Problems In Export A One Platform Solution Business Essay

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Objective of this paper is to solve the impediments faced by manufacturers and traders in exporting goods and services. Exporting from a country is a very complicated process involving various external parties for solving the purpose of logistics, documentation, customs, etc. The methodology used is the integration of all the processes one has to go through before exporting products. This has been done in the form of a portal solution. The different processes such as calculation of transportation costs, custom clearance costs, ocean freight and documentation required are available at different sources for example books, forwarding and clearing agents and the websites. This portal provides a platform where there is an access to all export related information for products as well the cost calculations for transport, ocean freight and custom clearance. Being user friendly, this portal provides a cohesive solution for all exports related procedures so that manufacturers and traders can make all the transactions in a hassle free manner.

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Keywords: export cost calculator, FOB, CNF, CIF, ocean freight, centralised export solution.

INTRODUCTION

Keeping in view the problems faced in understanding the export functions by manufacturers and traders, and no suitable solution currently available, the paper comes with a solution of providing an integrated solution, in the form of a portal for all export related information about any product. Since export has three major external parties i.e., transport company, custom clearing agent and shipping company, we have considered each one of them and described the work performed by them. The paper includes one product from each industry for simplification of the process. In order to solve this complicacy, the portal integrates all the three parties and makes the process easy to understand and implement. The portal is designed in a manner that all the major details are highlighted and easily visible on the page. Also included is the documentation required for the exports and the price calculator for FOB, CIF and CNF/CFR. This portal will help to calculate all the costs attached with exporting a good i.e., transportation, customs clearing and shipping charges. For this research paper, only exports through from sea via JNPT, NHAVA SHEVA port is considered and major products exported from each industry are taken into account.

Literature Review

Exports

The development of a country's exports has a positive impact on the growth of the economy in total as well as on individual firms (Cavusgil & Nevin, 1981; Tesfom & Lutz, 2006). Exporting activities also help in increasing profitability; they improve trade balances, and help to deal with the problems of poverty and unemployment (Koksal, 2008; Karadeniz & Gocer, 2007). Small firms are becoming increasingly international, and they have been reported to contribute between 25 and 35 per cent of world exports in manufacturing (Andersson & Florén, 2008). However, there are still many SMEs in developing countries that do not export or contemplate doing so, despite the fact that export does not require but a small amount of capital investment and has lesser financial and commercial risk as a mode of a foreign market entry mode compared to some form of direct investment (Lages & Montgomery, 2004; Agndal & Chetty, 2007).

Perception of Exporting Problems

Problems in export is a function of various other problems such as logistics and operation, quality and packaging of the product, requirements in the export documentation process, payment options in the export markets, informational problems i.e. lack of accurate and timely information, currency fluctuation in the international market and the lack of government support in overcoming export difficulties. (Katsikeas, Constantine S, Morgan, Robert E, 1994).

Cost of Export

Ocean transport costs considerably slow down international trade. These costs are very high in some countries and have two explanations: restrictive trade policies and private anticompetitive practices. Both the factors matter, but the latter have a greater impact. (Fink, Mattoo, Neago; 2004).Trade liberalization and the breakup of private carrier agreements would lead to an average of one‐third lower liner transport prices and to cost savings of up to US$3 billion on goods carried to the United States alone. (Fink et al, 2004). The policy implications are clear: there is a need not only for further liberalization of government policy but also for strengthened international disciplines on restrictive business practices. For the self-organising, decentralised company units in the export business there is an increased need for coordination. Controlling as a decisive element in the coordination of a company requires an efficient instrument. Process cost calculation, in contrast with other costing systems, represents an efficient instrument in establishing customer-supplier relations for company units which look after service functions. In order to actually achieve internal coordination which resembles market conditions, the decentralised company units require further qualitative information such as delivery service and quality data.

Methodology

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The methodology used to develop the portal is as follows:

Choice of products

Following are the products taken from each major industry

Sr. No.

PRODUCT

INDUSTRY

1.

Benzoic Acid (Organic Product)

Chemical

2.

Fumed Silica (Inorganic Product)

Chemical

3.

Basmati Rice

Agriculture

4.

Woolen Textiles

Textile

Chemical Industry:

It is an important component of Indian economy contributing about 7% of the GDP. It contributes to our lives in several different ways for example synthetic garments we wear, drugs we take, etc.

Overview

Fig 1: Indian Chemical Sector Classification

Source: http://www.india-exports.com/gifs/indai.gif

Agriculture Industry:

It is the root of rural economy. Indian agriculture has seen an impressive growth over the years and now it depends on technology and biological sciences. The competitive price and standards of the industry with respect to the international market created enormous trade opportunities in this sector.

Exports of Agricultural products (2004-05)

Fig 2: Export of Agro Products

Source: www.india-exports.com

Textile Industry:

Indian textile industry constitutes about 30% of the total exports and is the second largest employment creator after agriculture. It contributes about 4% to the GDP of the country.

Sectors Involved in the process

Transportation Company:

This organization provides transportation services between the factory or warehouse and the desired port. The rate of transportation depends upon the following:

Quantity of the product, its density, packaging and dimensions

Distance between factory and port, Lower than truck load (LTL) and Full Truck Load (FTL)

Government taxes

Supply and demand

The rates are very fluctuating in this sector as the rate may vary with fuel prices or government taxes or supply demand relationship. The calculation of transportation costs is available on portals of logistic companies or the related company has to be contacted.

Clearing agent:

The authorized person who does all the port work for the export of the product. The various charges that are been given by the agent are:

EDI Registration

Custom Clearance (inclusive of receiptable charges & agency fee)

Shipment under Drawback Scheme

Warrai

The custom clearance costs are made available by the clearing agent.

Shipping Company:

The organization provides its shipping services between the port of origin and the port of destination. Following are the charges associated with this industry:

THC (Terminal Handling Charges): An ancillary charge on some ocean freight shipments to cover the cost of moving the container from the container yard to ocean vessel. (personal communication, September 2012)

Ocean freight: It includes the transport cost between the ports.

Bill of Lading: Charges associated with the documentation of Bill of Lading.

The ocean freight's cost is given by the shipping company.

Insurance Company:

In case the buyer has requested for CIF, i.e. carrying insurance and forwarding, the insurance company has a part to play in the process. Insurance charges will vary with the product. For this the exporter has to run to the insurance companies for calculating the rates. This again will cost him time and money.

The insurance costs of the product are given by the insurance companies.

Documentation

IFS Code:

This document is taken from the bank for making online transactions. Format for the IFS code is given in appendix 1.

IE Code:

It is a unique 10 digit code issued by DGFT - Director General of Foreign Trade, Ministry of Commerce, and Government of India to the Companies. No person or entity shall make any Import or Export without IEC Code Number. (http://www.dgft.org/iec_code.html)

Drawback Documentation:

It is provided when an exporter wants to claim export benefits. Format for the same is given in appendix 2.

AD (Authorized Dealer) Code:

The Shipper needs to give details about his Bank Account Number along with the Bank's Authorized Dealer Code. Shipper has to obtain this on the Bank's letterhead along with the Bank's stamp and signature. (www.fas.usda.gov), an example is mentioned in appendix 3.

EDI:

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EDI or EDIFACT (Electronic Data Interchange for Administration, Commerce and Transport) - From the United Nations-backed electronic data interchange standards body, this is a set of standards that are used to define data sets in certain documents to standardize them for electronic transmission from one format to another.

Bill of Lading:

 A document issued by a common carrier to a shipper that serves as:

A receipt for the goods delivered to the carrier for shipment.

A definition of the contract of carriage of the goods.

A Document of Title to the goods described therein.

This document is generally not negotiable unless consigned "to order." 

Bill of Lading: On Board - A bill of lading acknowledging that the relative goods have been received on board a specified vessel.

Bill of Lading: Order - A negotiable bill of lading. There are two types:

A bill drawn to the order of a foreign consignee, enabling him to endorse the bill to a third party.

A bill of lading drawn to the order of the shipper and endorsed by him either "in blank" or to a named consignee. The purpose of the latter bill is to protect the shipper against the buyer's obtaining the merchandise before he has paid or accepted the relative draft.

Phytosanitary Inspection Certificate:

A certificate issued by an exporting countries' Department of Agriculture indicating that a shipment has been inspected and is free of harmful pests and plant diseases.

Certificate of Origin:

A document containing an affidavit to prove the origin of imported goods. It is used for customs or foreign exchange purposes or both. Certificates of Origin are commonly certified by an official organization in the country of origin such as a consular office or a chamber of commerce.

Certificate of manufacture:

A document used under a letter of credit containing an affidavit that goods have been manufactured and are being held for the account and risk of the buyer

Consular Invoice:

A document required by some countries describing a shipment of goods and showing information such as the consignor, consignee, and value of the shipment. Certified by a consular official, a consular invoice is used by the country's customs officials to verify the value, quantity, and nature of the shipment.

Letter of Credit (L/C):

A document issued by a bank per instructions by a buyer of goods authorizing the seller to draw a specified sum of money under specified terms. Issued as revocable or irrevocable.

Letter of Credit, Confirmed:

A letter of credit containing a guarantee on the part of both the issuing and advising banks of payment to the seller, provided the seller's documentation is in order and the terms of the letter of credit are met

CAD (Cash against Documents):

A method of payment for goods in which documents transferring title are given to the buyer upon payment of cash to an intermediary acting for the seller. The documentation required for the export process can be found out through books or government websites.

Since the information about the above costs and documentation is available from various scattered sources making the process very complicated, we have developed an integrated portal to make the process simplified.

Portal- The Solution

The portal comes with the purpose of integrating all the services on one platform to make the process of export easier and transparent than ever. The portal provides an outline of every external party involved in the process. Also it provides the breakdown of the price to have a clear picture of how much an exporter has to pay to every external party.

A good amount of database including all Indian origin products, industrial locations in the country (for transportation) and all shipping ports (for custom and ocean freight) will be available on the portal.

The portal also contains all the documentation details needed for the export along with the procedure to obtain it.

The portal concentrates to solve the problem of delay and complexity in calculating the final rate of the product after adding transportation, insurance, ocean freight and custom clearance. The section 'export news' keeps a person updated with the market report. A sample portal "Homepage" has been proposed to look like this:

E:\Desktop\Portal\FInal\Capture.PNG

Fig 3: Home page of the portal

Steps to proceed for the calculation of rate or documentation required:

In the above page, product name is entered in the 'product' section, if a keyword instead of the exact name is entered, then the following page will open up from where the exact product can be chosen.

E:\Desktop\Portal\FInal\Capture2.PNG

Fig 4: Second page of the portal

For Example: A person wants to export cotton yarn but he writes yarn in the previous product category than he will be directed to the above page with sub categories. Like in this case it will be woollen yarn, jute yarn, cotton yarn, etc.

Now once the exact product is selected, the person will be directed to a page where he will be provided with the links for cost calculator and documentation.

Cost Calculator: The person will be asked the kind of cost he wants to calculate i.e. CIF, CNF or FOB. After that choice the person will be directed to the following page where entire breakdown of costs can be seen

E:\Desktop\Portal\FInal\3.PNG

Fig 5: Third page of the portal

Documentation: This section includes the links directing to list of documents required for the product being exported and the procedure to obtain the same.

Flowchart to understand the working of the portal

Fig 6: Flowchart depicting working of the portal

Results

The objective of this study was to solve the difficulties faced by manufacturers and traders in exporting goods and services. We have come up with a portal which provides an integrated solution to the complicated process of exporting. An example for the entire process for exporting 'Benzoic Acid' from MIDC, Khairne, Navi Mumbai to Karachi has been described in appendices 4-10.

Conclusion

Exports being a significant part of an economy, it is very important for this activity to have a platform where it can be performed and understood effortlessly. Thus, this portal provides a unified solution for all exports related processes so that manufacturers and traders can make all the transactions in a hassle free manner. The portal provides a platform where there is an access to all export related information for products as well the cost calculations for transport, ocean freight and custom clearance. It prevents all the confusions and delays in the process which at times lead to losing the deals and customers.

Limitations and Future Research Directions

Since the entire process of export comprises of a lot of third parties, there is a lot of fluctuation in the costs. The fluctuations can be due to different taxes involved, schedule of the ships, fluctuations in international fuel prices, and some other factors. This is the main limitation of this study.

We can diversify this study by taking all the ports in our portal. Also, we can incrementally include products from other industries. In this paper we have considered only the export via sea. As a future research, we can add other two modes of export namely land and air as well. As a vision the portal will be integrated with transaction process to make the services reach better to the users and they will just have one third party acting for their export issues.

References

Cavusgil, S. T. & Nevin, J. R. (1981). Internal determinants of export marketing behaviour: an empirical investigation, Journal of marketing research, 18 (1), 114-119.

Tesfom, G. & Lutz, C. (2006). A classification of export marketing problems of small and medium sized manufacturing firms in developing countries, International Journal of Emerging Markets, 1 (3), 262-281.

Koksal, M. H. (2008). How Export Marketing Research Affects Company Export Performance: Evidence from Turkish Companies, Marketing Intelligence & Planning 26 (4), 416-430.

Karadeniz, E. E. & Gocer, K. (2007). Internationalization of small firms : A case study of Turkish small- and medium sized enterprises, European Business Review, 19 (5), 387-403.

Andersson, S. & Flore'n, H. (2008). Exploring Managerial Behavior in Small International Firms, Journal of Small Business and Enterprise Development, 15 (1), 31-50.

Lages, L. F. & Montgomery, A. D. B. (2004). Export performance as an antecedent of export commitment and marketing strategy adaptation: Evidence from small and medium-sized exporters, European Journal of Marketing, 38 (9/10), 1186-1214

Agndal, H. & Chetty, S. (2007). The impact of relationships on changes in internationalisation strategies of SMEs, European Journal of Marketing, 41 (11/12), 1449-1474.

Constantine S. Katsikeas, Robert E. Morgan, (1994). Differences in Perceptions of Exporting Problems Based on Firm Size and Export Market Experience, European Journal of Marketing, 28(5), 17 - 35

Mr. Rajesh and Mr. Alok, Tristar Lines Pvt Ltd, www.tristarlines.in/

Dr. Chandrima Sikdar, Professor, NMIMS University

Maritime Policy & Management: The flagship journal of international shipping and port research

International Journal of technology Management: Process cost calculation in a fractal company, Volume 13, Number 1/1997

Appendix 1

On bank's letterhead

TO,

DEPUTY COMM. OF CUSTOMS, EDI DEPT.,.........(CUSTOMS)

THIS IS TO CONFIRM THAT ...............................................................(EXPORTER) HAVING OFFICE PREMISES AT ……………….…………………......................................... OPERATING UNDER CURRENT A/C NO.................................................................

AT OUR....................................(BRANCH) WITH IEC NO ……………...............

AND IFSC IS ..........................................

OUR FOREX DEPT.DETAILS ARE

NAME OF THE BANK :………………………………………………………

ADDRESS OF BRANCH :………………………………………………………

CUREENT ACCOUNT NO :………………………………………………………

IFSC NO :………………………………………………………

AD CODE NO :………………………………………………………

NAME/DATE/SIGNATURE/NAME AND ADDRESS OF SIGNATORY AND BANK STAMP 

Appendix 2

Appendix 3

Appendix 4

Appendix 5

Appendix 6

Appendix 7

Appendix 8

Appendix 9

Appendix 10