A Project Report On

Analysis Of Export Marketing

Under the partial fulfillment of

T Y-BMS

Semester 5th

Submitted By

Mr. PAWAN GAUR

Roll no: 39

Project Guide

Prof.Mr. RAVI KOZI

Submitted to

UNIVERSITY OF MUMBAI

Academic year

2012 – 2013

DECLARATION

I Mr. PAWAN GAUR, the student of S.K.SOMAIYA COLLEGE,

studying in T.Y-BMS, Semister 5th course for the academic year

2012 – 2013 declare that, I have completed the project on

“Analysis of Export Marketing ” in fulfillment of the course

completion requirement at University of Mumbai.

I further declare that, the information presented in this project is

true and original to the best of my knowledge.

Date: Signature of Student

Place: (Pawan Gaur)

Acknowledgement

I would like to extend my sincere gratitude to all those peoplewho have

helped me in the successful completionof my project.

It gives me immense pleasure in expressing my gratitude to my project guide

Prof.Mr.Ravi Kozi for giving his precious time and help me in completing my

project.

I would aslo like to thank our Principal Prof.Dr.Mrs.Sangeeta Kohli

and Prof.Mrs.Aparna Jain (Co-Ordinator), for their valuable suggestion and

support during the project and also the library staff providing the books

whenever demanded by us.

I thank them for being informative and tolerant, I would not have been able to

complete my project without sincere guidance and efforts of above mentioned

people, whose presence was blessing in disguise for me, which motivated me

to complete my project on time.

And at last, a special thanks to my parents for their constant support&

assistance, to make this project worth persenting before you.

Index/Table of ContentsSr.

No. Name of the Topic Page.

No

1. Chapter: 1 – Introduction To Export

Marketing1.1 Case Study- The Missing Piece

1.2 Need Of Exporting

1.3 Scope Of Export Marketing

1.4 Difficulties/problems in export marketing

2.Chapter: 2 – Overseas Mgt And Export Mgt

Research

2.1 Overseas Advertising

2.2 Strategic Marketing action plan

2.3 Scope Of International Market Research

3. Chapter: 3 – Methods of Export And Export

Procedure3.1 Direct Exporting

3.2 Indirect Exporting

3.3 Export Procedure

4. Chapter: 4 – Export Promotion Council4.1 Introduction EPC

4.2 Commodity Boards

4.3 Indian Trade Promotion Organisation

4.4 Special Economic Zones

5. Chapter: 5 – Pricing And Finance 5.1 Factors Affecting Export Pricing

5.2 Export Pricing/Quotations

5.3 Export Pricing Strategies/Techniques

5.4 Export Finance

6. Chapter 6 – Overview Of

7. Chapter:7 – Export Marketing And Procedures

Used in Company

8. Suggestion

9. Conclusion

10. Bibligraphy

11. Annexure

Executive Summary

Chapter:1

Introdution To Export Marketing

Chpt.3.1 Direct exporting

Direct exporting the products by the manufacturer himself i.e., without using

the services of middlemen.

Advantages of direct exporting:

1. High profit margin:

The profit margin is more in direct marketing as the sale price can be kept at a

reasonable level because deductions due to commission etc. are absent.

2. Intensive use of selected market:

Intensive use of the selected foreign market is possible as exports are

made directly. This gives larger sales and popularity in the market.

3. Benefit of government incentives:

The exporter can secure direct and full benefits of various export

incentives and concessions (duty drawback, etc.) offered by the

government.

4. Absence of dependence on middlemen:

The export in firm is not at the mercy in the middlemen for

exporting purpose. It can export regularly through its marketing

network.

5. Optimum use of production capacity:

A manufacturer selling in domestic as well as overseas markets can

utilize his production capacity fully as wide market area is available.

Excess production can be exported through special measures. Thus, full

use of production capacity is possible.

6. Spreading of marketing risks:

A manufacturer exporter may supply his products in many overseas

markets. This is in addition to selling in domestic markets. Due to wide

marketing area, the risk in marketing is divided in the wider area. As the

result, actual marketing risk is minimized.

7. Meeting export obligation:

A manufacturer importing raw materials/machinery on a large

scale has to accept certain export obligation as per government rules.

A manufacturer exporter can fulfill such obligation through directing

exporting.

8. Marketing good will:

Due to direct contact with consumers, the firm can establish

close relationships with the consumers and create goodwill/reputation

in the market.

9. Effective control:

The exporter can exercise effective control over export operations

including the selling price, after-sales service and credit policy.

10. Reliable market information:

The manufacturer-exporter gets first hand reliable information

of the requirements and expectation of the buyers and adjusts his

products and sales promotion strategy accordingly.

Limitation of direct exporting:

1. Huge investment:

The exporter needs more capital investment, suitable

organizations structure, more marketing efforts and effective

supervision and control as the entire responsibility of marketing is

shared by the exporter.

2. Unsuitable to small firms:

A small manufacturer with limited exporting capacity may not

use such direct exporting as it is not profitable. Moreover, it is not

possible for small firms to export directly due to financial difficulties.

3. Heavy business risks:

The risk involved in direct exporting is more as the entire risk

is undertaken by the exporter himself. Indirect exporting reduces the

risks in export marketing.

4. High over heads:

A manufacturer exporter has to bear the product overheads as

well as marketing overheads as he is engaged in production and

exporting.

5. Absence of specialization:

There is absence of specialization in the business as the

manufacturer-exporter lo9oks after the production as well as

exporting.

Chpt.3.2 Indirect Exporting

In Indirect Exporting, the exporting firm will prefer to the target market

through marketing middlemen such as merchant exporter, export houses or

through government agencies.

Advantages:

1. Less investment:

Indirect exporting facilitates exporting with less capital

investment and botheration as the marketing process comes to an end

when goods are supplies to middlemen within the home country only.

2. Relief from actual exporting:

Indirect exporting gives relief to the manufacturing firm from

the botheration actual export marketing. The firm concentrates all

attention on the manufacturing firm.

3. Benefit of services of middlemen :

The middlemen take keen interest in marketing and also in

sales promotion. This gives benefit to the middlemen as well as

manufacturing firm.

4. Limited business risk:

The risk in exporting is minimum as it is shared partly by the

middlemen. The expenditure on marketing is also less as opening on

the foreign branches, etc., is not necessary in indirect exporting.

Limitation of Indirect Exporting

1. Non-availability of middlemen:

Merchant exporters or other middlemen may not be easily

available for exporting to all foreign markets. Moreover, the

manufacturer is at the mercy of middlemen for exporting his products.

2. Sales target may not be achieved:

In indirect exporting, the expected sales results may not be

available as the agents appointed may not take adequate interest in

exporting. This may bring down the profit of the exporting firm.

3. Dependence on middlemen:

In indirect exporting, the export operation will be looked after

by the middlemen and the export organizations will not have any ‘say’

once the product goes in the hand of middlemen. The manufacturer

will not have direct control on pricing, packaging and so on.

4. No benefits of export incentives:

The exporting firm may not get the benefits of various

incentives and facilities provided since he is not involved directly in

the promotion of exports.

5. Non-availability of reliable market information:

In indirect exporting, information relating to export market will

be available from the intermediaries. Such information may not be

reliable and complete as it is the second hand information this may

affect his product planning and development.

Chpt.3.3 EXPORT PROCEDURE

Export procedure

1. Obtaining a code number:

No export or import shall be made by any person without an

exporter-importer code number unless specifically exempted.

For securing the code number, one has to apply on a prescribed

form(in duplicate) to the official; of the Reserve Bank of India

having jurisdiction over one’s head/principal office. Before

giving application for the code number, an exporter will need

to open a current account in the name of the firm in branch of

commercial bank which is authorized to deal in foreign

exchange and also apply for Income-tax clearance.

2. Registration with Exporter promotion Council:

The next step relates to registration with the concerned export

promotion council which helps the exporter in obtaining facilities/

services provided by it. Traders or merchants must either get their

applications recommended by registered manufacturer’s exporters

or supported by a letter from a manufacturer registered as small,

medium or large scale to the unit effect it is willing and undertakes

to supply the goods for exports by the applicant. If a person

intending to start export business as a manufacturer – exporter

without having a manufacturing unit, must enter into confirmed

agreements with the registered manufacturers of the goods he plans

to export.

3. Examination of Terms and Conditions:

Having received an export order, an exporter should

thoroughly examine its contents in respect of the following:

I] Terms of payment – The buyers agrees to the terms of payment

conveyed to him by the exporter. If exports are to be effected against a

letter of credit, it should provide for that:

a. Payment will be made in India, and

b. Documents stipulated in L/C will be submitted to an Indian bank in

India.

The exporter should also examine (i) whether to be

drawn in to be “sight” or “usance” draft and be drawn on the bank or

the buyer (ii) credit validity period is permissible in accordance with

India’s Foreign Exchange Control Regulations.

II] Documents – The exporter must note the documents required

particularly with bill of exchange, like (a) commercial consular or

custom invoice, (b) clean on board bill of landing, (c) certificate of

origin in general or any particular, like that of GSP or commonwealth

preference, (d) packing list (e) marine insurance certificate or policy,

etc.

III) Delivery Schedule – An exporter should see that delivery

schedule is in accordance with either his manufacturing programme or

that of his supplier.

IV) Inspection agency – The exporter should also see that the

Inspection Agency asked for is the export Inspection Agency or some

other institution.

V) Others – Requirements relating to packing, labeling and

marketing, etc. Also be examined.

4. Confirmation of Order:

If an exporter is satisfied with the content of export order, he

should immediately ask for the clarifications. At this stage the exporter

should also get the export order registered with:

(1) Engineering Export Promotion Council (Regional Offices) for

obtaining steel/pig-iron from indigenous sources and for supply of

imported materials from the SAIL from the close of two-month period

for which international prices are announced by the Council.

(2) Commercial Bank authorized to deal in Foreign Exchange for

ensuring same level of export assistance is available on the date of

contracts.

5. Obtaining of Export License:

Under the Export-Import (Control) Act, 1947, the exporter is

required to obtain export license from the Controller of Export Trade.

Any person applying for an export-import license shall be required to

furnish Registration-cum-Membership certificate granted by the

Export Promotion Council concerned, unless specifically exempted

under the Exim Policy.

6. Export Production and Cleaning of Products:

In case the exporter is a manufacture he should send a delivery

note to his production department/factory detailing product

specification, quantity required, delivery schedule and packing,

marking and labeling requirements. He should also instruct the

production department to retain one copy and confirm the delivery on

the duplicate copy. If the gods are to be purchased from other

manufacture, he should issue a purchase order, specifying the details

similar to the delivery note to his supplier.

7. Pre-shipment Inspection:

As soon as the goods are ready for dispatch he exporter should

approach the Export Inspection Agency concerned for inspection

certificate in case his product is covered by the quality control and Pre-

shipment Inspection rules, in the prescribed form along with: (i)

commercial invoice; (ii) a crossed cheque/demand draft/postal

order/bank pass book showing the deposit of inspection fee, and (iii) a

copy of the export order/contract. An Inspection certificate is also

issued and three copies of which are given to the exporter. In some

cases, the buyer’s name and private agency like the general

superintendence company for inspection of export goods, in which

case, the same is approved for the purpose.

8. Details of Exports and Undertaking to RBI:

Every exporter in India is essentially required to send

full particulars of his exports to the RBI under the provision of Foreign

Exchange (Regulation) Act 1947. Along with this, he is required to file

a declaration stating therein that he is prepared to deposit the (Foreign

Exchange) sale proceeds with the RBI and in return prepared to accept

Indian currency.

9. Appointment of Clearing and Forwarding Agent:

With a view to arrange transportation and shipment of

goods to over-seas markets, the exporter should appoint a reputed

clearing and forwarding or shipping agent. A list of there Agents can

be had from the Federation of Indian Export Organisation (FIEO),

New Delhi and advice may be sought from Export Promotion

Councils, etc. in the selection of a god Agent. The exporter should also

arrange with the C & F Agent for reservation of necessary shipping

space after giving (i) details of export cargo (weight / volume), (ii)

port of loading and discharge and (iii) date of which shipment is

desired. In the case of difficulty, the exporter should seek assistance is

desired. In the export Promotion Officers at Bombay, Calcutta, Cochin

and Madras and / or the Director (Transport), Ministry of Commerce,

New Delhi.

10. Marine Insurance:

If an exporter has a CIF contract, or his foreign buyer

wants him to obtain a policy on his behalf, he should approach the

insurance agents/brokers/companies for taking an appropriate policy.

Usually, an exporter should have an all Risks. Policy from warehouse

with CPA (Claim payable abroad) Clause. He can obtain either

individual (specific) cover for one consignment or ‘open cover’ for a

period of 12 months for insurance of all consignments to one or more

than one destinations.

11. Payment of Customs Duty:

After arrangement has been made for loading of goods

on board export duty is required to be paid to the Custom Authorities by

the Forwarding Agency, for which the Agent, for which the Agent has to

fill up shipping bill or three copies of the customs duty challan paid in

foreign country.

In case the goods are to cleared without the

payment of excise duty under the bond procedure, the exporter should be

required to make an application in form AR-4(in 5 copies and GR-2(Gate

Pass) in three copies for the clearance of export consignment. The application

should be submitted to the Local Central Excise Range Superintendent who,

after verifying that sufficient credit is available in the exporter’s Running

Bond Account, signs al 5 copies of Form AR-4A and makes a debit entry for

the excise duty in the Running Bond Account of the exporter. The bond is

discharged after the goods are exported.

When the Gate Pass (GP-I/GP-II) is presented, the Central

Excise Range Superintendent returns the original and duplicate copies of AR-

4/AR-4 From and the original copies of the Gate Pass and sends the triplicate

copy of AR-4/AR-4 Form of the Marine Collector of Central excise at the

port. He sends the forth copy of AR-4A/AR-4 Form of the Chief Accounts

Officer of his department, and returns the fifth copy for his own record.

12. Filing of Dock Challan:

After the payment of customs duty, the forwarding

Agent makes arrangement to forward the goods ‘Along Dock’

with the permission of the Dock Authorities. For this purpose the

Forwarding Agency is required to file Dock challan (in

duplicate), shipping order and bill of loading (one copy each)

with the Dock Authorities along with the prescribed fee.

13. Shipment of cargo:

At this stage, the exporter should either himself or through his

forwarding Agent prepares several documents, declarations and

certificates for submission to port/customs authorities before

shipment. This is for obtaining custom permit and shipping order.

Documents are to be submitted.

14. Mate’s Receipt:

After loading of goods on board the captain of the ship issues

a receipt after checking the condition of the goods, which is known

as mate’s receipt. If the conditions the goods are intact in package,

he will issue a clean receipt otherwise a foul receipt.

15. Shipping Advice to Importer:

After the consignment has been sent, the exporter should

forward “a shipping advice” to the importer intimating the date of

shipment and the name of vessel. He also sends the following

documents to enable the importer to make arrangement for taking

delivery of the consignment:

1. Bill of lading

2. Commercial invoice

3. Customs/consular invoice, if any

16. Negotiation of documents and payments:

Having sent the shipping advice, the exporter will now

approach his bank for realization of export proceeds with

following documents:

Bill of exchange

Full set of export landing (all negotiable copies the one non-

negotiable copy/airway bills/post parcel receipts, as the case

may be)

Commercial invoice – the number of copies should be as

specified by the buyers plus two additional copies.

Original letter of credit/export contract

Additional copies of the commercial invoice or a certificate

by bank.

Customs invoice – four copies

Certificate of origin

Foreign exchange declarations forms

Gr/ep/pp forms – duplicate and triplicate copies

Bank certificate in the prescribed form.

17. Payments:

The exporter’s bank processes and examines the

documents with reference to the terms and conditions of the original

order as also of the letter of credit. Thereafter, the documents are

transmitted to the importers bank for negotiation/collection. On

receipt, the letter bank present them to his client for payment in case

of “sight draft” and acceptance of “usance draft”. As soon as the

payment is received or documents are accepted, it conveys this fact

and transmit back the documents to the exporters bank. While

payment against “sight draft” is made to the exporter immediately on

the receipt of advice, payment against duly accepted “usance bill” is

made on its date of maturity.

Chpt.4.1 Export promotion council (EPCs):

The establishment of export promotion councils (EPCs) is one

major step taken by the GoI for the promotion and diversification of India’s

export trade. They perform both advisory and executive function. The

functions of all EPCs are more or less identical. However, every EPC

performs functions relating to specific commodity with which it is directly

connected.

Functions/Activities of EPCs:

1. Providing Information:

To assist exporters to understand, interpret and implement the

export policies and export assistance schemes of the

government.

2. Providing Assistance:

To provide assistance in export promotional activities such as

external publicity, participation in fair and exhibitions,

promotion of exclusive exhibitions and trade fairs specific

products.

3. Collecting data:

To collect complete on export growth, the problems faced by

exporters, the specific help needed by the manufacturer and

present the same to the government in order to enable it to

evolve appropriate policies.

4. Sending trade delegations:

To make arrangements for sending trade delegations and study

teams to countries for promoting the export of specific

products and to circulate the report of such visits abroad among

members- exporters. In addition, invite trade delegation from

abroad.

5. Opening office abroad:

To open offices abroad to help exporters in consolidating the

existing exports and diversifying the new products.

6. Motivating exporters:

To create consciousness among exporters through seminar,

discussion and to motivate them for export promote.

7. Offering guidance:

To offer guidance to members on various matters like

utilizations of GSP, export finance, insurance of goods and

joint ventures abroad.

8. Indicating export opportunities:

To collect and supply market information to exporters and

thereby to help them to take the benefits of export opportunities

available abroad.

9. Settling disputes:

To help the members in settling their trade disputes through

peaceful negotiations.

10. Solving transport problems:

To help members to resolve their transport problems.

11. Securing Concessions:

To assist members in securing freight and other

concession from shipping conferences.

12. Issuing certificate of origin:

To issue certificate of origin to Indian exporters

certifying the origin of goods.

Services offered by EPCs:

1. Providing information on trade inquires:

Information about trade inquires received by the council are

circulated by members.

2. Supplying reliable information:

The bulletins and publication of the council provide reliable

information about foreign markets regularly.

3. Sponsoring trade delegation:

Exporters can join trade delegation sponsored by the EPC.

4. Providing publicity:

Exporter can give wide publicity to his products under the

council’s publicity plan.

5. Solving problems of exporters:

The problems of exporters are solved by the EPCs by

approaching the proper government authority.

6. Display of products:

Exporters can display their products in trade fair and

exhibitions arranged by the EPC.

7. Settling disputes:

Trade disputes of exporters can be settled peacefully and

amicably through co-operation EPC.

8. Providing benefit of incentives:

Exporters can get the benefits of various incentives and

facilities provided by the government by joining the EPC.

Chapt.4.2 Commodity Boards

Services/advantages of Commodities Boards:

1. Advice to Government:

The boards offer advice to the government on export matters such as

fixing quota for exports and signing trade agreements.

2. Registering facility:

Any exporter concern with the export of specific commodity can get

himself registered with concerned board.

3. Providing trade information:

The CBs provides statistical and trade information, guidance and other

services to their members and help them in their export promotion effort.

4. Participation in trade fairs and exhibitions:

The boards participate in trade fairs and exhibition abroad. They

undertake publicity activities in India and abroad. The benefits of such

publicity is easily available to members of CB.

5. Awards for export performance:

CBs give award to exporters showing outstanding export performance.

6. Sponsor trade delegations:

CBs sponsor trade delegations and conduct market surveys for the benefit of

the members.

Chpt.4.3 Indian Trade Promotion Organisation (ITPO)

Introduction:

“The India trade promotion organi9sation (ITPO)” was established by

the government of India through the merging the TDA (Trade Development

Authority) with TFAI (Trade Fair Authority of India) in January 1992.

The ITPO is to provide effective facilities and services to trade and industry,

especially in the field of trade fairs and exhibitions and collection and

dissemination of trade information.

Functions of ITPO:

1. Organizing Trade Fairs and Exhibitions in India and abroad:

ITPO organizes trade fairs and exhibitions in India and abroad

and to book stalls/space for Indian exporters to participate in overseas

trade fairs and exhibitions. ITPO act as a publicity wing of government

of India for organizing trade fairs and exhibitions in India and abroad.

2. Giving Publicity to Trade Fairs and Exhibitions:

ITPO gives publicity to trade fairs and exhibitions organized in

India so as to encourage foreign buyers to visit stalls of Indian goods

and place orders for the same. ITPO also participates in trade fairs and

exhibitions arranged in India and abroad.

3. Booking of space in overseas trade fairs:

ITPO books necessary space/stalls for Indian exporter. This

enables Indian exporter to participate in overseas trade fairs and

exhibitions.

4. Inviting Trade Delegations from abroad and sending Indian trade

Delegation abroad:

ITPO invites trade delegations from abroad in order to

participate in trade fairs and exhibitions and book order for Indian

goods. In addition, to send Indian trade delegations abroad for market

survey and for signing contracts for the supply of Indian goods.

5. Providing Consultancy Services to Indian exporters:

ITPO provides consultancy services to Indian expoprters for

participation and display their product in trade fairs and exhibitions

held in India and abroad.

6. Organizing Seminars and Workshops:

ITPO organizes seminars/workshops for giving

information/guidance to exporters about fairs and exhibitions arranged

in India and abroad. ITPO has setup a Trade Information Center at its

head quarters in New Delhi. It is considered as the best source of

information on import and export trade.

Chpt.4.4 Special economic zones (SEZ)

INTRODUCTION

The Special Economic Zones Policy was announced in April 2000 with the

objective of making the Special Economic Zones an engine for economic

growth, supported by quality infrastructure and an attractive fiscal package

both at the Central and State level with a single window clearance. The

experience in last 55 years with the Industrial areas and Industrial clusters has

been that large slums come up in the neighborhood of these areas. Besides, the

additional population creates pressure on the Municipal System. The SEZ

concept recognizes the issues related to economic development and provides

for developing self-sustaining Industrial Townships so that the increased

economic activity does not create pressure on the existing infrastructure.

Objectives of the “SEZ Act 2005”

• Generation of additional economic activity;

• Promotion of exports of goods and services;

• Promotion 01 investment from domestic and foreign sources;

• Creation of employment opportunities; and

• Development of infrastructure facilities.

Chpt.5.1 Factors Affecting Export Pricing

1. Cost:

Cost is the most important factor to be considered in the

process of price determination, since cost constitutes a major part of

the price. The export price should include direct cost like raw material

cost and indirect cost like distribution cost.

2. Competition:

The competition is severe due to differences in costs, levels of

technology and quality of products. In such situations exporters from

advanced countries are at an advantage due to available credit

facilities, use of advantage due to available credit facilities, use of

advanced technology, better packaging etc,. less developed countries

have to face keen competition with advanced countries.

3. Demand:

The prices in every market are directly related to the demand

for products. The product may be elastic or inelastic. Pricing depends

upon the degree of elasticity of demands. Highly elastic demand for a

product tends to keep its price low, because a slight change in the price

may cause considerable change in demand for such a product. In

contrast, products having relatively inelastic demand can he quoted at

comparatively higher prices.

4. Availability of substitutes:

Export prices are easily influenced it many substitutes are

available in the foreign market. Consumers easily and quickly move to the

substitutes when price is raised. Thus when substitutes are available, increase

in prices may prove to be fatal to the exporter.

5. Incentives offered by the government:

Sometimes the government offers incentives and special

concessions to exporters for export promotions. The objective of such

incentives to raise cost competitiveness of domestic manufacturers and

exporters. As such, an exporter can charge lower price in the foreign market

and can confidently face the competition.

6. Tax Concessions and exemptions:

Export prices are also affected by the taxes and duties

imposed by the government of an importing country. It has direct effect on

export prices. Export prices rise as a result of such protective duties levied on

imports. On the other hand, lower prices can he charged if exemptions and

concessions are available to exporters.

7. Compositions of consumers:

As the exporters markets his goods in different

countries, he has to consider composition of consumers based on income,

education. etc.

8. Delivery schedule:

Delivery terms and schedules are also counted in price

calculation. If prompt delivery is desired by the buyer, then the price charged

would be relatively higher.

Chpt.5.3 EXPORT PRICING STRATEGIES/TECHNIQUES

Pricing strategy refers to the basic policy adopted in respect of pricing in a

given market situation.

• Skimming pricing strategy:

A strategy of high prices with considerable promotional

expenditure in early stages of market development and then gradually

lowering the prices is known as “Skimming Strategy”. This strategy aims at

“skim the cream” i.e. maximize the profit margin in early stages of product

introduction. Subsequently. the prices are lowered in stages.

It is easier to start with a high price and reduce it later. At a

later stage when the product becomes popular in the market, the price can be

gradually raised to cover unforeseen costs. As higher prices bring higher

revenue from exports, skimming price policy can provide enough funds for

financing large volume sectors of an international market.

Advantages of skimming pricing strategy:

a. Benefit of Selected Market:

This strategy is useful in the case of products having selected

market. Besides higher prices often reflect high quality of the product.

b. Personal selling:

Personal selling techniques can he more effectively employed

to attain a sales target as sales are not likely to suffer by higher prices in the

beginning.

c. Demand Assessment:

Normally if enough demand exists, it is easier to quote a higher

price initially, then slowly lower it down upto a certain limit and again shoot it

up once the market is satisfactorily captured.

d. Development Expenses:

Higher profits in the initial stages can cover large

developmental expenditure such as that of testing laboratory expenses,

distribution network etc.

e. Higher profits:

Higher prices fetch higher revenue. Such higher revenue or

profits can provide enough funds for financing big projects of international

level.

f. Attraction for novelty items:

Skimming pricing strategy takes the cream out of the market.

Some customers are prepared to pay more for novelty items knowing fully

well that its price will decline when competitive brands appear in the market.

Limitations of Skimming Pricing Strategy:

a. Slower Turnover:

High prices may prevent quick sales and as such it may result

into slow turnover.

b. Growing Competition:

High profit margin may attract new competitors into the market resulting into

severe competition and price-cutting practices.

c. Customer dissatisfaction:

High prices may create the problem of brand loyally. Repeat

orders may not easily flow on account of customer dissatisfaction towards

high prices.

e. Uncertainty of high profit in the long run:

Initially, when the product is introduced the profits may be

safeguarded but soon the prices have to be lowered, thereby adversely

affecting the overall profitability of the firm. Hence the strategy may not be

feasible in the long run.

f. Not useful for products of daily use:

Skimming price strategy may be advantageous only in case of

producers’ goods and not for consumer goods of daily use.

Penetration Pricing Strategy:

A strategy of charging low prices in the early stages of product

introduction in the market is called

“Penetration Pricing Strategy”.

Advantages of Penetration Pricing Strategy:

a. Benefit of Economic of Scale:

Manufacturer-exporters can get the benefit of economies of

large-scale production and distribution because of higher sales.

b. Long Term Strategy:

Penetration strategy is useful in the long run as prices can he

gradually increased considering the degree of competition.

c. Rapid Sales:

As price is considerably low in the beginning, it helps the

exporter to quickly capture the market by gaining rapid sales.

d. Higher Income:

Quick and wide sales result in overall high income to the

exporter. This in turn provides him more funds in a short time for further

expansion of business.

e. Discouragement to Competitors:

Competitors are discouraged from entering the field because of

low profit margin.

f. Brand Leadership:

It is possible to develop a strong brand loyalty in the market.

Low prices coupled with good quality attract repeat purchases from

customers.

Limitations of Penetration Pricing Strategy:

a. Development Expenses:

Penetration policy is not helpful in recovering the initial

developmental expenditure such as that on advertising campaign.

b. Consumers’ Doubts:

Consumers may doubt the quality of goods as prices are low.

because lower prices are associated with poor quality.

c. Disadvantageous in long run:

Generally it is easier to reduce the price but difficult to raise ii

as there is risk of customers switching their loyalty over to other brands in the

market.

Chpt. 5.4 EXPORT FINANCE

Export Finance refers to the financing of the goods from the home country to

the foreign port. The export financing begins with as soon as an export order

is received and accepted: because the manufacturing activity starts with the

confirmation of export order.

IMPORTANCE OF EXPORT FINANCE:

1. Export Finance to facilitate more exports at time of increased

competition:

Every country whether it is developed or developing, wants to

increase its exports. When the export market has been operating under great

competition, the country usually extends soft credits to its exporters, who are

in need of such credits, to meet their exporters, regularly.

1. Differences between countries in the levels of technological

development:

In less developed countries, there has been lack of

technological know- how. Such nations hire the services of exports from other

countries; the charges of which are too much. For the purpose of repayment of

service charges, huge finance is needed by these less developed countries

2. Easier terms and conditions:

If the credit is available to the exporter on easier terms, he will

be in a position to sell the goods to the importer on easier payment terms.

Under such arrangement, the financial institutions in India makes payment of

his export goods on the basis of shipping documents and collect the money

from the importer on half-yearly or yearly basis, as per terms of agreement.

3. To meet with foreign exchange needs of poor nations:

Developing countries mostly do not have sufficient foreign

exchange reserves to cope with their development needs. They obtain long-

term credit from specialized financial institutions to meet payment of imports.

This way, finance assists in the economic development of poor nations.

4. Finance, as a factor of production:

Under the arrangements of export finance, a manufacturer can

able to obtain raw materials, labour and other factors production to fulfill his

export commitments.

5. Finance for meeting internal transportation:

Internal transportation also requires finance for meeting the

transportation charges to bring the raw materials to the factory and then the

finished goods from the factory to the shipyard for exports.