Principles And
Practices of Exporting
(The Assignment)
My company, Capriccio, has given me the task of
preparing an export strategy and as we know that exporting, if done under
control set of rules and regulations, is what turns small businesses into large
businesses and large concerns into multinational operations, this task of mine
is of great importance to the company and it’s directors. In the light of
quality conscious approach, I have prepared a strategy, which is sound and has
a potential to be a success. In this set of circumstances I have decided to
break my exporting strategy into five major components. These components of are
as follows:
1. Shall I engage in direct or indirect export?
2. Which incoterms (2000) to use
3. Which mode of transport
4. The use of freight forwarder
5. Packaging and marking
I shall discuss my choices and the reason for them in
the following part of my export strategy.
Direct
or Indirect Exporting
Now there are
two ways of exporting, direct exporting and indirect exporting. I have a choice
to use either one of these but I have decided in this case direct exporting is
the best option available. Obviously question is there why I am giving
preference to direct exporting over the advantages that we as company could
have reaped on using indirect exporting. My approach is very simple because
direct exporting is suitable for companies aiming to become established as
exporters for a long term and it gives greater control over the handling of the
product, although the risks and costs can be higher. By looking at this
scenario in a critical way we can ask ourselves if this risk is worth what it
can destroy in terms of profits. My answer to that is a resounding yes and to
facilitate it is the rationale, which is inviting me to use a distributor in
our target markets of France and Benelux countries. Experience has shown that employing a distributor to represent
the company overseas is a very successful and frequently chosen direct export
method. I have decided to employ only one distributor because one corporate
presence eliminates confusion among buyers and local officials and the volume
of business that results when exports are consolidated can attract a larger
distributor. Also the larger distributor will have greater influence in its
local business community and capriccio will really benefit from this aspect and
there is a great chance of repeat orders with much less noise since a strong
communication is less plagued by noise. This will have a positive effect in
many areas, from daily information flows to supervising and training. The areas
where capriccio can really benefit from this relationship are as follows:
1. Logistics flows
are more economical.
2. A stronger presence
can he maintained in smaller markets or markets in which resources may dictate
a holding mode, until more effective penetration can be undertaken.
3. Distributor self-confidence and overall
principal-intermediary relationship are better.
Including
the fact that our continental distributor, which is either located in France or
Benelux countries will purchase merchandise from us and resell it at a profit
it will also provide support and service for the product, relieving our company
of these responsibilities. The distributor will carry an inventory of products
and a sufficient supply of spare parts and maintains adequate facilities and
personnel for normal servicing operations. But we shall arrange with our
distributor to carry a range of noncompetitive but complementary products and
he will buy our crystal tableware outright and assumes the risk of being able
to resell them but as a company we will help him in every possible manner as
this is our first deal outside the domestic market and is crucial for our
continued presence in the foreign markets in future. As we are going to give
our distributors the right to sell our products so we should try our best to
find the most proficient of distributors.
However the question arises that if Capriccio has to export
directly into target markets then as a company we need to decide if we should
change the shape of it’s internal organization. What we have to do here is to
create an export department with a full- or part-time manager who reports to the
head of domestic sales and marketing. If our exporting business starts as a
success then we can make a permanent export department, which can deal with the
distributors of our crystal tableware in France and the Benelux countries the
reason we are using a temporary arrangement is because we do not want to halt
our domestic operations to a stand still by allocating a large amount of
resources to overseas operations straight away.
Incoterms (2000) To Use
Now
comes the time to decide the incoterms (2000) that we are going to use in this
transaction. When we look at this aspect of exporting, first thing that comes
to mind is, what are the incoterms and what is its purpose in the field of
exporting? The purpose of Incoterms is
to provide a set of international rules for the interpretation of the most
commonly used trade terms in foreign trade. Thus, the uncertainties of
different interpretations of such terms in different countries can be avoided
or at least reduced to a considerable degree. The scope of Incoterms is limited
to matters relating to the rights and obligations of the parties to the
contract of sale with respect to the delivery of goods. Incoterms deal with a
number of identified obligations imposed on the parties and the distribution of
risk between the parties. In total 13 Incoterms have been defined which are
grouped into four basically distributing the risk between the parties. So what
will be the implication of these incoterms on the exporting practice of
capriccio and can I use them to the benefit of the company in the particular
situation in which capriccio is?
I looked at these questions, which sprang to
my mind and came to a conclusion that
as this is a very first time our company is going to export its products
so there is a need to publicize a very good image of the company in the foreign
market. I am going to use one of the terms from group D of the incoterms (2000)
and contributing factor to my decision is our being sure that we are going to
get the import license. That is the reason that we are going to use the incoterm
DDP (delivered duty paid – named point), which is the term which puts most
responsibility on the exporter and I must say here that there wasn’t a sudden
rush of blood which made me choose this term but a very deep analysis of what
capriccio aims to achieve in its quest for perfection and quality conscious
approach. DDP is not a sudden thought but I looked at the price that we are
willing to pay for a successful start as an exporting entity and we can afford
to spend a healthy sum on this venture so why not choose a DDP as a starting
point on this road because there is a need to establish a very positive image
of our company in a foreign market and it will be the success of this
transaction that we shall be triumphant as a company in this foreign market and
the properties of this incoterm suits our motive. According to this incoterm we
have to be responsible for the conveyance of the product, which is crystal
tableware, at our own risk and expense to buyer’s country, which could either,
be France or the Benelux countries. Our company’s responsibilities according to
this incoterm includes the task of processing the cargo through both
exportation and importation, including taxes and duties plus customs clearance,
loading and unloading, together with the related documentation. Another reason
that I am using this term is that it can be used for any mode of transport,
which gives a much a much needed flexibility to capriccio as first time
exporter.
Mode Of Transport
The third task, in our expedition to find
best exporting strategy for our crystal tableware to our target market, is to
find the best mode of transport. As we
know that in the home market it is feasible to retain overall control of sales
outlets and related distribution arrangements but in this case when we are not
dealing with domestic market, we have to take an entirely different approach
with our export market contrary to that of domestic market. The modes of
transport for exporting goods are numerous and there is wide variety for us as
exporters to choose from these modes of transport. The main options for France
and the Benelux countries are road, airfreight, post, air parcel post, express
or courier service and rail freight. Now we have to find the best mode of
transport possible keeping in mind the specific position of our country. So
what we really need from our mode of transport, we need flexibility, security,
on time deliveries and commitment.
The
decision is based upon a mix of four requirements: speed, cost, reliability and
product requirement (e.g. fragile goods). We are especially concerned about he
vulnerability of our products to shocks and bad handling and consequently we
have to find a mode of transport where we are able to take proper care of our
merchandise. I have decided that in this case we can pick any mode of transport,
as we have preferred the incoterm DDP and we can use any mode of transport, so
for France and the Benelux countries, I would like to use rail as our mode of
transport. In my view rail is the future mode of transport for exports from UK
to Europe after the building of euro tunnel and this link between the European
countries is only going to get stronger with time. Furthermore this mode of
transport, rail, is strategically placed in major European cities which we have
identified as our potential markets like cities in France and the Benelux
countries which is a great benefit for swift and dependable transaction.
Then comes the time to choose freight forwarder for our tableware and it is a
very important and crucial choice in exporting because international freight
forwarder acts as an agent for us in moving cargo to the overseas destination.
What if our freight forwarder is not competent enough, well it should not be
the case since the freight forwarder will assist us in an order from the start
by advising us of the freight costs, consular fees, cost of special
documentation, and insurance costs, as well as the freight forwarder's handling
fees-all of which help in preparing price quotations. Our freight forwarder
should also be able to recommend the type of packing for best protecting the
merchandise in transit and can arrange to have the merchandise packed or placed
into containers. As this is our first export mission so we need a great deal
from our freight forwarder and shall pay our freight forwarder for his services
and that is rationale for our increased dependence on our freight forwarder. In
this case when the order is ready to ship, our freight forwarders should be
able to review the letter of credit, commercial invoices, packing list, and so
on to ensure that everything is in order. So our crystal tableware reaches the
destination and some unanticipated problem occurs, then what?
It
can happen that when our crystal tableware reaches its destination, there are
some unexpected problems, which can happen in any case specially when our
company is new in this business and not very much experienced in handling
precarious situations so if the cargo arrives at the named destination, which
would be named by our distributor, and there comes some problem with the
customs for example, our freight forwarder will make the necessary arrangements
with customs brokers to ensure that the goods comply with customs export
documentation regulations. They may
also prepare the bill of lading and any special required documentation. I shall
ask our freight forwarder to forward all documentation to our distributor after
the shipment. So I have decided that we
are going to use the freight forwarder from whom we should be able to take
advantage for this company as they have a vast experience in this field of
freight forwarding of merchandise which is fragile and not able to withstand
the hard handling. Our freight forwarder has offices throughout Europe, which
can help in the short term and the long term. In short term it will help us to
establish our product in the markets and in the long run it will help in expansion
of our business if the initial business proves to be a success. They also have
a large fleet with an industry leading range of wagon variants and they also
provide superb service and the company is very flexible and cost effective.
Then come the stage of
transit packaging and marking. This is very important to ensure that our goods
arrive at the distributors premises in excellent condition. The goods will be
packaged to withstand natural hazard stresses, temperature changes, humidity
and safeguard against theft and Fragile items like our crystal tableware will be
treated differently from other items and isolated from the container walls by
means of suspension devices (shock absorbers and damping devices to minimize
vibration). We will ask our freight forwarder to pack the goods strong
containers, which will be adequately sealed and filled with appropriate
substance to protect it from breakage.
Also there is a need to balance the weight evenly in the container and
packages and packing filler will be made of moisture-resistant material. To
avoid pilferage, I’ll ask our freight forwarder to avoid mentioning contents or
brand names on packages. Marking like packaging, is our responsibility as a
company and the reasons for that are very obvious as we want our first shipment
to be very successful and certainly we have to pay the expenses for this
marking as well. It is important to note that carriers and insurers are
relieved of liability if marking is defective. We will make sure that we
International Organization for Standardization (ISO)’s recommendations on
marking.
Capriccio will make sure that the following aspects
are applied rigidly in our first export.
1. Meet
shipping regulations
2. Ensure
proper handling
3. Conceal
the identity of Goods
4. Conceal the identity of the contents, and
5. Help
receivers identify shipments.
The
overseas buyer usually specifies export marks that should appear on the cargo
for easy identification by receivers. Many markings may be needed for shipment.
We need to put the following markings on cartons to be shipped:
1. Shipper's
mark.
2. Country
of origin
3. Weight
marking
4. Number
of packages and size of cases
5. Handling
marks (international pictorial symbols).
6. Cautionary
markings, such as "This Side Up" or "Use No Hooks" (in
English and in French or German because we are sending these goods to France
and Benelux countries).
7.Port of entry
8. Labels
for hazardous materials (universal symbols adapted by the International
Maritime Organization).
Markings will appear on
three faces of the container, preferably on the top and on the two ends or the
two sides so old markings will be completely removed. In addition to port
marks, customer identification code, and indication of origin, the marks will
include the package number, gross and net weights, and dimensions. If more than
one package is being shipped, the total number of packages in the shipment
should be included in the markings. We will also include any special handling
instructions on the package. On completion of packing and
marketing, a packing list is prepared with the following particulars for each
package: marks, numbers, gross weight in kg, net weight in kg, dimensions in cm
(length, breadth, height), volume and details of contents. The above-mentioned
list gives the total number of packages and their total gross weight and
volume, and is an essential document since it is needed in particular for
customs purposes when goods will be exported. The freight container that re
going to use will be strong enough to be suitable for repeated use and it will
be specially designed to facilitate the carriage of goods by rail. It will be
fitted with devices permitting ready handling when unloading and will be easy
to fill and to empty.
By Sikander
Hayat
For the
University Of Lincoln
As an assignment
for Principles and Practices of Exporting