of Country Units

Single country Adapting and leveraging competencies

Exploiting local opportunities

Marketing or.sourcing

Contributions to company worldwide

Knowledge

Home country Created at centre and transferred

Retained within Marketing operating units developed jointly and shared

All functions developed jointly and shared.

Source : Warren Keegen. op.cit .• p. 52.

The assets of a transnational company are distributed throughout the world, independent and specialised. The R&D facilities of a transnational company are spread in many countries, but specialised in each country · based on the local needs and integrated in world R&D project. Similarly, the production facilities are spread but specialised and integrated. In case of Caterpillar, manufacturing and assembly facilities are located in many countries.' Components are shipped for assembly and the assembled product is shipped to the place of the customer. Units of the transnational corporation in different countries create and develop the knowledge in all functions and share among them. Thus, knowledge and experience are shared jointly. Transnational gains power and competitive advantage by developing and sharing knowledge and experience. Development of dishwashing by using video camera by the French subsidiary of Colgate and sharing of the knowledge among all Colgate operating companies across globe is an example here.

16

Introduction to International Business

(ii) Scanning ,o r Information Acquisition : Transnational companies collect the data and information world-wide. These companies scan the environmental information regarding economic environment, political environment, social and cultural environment and technological environment. These companies collect and scan the information regardless of geographical and national boundaries. (iii) Vision and Aspirations : The vision and aspirations of transnational

companies are global, global markets, global customers and grow ahead of other globalltransnational companies. (iv) Geographic Scope : The transnational companies scan the global data ;lnd information. By doing so, they analyse the global opportunities regarding the availability of resources, customers, markets, technology, research and development etc. Sirrzilarly, they also analyse the global challenges and threats like competition from other global companies, local companies of host countries, political uncertainties and the like. They formulate global strategy. Thus, the geographic scope of a transnational company is not limited to certain countries in analysing opportunities, threats and formulating strategies. (v) Operating Style: Key operations of a transnational are globalised. The transnational companies globalise the functions like R&D, product development, placing key human resources, procurement of high valued material etc. For example, the R &D activity of Proctor & Gamble, and key human resource activity of Colgate are the jo~nt and shared activity of the units of these companies in various countries. (See Table 1.1). (vi) Adaptation: Global and transnational companies adapt their products, marketing strategies and other functional strategies to the environmental factors of the market concerned. For example, Mercedes Benz is a super luxury car in North America, lUXUry automobile in Germany, standard taxi in Europe. ' (vii) Extensions : Some products do not require any change when they are marketed in other countries. Their market is just extension. For example, Casio calculators of Japan, Hero pens of China, and BIC's line of pens, butane lighters and razors. (viii) Creation through Extension: Transnational companies create the global brand through extending the product to the new market. Rothmans Cigarett,es extended its product to many European countries and African countries and created it as global and national basis. (ix) Human Resource Management Policy: The transnational company's human resource policy is not restricted by national, political or legal constraints. It selects the best human resources and develops them regardless of nationality, ethnic group etc. But the international company reserves the top and key positions for nationals.

17

International Business: Nature, Theories and Competitive Advantages

(x) Purchasing: Transnational company procures world-class material from the best source across the globe. The changing scenarios of international business also resulted in adopting various approaches in doing the business by the multinational companies. Now, we study the approaches to international business.

I

(E) APPROACHES OF INTERNATIONAL BUSINESS

I

International business approaches are similar to the stages of internationalisation or globalisation. Douglas Wind and Pelmutter advocated four approaches of international business. They are:

1.

ETHNOCENTRIC APPROACH

The domestic companies normally formulate their strategies, their product design and their operations towards the national markets, customers and competitors. But, the excessive production more than the demand for the product, either due to competition or due to changes in customer preferences push the company to export the excessive production to foreign countries. The domestic company continues the exports to .the foreign countries and views the foreign markets as an extension to the domestic markets just like a new region. The executives at the head office of the company make the decisions relating to exports and, the marketing personnel of the domestic company monitor the export operations with the help of an export department. The company exports the same product designed for domestic markets to foreign countries under this approach. Thus, maiQtenance of domestic approach towards international business is called ethnocentric approach. Fig. 1.1 make the ethnocentric concept more clear. Managing Director

I

I Manager R&D

I Manager Finance

I Manager Production

I Assistant Manager North India

I Manager Human Resources

Manager Marketing

I Assistant Manager South India

Fig . 1.1 : Organisation Structure of Ethnocentric Company

Assistant Manager Exports

18

Introduction to International Business

This approach is suitable to the companies during the early days of internationalisation and also to the smaller companies.

2.

POLYCENTRIC APPROACH

The domestic companies which are exporting to foreign countries using the ethnocentric approach find at the latter stage that the foreign markets need an altogether different approach. (See Fig. 1. 2).

Managing Director

CEO Foreign Subsidiary (Uganda)

I Manager R&D

I

I Manager Finance

Manager Production

Manager Human Resource's

I

,

Manager Marketing

Fig. 1.2 " Organisation Structure of Polycentric Company

Then, the company establishes a foreign subsidiary company and decentralises all the operations and delegates decision-making and policy 'making authority to its executives. In fact, the company appoints executives and personnel including a chief executive who reports directly to the Managing Director of the company. Company appoints the key personnel from the home country and all other vacancies are filled by the people of the host country. The executives of the subsidiary formulate the policies and strategies, design the product based on the host country's environment (culture. customs. laws. government policies etc.) and the preferences of the local customers. Thus, the polycentric approach mostly focusses on the conditions of the host country in policy , formulation, strategy implementation and operations.

3.

REGIOCENTRIC APPROACH

The company after operating successfully in a foreign country, thinks of exporting to the neighbouring countries of the host country. At this stage, the foreign subsidiary considers the regional environment (jor example, Asian environment like laws. culture. policies etc.) for formulating policies and strategies. However, it markets more or less the same product designed under polycentric approach in other countries of the region, but with different market strategies. (See Fig. 1.3).

19

International Business: Nature, Theories and Competitive Advantages

Managing Director

Marketing (Lesotho)

Marketing (Botswana)

Marketing (Ne.mibia)

Manager Production

Fig. 1.3 ,' Organisation Structure of Regiocentric Company

4.

GEOCENTRIC APPROACH

Under this approach, the entire world is just like a single country for the company. They select the employees from the entire globe and operate with a number of subsidiaries. The headquarters coordinate the activities of the subsidiaries. Each subsidiary functions like an independent and autonomous company in formulating policies, strategies, product design, human resource policies, operations etc.

Figure 1.4 helps to understand the concept of geocentric approach clearly. Managing Director Headquarters India

I Subsidi'ary India

I Subsidiary Namibia

I

I

I

I

Subsidiary Kenya

Subsidiary Lesotho

Subsidiary South Africa

I

Fig . 1.4 " Organisation Structure of Geocentric Company

I

(F) THEORIES OF INTERNATIONAL BUSINESS

I

International trade becomes possible for mutual benefit to the two countries due to the differences in opportunity costs . International trade between two countries can benefit both countries if each country exports the goods in which it has a comparative advantage. However, initially countries used to earn gold through international trade. A number of theories have been developed by the to explain how does international trade take place?

int~rnational

economists

20

Introduction to International Business

These theories include: 1. Mercantilism 2. Theory of Absolute Cost Advantage 3. Comparative Cost Advantage Theory 4. Comparative Cost Advantage with Money 5. Relative Factor Endowments / Hukscher-Owin Theory 6. Product Life Cycle Theory The first theory of International Trade is mercantilism. Now, we shall discuss the Mercantilism theory of international trade.

1.

MERCANTILISM

Mercantilism is the oldest international trade theory that formed the foundation of economic thought during about 1500 to 1800. According to this theory the holdings of a country's treasure primarily in the form of gold constituted its wealth. This theory specifies that countries should export more than they import and receive the value of trade surplus in the form of gold from those countries which experience trade deficits. Governments imposed restrictions on imports and encouraged exports in order to prevent trade deficit and experience trade surplus. Colonial powers like the British used to trade with their colonies like India, Sri Lanka etc., by importing the raw materials from and exporting the finished goods to colonies. The colonies had to export' less valued goods and import more valued goods . Thus colonies were prevented from manufacturing. This practice allowed the colonial powers to enjoy trade surplus and forced the colonies to experience trade deficits. The theory benefited the colonial powers and caused much discontent in the colonies. In fact, this was the background situation for the American revolution. The Mercantilism theory suggests for maintaining favourable balance of trade in the form of import of gold for export of goods and services. But the decay of gold standard reduced the validity of this theory. Consequently this theory was modified in Neomercantilism. Neomercantilism proposes that countries attempt to produce more than the demand in the domestic country in order to achieve a social ' objective like full employment in the domestic country or a political objective like assisting a friendly country. This theory was attacked on the ground that the wealth of a nation is based on its available goods and services rather than on gold. Adam Smith developed the theory of absolute cost advantage which says that different countries can get the advantage of international trade by producing certain goods more efficiently than others. Now we shall discuss this theory.

International Business: Nature, Theories and Competitive Advantages

2.

21

THEORY OF ABSOLUTE COST ADVANTAGE

Adam Smith, the Scottish economist viewed that mercantilism weakens a country. He advocated free trade among countries to increase a country's wealth. Free trade enables a country to provide a variety of goods and services to its people by specialising in the production of some goods and services and importing others. Which goods should a country produce and which goods it should import? Adam Smith proposed a theory to answer this question. Adam Smith proposed Absolute Cost Advantage Theory of International Trade (1776) based on the principle of division of labour. According to him application of this principle to international scenario helps the countries to specialise in the production of those goods in which they have cost advantage over other countries. According to Adam Smith, every country should specialise in producing those products that it can produce at less cost than that of other countries and exchange these products with other products produced cheaply by other countries. Trade between two countries takes place when one country produces one product at less cost than that of the another country and the other country has an absolute cost advantage over the first country in producing in any other product.

Skilled Labour and Specialisation Advantage Countries have absolute cost advantage due to the following reasons: • Suitability of the skill of the labour of the country in producing certain products. • Specialisation of labour in producing certain products leads to higher productivity and less labour cost per unit of output. • Economies of scale would reduce the labour cost per unit of output. Natural Advantage : In addition to the skilled labour and specialisation advantage, countries do also have natural advantage in producing certain products due to climatic conditions, access to certain natural resources etc. For example, Indian climate suits the production of sweet mangoes, coconut and cotton. Sri Lankan climate suits the production of tea, rubber etc. USA climate supports the production of wheat. Countries with a natural advantage can produce the specific products at low cost. Acquired Advantage: In addition to the skilled labour and natural advantages, countries also acquire advantages through technology and skill development. Japan acquired advantage in steel production through the imports the both iron and coal. The reason for this success is that Japan acquired labour saving and material saving technology. Denmark exports silver tableware due to the ability of Danish companies in developing distinctive products. Technologically advanced countries acquired abilities to develop substitute products for a number of natural products. Thus, countries have absolute advantage in producing certain products as discussed above. For example, England had the absolute advantage in producing

22

Introduction to International Business

textiles whereas France had the absolute advantage in producing wine. Similarly, India has the absolute advantage in producing pens and Japan has the absolute advantage in producing audio tape recorders.

Assumptions of the Theory Adam Smith proposed the absolute cost advantage theory based on the following assumptions: • Trade is between two countries. • Only two commodities are traded. • Free trade exists between the countries. • The only element of cost of production is labour. Now, we discuss the absolute cost advantage through a numerical example. We explain the absolute advantage using two countries and two products. In this example, the countries are India and Japan and the commodities are pens and audio tape recorders. We treat the cost of production in terms of labour input.

Table 1.2 shows the output of two goods per one day of labour for the two countries.

Output per one day of Labour Japan India Pens Audio tape recorders

20 6

60 2

In Japan Ol}e day of labour can produce either 20 pens or 6 audio tape recorders. In India one day of labour can produce either 60 pens or 2 audio tape recorders. Japan has an absolute advantage in the production of audio tape recorders and India has an absolute advantage in the production of pens. One day of labour in India prOduces 60 pens whereas only 20 pens in Japan. It is clear that Japan has absolute advantage in producing audio tape recorders and India in producing pens. Assume that India and Japan are able to trade with one another, and then both will get the advantage. Suppose Japan agrees to exchange 4 audio tape recorders for 40 pens. Tw,o days of Japanese labour is needed to produce 40 Pens and only 0.67 days of Japanese.labour is enough to produce 4 audio tape recorders. Thus, Japan can save 1.33 (2 - 0.67 = 1.33) days of labour, if it exports audio tape records to India and imports pens from India. India needs two days of labour to produce 4 audio tape recorders and 0.67 days of labour is enough to produce 40 Kgs of pens. India can also save 1.33 (2 - 0.67 = 1.33) days of labour by exporting pens to Japan and importing audio tape recorders from Japan. Thus two countries save labour by trading with each other rather than by producing both the products. The saved labour can be used for the production of more audio tape recorders by Japan and for the production of more pens by India (See Fig. 1.5). Japan can consume more pens by allocating its labour to produce audio

International Business: Nature, Theories and Competitive Advantages

23

tape recorders and by trading with India. And the vice-versa is true in case of India. Thus, both the countries are better-off by producing only one product in which it has absolute cost advantage and trade with the another country for the second product.

...'"

6 C

Q)

'E 0 0

- - Japan Production Possibilities (CD) - - - - Indian Production Possibilities (EF) Without Trade Japan (Point A) India (Point B) With Trade Japan (Point C) India (Point F)

5

Q)

a::

Q)

c. 4

~

E

0

'6 3 :l

1 US $ = Rs. 45. If India faces the problem of deficit in the balance of payments, it results in shortage of foreign exchange and the exchange rate, for example, increases to 1 US $ = Rs.50. Then the imports from US becomes costlier as Indian importer has to pay at the rate of 1 US $ = Rs. 50. It also makes the exports cheaper to the US importer. Then Ol,lr imports decline and exports increase. It is viewed that, this process automatically corrects the disequilibrium position. 2. Deliberate Measures : Government takes certain measures deliberately to control deficit balance of payments position. Such measures are called deliberate measures. They include: (a) monetary measures, (b) trade measures and (c) miscellaneous. (a) Monetary Measures: Monetary measures include: reduction in money supply, devaluation and exchange control.

Trade Procedures

•

173

Reduction in Money Supply : Monetary measures aim at reducing imports through reducing money supply. Most of you know the credit control techniques of central banks. These techniques aim at control of the money supply. These techniques include bank rate, open market operations and variable reserve requirements, viz., Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR). These measures enable the central bank of the countty to reduce the supply of money. Reduction in the supply of money leads to decline in income, purchasing power, aggregate demand and consumption. The dwindled aggregate demand in the domestic price leads to increase in exports. This process of decline in imports and increase in exports corrects the deficit in the balance of payments of a country.

•

Devaluation: We have discussed in automatic measures that the value of the domestic currency is devalued against foreign currencies automatically, when the balance of payments position is deficit. Under, this measure, the country deliberately devalues its currency in order to reduce imports and boost exports. India devalued its Rupee a number of times for this purpose. The imports become costly, once the currency is devalued as the importer has to pay more domestic currency for the same quantity of imports. Through this measure, the Government of the domestic country reduces the imports. Further, the foreign businessmen feel that importing from this country is cheap as they can get more number of products for the same amount of their currency. Thus, this measure increases exports. • Exchange Control : The exporters after earning the foreign exchange have to surrender it to the Reserve Bank of India. Importers get the permission from the Reserve Bank of India for imports and to use foreign exchange. Reserve Bank of India and Government control imports in this process and reduces the deficit of the balance of payments. (b) Trade Measures: Trade measures are divided into export promotional measures and import control measures. •

Export Promotional Measures: Export promotional measures include: abolishing export duties, export subsidies, encouragement to export oriented units (EOUs), Creation of Export Processing Zones (EPZs), Free Trade Zones (FTZs) , liberal. loans for export oriented units, fiscal incentives, marketing inr.t:.ntives and fat;ilities etc.

•

Import Control Measures : Import control measures include import duties, import quotas, import licences, prohibiting import Of certain items, increase in customs duty on imports etc.

174

Introduction to International

(c) Miscellaneous Measures : foreign currencies, attracting foreign investments, attracting NRI development of tourism etc.

"'''lIV."l"

These measures help in reducing imports and enhancing exports, cpntributes for the reduction of the deficit in the balance of payments.

Po.lNTS TO. BE REMEMBERED •

Stages of export procedure include: preliminaries, receipt of clearance of products for export, negotiation of documents, reali of export proceeds and obtaining export incentives.

•

Stages of import procedures include: Preliminaries, enquiry and indent, obtaining foreign exchange, arrangement for payment, of custom duties and taking delivery of goods.

KEY Wo.RDS

•

• • •

• • • • • • •

Inquity Let Ship Shipment

• • •

Customs Clearance Payment terms Export Incentives Payment Terms

•

Indent

Export License Offer Confirmed Order Bill of Lading Shipping Bill Excise Duty Duty Drawback

QUESTlo.NS Fo.R DISCUSSlo.N 1. Discuss different kinds of export procedures. Explain them with suitable example. 2. Suggest measures to simplify the export procedures. 3. Discuss various import procedures with suitable examples. 4. Critically comment on the model forms presented in the Annexure.

REFERENCES 1. http://www.bimaonline.com/cgi-bin/corp/ecgc/ecgc.asp 2. http://www.eximbankindia.com/

175

Trade Procedures

FORM FOR ALLOTMENT OF IMPORTER· EXPORTER CODE (IEC) NUMBER AND MODIFICATION IN PARTICULARS OF AN EXISTING IEC NO. HOLDER (For Office use only) Number: ........................... Date ........................... lEe No. alloted .......................... . Application for (please tick) (A) Allotment of lEe No. (B) Modification in particulars of existing lEe No. holder

0 0

2. Name and Address of the applicant 3. Address of al\ Branches I Divisions I Units I Factories located in India and abroad. 4. In case the application is for l(B) give (a) Existing lEe No............................................................ . (b) Nature of modification required and details thereof .................................................... .

(In case the application is for 1(B) information in S. No. 2 and 3 above will be as per pre-modified status) 5. Particulars of Fees Paid: (i) Bank Receipt I Demand Draft No. (ii) Amount (in Rs.) (in figures) ...................................................... . (in words) ........................................................ . (iii) Name of Bank & Branch of Issue 6. Permanent Account Number (PAN) oflncome Tax ................................................................... . Issuing Authority ............................................................................................................. . Date of Issue ....................................................................................................... . DECLARATION I UNDERTAKING IIWe hereby declare that the particulars and the statements made in this application are true and correct to the best of my lour knowledge and belief and nothing has been concealed or held therefrom. 2. IIWe fully understand that any information furnished in the application if proved incorrect or false will render me I us liable for any penal action or other consequences as may be prescribed in law or otherwise warranted. 3. IIWe undertake to abide by the provisions of the Foreign Trade (Development and Regulation) Act. 1992, the Rules and Orders framed thereunder, the Export and Import Policy and the Handbook of Procedures.

Introduction to International Bw.ine~ 4. I1Wc hereby d~lare that this application is made by me/us in the name of ~c:::gl~'lc::rC::UlnC:::il~ Office and I1We have not obtained or applied for Importer-Exporter Code Number ill this name from any office of the DOFf (Not applicable for existing IEC No. holder) 5, I hereby certify that I am authorised to verify and sign this declaration as per Paragraph of the Export and Import Policy.

6. I/We hereby certify that name of the Director / Partner / Proprietor / Karta of the firm compan)' is a Director! Partner! Proprietor / Karta of the Firm! Company which has to the adverse notice of DOff. Signature of the Applicant Name Photo duly attested by bank

Designation Official Address

Tel. No. Residential Address E-Mail Address Place: ................................................ .. Date : ...... " .... ,.................................... .

Source: M.1. Mahajan, "A Guide on Export Policy, Procedure and Documentation", Snow Wilite Publications (P) Ltd., Mumbai, 2001. pp. 2.20 - 2.21.

Foreign Trade Procedures

177

ANNEXURE 6.2

PROFORMA INVOICE Pro-Inv. No. & Date

Exporter

Exporter's Ref

Buyers-Ref.No. & Date

Country of origin of goods Carriage by Sea/Air/ Multi Modal Transport

Country of final destination

Place of Receipt by Terms of Delivery and Payment pre-carrier ~------------~

Port of loading Port of discharge . Marks & Nos.! Container No.

Final destination Nos. kind of Pkgs

Description of goods

Quantity

Amount chargeable

Rate

Amount

Total

(In words)

Declaration: We declare that this proforma invoice shows the actual price of the goods described and that all particulars are true .and correct.

Signature & Date

Introduction to International Business

178

ANNEXURE 6.3 EXCHANGE CONTROL DEC LARA TION (GR) FORM SB No. & Date

Invoice No. & Date

Exporter

AR4/AR4A No. & Date

Carriage

Import Export Code No. Custom HO!lse

Agent

Lic No.

Q/Cert No. & Date

R.B.I. Code No. Export Trade Control

Pre carriage by

If export under

Place of Receipt by Pre-carrier

Joint venture [ Vessel/flight No.

Rotation No.

Rupee credit [ Others [

Port of Loading

Port of discharge

Sl. No.

Country of destination

Marks & Nos.

I

1

Deferred credit [

1 1

1

RBI's Approval/dr. No. & Date Nature of contract: CIF [ l/CFR [ llFOR [ others (specify) Exchange Rate VIS 140fCA

No. & Kind of pkgs Container No.

I

1

I

Currency of invoice

Statistical code & Description of goods

Quality

Value FOB

Net weight Gross weight Total FOB value in words Analysis of export value

Currency

Amount

FOB value Freight Insurance

Full expect value or where not as containable, the value which exporter expects to receive on the sale of goods.

Rate Currency

Commission Discount

Amount

Other deductions

Contd ....

Foreign Trade Procedures

17~

SI. Export Assessable Value Duty Cess No. Tariff No. under Sec. 14 Rate Amount Rate Amoun

Total Duty and Cesses

Duty Payment Particular

NOT APPLICABLE

Declaration: IJWe declare that all particulars given here in are true and corrected. IJWe also attach the declaration(s) under clause No.(s) Public Notice No.

dated Signature & Date

Is export under UC arrangements? Yes [ If YES. name of a advising bank in India

1

No[

For customs

1

Customs Assessable Value Rs. (Rupees Export value verified

Bank through which payment is to be received

Customs Appraiser Whether payment is to be received through the ACU

YeslNo Date of shipment

Customs Appraiser

Declaration under Foreign Exchange Regulation Act : IJWe hereby declare that IJWe am/are the seHerl consigner of the goods in respect of which this declaration in made & and that the particulars given above are true and that of the value as, contracted with the buyers in the same as the fuH export value declared overleafl (b) The full export under of the goods in not ascertainable at the time of export and that the value declared in that which IJWe. having regard to the prevailing market conditions. expect to receive on the sale of goods in the overseas market. IJWe undertake that IJWe will deliver to the bent named here in the foreign exchange representing the fuB export value of the goods on & before @ in the manner prescribed in Rule of the foreign exchange regulations rules. 1874. IJWe further declare that IJWe and are resident in India & IJWe have on place of business in India. State Appropriate date of delivery which must be within 6 months from the date of export to ware houses established abroad with resume bank permission.

* Strike out which ever is not applicable.

Date

Space for use by Reserve Bank of India.

~hipROeAtlJ

S ROOAthi for

(Signature of exporter)

180

Introduction to International Business

ANNEXURE 6.4 CONFIRMED IRREVOCABLE LETTER OF CREDIT

Name and Address of the Opening Bank Messrs.

Date

(Name and Address of Exporter) Confirmed Irrevocable Commercial Letter of Credit No ...................................................................... .. without recourse of Drawers THIS IS A CONFIRMATION OF DOCUMENTARY CREDIT OPENED BY CABLE UNDER TODAY'S DATE. IT IS ONLY AVAILABLE FOR SUCH AMOUNT AS HAS NOT ALREADY BEEN AVAILlm OF UNDER SUCH CABLE ADVICE AND MAY NOT BE AVAILED OF AT ALL UNLESS ATTACHED TO AND AS PART OF OUR CORRESPONDENTS NOTIFICATION OF SUCH CABLE ADVICE. THE TWO JOINTLY CONSTITUTING EVIDENCE OF THE OUTSTANDING AMOUNT OF THIS CREDIT. Dear Sir, At the request of MIs. (Name and address ofthe Importer) ........................................................ . we hereby establish our CONFIRMED IRREVOCABLE LETTER OF CREDIT in your favour for the amount of ................................................................ available by your draft(s) drawn on them at ...................... sight accompanied by the following documents marked (x): () Your signed Commercial INVOICE(S) in .................. copies bearing the following clause: "We hereby certify that (a) this invoice is authentic (b) it is the only invoice issued by us for the goods described therein) it shows their exact value without deduction of any discount (d) their origin is ............................................ " () Full set of "CLEAN SHIPPED ON BOARD" BiIIs(S) of Lading drawn endorsed to the Order of (NAME AND ADDRESS OF THE OPENING BANK) ...................................................... .. showing "FREIGHT PREPAID" and marked NOTIFY (THE OPENING BANK) .................................................................. Branch and openers (the Importer). () Airway Bill (s) Bearing this LlC Number drawn to our showing "FREIGHT ............................................ " marked NOTIFY our Branch and Opener(s). () Original Parcel Post RECEIPT(s) bearing this LlC Number showing postages paid and evidencing that the parcel(s) has been despatched to our branch alc. opener(s). () Certificate of Origin from the Chamber of Commerce.

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181

() INSURANCE POLICY I CERTIFICATE in duplicate, issued to your order and blank endorsed, covering the goods for the invoice(s) value plus .................... % against WAR risks, S.R & C.C. as per Institute Clauses, and the following risks: (ALL RISKS) (W.A.) (F.P.A. including Short and-non-delivery), (transhipment risk, if applicable) as per Institute Cargo Clauses, without any franchise. Claim if any payable in

() Insurance covered by openers. All shipments under this credit must be advised by you immediately after shipment direct to MIs ........................................................... (the importer) .................................. and to the openers referring to Cover Note No ..................................... . giving full details of shipments. A copy of this advice to accompany each set of documents. () Packing list .. ...... ................ ........ ........ copies () Marks and Numbers ....................................... . Evidencing despatch I shipment of the following Goods not later than ..................................... . by .................... from Port ........................................ to Port .................................................... .. CIF, C&F, FOB. () COMMODITY

Partial Shipments Permitted I not Permitted. Transhipment Allowed I Not Allowed 1. This credit is transmitted through (Name and address of the Indian Bank) who are authorised to negotiate documents presented thereagainst not later than .............................•.......... 2. This credit is subject to Uniform Customs and Practice for the Documentary Credits (1993 Revision) of International Chamber of Commerce Publication No. 500. 3. Drafts must be marked "Drawn under (Name and Address of the opening Bank) ................... . Credit No .................... " and amounts thereof endorsed on the reverse hereof by the negotiating bank. 4. We hereby agree with drawers, endorsers and bonafide holders of Draft(s) drawn under and in compliance with the terms of this credit that the same shall be duly honoured on due presentation. 5. Other conditions, if any............................................................................................................. . (Authorised Signatures of the Opening Bank)

Source: M.I. Mahajan, "A Guide on Export Policy, Procedure and Documentation ", Snow White Publications (P) Ltd., Mumbai, 2001. pp. 2.34 - 2.35.

ANNEXURE 6.5

BANK CERTIFICATE OF EXPORT AND REALISATION FORM NO. 1

To ......................................... ............................................................................ ...................................................................... (Name and Address of Licensing Authority) We .......................................................................................................................................... (Name and Address of Exporters) hereby declare that we have forwarded a documentary export Bill to .......................................................................................................................................... (Name and Address of the bank i.e., Branch and City) for collection / negotiation / purchase as per particulars given hereunder. Invoice

No.

Date

(I)

(2)

Export Promotion copy copy of Shipping Bill duly authenticated by Customs No. Date

(4)

(3)

Description of goods as given in the customs authenticated Shipping Bill

(5)

Insurance amount as per insurance company s bill / Receipt

Commission Discount paid/payable

Whether the export is in freely convertible currency or in Indian Rupees

(11)

(12)

(13)

Bills of Ladings / PP Receipt/ Airways Bill

Destination of goods

No.

Date

Country name

(6)

(7)

(8)

Bill Amount cif/ c & f fob (in foreign exchange)

Freight amount as per Bill of lading / freight memo

(9)

(10)

FOB value!FOB value Date of realisation of actually realised in free foreign exchange export proceeds Rupees (9 + IO + 11 + 12) (14)

(15)

GRIPP Form No.

No. Date & Category of Duly Free Licence! Imprest Licence, if any applicable

(16)

(17)

We further declare that the aforesaid particulars are correct. (Copies of invoices relevant to these exports and customs attested E.P. Copy of relevant Shipping Bill is attached for verification by the bank) ..................................................................... Signature of the Exporter Place:

..................................................................... Name in Block Letters

Date: ..................................................................... Designation Official Seal/Stamp

..................................................................... Full Official Address ..................................................................... Full Residential Address Source: M. I. Mahajan, Op.cit., p. 2.59.

Chapter Outline (A)

INSTITUTIONAL INFRASTRUCTURE

(B)

LEVELS OF EXPORT PROMOTION INSTITUTIONS IN INDIA

(C)

GOVERNMENT POLICY MAKING AND CONSULTATIONS

INTRODUCTION Export business basically earns foreign exchange for the country in addition to providing direct and indirect employment to the domestic people . Further it generates economic development of the country. Therefore, many governments in the world promote the exports in order to maximize the export earnings. Promotion of exports include producing products that are in demand in other countries and market them in foreign countries. In this process exporters need guidance and assistance at different stages of the export effort. Government of India in order to promote exports has set up several institutions and agencies whose main functions are to help the Exporters.

I

(A) INSTITUTIONAL INFRASTRUCTURE

I

Marketing domestically is relatively easy compared to selling in foreign countries as several environmental factors affect marketing globally . In view of the significance of exporting and its complexity governments across the globe established various institutions to help the exporters. These institutions gather/ collect information necessary to analyze the foreign markets, foreign customers and market intelligence and make them available to the exporters. In addition, 183

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exporter needs assistance in the process of exporting · the goods. These institutions render such assistance needed by the exporters. Farther, the exporters need financial assistance, quality certification for his products, risk coverage , promotion, packaging and other such services. The specialized institutions established by the government as well as private individuals assist the exporters in this regard. Exporters can be successful in their efforts of exporting the goods to various foreign markets only with the help and assistance of such specialized institutions. Thus, in order to promote exports, create export culture and environment a number of governments established export promotion organizations. Government of India also established various export promotion institutions and agencies in this regard. Government of India established a variety of institutions to provide different kinds of service, information and assistance to the exporters.

(B) LEVELS OF EXPORT PROMOTION INSTITUTIONS IN INDIA There are six levels of institutions established for export promotion by the government of India. 1. The first level includes Department of Commerce under the Ministry of Commerce, which formulate various policies including for export trade. The Department of Commerce caters to the needs of the external trade of India and all matters connected with the same. Ministry of Commerce and Trade formulates international trade policy, negotiation of trade agreements, formulation of country's export-import policy and their implementation. The commercial sections in the embassies and high commissions are established to assist the Department of Commerce. 2. The second level in the hierarchy is to help the exporters in solving the problems in the process of exports. The institutions at this level deliberate with the industry and develop the solutions to the current as well as future problems. 3. The next level organizations render specific assistance to the exporters or groups of exporters based on the specific product/ product group issues and problems. 4. The fourth level organizations are service organizations and they provide services to the exporters. 5. The fifth level organizations are those that handle exports in order to supplement the exporters' activities. 6. The sixth level organizations are the state level organizations. Important among these organiations are State Trading Corporation Limited and Mineral and Metal Trading Corporation.

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Export Promotion

STATE TRADING CORPORATION OF INDIA LIMITED (STCI)1 The State Trading Corporation of India Ltd. (STC) is a premier international trading house owned by the Government of India. Having been set up in 1956, the Corporation has developed vast expertise in handling bulk international trade. Though, dealing largely with the East European countries during the early years of its formation, today it trades with almost all the countries of the world. By virtue of infrastructure and experience possessed by the Corporation, it plays an important role in arranging import of essential items into India and developing exports of a large number of items from India. It exports a large number of items ranging from agricultural commodities to manufactured products from India to all parts of the world. Because of Corporation's in depth knowledge about the Indian market, STC is able to supply quality products at most competitive prices and ensure that the goods reach the foreign buyer within the prescribed delivery schedule. It also imports bulk commodities for Indian consumer as per demand in the domestic market. The eventful track record of 48 years has helped STC to gear itself to face the fierce competitive challenges, seize business initiatives and build on its core competencies.

Areas of Operation 1. Exports from India 2. Imports from India 3. Domestic Trading 4. Market support operation- Rubber, Tobacco 5. Off-Shore Trading 6. Counter Trade 7. Joint Ventures

Performance Indicators Annual Turnover: 2003-04

Rs 8349 Crore (US$ 1821 million)

Net Profit: 2003-04

Rs 20 Crore (US$ 4 million)

Equity

Rs 30 Crore (US$ 6.5 million)

Net Worth (a/l on 31.3.2004)

Rs 296 Crore (US$ 65 million)

Recent Initiatives (i) It undertook export of 1.6 million tonnes of foodgrains during 2003-04.

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(ii) It entered into imports of a number of new items such as coal, coke, minerals, metals, fertilizers and vanaspati. (iii) It undertook export of roofing sheets. (iv) It is planning to set up a joint venture for import, refining, packing and retailing of edible oils in India. (v) It is planning to undertake brand marketing of agricultural commodities like rice, sugar, tea, coffee, spices in India.

TEA TRADING CORPORATION OF INDIA (TTCIL)2 Tea Trading Corporation of India Limited (TTCIL) is a wholly owned subsidiary of State Trading Corporation of India Limited. It promotes the exports of tea . However, it continued to face financial problems. TTCIL launched a voluntary retirement scheme in 1999 and out of the 427 employees 279 have taken VRS. In 1999 STCI purchased 1,50,000 equity shares of Spices Trading Corporation of India (STCIL) amounting to 28.20 million making STCL a wholly owned subsidiary of STCI, this was done in pursuance of a Cabinet decision.

MINERAL AND METALS TRADING CORPORATION OF INDIA L1MITED

3

As a major trading company in Asia (with special focus on international trading particularly in the field of bulk handling), MMTCI aims at achieving sustainable and viable growth rate by achieving excellence in all its activities, generating optimum profits through total satisfaction of shareholders, customers, suppliers, employees and society.

Objective To be a leading International Trading House operating in the competitive global trading environment, particularly specializing in bulk handling activities, and adequate returns on capital employed. Functions: The functions of MMTCI in promoting exports include: (i) To strive to become market leader in most of its traditional product lines like Minerals, Metals, Fertilizers and Gold, Gems & Jewellery. (ii) To aim at becoming a major exporter of Agro products. (iii) To render high quality of service to all categories of customers with professionalism and efficiency and to provide high quality of goods and services to all our customers. (iv) To put in place a streamlined and efficient system within the company for settlement of commercial disputes. (v) To promote development of infra structural facilities to facilitate trade related activities. Role of MMTCI in Exports : Role of MMTCI in the promotion of exports

Export Promotion

187

include: MMTC Limited, India's first Super Star Trading House, continues to be the country's leader in mineral exports for four decades now. As recognition of the above achievements during the year 2002-03, MMTC was awarded the Highest Export Award for export of minerals once again for Twelfth Time in a row. Supply of Iron Ore lumps and Fines to the Steel Plant in Orissa (NINL) promoted by MMTC would provide further fillip to value addition to minerals. The company has also taken an initiative to link import of .capital equipments required for modernizing mining activities in the country to promote export of minerals. The import of the earthmoving equipments was linked to export of Iron Ore under EPCG scheme

Mica Trading Corporation of India Limited (MITCO) The Mica Trading Corporation of India Limited (MITCO) was incorporated in 1973 as a wholly owned subsidiary of MMTC to look after the business of mica exclusively. Due to the steady decline in turnover which had turned negative, BIFR ordered merger of MITCO with MMTC from 1 April 1995.

VARIOUS BODIES AND COMMITTEES Government of India established Board of Trade with representatives from Commerce and other important Ministries, Trade and Industry Associations, and Export Service Organizations. The purpose of this board is to have a regular consultation, monitoring and review of India's foreign trade policies and operations. Cabinet Committee on Exports is set up to ensure regular and effective monitoring of India's foreign trade performance and related policies. Empowered Committee of Secretaries is set up for speedier and quicker decision-making. A grievances Cell has been set up to redress grievances and review the suggestions received. Director General of Foreign Trade (DGFT) is an important office of the Ministry of Commerce, to help the formulation of India's Export-Import policy and implementation there of. Director General, Commercial Intelligence & Statistics (DGCI& S): DGCI& S has been entrusted with the task of compilation and publication of data on India's Foreign Trade. Ministry of Textiles : Ministry of Textiles is created in order to formulale policies, regulation .and export promotion of textile sector including sericulture, jute and handicrafts, etc. along with its other activities. The other various export promotion institutes are:

1.

India Trade Promotion Organisation (ITPO)

India Trade Promotion Organisation (ITPO) is the nodal agency of the Government of India for promoting the country's external trade. Indian Trade

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Introduction to International Business

Promotion Organisation was set up by merging Trade Development Authority (TDA) and Trade Fair Authority of India by the Government. ITPO, during its existence of nearly three decades, in the form of Trade Fair Authority of India and Trade Development Authority, has played a proactive role in catalyzing trade, investment and technology transfer processes. Its promotional tools include:

2.

•

Organizing of fairs and exhibitions in India and abroad

•

Buyer-Seller Meets

•

Contact Promotion Programmes

•

Product Promotion Programmes

•

Promotion through Overseas Department Stores

•

Market Surveys and Information Dissemination.

Indian Institute of Foreign Trade (11FT)

Government of India established Indian Institute of Foreign Trade. It was as an autonomous body in order to provide training, conduct research and disseminate data, information and research findings and publish the reports, monographs and status papers, organise seminars and workshops, organise trade delegations, provide consultancy services and conduct management development programs.

3.

Indian Institute of Packaging (liP)

The Indian Institute of Packaging was set up to conduct Training Programmes pertaining to packaging , provide testing, provide UN Cenijication, guide exponers as to what type of material can be used or incorporated in the packaging of their products so as to reduce environmental threats and to undertake resea;'ch and development programmes for collection and dissemination of inforr.lation.

4.

Indian Council of Arbitration (lCA)

Indian Council of Arbitration (ICA) was set up to provide arbitration facilities for all types of domestic and international commercial disputes, organise arbitration meetings, conferences, training programmes, etc., conduct research and publishes informative literature on different aspects of commerCial arbitration, including a quarterly Arbitration Journal, provide information arid advice to interested parties regarding the drafting of trade contracts and to keep abreast of the latest developments, in the field of international commercial arbitration and maintains.

s.

Federation of Indian Export Organisations (FIEO)

Federation of Indian Export Organisations (FIEO) as an apex body was set up in October 1965. Its functions include: creation and maintenance of International Linkages with UN bodies, IMF, IBRD, ADB, ESCAP, FAO, UNIDO and IFC, dissemination of information, liaison with the Government, providing market

Export Promotion

189

development assistance, conducting market research and dissemination of research results.

6.

Agricultural and processed Food Products Export Development Authority (APEDA)

Agricultural and processed Food Products Export Development Authority is an autonomous organization under the Ministry of Commerce of the Government of India. APEDA perform the following functions:

7.

•

Builds links between Indian producers and the global markets.

•

Undertakes the briefing of potential sources on government policy and producers.

•

Provides referred services and suggests suitable partners for joint ventures.

Apparel Export Promotion Council

The Apparel Export Promotion Council (AEPC) is it nodal agency sponsored by the Ministry of Textiles, Govt. of India. It performs the following functions:

8.

•

Monitors garment exports quotas and promotion of exports of readymade garments from India.

•

Continuously involves in the task of promoting exports by organising buyer-seller meets,

•

Leads trade delegations to potential markets globally

•

Participates in specialised international fairs

•

Organises the India International Garment Fair biannually

•

Organises seminars on fashion and workshops on technical aspects of the industry.

Building Material and Technology Promotion Council

Building Material and Technology Promotion Council performs the following functions: •

Undertakes identification of potential technologies with emphasis on utilization of agricultural and industrial wastes.

•

Assists manufacturers of conventional materials like bricks, tiles etc.

•

Introduces modern, cost-effective, energy efficient technologies for improving productivity, quality of products and reducing ~nergy consumption.

190

9.

Introduction to International Business

Carpet Export Promotion Council

The Government Of India set up the Carpet Export Promotion Council Of India (CEPC) in 1982. It performs the following functions. •

Promotes the exports of hand knotted carpets and other floor coverings.

•

Advises the government on export promotion measures

•

Helps the exporters' community in bringing their problems and requirements to the notice of the government.

•

It provides expertise in many spheres both for the Indian exporters and foreign buyers.

10. Cashew Export Promotion Council of India (CEPC) Government of India established the Cashew Export Promotion Council of India (CEPC) in the year 1955. Its ful).ctions include: •

Rendering cooperation to the cashew industry

•

Promoting exports of cashew kernels and cashew nut shell liquid from India.

•

Providing the necessary institutional framework promoting exports of cashew kernels and cashew nut shell liquid.

11. Basic Chemicals, Pharmaceuticals and Cosmetics Export Promotion Council Basic Chemicals, Pharmaceuticals & Cosmetics Export Promotion Council was established in 1963. This council is popularly known as CHEMEXCIL. Its functions include: •

Making concerned efforts to promote exports of Basic OrgaIi.~c and Organic Chemicals, Pharmaceuticals, Dyes, Pesticides, Sn".ps, Detergents, Cosmetics, Toiletries

•

Promoting the exports of other products like Agarbattis, Essential Oils, Medicinal Herbs/Crude Drugs, Value added Herbal Products & Castor oil.

12. Chemical Allied Products Export Promotion Council Chemical Allied Products Export Promotion Council (CAPEXIL), is a non profit organization. Ministry of Commerce, Government of India established it in 1958. Its main function is to promote export of Chemical and Allied Products from India.

13. Coffee Board Ministry of Commerce and Industry, Government of India established Coffee Board in 1942 under an Act of Parliament.

Export Promotion

191

The functions of the Board include: • • • •

Serving as a guide to the coffee industry in India. Focusing on research, development, extension and quality up gradation, Providing market information to the coffee exporters Promotion of Indian Coffee in various countries.

14. Cotton Textiles Export Promotion Council Cotton Textiles Export Promotion Council (TEXPROCIL) is an autonomous, non-profit export promotion body. Its activities include: • • • •

Acting as an international face of Indian Cotton Textiles exports. Collection and dissemination of information Fielding of trade enquiries, administering quotas Facilitating an interface between domestic manufacturers and the global market and

•

Settling of disputes

15. Council for Leather Exports The Council for Leather Exports was set up in July 1984 as a non-profit company registered under the Indian Companies Act, 1956. It is under the Ministry of Commerce, Government of India. Its functions include: • Promotes the Indian leather industry's products in foreign countries. • Attracts Foreign Direct Investments for the development of Indian leather industry. • •

Promotes Joint Ventures in the Indian leather industry. The CLE serves as a bridge between Indian leather exporters and buyers all over the world.

16. Directorate General Of Foreign Trade Directorate General Of Foreign Trade is set up under the Department of Commerce, Government of India. Its functions include: • Providing export Import policies, procedures to the Government of India. • Providing public notices, notifications, circuulars, downloadable application forms and export import data bank to the Government of India.

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Introduction to International Business

17. Electronic and Computer Software Export Promotion Council Electronic and Computer Software Export Promotion Council is established as an autonomous organization under the Ministry of Information Technology, Government of India. Its function include: •

Trade promotion in the areas of electronics, computer software and internet development

18. Engineering Export Promotion Council Engineering Export Promotion Council is a nodal agency. Its main functions include: •

Promoting the exports of engineering products

•

Promoting the exports of projects, management and technical consultancy services of India.

19. Engineering Export Promotion Council Ministry of Commerce, Government of India set up the Engineering Export Promotion Council (EEPC) in 1955 as a no-profit body. Its main activity is promotion of international trade in engineering goods and projects.

20. Export Inspection Council (EIC) Government of India under Section 3 of the Export (Quality Control and Inspection) Act, 1963 (22 of 1963) set up the Export Inspection Council (EIC). The function of this council include: •

Ensuring the growth of export trade of India through Quality Control and Inspection.

21. Gem and Jewellery Export Promotion Council Government of India set up the Gem & Jewellery Export Promotion Council as a non-profit organization. It is an all India apex body representing more than 7000 jewellers from India. The council's functions include: •

Promoting export of Diamonds, Coloured Gemstones

•

Promoting the exports of precious Metal Jewellery, Cut and Polished Synthetic Stones, Processed and Polished Pearls, Fashion & Costume Jewellery and more.

Export Promotion

193

22. Handloom Export Promotion Council The Ministry of Textiles, Government of India set up Handloom Export Promotion Council (HEPC) as a statutory body. Its function is to promote the exports of all handloom products like fabrics, home furnishings, carpets and floor coverings, etc.

23. Indian Silk Export Promotion Council Indian Silk Export Promotion Council is the nodal agency for promotion of silk exports from India. Consists of more than 1200 silk exporters as members. Its functions include: •

Providing information and intermediation services for right contacts in silk business within the country and abroad,

•

Organising buyer-seller meets for silk products, Product ranges available in India,

•

Participation in international textile fairs, Latest trends for fashions, colours and designs, Product improvement in silk,

•

Arrange for the Foreign collaborations for silk.

24. Marine Products Export Development Authority The Marine Products Export Development Authority (MPEDA) was constituted in 1972 under the Marine Products Export Development Authority Act 1972 (No.13 of 1972). The activities of the Authority include: • •

Promoting exports of fisheries of all kinds, Specifying standards, processing, marketing, extension

•

Providing training in various aspects of the industry.

25. Shellac Export Promotion Council Ministry of Commerce, Govt. of India set up Shellac Export Promotion Council. Its activities are: •

Handling export of Lac in various forms like Shellac, both Hand Made and Machine Made, Dewaxed Shellac, Seedlac, Aleuritic Acid, Bleached Lac and Shellac Wax.

26. Spices Board India The Spices Board India is established in 1987 as the apex body for the export promotion of Indian Spices.

Introduction to International Business

194

The functions of the Board include: • •

Acting as the catalyst of these dramatic transitions. Playing a far reaching and influential role as a developmental, regulatory and promotional agency for Indian Spices.

27. Sports Goods Export Promotion Council The Sports Goods Export Promotion council established in July 1958. The functions of the Council include: •

Imparting a sense of urgency among Indian Sporting Community to treat exports as a special responsibility.

•

Providing guidance and assisting to resolve the constraints of production and exports of sports goods.

28. Synthetic & Rayon Textiles Export Promotion Council SRTEPC is a Government of India sponsored organisation backed by the Indian synthetic and rayon textile industry over 3000 member exporters. SRTEPC's functions are: •

Helping many overseas buyers form an enduring and profitable business relationship with Indian exporters of synthetic and rayon textiles and

•

Promoting exports of synthetic and rayon textiles.

29. The Gem and Jewellery Export Promotion Council The Gem & Jewellery Export Promotion Council was set up in 1966. It operates under the supervision of the Ministry of Commerce; Government of India. It is an all - India apex body representing more than 7000 jewellers from India. The Council is a non-profit organisation involved with service to the nation.

30. Tobacco Board Tobacco Board established in 1976 for the development of the Tobacco Industry under the control of the Central Government. Its main function is to promote tobacco exports to various countries. Tobacco is an important commercial crop in India. It is raised on an area of about 4 lakh hectares with an annual production ranging from 500 to 550 M.Kgs. of FCV and different Non-FCV type of Tobacco.

REFERENCES 1.

h~tp: / /www.sarkaritel.com/psu/the_state _trading_corporation_india_limited/

2. http://www.sarkaritel.com/psu/tea_trading_corporation_india_limited/ 3. https://www.mmtclimited.org/home.php

Chapter Outline I. LIST AT LEAST 3 MNCS OF G-7 COUNTRIES OPERATING IN INDIA ALONG WITH PRODUCTS THEY MANUFACTURE II. LATEST NEWS AFFECTING INDIA THROUGH WORLD BANK, WTO, IMF ETC. III. TWO DOCUMENTS USED IN EXPORT TRADE IV. DOCUMENT USED IN IMPORT TRADE V. PREPARATION OF A CHART ON DIFFERENT CURRENCIES OF DIFFERENT COUNTRIES (SELECTED) VI. TABLE OF AT LEAST ONE MONTH DATA OF FOREIGN EXCHANGE RATE OF AT LEAST 2 CURRENCIES

I. LIST AT LEAST 3 MNCS OF G-7 COUNTRIES OPERATING IN INDIA ALONG WITH PRODUCTS THEY MANUFACTURE G-7 Countries: Originally seven countries formed into group-7 (G-7) countries to deal with the major economic and political issues of their countries and international community. These countries include: USA, Canada, France, Germany, Italy, UK, and Japan. Russia joined this group and this group became G-8.

1. Hindustan Lever Limited (HLL) : Hindustan Lever Limited (HLL), a 51 %owned subsidiary of UKINetherlands giant Unilever, which is partly G-7 MNC has been prying its way into India since 1888. India's largest consumer goods company, HLL markets products such as beverages, food, and home and personal care goods. Its brands include Kwality Wall's ice cream, Lifebuoy soap, Lipton tea, Pepsodent toothpaste, and Surf laundry detergent. HLL also markets atta (a type of meal), maize, rice, salt, and specialty chemicals, and its export division ships castor oil and fish. The company plans to begin selling bottled water and over-the-counter healthcare products. (Source: Adapted from: http://biz.yahoo.comlie/57/571 09 .html) 2. Coca-Cola India Limited: The Coca-Cola Company is USA based MNC. Its beverages are produced locally, employing Indian citizens, our product range 195

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Introduction to International Business

and marketing reflect Indian tastes and lifestyles, and we are deeply involved in the life of the local communities in which we operate. Leading Indian brands include : Thums Up, Limca, Maaza, Citra and Gold Spot join the Company's international family of brands, including Coca-Cola, diet Coke, Sprite and Fanta, plus the Schweppes product range. It also produce mineral water under Kinley water brand, and powdered concentrate under Sunfill brand. (Source,' http://www.myenjoyzone.com/pressllbusiness.htm) 3. HSBC Holdings : This is an UK MNC. Its products ate commercial banking and savings. 4. Ford Motors : This is an USA MNC. Its products include motor vehicles and parts.

197

Skill Development

II. LATEST NEWS AFFECTING INDIA THROUGH WORLD BANK, WTO, IMF ETC. World Bank (IBRO) and India In 50 years, India has reduced the number of its people living in poverty from one half to one-third of the population. But this means that 300 million people remain poor. Women face the additional struggle for equal rights and opportunities. Successive governments have worked to improve peoples' lives, and the World Bank is currently financing 71 development projects in India with a total commitment of around US $14 billion. In addition, over the past five years, nearly US$ 1 billion has been provided to support broad reform programs in the states of Andhra Pradesh, Karnataka and Uttar Pradesh. ,

To learn more about the World Bank's work in India, see the Country Brief.

Health: Leprosy, an ancient scourge active today in only eight countries in the world, is widely feared for its potential paralytic and disfiguring consequences. India accounts for two-thirds of the world's leprosy burden with 300,000 new cases diagnosed each year. A World Bank-supported project has helped develop the government's capacity to manage and deliver its national leprosy program and increase access to diagnosis and treatment services, particularly for the poorest people in the country. Partly as a result of this project, the number of registered leprosy cases in India was cut in half between 1993 and 2000. A follow-on project is building on the success of the first. Health: Tuberculosis is India's leading cause of adult illness and death from a communicable disease. Remarkable progress is being made, however, under the Government's National TB Control Program through which more than 10,000 symptomatic patients are examined and more than 500 lives are saved every day. A World Bank-financed project has helped the government achieve these results by establishing the institutions and managerial capability to expand TB control services nation-wide. Importantly, the project relies on local community awareness and involvement and is currently benefiting from the assistance of 31,000 community volunteers. Irrigation: Population growth in India has brought increased demand for water, placing an unsustainable burden on its water supply systems. Several World Bankfinanced projects are helping communities manage and improve their irrigation systems to increase their crop yields. The projects have enabled several million farmers and their families to increase their incomes and improve their lives. H~alth : India is home to more than one-third of the world's 35 million blind people-the vast majority of whom suffer from a clouding of the eye known as 'cataracts'. The World Bank has been a leading partner in India's efforts to address

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198

this problem and has provided financing and technical assistance for a project covering seven states. The project facilitated over 15 million surgeries and helped reduce the incidence of cataract by more than half in the areas it covered. The Bank's assistance helped expand the country's National Program for Control of Blindness to the underprivileged with a special focus on women and those living in tribal and remote areas.

Agriculture: The state of Uttar Pradesh is serving as a model for other states in India-and for other countries around the wofId-as a result of a unique World Bank-financed program that is revolutionizing agricultural practices. Innovative farmers are now forming self-help groups and growing vegetables like broccoli, Chinese cabbage, Brussels sprouts and celery which are in demand in big hotels in Delhi and the city of Agra and are highly profitable. Chillies and tomatoes are finding their way to France and Spain while gladiolus, orchids, and carnations are being exported to Australia. Source: httP:ltwwW.WQrldbank.Qri.inIWBSITE/EXTERNAUCQUNTRIES/SQUTHASIAEXTL INDlAEXTNo.menuPK:295591_paiePK:141132_PiPK:141121_theSitePK:295584.oo.html

World Trade Organization (WTO) and India Objective

Prohibits actions of Govt./Organisation that distort normal trade; discrimination between member nations and discrimination between domestic and lawfully imported foreign goods. Sets guidelines for implementation and settlement of disputes.

Impact on Indian India started reforms during GATT negotiation period PolicylLaws (86-94). Import Duties down from peak 300% to 50%. Committed to remove all QRs (Quantitative restrictions) by 2001. Committed to create free trade regime as per GATT agreement.

Business

Impact of entire gamut of trade in Goods.

Implications

Competition to intensify as more imported products find easy access. Around three quarters of the products reserved for Small Industries in OGL, rest to be allowed by 2001. Removal of QRs set to further accelerate import of all products. W.T.O led external liberalization speedily done. Without corresponding internal liberalization of domestic policies, much of benefits of W.T.O may remain a mirage.

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Reassessment of comparative advantage required. Many will have to chance businesses; rigid legislations and rules may be big stumbling in the way. Only those businesses whether producing for domestic market or for foreign, which have international vision will survive and grow Agreement 2 : Agreement of Sanitary and Phytosanitary measures. (SPM) Objective

Same as above except that MNF rule-countries can deny Import from certain region/countries due to fear of spread of pests/disease.

Impact on Indian Most of the India's standard are at par with the IntI. PolicylLaws Standards (Implementation to improve). Business Implications

Companies exporting fresh/processed fruits/vegetables, juices, meat, dairy products etc. should understand the mandatory standards. They should follow the developments taking place at various International Organisations as FAO, Codex Alimantarius etc. which has serious implications for their business in Agri/processed food and dairy products.

Agreement 3 : Rules applicable on Exports Objective

Allows export product to be relieved of indirect taxes (e.g. excise), prohibits direct tax benefits (e.g. Income Tax Waivers on export earnings). Also allows countries to levy duties on exports for controlling it, if situation so demands, but prohibits other restrictions (except in few cases).

Impact on Indian EXIM Policy provides schemes to neutralize the incidence PolicylLaws of indirect taxes e.g. DEPB, Adv. Licence, Spl Imp. Licence etc. & Draw Back. Government provides IT waiver on export earnings (80 HHC of IT Act). Customs duty on import contents used in export product, excise, sales taxNat etc. Few countries have launched complaint terming it as 'subsidy'. Prohibited as per GATT. Business Implications

Exporting companies have right to demand from government such schemes that neutralize the incidence of indirect axes on the export product. In absence of such schemes Indian products will be at serious disadvantage internationally as all countries have such schemes in place. The IT waiver on export earnings is temporary measure, India to phase it out by 2005. So could be the future of DEPB. According to an EXIM Bank Study, Indian exports suffer from cost disability of 16.3% over their overseas counterparts due to absence of VAT inadequate financing and infrastructure bottlenecks

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Introduction to International Business

Agreement 4 : Agreement on Subsidies and Countervailing Measures. (SCM) Objective

Prohibits 'export subsidies'; allows 'permissible subsidies'. Requires developing countries to phase them out by 2003 (with some exceptions) and to freeze their level and coverage during transitional period.

Impact on Indian India to scrap IT waiver on export earnings by 2005. Policy/Laws

EXIM Policy following the GATT directives cautiously in introducing the Duty Exemption schemes & modifying them to make them WTO compatible. Requisite Directorate established in Ministry of commerce.

Business Implications

Businesses to understand what is permissible and what is not e.g. subsidies given by governments to small businesses are usually permissible (non-actionable) or given for R&D or for adaptation to new environment requirements. Even during transition period (upto 2003), importing countries can countervail 'subsidies' by increasing duties. Export subsidies on import sensitive products (textiles leather products etc.) can be maintained by importing countries.

Agreement 5 : Agreement on Safeguard Measures Objective

Allows countries to take action against undue import surge injurious to domestic manufacturers during the transition period.

Impact on Indian Directorate of safeguards established in Ministry of Finance. Policy/Laws Business Implications

If there is undue spurt in imports causing 'injury' to domestic manufacturers, measures can be taken during the transition period (initially for 4 years extendable up to 10 years, from 1st Jan '95) through raising duties (beyond bound rates) or by imposing QRs; both for new and existing industries.

Agreement 6 : Agreement on Anti-dumping Measures. (ADP) Objective

Allows countries to take measures against imported goods benefiting from 'unfair trade practices'.

Impact on Indian Directorate of Anti-Dumping established in CQmmerce Policy/Laws Ministry and Anti-dumping rules notified. Anti-dumping duties already been imposed in more than 30 cases and provisional duties on few. Business Implications

Most important for domestic manufacturers. A number of sectors have been hurt by 'unfair import'.

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Skill Development

Actions have been taken against such import in many cases. Mostly large units have been operating in these sectors. No action so far for those affected sectors in which small business are predominant because of there ignorance. Agreement 7 : Trade Related Investment Measures. (TRIMS) Objective

Currently prohibits countries from imposing 5 types of investment conditions on investors.

Impact on Indian Direct impact on Govt. 's FOREX & Industrial Policies, Policy/Laws Foreign Investment permissions. Business Implications

Currently 5 type of TRIMS (investment conditions) are prohibited out of 24 already identified. Issue comes up again in year 2000. Allows export performance requirement, majority stakes for locals etc. However, India's auto policy is inconsistent with TRIMs.

Agreement 8 : Market Access Negotiations Objective

By 1st Jan 2000, Developed countries to cut tariffs by 40% developing by 30% in five equal investments. More Tariff lines are 'bound' (developed countries 99%, developing 73%).

Impact on Indian Reduced duties on most tariff lines successively to comply Policy/Laws with the agreement. Peak rate of duty is down from 300% to 50%; finished goods from 150% to 40%. Business Implications

Massive increase in competition for domestic manufacturers. Even after reduction the peak tariffs in developed countries range from 12-30% for items exported by developing countries.

Agreement 9 : Agreement on Textiles & Clothing Objective

Multi Fiber Agreements and other QRs usually imposed by developed countries to be phased out by year 2005 (in 4 phases).

Impact on Indian (Impact to Textiles/Garments Export) Policy/Laws Business Implications

Opportunity: Important development for Textiles/Garment Exports from India. Quotas will be phased out. Real benefit to accrue from 2002 onwards. Threat: The level of competition will be manifold. Countries imposing quotas authorized to take safeguard measures. Punitive actions already taken against India in a few cases.

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202

Agreement 8 : Market Access Negotiations Objective

By 1st Jan 2000, Developed countries to cut tariffs by 40% developing by 30% in five equal investments. More Tariff lines are 'bound' (developed countries 99%, developing 73%).

Impact on Indian Reduced duties on most tariff lines successively to comply with the agreement. PolicylLaws Peak rate of duty is down from 300% to 50%; finished goods from 150% to 40%. Business Implications

Massive increase in competition for domestic manufacturers. Even after reduction the peak tariffs in developed countries range from 12-30% for items exported by developing countries.

Agreement 9 : Agreement on Textiles & Clothing Multi Fiber Agreements and other QRs usually imposed by developed countries to be phased out by year· 2005 (in 4 phases). Impact on Indian (Impact to Textiles/Garments Export) PolicylLaws

Objective

Business Implications

Opportunity : Important development for Textiles/Garment Exports from India. Quotas will be phased out. Real benefit to accrue from 2002 onwards. Threat : The level of competition will be manifold. Countries imposing quotas authorized to take safeguard measures. Punitive actions already taken against India in a few cases.

Agreement 10 : Agreement on Agriculture Objective

The Subsidies on agriculture to be removed and converted in 'tariffs'. 36% reduction on tariffs by developed, 24% by developing. Min. market access in closed markets. Impact on Indian No obligation for India to reduce subsidy given to farmers Policy/Laws CAMS calculations reveal it is taxed than subsidized). Sets high tariffs 100% on primary products, 150% on processed food, 300% on edible oils. Business Removal of distortions like high subsidies and QRs, will Implications expand market for Indian agricultural products. QRs imposed by India on variety of agri products to be phased out by 2001. Competition to hot up. Internal reforms are must if India is to take advantage of the agreement.

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203

Agreement 11 : Agreement on Govt. Procurement Objective

MFN & National Treatment on the purchase of goods as per their commitment.

Impact on Indian (India is not a party to the agreement ). PolicylLaws Business Implications

Govts. are large buyers ( often purchasing 10-15% of their GNP). India is not a party to the agreement. Hence GOI could exercise its right to purchase from domestic manufacturers even at higher cost. This right is to come under severe pressure in coming negotiations. If gone against, it will have serious fall out on almost all domestic manufacturers supplying to Govt./PSUs. Indian exporters of goods and services can export to the countries which signed the agreement. Only the US disallows.

Agreement 12 : Trade Related Intellectual Property Rights. (TRIPS ) Objective

Provides protection to IPRs as Patents, Copyrights, Trademarks, Ind. Designs for Ics, Geographical Indications & Undisclosed Information National and MFN Treatment. Developing countries to implement within 5 years, LDCs in 11 years.

Impact on Indian Immediate change required in Patents Act (1970), Trade & PolicylLaws

Merchandise Marks Act (1958), Designs Act (1911), Copyright Act (1957) etc. TRIPS agreement will also trigger changes in certain provisions of Contract Act (1872), Law of Torts, Companies Act (1961), IT Act (1961), MRTP Act (1969) etc. Now Acts to be enacted.

Business Implications

Impact will be on all businesses. Main Source of technology for SMEs-reverse engineering, will be difficult with the stricter IPR regime and in new regime 'ignorance of law will be of no excuse' (The burden of proof is on infringer). The Transfer of Technology cases may, however, increase on commercial terms as counterfeit trade will have effective deterrent (amended laws). India's own R&D Institutions could reap benefits within India as well as abroad.

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Introduction to International Business

Agreement 13 : Patents Objective

Patents to be given for Process as well as Products. Life 20 years. Compulsory licensing on case to case basis. Micro-organisms to be patented and protection of plant varieties by patents or a sui generic system or both.

Impact on Indian Patents Act partially amended (1994). Second amendment Policy/Laws bill pending before Parliament. Allows product patents in pharma, agri-chemicals and Food. Patent life increased to 20 years, micro- organisms made patentable. New law for plant varieties being drafted. Business Implications

Immediate impact on pharma, agri-chemicals and food; patented products cannot be manufactured without licence. India has transition period granted till 1st Jan. 2000. Additional 5 years for these three sector i.e. patents could be given after 1st Jan. 2005 (with the condition that applicant. would be given 'Exclusive Marketing Rights' (EMR) for 5 years from 1st Jan. 1995 or till grant/rejection of patent, whichever ends earlier).

Agreement 14 : Social clause and core labour standards. (no agreement as yet) Objective

To enforce core labour standards against exploitative labour practices.

Impact on Indian Stricter labour standards likely. Policy/Laws Business Implications

Boycott of products or sanctions on countries not following new standards. Implications galore for sectors like textile / garments, leather, handicrafts, agro food products, sports goods etc.

Agreement 15 : Trade and Environment. (no agreement as yet) Objective

To check harmful effect of trade on environment. To effect environment reform through influencing production and consumption modes.

Impact on Indian Stricter regulations related to environment likely. Policy/Laws Stricter norms for packaging and their consumption/ disposal.

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Skill Development

Business Implications

Already 20 multilateral agreements on environment in force as Basel Convention, Montreal Protocol etc. Specific impact on sectors like food processing, fisheries / seafood, chemicals and drugs, plastics etc. General implications for packaging (cost of pkg. to rise). Exporters could be discriminated against because of stringent packaging standards in developed markets.

Agreement 16 : Trade and investment. (no agreement as yet) Objective

To create rights for investors in host country. To minimize intervention of Govt. in controlling foreign investment.

Impact on Indian Regulatory mechanism for FDI could be liberalized further. Policy/Laws Curtailment of rights of Govt. in controlling flow of investment. Source: hnp:/Iwww.indjauembassy.ora/policyIWIOlwto jndex.bun

International Monetary Fund and India WASHINGTON, April 15 Asia Pulse - The International Monetary Fund [IMF] has complemented the Indian authorities on their "very clear agenda" on labour market and other reforms. "I want to compliment the authorities and also the rest responsible for the implementation of the new VAT regime," IMF Managing Director Rodrigo -de Rato, who recently visited India, told reporters here yesterday. We think that the opening of the country, the financial sector is certainly needed and welcome. We see that the budgetary framework of the Indian government is a serious one, a clear one, and we see also that monetary policy and the credibility of anti-inflationary policy is well rooted, as we also commend the authorities for their financial strength. "I also want to mention that managing their exchange rate flexibility has also been very successful," he said. Labour challenges in India, he said, are very important. India, by all accounts, will need to create in the next ten years a hundred million jobs just to stay at the actual level of unemployment. "It is a very challenging horizon. In that respect, labour reform, labour flexibility could help certainly India not only to create more employment, but also to reap the benefits from such opportunities - for instance, textiles - that are offered to the Indian economy right now, to the Indian society." Source: http://au,news.y,,boo,cornl05Q415131tzhv,htmJ

The IMF has complemented the Indian authorities on their very clear agenda on labour market and other reforms, "I want to compliment the authoities and also the rest responsible for the implementation of the new VAT regime,' IMF Managing Director Rodrigo de Rato, who recently visited India, said on Thursday. "We think

I

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Introduction to International Busin1essl.

that the opening of the country, the financial sector is certainly needed and welcome. We see that the budgetary framework of the Indian government is a serious one, clear one, and we see also that monetary policy and the credibility of anti-inflationary policy is well rooted, as we also commend the authorities for their financial strength. "I also want to mention that managing their exchange rate flexibility has also been very successful," he said. Labour challenges in India, he said, are very important. India, by all accounts, will need to create in the next ten years a hundred million jobs just to stay at the actual level of unemployment. "It is a very challenging horizon. In that respect, labour reform, labour flexibility could help certainly India not only to create more employment, but also to reap the benefits from such opportunities for instance, textiles - that are offered to the Indian economy right now, to the Indian society." "But specifically in my conversation with the Prime Minister, he made it clear that he saw this objective as important, and that the government was going to find political and social consensus to make India more able to profit from the chances that the global economy is offering the Indian economy right now." Source: http://www.indiadaily.comlbreaking..news/31702.asp

Statement by the Hon. P. Chidambaram, Governor of the Fund and the Bank for India, at the Joint Annual Discussion Mr. Chairman, Since we met the last time, the global economic outlook and policy prospects appear to have strengthened considerably. World output growth is expected to touch its highest level in the last thirty years. The recovery is also broad based across the membership, with US and Emerging Asia continuing to show stronger growth. Diversified expansion, and different regions mutually supporting and reinforcing growth-enhancing prospects, can trigger a virtuous cycle. We must stren~lhen this process, and that will require international cooperation in achieving statl1ity, crafting better policies and building robust institutions. No doubt, risks to the expansion, too, have increased in recent months. A shadow has been cast by volatility in the oil market and geo-political uncertainties. While supply constraints have surfaced in addition to demand pressure, speculative forces also seem to have contributed to added volatil~ty. An enduring solution to these problems will call for strengthening cooperation between oil producing and consuming countries in stabilizing the oil market. Equally, multilateral institutions must be ready to support countries exposed to any potential threat of oil or commodity price shocks. Inflationary pressures across regions are primarily supply driven by oil and commodity prices. Compared to earlier periods of oil price shocks, many countries have strengthened their macroeconomic and prudential policies and have become more resilient. Central banks in these countries have developed more effective tools and more transparent communication policies to achieve price stability without disrupting growth. We, therefore, believe that the reversal of interest rates by central banks should be, and will be undertaken cautiously. Growth and price stability cannot

Development

207

be viewed as two irreconcilable goals. However, the combination of risks of oil prices and reversals in monetary policy regimes make the management of macropolicies in oil importing emerging economies a particularly complex task. In terms of policy response, the problem of the twin deficits in the US and structural reforms in the Euro area remain a challenge. In emerging market economies, the current upturn should provide the necessary leeway for fiscal and debt consolidation, and for pushing ahead with institutional reforms for sustaining growth and reducing poverty. Financial market conditions remain sanguine with gradual strengthening of balance sheets and capital build up across institutions. The demographic transition in several countries, particularly in developed countries, points to the need for pursuing pension fund and social security reforms. In some Emerging Market Economies (EMEs), policy-makers have-in my view, wisely-built up foreign exchange reserves as self-insurance against the possible effects of reversal of capital flows. Rather than fault them, we should reflect on the inadequacy of the existing international financial architecture in providing a viable collective insurance to wellmanaged economies. Steps to scale up assistance to developing countries should remain high on the agenda for achieving the millennium development goals (MDGs). Two years after Monterrey, the implementation of the Compact appears uncertain. The promised additionally of resources has failed to materialize. Without additional resources, the MDGs will remain a distant dream. Even the best performers among developing countries may not realize the dream. I should also point out, with some regret, that when concessional resources are allocated, that appears to be done on considerations other than the twin criteria of 'need' and 'performance'. When a country is prepared to commit its own resources towards MDGs, and has a proven record of performance, the developed countries must keep their part of the compact. Aid continues to be delivered in a piecemeal, uncertain and inequitable manner rather than through multilaterals with transparent allocation criteria. We are pleased to note that the Bank and the Fund have put donor coordination and harmonization high on their agenda and we hope they will sustain and further enhance their efforts to make the promised levels of additionality in overseas development assistance (ODA) a reality. The negotiations for IDA's fourteenth replenishment are well underway. The time for the donor countries to deliver on their Monterrey commitment for a substantial scale up in ODA is now. The international financial institutions (IFIs) have had a very positive influence in creating an appropriate international environment for multilateral trade negotiations. Enhanced trade has the potential to yield over $325 billion in additional resources by the year 2015. The global trade agenda calls for renewed vigor on the part of the Bank and the Fund to strengthen their advocacy role to phase out protectionist policies in developed countries.

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Introduction to International Business

Negative net flows from the Bank in recent years continue to be a matter of deep concern. Against this backdrop, the recent initiatives to modernize and simplify procedures and reduce (nonfinancial) costs of doing business are welcome. More needs to be done, especially more initiatives to check the rising trend in administrative costs, reduce borrowing charges and rationalize the safeguard compliance framework. I wish to make a special mention of the need to step up - in a big way lending to infrastructure. Middle income countries have the human and physical resources to raise their people from poverty. They have been the Bank's best customers so far. What they lack is infrastructure that can make them efficient and competitive. Your best customers ask the Bank to lend a helping hand to create this world-class inffl~structure. Many of the world's lowest income countries are faced with acute debt-distress. This makes allocation of resources difficult. Therefore, recently, the Bank and the Fund have been rightly preoccupied with devising an exante framework to assess sustainability of the debt situation in low income countries, and helping bOlTowers, lenders and the IFls take informed decisions. Assisting such countries without adding further to their debt burden, and at the same time, avoiding the moral hazard implicit in lending and forgiving, are extremely delicate exercises. We wish the IFIs and the IDA well in carrying out these crucial tasks. Lack of effective voice in the functioning of the IFls remains a matter of deep concern for the developing and transition countries. At Monterrey, we heard positive 'assertions by world leaders but, so far, we have not found sufficient political resolve to address the structural inconsistency that lies at the root of this lack of voice. The allocation of quotas at the Fund and the pattern of shareholding at the Bank have ceased to reflect the economic realities of the day. The search for a greater voice for developing countries must begin with a review of the quota allocation formula. Without the necessary resolve to move in this direction, the voice issue will continue to remain a mere distraction from the core business of the IFls. Mr. Chairman, 80 per cent of the people who inhabit the earth enjoy a mere 20 per cent of the global income. That is the cause of poverty, discrimination and injustice. We must ensure that all parts of the global compact agreed at Monterrey are in place by the time we meet next year. And if we do that, it will still leave us just about a decade to realize our dream of Millennium Development Goals. Source : http://siteresources. worldbank.orglINTPSDlResources/CSRlOpportunities_FULL.pdf

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Skill Development

I

III. TWO DOCUMENTS USED IN EXPORT TRADE PROFORMA INVOICE Pro-Inv. No. & Date

Exporter

Exporter's Ref

Buyers-Ref.No. & Date

Country of origin of goods Carriage by SealAir/ Multi Modal Transport

Country of final destination

Place of Receipt by Terms of Delivery and Payment pre-carrier ~--------------~

Port of loading

Port of discharge Marks & Nos.! Container No.

Final destination Nos. kind of Pkgs

Description of goods

Quantity

Amount chargeable

Rate

Amount

Total

(In words)

Declaration: We declare that this proforma invoice shows the actual price of the goods described and that all particulars are true and correct.

Signature & Date

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'EXCHANGE CONTROL DECLARATION (GR) FORM

SB No. & Date

Invoice No. & Date

Exporter

AR4/AR4A No. & Date

Carriage

Import Export Code No. Custom House

Agent

Pre carriage by

Place of Receipt by Pre-carrier

Lic No.

Q/Cert No. & Date

R.B.1. Code No. Export Trade Control

If export under

1

Deferred credit [

1 Rupee credit [ 1 Others [ 1

Joint venture [ Vessellflight No.

Rotation No.

Port of Loading

Port of discharge

Sl. No.

Country of destination

Marks & Nos.

RBI's Approval/cir. No. & Date Nature of contract: CIF [ l/CFR [ llFOR[ others (specify)

l

Exchange Rate VIS l40fCA

No. & Kind of pkgs Container No.

I

Currency of invoice

Statistical code & Description of goods

I

1

Quality

I Value FOB

Net weight Gross weight Total FOB value in words Analysis of export value

Currency

Amount

FOB value Freight Insurance

Full expect value or where not as containable, the value which exporter expects to receive on the sale of goods.

Rate Currency

Commission Discount

Amount

Other deductions

Contd ....

211

Skill Development Sl. Export Assessable Value No. Tariff No. under Sec. 14

Duty Rate

Cess

Amount

Rate

Amoun

Total Duty and Cesses

Duty Payment Particular

NOT APPLICABLE

Declaration : I1We declare that all particulars given here in are true and corrected. IfWe also attach the declaration(s) under clause No.(s) Public Notice No.

dated Signature & Date

Is export under UC arrangements? Yes [ If YES, name of a advising bank in India

For customs

1 No[ 1

Customs Assessable Value Rs. (Rupees Export value verified

Bank through which payment is to be received

Customs Appraiser Whether payment is to be received through the ACU

YeslNo Date of shipment

Customs Appraiser

Declaration under Foreign Exchange Regulation Act : I1We hereby declare that I1We am/are the seller/ consigner of the goods in respect of which this declaration In made & and that the particulars given above are true and that of the value as contracted with the buyers in the same as the full export value declared overleaf/ (b) The full export under of the goods in not ascertainable at the time of export and that the value declared in that which I1We, having regard to the prevailing market conditions, expect to receive on the sale of goods in the overseas market. IfWe undertake that I1We will deliver to the bent named here in the foreign exchange representing the full in the manner prescribed in Rule of the foreign exchange export value of the goods on & before @ regulations rules, 1874. I1We further declare that IfWe and are resident in India & I1We have on place of business in India. State Appropriate date of delivery which must be within 6 months from the date of 5bipJXIentIJ S JXlQpths for export to ware houses established abroad with resume bank permission.

* Strike out which ever is not applicable.

Date

Space for use by Reserve Bank of India.

(Signature of exporter)

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IV. DOCUMENT USED IN IMPORT TRADE

I

APPLICATION FORM FOR ALLOTMENT OF IMPORTER-EXPORTER CODE (IEC) NUMBER AND MODIFICATION IN PARTICULARS OF AN EXISTING IEC NO. HOLDER (For Office use only) File Number: ........................... Date ........................... lEe No. alloted .......................... . I. Application for (please tick) (A) Allotment of lEe No.

D

(B) Modification in particulars of existing lEe No. holder

D

2. Name and Address of the applicant 3. Address of all Branches I Divisions I Units I Factories located in India and abroad. 4. In case the application is for I(B) give (a) Existing lEe No ............................................................ . (b) Nature of modification required and details thereof .................................................... .

(In case the application is for I (B) information in S. No.2 and 3 above will be as per pre-modified status)

5. Particulars of Fees Paid: (i) Bank Receipt I Demand Draft No. (ii) Amount (in Rs.) (in figures) ...................................................... .

(in words) ........................................................ . (iii) Name of Bank & Branch of Issue

6. Permanent Account Number (PAN) ofIncome Tax ................................................................... . Issuing Authority ............................................................................................................. . Date of Issue .................................................. ,.................................................... .

DECLARATION / UNDERTAKING IIWe hereby declare that the particulars and the statements made in this application are true and correct to the best of my / our knowledge and belief and nothing has been concealed or held therefrom. 2. IIWe fully understand that any information furnished in the application if proved incorrect or false will render me / us liable for any penal action or other consequences as may be prescribed in law or otherwise warranted. 3. IIWe undertake to abide by the provisions of the Foreign Trade (Development and Regulation) Act. 1992, the Rules and Orders framed thereunder, the Export and Import Policy and the Handbook of Procedures.

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4. I1We hereby declare that this application is made by me/us in the name of RegisteredlHead Office and I1We have not obtained or applied for Importer-Exporter Code Number previously in this name from any office of the DOff (Not applicable for existing IEC No. holder) 5. I hereby certify that I am authorised to verify and sign this declaration as per Paragraph 3.8 of the Export and Import Policy. 6. I1We hereby certify that name of the Director / Partner / Proprietor / Karta of the firm or company is a Director/ Partner / Proprietor / Karta of the Firm / Company which has come to the adverse notice of DOff. Signature of the Applicant Name Photo duly attested by bank

Designation Official Address Tel. No. Residential Address E-Mail Address

Place: ................................................. . Date

Source: M.I. Mahajan, "A Guide on Export Policy, Procedure and Documentation", Snow White Publications (P) Ltd., Mumbai, 2001. pp. 2.20 - 2.21.

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v.

PREPARATION OF A CHART ON DIFFERENT CURRENCIES OF DIFFERENT COUNTRIES (SELECTED) Country

Afghanistan

Currency

Afghani

Albania

Lek

Algeria

Dinar

American Samoa

UD Dollar

Andorra

Euro

Angola

Kwanza

Argentina

Peso

Australia

Dollar

Austria

Eurol Schilling

Bahamas

Dollar

Bahrain

Dinar

Bangladesh

Taka

Belgium

Euro/Franc

Bhutan

Indian Rupee

Botswana

Pula

Brazil

Real

Brunei

Dollar

Chile

Franc

China

Yuan Renminbi

Costa Rica

Colon

Cuba

Convertible Peso

Cyprus

Pound

Czech Republic

Koruna

Denmark

Krone

Egypt

Pound

Eritrea

Nakfa

Ethiopia

Birr

Fiji

Dollar

Finland

Euro/Markka

France

Franc/Euro

Germany

Euro/Deutsche Mark

Ghana

Cedi

Skill Development Country

215 Currency

Greece

Euro/Drachma

Hong Kong

Dollar

Ice Land

Krona

India

Rupee

Indonesia

Rupiah

Iran

Rial

Iraq

Dinar

Ireland

Euro/Pound

Italy

Euro/Lira

Japan

Yen

Jordan

Dinar

Kazakhstan

Tenge

Kenya

Shilling

Kuwait

Dinar

Kyrgyzstan

Som

Lebanon

Pound

Libya

Dinar

Luxembourg

Euro/franc

Malaysia

Ringgit

Mexico

Peso

Morocco

Dirham

Mozambique

Metical

Myanmar

Kyat

Namibia

Dollar

Nepal

Rupee

Netherlands

Euro/Guilder

New Zealand

Dollar

Nigeria

Naira

North Korea

Won

Norway

Krone

~

Oman

Rial

Pakistan

Rupee

Papua New Guinea

Kina

Peru

Nuevo Sol

Philippines

Peso

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Introduction to International Business

country

Currency

Poland

Zloty

Portugal

Euro/Escudo

Qatar

Riyal

Romania

Leu

Russia

Ruble

Rwanda

Fran

Saudi Arabia

Riyal

Singapore

Dollar

Solomon Islands

Dollar

South Africa

Rand

South Korea

Won

Spain

Euro/ Peseta

Sri Lanka

Rupee

Sudan

Dinar

Sweden

Krona

Switzerland

Franc

Syria

Pound

Taiwan

New Dollar

Tanzania

Shilling

Thailand

Baht

Turkey

New Lira

United Arab Emirates United Kingdom

.

Dirham Pound

United States of America

Dollar

Vanuatu

Vatu

Vatican City

Euro/Lira

Vietnam

Dong

Yemen

Riyal

Zambia

Kwacha

Zimbabwe

Dollar

,

217

Skill Development

VI. TABLE OF AT LEAST ONE MONTH DATA OF FOREIGN EXCHANGE RATE OF AT LEAST 2 CURRENCIES One Papua New Guinea's (PNG)Kina's Exchange Rate in terms of Indian Rupee and USA's Dollar Date

1 PNG Kina

=Indian Rupees

1 PNG Kina

=USA Dollar

1 March, 2005

13.4569

0.3010

2 March, 2005

13.4590

0.3010

3 March, 2005

13.4631

0.3012

4 March, 2005

13.4635

0.3012

5 March, 2005

13.4635

0.3015

6 March, 2005

13.4635

0.3018

7 March, 2005

13.4680

0.3020

8. March, 2005

13.4680

0.3021

9 March, 2005

13.4680

0.3022

10 March, 2005

13.4680

0.3024

11 March, 2005

13.4680

0.3024

12 March, 2005

13.4680

0.3025

13 March, 2005

13.4680

0.3028

14 March, 2005

13.4569

0.3029

15 March, 2005

13.4590

0.3030

16 March, 2005

13.4631

0.3030

17 March, 2005

13.4635

0.3032

18 March, 2005

13.4655

0.3032

19 March, 2005

13.4655

0.3033

20 March, 2005

13.4675

0.3034

21 March, 2005

13.4675

0.3034

22 March, 2005

13.4680

0.3035

23 March, 2005

13.4680

0.3036

24 March, 2005

13.4687

0.3038

25 March, 2005

13.4687

0.3040

26 March, 2005

13.4569

0.3052

27 March, 2005

13.4590

0.3056

28 March, 2005

13.5620

0.3064

29 March, 2005

13.5630

0.3082

30 March, 2005

13.5635

0.3110

31 March, 2005

13.5675

0.3115