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Indian Machine Tool Manufacturers’ Association

www.imtma.in

Foreword

How to start export of machine tools is a basic question that every manufacturer would like to ask. Export in

itself is a very wide concept and lot of preparation is required before starting an export business.

In view of globalization and liberalization, export has become an important business avenue in India.

Government of India is also supporting exporters through various incentives and schemes to promote Indian

exports not only for meeting the country’s foreign exchange requirements, but also to integrate Indian

economy with the global economy.

While export business can be financially rewarding, it is full of challenges and risks. Any exporter should

understand that proper skills, resources, commitment and information are needed to support sustained

exports.

Markets, products, price and service have to match optimally for machine tool exports to be successful. It is

also necessary to follow systematic, sequential activities to make exports competitive and rewarding. This

guidebook deals with all these aspects in detail.

IMTMA has brought out this guidebook to serve as a guide for machine tool companies who wish to enter

export markets, as also established exporters.

Familiarizing oneself with the issues covered in this guidebook will help exporters to plan international market

strategy, and ensure that the first export sale will develop into long-term self-sustaining business. This

guidebook which is in the nature of a basic guide to exports of machine tools, provides guidance for reaching

new customers and making sales around the world.

Every effort has been made to make this guidebook as ‘complete and accurate as possible’. Nevertheless, it is

likely that some aspects may not have found a place in this first edition. IMTMA would appreciate feedback

and suggestions from readers to incorporate in future editions.

I would like to thank IMTMA secretariat for bringing out this guide book for the benefit of the machine tool

industry.

Vikram Sirur

President

******



Contents ------------------------------------------------------------------------------------------------------------------------------------------------------ Foreword Chapter 1 Page 1 How to start an export business? 1.1 Introduction 1.2 Definition of export 1.3 Need of export 1.4 Categories of exports 1.5 Basic requirements for starting an export business 1.6 Export controls 1.7 Export challenges 1.8 Ten important points to be kept in mind for successful exporting venture 1.9 Conclusion ------------------------------------------------------------------------------------------------------------------------------------------------------ Chapter 2 Page 7 Export marketing, market research and market entry strategy 2.1 Export marketing- an Introduction 2.2 Market research 2.3 Steps involved in market research

2.3.1 Identifying & Screening Potential Markets 2.3.2 Testing the targeted markets 2.3.3. Draw conclusions

2.4 Export market entry strategy 2.4.1 Distribution strategy

a) Selling direct to foreign end users b) Selling through overseas agents and distributors

2.4.2 Promotion strategy 2.4.3 Pricing strategy 2.4.4 Localization strategy

2.5 Conclusion ------------------------------------------------------------------------------------------------------------------------------------------------------ Chapter 3 Page 13 A guide for developing an export marketing plan 3.1 Introduction 3.2 Guidelines for cultural analysis 3.3 Guidelines for economic analysis 3.4 Guidelines for market audit and competitive market analysis 3.5 Guidelines for preliminary marketing plan 3.6 Conclusion ------------------------------------------------------------------------------------------------------------------------------------------------------ Chapter 4 Page 20 Channel selection 4.1 Introduction 4.2 Find potential agents/distributors

S t e p 1 I - Identify and contact prospects (companies who are interested in agency/distributorship) in each market

S t e p 2 S - Screen and select the best company as agent/distributor S t e p 3 A - A ppoint (Contractually) the selected agent/distributor S t e p 4 S - Support the agents over time

4.3 Advantages and disadvantages of appointing agent 4.4 Conclusion Appendix- 1 - Checklist for appointing agents Appendix -2 - Sample Format for “Agency/Distributorship Agreement “



Chapter 5 Page 23 International tendering 5.1 Introduction 5.2 What is international tendering? 5.3 Understanding the tendering process

5.3.1 Restricted tendering procedure 5.3.2 Open tendering process

5.4 Understanding the invitation to tender 5.5 How quotations and tenders are evaluated? 5.6 Time and Date 5.7 Basic aspects of the international tender notifications 5.8 Defining the perspective 5.9 Competition 5.10 Tendering for world bank and international aid funded contracts 5.11 Standard documents required for most bids 5.12 Risks involved in international tenders 5.13 Conclusion ------------------------------------------------------------------------------------------------------------------------------------------------------ Chapter 6 Page 28 INCOTERMS 6.1 Introduction 6.2 INCOTERMS 2010

6.2.1 INCOTERMS 2010 applicable for all modes of transport EXW : Ex- works FCA : Free Carrier CPT : Carriage Paid To CIP : Carriage And Insurance Paid To DAT : Delivered At Terminal – NEW! DAP : Delivered At Place – NEW! DDP : Delivered Duty Paid

6.2.2 INCOTERMS 2010 applicable only for sea and inland waterway transport: FAS : Free Alongside Ship FOB : Free On Board CFR : Cost and Freight CIF : Cost, Insurance and Freight

6.3 Conclusion ------------------------------------------------------------------------------------------------------------------------------------------------------ Chapter 7 Page 34 Institutional support for exports 7.1 Introduction 7.2 Export promotion organizations

7.2.1 Engineering Export Promotion Council, Kolkata (EEPC ) 7.2.2 Export Inspection Council, New Delhi (EIC) 7.2.3 Indian Institute of Foreign Trade, New Delhi (IIFT) 7.2.4 Indian Institute of Packaging, Mumbai (ISP) 7.2.5 Federation of Indian Export Organizations (FIEO) 7.2.6 Indian Council of Arbitration, New Delhi (ICA) 7.2.7 National Centre for Trade Information, New Delhi (NCTI) 7.2.8 Export Credit Guarantee Corporation of India Ltd, Mumbai (ECGC) 7.2.9 India Trade Promotion Organization, New Delhi (ITPO) 7.2.10 Export & Import Bank of India, Mumbai (EXIM Bank)

7.3 Conclusion



Chapter 8 Page 40 Export credit and finance 8.1 Introduction 8.2 Types of export finance

8.2.1 Pre-shipment finance A. Types of pre-shipment credits B. Special cases

8.2.2 Post-shipment finance

A. Financing for various types of exports B. Types of post-shipment finance

8.3 Conclusion ------------------------------------------------------------------------------------------------------------------------------------------------------ Chapter 9 Page 47 Export benefits & incentive scheme 9.1 Introduction 9.2 Import provisions under special schemes for exporters

9.2.1 Export Promotion Capital Goods Scheme EPCG 9.2.2 Duty Exemption Scheme & Remission Scheme 9.2.3 Deemed exports 9.2.4 100% EOUs 9.2.5 Free Trade Zones FTZs 9.2.6 Manufacture under bond 9.2.7 Duty Draw Back scheme (DBK)

9.3 Export incentives announced in FTP 2009-14 9.4 Trade Policy or EXIM policy 9.5 Market Access Initiatives (MAI) scheme 9.6 Market Development Assistance (MDA) scheme 9.7 Conclusion Appendix- 3 – Highlights of Indian Govt. FTP 2009-14 ------------------------------------------------------------------------------------------------------------------------------------------------------ Chapter 10 3 Method of Payments 10.1 Introduction 10.2 Common payment terms in export business

10.2.1 Cash in advance 10.2.2 Letter of Credit(LC)

- Types of Letter of Credit - Revocable or Irrevocable Letter of Credit - Transferable Letter of Credit - Revolving Credit - Back-to-Back Credit - Deferred payment credits and acceptance Credits - Avoiding documentary credit problems

10.2.3 Documentary collection or draft 10.2.4 Cash Against Documents (C.A.D) or Documents against Payment (DP) 10.2.5 Open account 10.2.6 Other payment mechanisms, such as consignment sales

10.3 Conclusion

Appendix 4 – Sample Letter of Credit- Template/Proforma Appendix 5 – Letter of Credit – checklist and guidelines for exporters



Chapter 11 Page 57 Risk management in exports 11.1 Introduction 11.2 Broad classification of international risks

11.2.1 Transit risks (marine Insurance) 11.2.2 Political risks ( ECGC) 11.2.3 Commercial risks (Credit risks, Foreign exchange risks etc.)( ECGC, Forward contract) 11.2.4 Legal risks 11.2.5 Poor quality risks (Third party inspection) 11.2.6 Product liability (PL) 11.2.7 Unforeseen risks (force majeure clause) 11.2.8 Cultural and language risks

11.3 Conclusion ------------------------------------------------------------------------------------------------------------------------------------------------------ Chapter 12 4 Export credit insurance 12.1 Introduction 12.2 The cover provided by ECGC

12.2.1 Standard policy 12.2.2 Specific policies 12.2.3 Financial guarantee 12.2.4 Special schemes

12.3 Risks covered under the policy 12.3.1 Commercial risks 12.3.2 Political risks

12.4 Risks not covered under the policy 12.5 Conclusion ------------------------------------------------------------------------------------------------------------------------------------------------------ Chapter 13 Page 66 Export Costing and Pricing 13.1 Introduction 13.2 Difference between costing and pricing

13.2.1 Costing 13.2.2 Pricing 13.2.3 Pricing Vs costing 13.2.4 Factoring in fixed and variable costs

13.3 Calculating export price – options 13.3.1 Cost plus method 13.3.2 Backward pricing

13.4 Special factors for export pricing 13.4.1 Factors that increase price of export products 13.4.2 Factors that reduce price of export products

13.5 Pricing checklist 13.6 Other export pricing watch points 13.7 Conclusion ------------------------------------------------------------------------------------------------------------------------------------------------------ Chapter 14 Page 71 Export documentation 14.1 Introduction 14.2 Export documents

14.2.1 The standard pre-shipment documents include: a) Proforma Invoice b) Customs Invoice c) Packing list



d) G R Form (original and duplicate) e) ARE-1 Form (original and duplicate) f) Copy of export order g) Letter of Credit h) Shipping bill (entire set) i) Export license (for notified items) j) Certificate of Origin k) Certificate of Inspection l) Any other documents (as required in LC or by Customs)

14.2.2 The standard post-shipment documents include

a) Custom attested invoice b) Custom attested packing list c) Copy of export order /copy of LC d) Commercial Invoice e) Consular Invoice (If specified) - f) Bill of Lading / Air Way Bill g) Certificate of Origin h) Certificate of Inspection (If Specified) i) Bill of Exchange (Draft) j) G R Form (Duplicate) k) Any other document specified in Export Order / LC -such as Manufacturer’s Quality Certificate etc.,

14.3 Conclusion Appendix 6 – Sample formats of Pre-shipment documents Appendix 7 – Sample formats of Post-shipment documents ------------------------------------------------------------------------------------------------------------------------------------------------------ Chapter 15 8 Export processing 15.1 Introduction: 15.2 Export – process flow

15.2.1 Pre-order stages Stage 1. Generation of export enquiry – enquiry generation Stage 2. Processing an export enquiry – offer submission Stage 3. Order realisation

15.2.2 Post-order stages Stage 1 Receipt and study of order Stage 2 Order execution

- Translate the order into factory/production language - Release of Purchase Order to production unit/factory

Stage 3 Production of goods/machines - Plan & procurement of raw materials and other required components/parts

subcontracted outside the manufacturing unit/factory - Plan & production of in-house components/parts, sub assemblies etc., - Stage inspection - Final assembly of the product - Final inspection

a) In-house inspection b) Third party or customer inspection if specified in the order or contract

Stage 4 Despatch from the manufacturing unit/factory - Obtain dispatch clearance from importer/third party inspection agent if required - Documents :



i. AR4 formalities – central excise ii. Invoice cum gate pass

iii. Delivery note/challen iv. Packing List v. DBK claim if any – Green shipping bill

vi. Octroi – EP form if applicable

Stage 5 Shipment and shipping formalities

15.2.3 Post-shipment stages Stage 1 Installation & commissioning, training etc., Stage 2 After sales services support Stage 3 Payment realization

15.3 Conclusion Appendix 8 – HS codes for Machine Tools Appendix 9 – Details on containers and specifications Appendix 10 -Installation & commissioning – Terms & Conditions (some guidelines) Appendix 11 – Various Ports of India and their contact details ------------------------------------------------------------------------------------------------------------------------------------------------------ Chapter 16 9 Inspection of machine tools & quality standards 16.1 Introduction 16.2 Different forms of inspection 16.2.1 Incoming inspection 16.2.2 In-process inspection 16.2.3 Final inspection 16.2.4 Third party inspection/ Pre-shipment inspection 16.3 Test charts for machine tools 16.4 Key standards for machine tools 16.5 ISO 9000 series of standards 16.5.1 Steps for installation of quality management 16.5.2 List of certificate bodies in India 16.6 Market based compliances

16.6.1 CE marking 16.6.2 UL standards

16.7 FMEA- a risk analysis in design 16.8 Conclusion ------------------------------------------------------------------------------------------------------------------------------------------------------ Chapter 17 Page 95 Types of export packing and packing requirements 17.1 Introduction 17.2 Types of export packing 17.3 Factors which influence the type and nature of the export packing 17.4 Seaworthy packing standard for export of machine tools- guidelines 17.5 Fumigation 17.6 Vaccum packing 17.7 Conclusion ------------------------------------------------------------------------------------------------------------------------------------------------------ Chapter 18 Page 101 International exhibitions 18.1 Introduction 18.2 Why to participate in international exhibitions? 18.3 How to participate in international exhibitions?



18.4 How to send machines in international exhibitions? 18.4.1 Shipping instructions 18.4.2 Documents required for clearance of sea/air freight shipment 18.4.3 Packing of exhibits

18.5 Procedures at the end of exhibition 18.6 Important international machine tool exhibitions 18.6.1 China – CIMT & CIMES

18.6.2 Europe- EMO (Exposition Mondiale de la Machine Outil) 18.6.3 India – IMTEX 18.6.4 Japan – JIMTOF 18.6.5 Korea- SIMTOS 18.6.6 Taiwan – TIMTOS 18.6.7 USA - IMTS

18.7 Conclusion ------------------------------------------------------------------------------------------------------------------------------------------------------ Chapter 19 Page 107 Electronic Data Interchange (EDI) 19.1 Introduction 19.2 Business environment and EDI 19.3 EDI standards 19.4 Benefits 19.5 Conclusion ------------------------------------------------------------------------------------------------------------------------------------------------------ Chapter 20 Page 109 Taking export business further 20.1 Introduction 20.2 How to take export business further?

20.2.1 Build company image internationally 20.2.2 Increase market exposure abroad

20.3 Export enhancement 20.4 Conclusion ------------------------------------------------------------------------------------------------------------------------------------------------------ Appendices: Page 112

Appendix 1 ---------------------------------------------------------------------------------------------------------- Page 113

Appendix 2 ---------------------------------------------------------------------------------------------------------- Page 115

Appendix 3 ---------------------------------------------------------------------------------------------------------- Page 120

Appendix 4 ---------------------------------------------------------------------------------------------------------- Page 124

Appendix 5 ---------------------------------------------------------------------------------------------------------- Page 126

Appendix 6 ---------------------------------------------------------------------------------------------------------- Page 129

Appendix 7 ---------------------------------------------------------------------------------------------------------- Page 145

Appendix 8 ---------------------------------------------------------------------------------------------------------- Page 147

Appendix 9 ---------------------------------------------------------------------------------------------------------- Page 154

Appendix 10 --------------------------------------------------------------------------------------------------------- Page 156

Appendix 11 --------------------------------------------------------------------------------------------------------- Page 160

Appendix 12 --------------------------------------------------------------------------------------------------------- Page 161

Appendix 13 --------------------------------------------------------------------------------------------------------- Page 164

Acknowledgement --------------------------------------------------------------------------------------------------- Page 178

About IMTMA --------------------------------------------------------------------------------------------------------- Page 179



Chapter 1 Page 1

Chapter 1 How to start an export business?

1.1 Introduction A key success factor in starting any export business is to have a clear understanding and detailed knowledge of

products to be exported. In order to be successful in exporting, the intending company must fully research its

foreign market rather than try to tackle every market at once. The company should approach a market on a

priority basis. Overseas design and products must be studied thoroughly and considered carefully. Since there

are specific laws dealing with International trade and foreign business, it is imperative that one has to familiarize

with state, federal, and international laws before starting an export business. Price is also an important factor.

So, before starting an export business an exporter must consider the price offered to the buyers.

1.2 Definition of Export Before we go deep into "How to export?” let us discuss what an export is and how the Government of India has

defined it. In very simple terms, export may be defined as the selling of goods to a foreign country. However, as

per Section 2 (e) of the India Foreign Trade Act (1992), the term export may be defined as 'an act of taking out of

India any goods by land, sea or air and with proper transaction of money”.

The “Customs Act of 1962’ defines “ The term Export with its grammatical variations and cognate expressions

means taking goods or services out of India validly to a place out of India”. It is also specifies that the goods or

services being exported should be valid as per prevailing policies of the Government of India and the

consideration for such export transactions are to be received by way of Foreign Exchange unless otherwise

specified. It is further clearly understood that the revenue received as proceeds for the export transaction are to

be received through the normal banking channels.

1.3 Need of export Export is required to

i. Earn foreign exchange:- The foreign exchange not only brings profit for the exporter but also

improves the economic condition of the country.

ii. Augment company’s domestic competitiveness - companies that export their goods are believed to

be more reliable than their counterpart domestic companies assuming that exporting company has

survived the test in meeting international standards.

iii. Boost sales and profits- free exchange of ideas and cultural knowledge opens up immense business

and trade opportunities for a company.

iv. Reduce dependence on existing markets- International trade keeps an exporter more competitive

and less vulnerable to the market as the exporter may have a business boom in one sector while

simultaneously witnessing a bust in a different sector.

v. Enhance the sales potential of existing products- As one starts visiting customers to sell goods, he

has an opportunity to start exploring for newer customers, state-of-the-art machines and vendors in

foreign lands.

vi. Sell excess production capacity



Chapter 13 Page 65

Chapter 13 Export costing and pricing

13.1 Introduction Pricing for any market requires an understanding of relative costs, demand and competition in that market. In foreign markets these factors vary greatly from those in India. Careful analysis of prevailing conditions in the selected market/s and an accurate assessment of the way to structure the export price, determine whether one can be competitive with profitable business is essential. Export pricing is a critical tool for promoting sales and competing in the international market. Exporter has to compete with the domestic producers in the export market as well as with manufacturers from all over the world. Cost, demand and competition are the three important factors that determine price. Hence, the price has to be realistic considering all export benefits and price in foreign market. As such there is no fixed formula for arriving at export pricing. It differs from exporter to exporter depending upon whether the exporter is a merchant exporter or manufacturer exporter or exporting through canalizing agency. Based on the competition and the market targeted, exporter has to decide the pricing. However, exporter can still be competitive with higher prices with better terms of delivery package or added advantage of the product. Following are few examples of such factors.

Range of product offered

Unique feature of the product

Special purpose machine (customized)

Prompt deliveries and continuity in supplies

Product differentiation and brand image

Frequency of purchases

Presumed relationship between quality and price

Credit offered

Costing

13.2 Difference between costing and pricing

13.2.1 Costing Costing is calculating a cost price. To calculate a cost price one needs to have complete information on the cost of raw materials, packing materials, labour cost, overhead expenses and all other cost components. One should furthermore be familiar with the production processes, production capacity, etc. Costing (or calculating a cost price) is a purely technical exercise. Specialists make cost price calculations in the large companies, in SMEs it is done by the managing director, a production manager, a finance man, the production planner or the purchase manager.

13.2.2 Pricing Pricing is a creative marketing exercise done by the marketing manager. Pricing is taking a decision about the price to be quoted in the market. It is the marketing manager who will decide whether he can sell (or wants to sell) a product at a very high price, or that he will quote a price which is 5% lower than the price of the main competitor. He may even have good reasons to sell below cost price and accept a loss.

13.2.3 Pricing Vs Costing There is a lot of confusion between the price and the cost. A few points to give you mental pictures of these points are as under:

Price is what offered to customers. Cost is price that company pays /incurs for the product

