Many entrepreneurs have misconceptions about the export business. They believe that exporting is difficult and involves a complex process. However, the reality is that getting into the export business is relatively easy. Drawing from the wisdom of the Director General and CEO of the Federation of Indian Export Organisations (FIEO), we can gain insights into how even a small-scale businessman can venture into and thrive in the world of exporting.
Steps for Starting an Export Business
For starting an export business, you need to take the following steps:
1. Government compliances:
To start an export business, it’s important to ensure compliance with government regulations. The following steps are required:
1. Establish a firm or company: Register your business as a legal entity to operate as an export business.
2. Open a current account in a bank dealing in foreign exchange: This account will be used for international transactions related to your export business.
3. Obtain a Permanent Account Number (PAN) from the Income Tax Department: This unique 10-digit alphanumeric number is essential for tax purposes and financial transactions.
4. Obtain a GST number online: Goods and Services Tax (GST) registration is mandatory for businesses engaged in the supply of goods or services.
5. Obtain the Importer-Exporter Code (IEC) number online from the Directorate General of Foreign Trade (DGFT): This code is necessary for engaging in import and export activities. The IEC number is typically issued on the same day or within three days of the application.
It’s important to note that the PAN, GST, and IEC numbers are valid for the entire lifetime of the business.
2. Select a product:
Ensure that you are in compliance with government regulations before moving on to the next step, which is selecting a product to export.
3. Check the USP of product:
When exporting a product, it’s essential to identify its unique selling proposition (USP). Determine whether your product meets the growing demand in the foreign market or if it will be replacing similar products currently being exported from India or other countries. This involves an analysis of how your product stands out and fulfills a market need in a distinct way.
4. Select the target market:
When identifying your target market, it is essential to consider where your major buyers are located. You can access a list of these countries either through the Internet or by visiting the FIEO website. This information will be valuable in determining where to focus your marketing efforts and expand your business.
5. Identify the buyers:
To identify potential buyers for your product in foreign countries, you can utilize various resources such as international trade websites, trade directories, trade shows, and the official websites of Indian embassies in those countries. Additionally, you can also explore industry-specific platforms and professional networks to connect with potential buyers. Engaging with local trade associations and chambers of commerce in the target countries may also help in identifying potential buyers for your product.
6. Find the buyer:
When looking to sell your product, it’s essential to carefully identify and select the most suitable buyer. Take into consideration factors such as the buyer’s needs, preferences, budget, and purchasing power to make a successful match.
7. Product sampling:
When considering product sampling, it is essential to devise a strategy for how potential buyers will test or experience the product. This could involve offering free samples, creating in-store demonstrations, participating in trade show exhibitions, or implementing other creative sampling methods to allow customers to try the product before making a purchase.
8. Product costing:
When determining product costs, factor in the potential cost benefits available through government schemes such as the Duty Drawback scheme, GST refund, and MEIS Scheme. Utilizing these can help reduce your overall costs and enable you to maintain competitive prices. It’s important to prioritize generating high sales volumes in the initial stages rather than focusing solely on maximizing profits. By achieving large sales volumes, you can subsequently increase your overall profitability.
In today’s digital age, profitability is often linked to sales volume, as consumers have easy access to pricing information from various global locations. As a result, it’s crucial to remain competitive and price-sensitive to meet consumer expectations and demands.
9. Check the benefits provided by the bank:
It’s important to take a look at the benefits offered by the bank. The government has been actively promoting lending to exporters by banks. Small and medium-sized enterprises (SMEs) are eligible for loans at an interest rate of 10%, but exporters can access these loans at a significantly lower rate of 5%. It’s crucial for exporters to take advantage of all the government-provided benefits.
How to overcome the challenges faced during exports?
If you encounter challenges while exporting, there are various organizations that you can reach out to for assistance. For instance, you can contact the Federation of Indian Export Organisations (FIEO), export promotion councils, and other relevant export-related organizations. FIEO, for example, offers chat sessions to help exporters resolve their issues, and you do not need to be a member to participate.
It’s important to note that global trade is valued at $19 trillion, while the Indian economy is at $3 trillion. This signifies a significant opportunity for entrepreneurs in the import-export business. While the field presents its fair share of challenges, the potential rewards are substantial.
Where to find information about export products?
If you are seeking information about export products from India, you can find a wide range of options. India’s export profile includes the following major categories:
1. Engineering Products: This category comprises the maximum exported products from India. These may include machinery, automobile parts, and other engineering goods.
2. Chemical & Pharmaceutical Products: India is a significant exporter of pharmaceuticals, chemicals, and related products to various countries.
3. Textile: The textile industry in India is a major contributor to the country’s export economy. This category includes clothing, fabrics, and textiles.
4. Apparel: India is renowned for its diverse range of apparel, including traditional garments, modern clothing, and fashion accessories.
5. Gems and Jewelry: India is a hub for the export of gemstones, diamonds, and various types of jewelry.
6. Electronics and Biotechnologies: India’s expertise in electronics and biotechnologies has resulted in significant exports in these sectors.
7. Services: In addition to goods, India also exports various services such as IT and IT-enabled services, financial services, architectural services, and more.
You can explore any of these product categories for potential export opportunities from India.
How to get finance for export business?
When it comes to obtaining finance for export business, there are several schemes available to facilitate the process. Some of these schemes include pre-shipment export credit, which can be utilized for procuring raw materials or inputs, and the interest equalization scheme offered by the government. Additionally, post-shipment export credit and credit in dollars are also viable options for obtaining financial support.
For new exporters, securing exports against a Letter of Credit (LC) can be challenging. As an alternative, new exporters can consider the following options:
1. Taking advance payment: Negotiating 30-50% advance payment from the buyer can be mutually beneficial for both the buyer and the supplier.
2. Utilizing export credit guarantee: This option involves securing a guarantee against the buyer from the Export Credit Guarantee Corporation (ECGC), a government body that provides coverage against credit default. This is particularly beneficial when conducting transactions involving documents against acceptance or documents against payment. In the event of a buyer default, having ECGC cover ensures that the exporter does not incur financial losses.
By considering these detailed finance options, export businesses can effectively manage the financial aspects of their operations and mitigate potential risks associated with international trade.
Role of Freight Forwarding in Export Business
The role of a freight forwarding agency in the export business is crucial, especially for small entrepreneurs. With the myriad of tasks involved in the export process, including logistics, customs clearance, and documentation, a small entrepreneur may find it challenging to manage all these aspects single-handedly.
For instance, if an exporter based in Delhi intends to export products from JNPT (Jawaharlal Nehru Port, Mumbai), it would be a daunting task for them to handle all the logistics independently. In such a scenario, the prudent decision would be to engage the services of a freight forwarding agency. By doing so, the exporter can benefit from the expertise and efficiency of the agency in managing transportation, documentation, customs clearance, and other intricacies involved in exporting goods.
Selection of a Freight Forwarder
When selecting a freight forwarder, it’s important to find one with the following characteristics:
1. Value-added services: Look for a freight forwarder that provides value-added services such as obtaining export documents like the Bill of Lading from the shipping company, and the Shipping Bill from the Custom department. These services can streamline your export process and save you time and effort.
2. CHA facility: Choose a freight forwarder that is a big player in the industry and has a Custom House Agent (CHA) facility. This will enable them to assist you with customs clearance, ensuring that your goods can move smoothly through the import/export process.
3. Credibility: It’s crucial to hire a credible and reliable freight forwarder. You should thoroughly check their credentials, industry reputation, and customer testimonials to ensure that they are trustworthy and capable of handling your shipping needs.
4. Consider hiring an agency: If you’re a small company, consider hiring an agency to help you select a freight forwarder and handle customs clearance. Once your business grows and you are dealing with higher volumes of shipments, you may then consider building an in-house team to manage these processes.
Remember, the freight forwarding agency is responsible for overseeing all the steps involved in transporting goods from your location to the buyer’s shop or warehouse in a foreign country. Choosing the right freight forwarder is crucial to ensuring smooth and efficient international shipments.
How to save your money from getting stuck in exports?
Securing your finances in the export business is a common concern for many entrepreneurs. To safeguard your money in export transactions, consider the following measures:
1. Letter of Credit (LC): Using an LC can provide a level of security by ensuring that payment will be made to the exporter once the terms of the LC are met.
2. Credit cover insurance: This insurance typically covers 90-95% of the insured amount, offering protection against the risk of non-payment by the importer.
3. Contact arbitration agencies: If you haven’t obtained any cover, consider reaching out to arbitration agencies. These agencies can assist in resolving disputes and recovering funds in the event of non-payment.
Additionally, the Federation of Indian Export Organizations (FIEO) has established partnerships with arbitration agencies. These agencies negotiate with the exporter and charge a predetermined commission if they successfully recover the funds. This arrangement provides exporters with reassurance that they won’t face additional financial burdens if payment issues arise.
Summary
Before starting an import-export business, it’s important to carefully evaluate the abundant growth opportunities in this field. When dealing with exports, it’s crucial to ensure that your product costing remains competitive in the international market. Make sure to take advantage of all the benefits offered by the government to exporters, as these can greatly support your business. Connect with export organizations such as FIEO and export promotion councils to seek guidance and support for your export activities. It’s also essential to familiarize yourself with the export profile of India to gain insights into the country’s export sector. Additionally, consider obtaining export credit guarantees to protect your finances in the export business.