Introduction to export economy: A guide to securing your goods’ value (2024)

By Sachin Dahake

Being able to order a product from home, sitting on the couch has created one of the hottest industries of the millennium. But international trade is not new. One can go back to learn from the doctrines of mercantilism that dominated the high seas’ trade policies of major European nations for most of the 16th century through to the end of the 18th century. The key objective of trade for mercantilists was to obtain a favourable balance of trade, by which the value of exports must exceed the value of their imports.

Over time with technology, we have seen a shift in the subtle as well as not-so subtle ways of how the world moves towards globalised modes so that international trade becomes more rewarding – both in view of profits and customer satisfaction.

In this article, we will dive into the five key steps involved in exporting your product for the first time. We won’t be going over the boilerplate instructions involved for different types of goods, but rather look at the few vital documents that typically accompany your product across the finish line. But first, let’s identify the factors that constantly affect the export economy.

Factors affecting the export economy
One thing to always keep in mind is that the challenge in exports never lies in its volume, but in its structure. The structure should be in place to be able to absorb and adapt to the shifting factors affecting the country’s balance of trade (defined by its net exports or exports minus imports). These factors include everything from political circ*mstances, currency exchange rates, social/consumer behaviour, factor endowments (labour, capital and land), productivity, to trade policies, inflation and demand. Typically, the balance of trade serves as an indicator of the nation’s health.

For instance, if the UK's exchange rate falls post-Brexit, the export prices will fall and import prices will rise. This will lead to increased export volume and lower money spent on imports thereby avoiding a trade deficit. Generally, investors, exporters and market professionals are more concerned with trade deficits since chronic deficits may be a foreshadowing of currency devaluation.

The export shipping process
It is not just the above factors that can nip your export journey in the proverbial bud. In addition to cost, it takes a lot of time and effort to redo any export documentation that is filled with mistakes. In the era of same-day-deliveries, the longer your product takes to ship, the longer it takes for your company to get paid. So here are the steps one should follow:

Step 1 – Get IEC from DGFT
To begin exporting, you must secure an export license from your country which is issued by the Director General of Foreign Trade or DGFT. The license is given after you have provided the attributes and particular types of the goods, after which you get an Importer Exporter Code (IEC).

Step 2 – Acquire customer and secure the money
In view of the socio, political and economic behaviour of the country where the goods have to be exported, the most important aspect is to secure the money. The best way to do this is to acquire customers and take advance from them against your goods. Alternatively, you can open a Letter of Credit (LC), also known as bankers’ commercial credit which is a payment method used in international trade to provide an economic guarantee from a creditworthy bank to the exporter. Three aspects to this document must be secured before taking any order or before supplying goods – LC must be irrevocable, must be from a first-class bank, and should be at sight.

A few do’s and don’ts when it comes to import or export transactions with LC:
Three Do’s:

• Only open LC for customers and if the party has a sanction limit.
• Verify to ensure that the payment method in LC is as per FEMA guidelines.
• And, issue the LC in case the customer doesn’t have an IEC number.

Three Don’ts

• Do not allow LC on Document Against Acceptance if the Usance exceeds more than 180 days.
• Do not miss out on amendments to the LC for import of items which are either restricted or prohibited.
• And, if you are opening a revolving LC, do not use the safety clause.

Step 3 – Get The bill of Lading and Airway bill
Both Bill of Lading and Airway Bill are one of the most significant legal documents in the shipping industry. The Bill of Lading is a document issued by a carrier or its agent to the shipper that details the type, quantity & destination of the goods being carried. The Airway Bill is a similar document that ensures that the goods have been received for shipment by air. The exporter receives the Bill of Lading and Airway Bill after the goods have been cleared by customs.

Step 4 – Register as exporter in the required country for SGS
There are a few countries where you must register as an exporter as they require customized quality checks. For instance, African or European countries require SGS verification on your factories before dispatching the goods. The Société Générale de Surveillance or SGS is a global and autonomous international inspection body that works in the field of improving quality & productivity, verifying compliance and reducing risks on products being exported, virtually in every sector. If boxes on the checklist are missed, the exporter must pay more duty than usual on the products.

Step 5 –The blanket of Certificate of Origin
In the context of free trade agreements or FTAs, a Certificate of Origin (COO) must be produced to qualify to get a reduced duty rate. You can acquire your COO from the Chamber of Commerce in India which validates the country of origin prior to moving goods. Each FTA has its own specific rules around the COOs and associated duty reliefs. This piece of document essentially saves you money on duty costs, protects you in case of custom audits and lets you differentiate your product in the marketplace. Often your COO may be needed to comply with the terms of a Letter of Credit.

Conclusion
Essentially, all these documents like - invoice, packing lists, airway bill, certificate of origin – travels along with the goods to the importer. Due diligence on consistent and accurate documents is not only crucial but it is often the cause of slowing down the shipment process.

Most importantly, nobody is exempt from export compliance. Thus, when it is often the export manager’s job to oversee processes, it is the accountability of everyone in your company to ensure that export processes are followed throughout.

(Author is Deputy General Manager of Cylinder Business at Uflex Ltd, India's largest multinational flexible packaging materials and solution company)