International Trade: Export Documentary Requirements - Term Paper Example

The matter of engaging in an international trade contract is a specific and orderly process. The specifics of the process have been clearly detailed and each party, i.e., banks, customs, exporter, importer and shipper, all have specific tasks and documents which must accompany each step of the transaction. Along with specificity, the transaction is time ordered. Each actor involved in the transaction must handle all matters within the time period stipulated within the content of the term or type of payment. In this particular instance, the negotiating process has commenced and the quantity and cost of the items have been identified, therefore the process of tinder of an offer has previously taken place. The process now proceeds to a formal finalization of quantity, type, cost, terms, marks, type of shipment; i.e., free on board, full container load, and whether the buyer will engage an agent; freight forwarder, etc. International transactions contain many pitfalls-make a mistake with customs clearance and the transaction can be subject to delays in payment or wastage of human or financial resources. Sustained international trading success calls for investment in the skills and expertise necessary to master international trade procedures and to get the documents right. (Sitpro) 1 2 For a small company hoping to make a successful attempt at sustaining itself in the international trade market, a number of in-house commitments must be established---one must always be mindful that the buyer/importer is primarily concerned about three critical items---a quality product, at a fair price, which can be delivered with continued availability. Additionally, the in-house focus must be devoted to committing at least ten per cent of your production capacity to foreign markets, and of course proper and adequate servicing of accounts, then you can expect to build and sustain yourselves in the foreign market. The servicing of initial accounts is extremely important. Thus, the volume of product marketed is not as important as the consistent product supply. Do not take your foreign responsibilities for granted; lack of service and attention to foreign accounts can cripple your efforts to export. (Exporting) Again, in-house matters must be clear and specific to achieve long-term success. Therefore, ample considerations must be focused on the following items: (1) Management and Personnel---who will be responsible for the exports department's organization and staff ---What are management's expectations for the effort ---what organizational structure is required to ensure export sales are adequately serviced Who will follow through (2) Production Capacity---how is the present capacity being used ---will filling export orders hurt domestic sales ---what is the cost of additional production ---are there fluctuations in the annual workload When Where Why ---what minimum order quantity is required ---what is required to design and package orders for export 3 (2) Financial Capacity---how much capital can be tied up in exports ---what export operating cost can be supported ---how will initial expenses of the export effort be allocated ---what other new development plans are in the works that may compete with export plans ---by what date must an effort pay for itself ---is outside capital necessary (Susta) Once there is a representative and positive response to the items mentioned above, you are then prepared to approach the specifics of exporting electronic widgets to the targeted company in Turkey. I would recommend the following procedure be adopted for this venture. The item has been identified as electronic widgets, therefore we will assume that your company is in the process of responding with a price quotation. Basically there are three methods which are used in determining the price for export items--- (1) Domestic Pricing-this method uses the domestic price of the product or service as a base and add export costs, including shipping, packing and insurance. Prices using this method might be too high to be competitive. (2) Cost modification---involves reducing the quality of the item by using cheaper materials, simplifying the product or modifying your marketing program. And (3) Incremental cost pricing---takes into account the cost of producing and selling product for export, and then adds a mark-up to arrive at the desired profit margin. In addition to the base cost, include genuine export expenses (export overheads, special packing, shipping, port charges, insurance, overseas commissions, and allowances for sales promotion and advert. (Pricing) I would strongly recommend the use of #3 Incremental cost pricing method be used, as the proper long-term presentation. After the method has been decided upon and 4 the pricing complete, you will then be in a position to make a formal offer to the prospective buyer. This presentation will form the initial basis for the contract and it will be labeled as a Proforma Invoice. The buyer uses this document when he applies for importation, and if required, a letter of credit. Therefore, it is important that the invoice include all the pertinent information relating to this shipment for an import application--- that it reflects the product in a very precise manner and that it includes every conceivable cost you might have to bear.(Sitpro) In order to create a Proforma Invoice one needs to know: Items/quantity, description, unit cost, total cost, legal company name of exporter, and all pertinent contact information, including the name of a specific contact person. The legal name of the buyers company and all pertinent contact information, including a specific contact person. Type and classification of shipment---i.e. full container load, less than container load (LCL), free on board etc.(911) Also, the Proforma can identify the preferred contract/payment method. For the optional items I would recommend, "free on board" shipment and request the buyer to issue an "irrevocable sight letter of credit". Once the buyer receives the proforma invoice, he will notify the exporter of his decision. If his decision is in the affirmative he will then open a letter of credit with the bank of his choosing. Some banks have specific corresponding bank choices, so you should specify your bank of choice to be the receiving bank. Even if the receiving bank is not your bank of preference, you have the discretion to negotiate your letter of credit with any other bank you may desire. Upon receipt of your LC you should review it carefully, paying particular attention to the expiry date of the LC. The goods must be 5 shipped prior to the expiry date or the contract is breached. In certain circumstances if the exporter requests in advance, the buyer will amend the expiry date of the LC. (This must be a bank to bank communication) When presenting your LC to any bank, the bank can issue you a cash advance or loan of up to 80% of the face value of the LC total amount. This loan can either be secured or unsecured, depending on your standing with the banking community, or the state of the local economy. After completing the production and packing the order, you must prepare the following documents for the bank, customs, the shipper and the buyer. The first stop is at the bank where you will present them with a copy of the proforma invoice, packing list and a commercial invoice---the commercial invoice is a record or evidence of transaction between the exporter and the importer. It is similar to an ordinary invoice, except some entries specific to the export-import trade are added.(Gateway) . If these documents are in order, the bank will retain copies of each and issue you an export license and an export declaration, that is to be accomplished by your company. Subsequent to the accomplishment of the export declaration the next step is customs. Where you will present them with a proforma invoice, packing list, commercial invoice and the export declaration. Customs will inspect your goods and after payment of their fees, you will be issued documentary stamps. The cargo will then be sealed by customs. Having possession of these documents and appropriate approvals, you can now present the shipment to the forwarder. The forwarder will issue you a in-house bill of lading. You can now return to the bank with all of the documents mentioned above, where you will negotiate your LC. Works Cited Export 911, Export Documentary requirements On line; found at: www.susta.org/export/index.html Gateways to Global Markets, Commercial Invoice Sitro Export Documents:The UK Aligned series of Export Documents Sitro: Simplifying International Trade, On line Found at: www.UK Export Documents Susta';s Basics of Exporting Handbook, On line found at:www.susta.org/export/index Read More