A STUDY OF EXPORT DEVELOPMENT FINANCE

SCHEME OF NSIC Ltd.,

ABSTRACT

People around the globe are more connected to each other than ever before. Information
and money flow more quickly than ever. Goods and services provided in one part of the
world are increasingly available in all parts of the world. Internationally travel is more
frequent. International communication is commonplace. This phenomenon has been titled
“GLOBALIZATION”. “The era of globalization” is fast becoming the preferred term for
describing the current times. Just as the depression, the cold war era, the space age, and
the rearing 20’s are used to describe particular periods of history, globalization describes
the political, economic & cultural atmosphere of today.
While some people think of globalization as primarily a synonym
for global business, it is much more than that. The same forces that allow business to
operate as if national borders did not exit also allow social activists, labor organizers,
journalists, academics, and many others to work on a global stage. Due to this
globalization, numbers of large industries were established in this country. So, it creates
competition to the small-scale industries. The small scale industries faces problems due
to some of the following reasons:
- Lack of brand name.
- Lack of managerial skills.
- Lack of communication.
- Lack of financial support.
- Lack of advertisement.
For this reasons, the small scale industries not running successfully. So, government
established some service organizations like NSIC, KVIC, SIDO etc; to develop the
 small scale industries. This organizations give their financial assistance, marketing
assistance etc; to the small scale industries.
The main aim of this study is to investigate the pros and cons of the
Export Development finance scheme of NSIC for SSI units for the
export of their products in the present economic scenario under
globalization.

1.To study about the SSI and NSIC finance scheme.

2.To study about the export of SSI Products.
3.To study about the Export development finance to SSI units by NSIC.
4.To forward certain suggestions and recommendations based on the
observations.

Chapter-1

1. Introduction

In the context of financial reforms, which are in progress in India and at this juncture of
globalization the priority has been for export business, hence more and more
entrepreneurs are venturing in to exports. Hence it was felt the needed of the hour and
acquired a lot of importance for the study of Export development finance schemes
supported and helped by different financial institutions in general and NSIC in particular.
In this context it was observed that NSIC is providing support to the SMEs with different
schemes in finance and marketing .

2. Need&importance of study (why you selected that company)

The small scale industry sector output contributes almost 40% of the gross
Industrial value-added 45% of the total exports from India (direct as well as
indirect exports) and is the second largest employer of human resources after
agriculture. The development of Small Scale Sector has therefore been assigned
an important role in India's national plans.

In order to protect, support and promote small enterprises as also to help them
become self-supporting, a number of protective and promotional measures have
been undertaken by the Government.

The promotional measures cover

- industrial extension services
- institutional support in respect of credit facilities,
- provision of developed sites for construction of sheds,
- provision of training facilities,
- supply of machinery on hire-purchase terms,
- assistance for domestic marketing as well as exports,
- special incentive for setting up enterprises in backward areas etc.
- technical consultancy & financial assistance for technological upgradation.

While most of the institutional support services and some incentives are provided
by the Central Government, others are offered by the state governments in
varying degrees to attract investments and promote small industries in varying
degrees to attract investments and promote small industries with a view to
enhance industrial production and to generate employment in their respective
States.
1.1 The Small Scale Industrial Sector has emerged as a dynamic and vibrant sector of the
economy during the eighties. At the end of the Seventh Plan period, it accounted for nearly 35
percent of the gross value of output in the manufacturing sector and over 40 percent of the total
exports from the country. It also provided employment opportunities to around 12 million people.
1.2 The primary objective of the Small Scale Industrial Policy during the nineties would be to
impart more vitality and growth-impetus to the sector to enable it to contribute its mite fully to the
economy, particularly in terms of growth of output, employment and exports. The sector has been
substantially delicensed. Further efforts would be made to deregulate and debureaucratise the
sector with a view to remove all fetters on its growth potential, reposing greater faith in small and
young entrepreneurs.
1.3 All statutes, regulations and procedures would be reviewed and modified, wherever
necessary, to ensure that their operations do not militate against the interests of the small and
village enterprises.

2.0 TINY ENTERPRISES

2.1 Government have already announced increase in the investment limits in plant and machinery
of small scale industries, ancillary units and export – oriented units to Rs 6 million, Rs 7.5 million,
and Rs 200 thousand respectively. Such limits in respect of "TINY" ENTERPRISES would now be
increased from the present Rs 200 thousand to Rs. 500 thousand, irrespective of location of the
unit. Limit in plant and machinery for determining the status of SSI/Ancillary units as on date is Rs
10 million. For tiny it is Rs 2.5 million and for SSSBE Rs 500 thousand.
2.2 Service sub-sector is a fast growing area and there is need to provide support to it in view of
its recognised potential for generating employment. Hence all Industry-related service and
business enterprises, recognised as small scale industries and their investment ceilings would
correspond to those of Tiny enterprises.
2.3 A separate package for the promotion of Tiny Enterprises is now being introduced. This
constitutes the main thrust of Government’s new policy.
2.4 While the small scale sector (other than ‘Tiny Enterprises’) would be mainly entitled to one-
time benefits (like preference in land allocation/power connection, access to facilities for
skill/technology upgradation), the ‘Tiny’ enterprises would also be eligible for additional support
on a continuing basis, including easier access to institutional finance, priority in the Government
Purchase Programme and relaxation from certain provisions of labour laws.
2.5 It has also been decided to widen the scope of the National Equity Fund Scheme to cover
projects upto Rs. 1 million for equity support (upto 15 per cent). Single Window Loan Scheme has
also been enlarged to cover projects upto Rs 2 million with working capital margin upto Rs 1
million. Composite loans under Single Window Scheme, now available only through State
Financial Corporations (SFCs) and twin function State Small Industries Development Corporation
(SSIDCs), would also be channelised through commercial banks. This would facilitate access to a
larger number of entrepreneurs.
3.0 FINANCIAL SUPPORT MEASURES
3.1 Inadequate access to credit – both short term and long term – remains a perennial problem
facing the small scale sector. Emphasis would henceforth shift from subsidised/cheap credit,
except for specified target groups, and efforts would be made to ensure both adequate flow of
credit on a normative basis, and the quality of its delivery, for viable operations of this sector. A
special monitoring agency would be set up to oversee that the genuine credit needs of the small
scale sector are fully met.
3.2 To provide access to the capital market and to encourage modernisation and technological
upgradation, it has been decided to allow equity participation by other industrial undertakings in
the SSI, not exceeding 24 per cent of the total shareholding. This would also provide a powerful
boost to ancillarisation & sub-contracting, leading to expansion of employment opportunities.
3.3 Regulatory provisions relating to the management of private limited companies are being
liberalised. A Limited Partnership Act will be introduced to enhance the supply of risk capital to
the small scale sector. Such an Act would limit the financial liability of the new and non-active
partners/entrepreneurs to the capital invested.
3.4 A beginning has been made towards solving the problem of delayed payments to small
industries by setting up of ‘factoring’ services through Small Industries Development Bank of India
(SIDBI). Network of such services would be set up throughout the country and operated through
commercial banks. A suitable legislation will be introduced to ensure prompt payment of Small
Industries’ bills.

4.0 INFRASTRUCTURAL FACILITIES

4.1 To facilitate location of industries in rural/backward areas and to promote stronger linkages
between agriculture and industry, a new Scheme of Integrated Infrastructural Development
(including Technological Back-up Services) for Small Scale Industries would be implemented with
the active participation of State Governments and financial institutions. A beginning in this
direction will be made this year itself.

4.2 A Technology Development Cell (TDC) would be set up in the Small Industries Development
Organisation (SIDO) which would provide technology inputs to improve productivity and
competitiveness of the products of the small scale sector. The TDC would coordinate the
activities of the Tool Rooms, Process-cum-Product Development Centres (PPDCs), existing as
well as to be established under SIDO, and would also interact with the other industrial research
and development organisations to achieve its objectives.
4.3 Adequacy and equitable distribution of indigenous and imported raw materials would be
ensured to the small scale sector, particularly the tiny sub-sector. Policies would be so designed
that they do not militate against entry of new units. Based on the capacity needs, Tiny/Small
Scale units would be given priority in allocation of indigenous raw materials.
4.4 A proper and adequate arrangement for delivery of total package of incentives and services at
the District level will be evolved and implemented.
5.0 MARKETING AND EXPORTS
5.1 In spite of the vast domestic market, marketing remains a problem area for small and tiny
enterprises. Mass consumption labour intensive products are predominently being marketed by
the organised sector. The tiny/small scale sector will be enabled to have a significant share of
such markets. In addition to the existing support mechanism, market promotion would be
undertaken through cooperative/public sector institutions, other specialised/professional
marketing agencies and consortia approach, backed up by such incentives, as considered
necessary.
5.2 National Small Industries Corporation (NSIC) would concentrate on marketing of mass
consumption items under common brand name and organic links between NSIC and SSIDCs
would be established.
5.3 Government recognises the need to widen and deepen complementarily in production
programmes of large/medium and small industrial sectors. Parts, components, sub-assemblies,
etc. required by large public/private sector undertakings would be encouraged for production in a
techno-economically viable manner through small scale ancillary units. Industry associations
would be encouraged to establish sub-contracting exchanges, in addition to strengthening the
existing ones under the SIDO. Emphasis would also be laid on promotion of a viable and
competitive ‘component’ market.
5.4 Though the Small Scale Sector is making significant contribution to total exports, both direct
and indirect, a large potential remains untapped. The SIDO has been recognised as the nodal
agency to support the small scale industries in export promotion. An Export Development Centre
would be set up in SIDO to serve the small scale industries through its network of field offices to
further augment export activities of this sector.
6.0 MODERNISATION, TECHNOLOGICAL AND QUALITY UPGRADATION
6.1 A greater degree of awareness to produce goods and services conforming to national and
international standards would be created among the small scale sector.
6.2 Industry Associations would be encouraged and supported to establish quality counselling
and common testing facilities. Technology Information Centres to provide updated knowledge on
technology and markets would be established.
6.3 Where non-conformity with quality and standards involves risk to human life and public health,
compulsory quality control would be enforced.
6.4 A reoriented programme of modernisation and technological upgradation aimed at improving
productivity, efficiency and cost effectiveness in the small scale sector would be pursued. Specific
industries in large concentrations/clusters would be identified for studies in conjunction with SIDBI
and other banks. Such studies will establish commercial viability of modernisation prescriptions,
and financial support would be provided for modernisation of these industries on a priority basis.
6.5 Indian Institutes of Technology (IITs) and selected Regional/other Engineering Colleges will
serve as Technological Information, Design and Development Centres in their respective
command areas.
7.0 PROMOTION OF ENTREPRENEURSHIP
7.1 Government will continue to support first generation entrepreneurs through training and will
support their efforts. Large number of EDP trainers and motivators will be trained to significantly
expand the Entrepreneurship Development Programmes (EDP). Industry Associations would also
be encouraged to participate in this venture effectively.
7.2 EDP would be built into the curricula of vocational and other degree level courses.
7.3 Women entrepreneurs will receive support through special training programme. Definition of
"Women Enterprises" would be simplified. The present stipulation regarding employment of
majority of women workers would be dispensed with and units in which women entrepreneurs
have a majority shareholding and management control, would be defined as "Women
Enterprises".
8.0 SIMPLIFICATION OF RULES AND PROCEDURES
8.1 The persistent complaint of small scale units of being subjected to a large number of Acts and
Laws, being required to maintain a number of registers and submit returns, and face an army of
inspectors, would be attended to within a specified time frame of three months.
8.2 Procedures would be simplified, bureaucratic controls effectively reduced, unnecessary
interference eliminated and paper work cut down to the minimum to enable the entrepreneurs to
concentrate on production and marketing functions.

EXPORT PROMOTION

Rationale Behind Export Promotion

The capability of Indian SSI products to compete in international markets is reflected in
its share of about 34% in national exports. In case of items like readymade garments,
leather goods, processed foods, engineering items, the performance has been
commendable both in terms of value and their share within the SSI sector while in some
cases like sports goods they account for 100% share to the total exports of the sector. In
view of this, export promotion from the small scale sector has been accorded high
priority in India’s export promotion strategy which includes simplification of procedures,
incentives for higher production of exports, preferential treatments to SSIs in the market
development fund, simplification of duty drawback rules, etc. Products of SSI exporters
are displayed in international exhibitions free of cost under SIDO Umbrella abroad.
International Exposure to SSI Products
With a view to rendering assistance to Small Scale Units in the field of exploring market
potential, export promotion and exhibitional publicity, the following schemes are being
implemented:-
Export Promotion Programmes / Measures
Participation in International Fairs/Exhibitions
With a view to ensure that exporters from small -scale sector exhibit their products in the
International Exhibitions, required assistance & support is provided. Expenditure on
account of space rent, handling and clearing charges, insurance and shipment charges etc.
are met by the office of the Development Commissioner (Small Scale Industries) under
one of the plan schemes.
During 2003-2004, O/o the DC(SSI) participated in 7 International Trade Fairs/
Exhibitions. Participation in the named fairs/exhibitions generated large number of Trade
enquiries besides certain export orders. It also provided an opportunity to SSI units to
display their products in the world market. During the current financial year, it is
proposed to participate in 8 International fairs/ exhibitions. The basic objective behind
this scheme is that SSI units which otherwise are not in a position to display their
products may participate in foreign exhibition/fairs so as to promote their exports.
Enquiries generated during such exhibitions abroad are disseminated to all SSI units
through a network of field offices of this organisation. This strategy has been found to be
successful for exporters from small- scale sector in identifying new foreign
buyers/markets.
Packaging for Exports
Role of packaging for exports has gained much significance in view of trends in the
world markets. The need for better and scientific packaging for exports from small sector
was recognised long back. With a view to acquaint SSI Exporters of the latest Packaging
standards, techniques etc. training programmes on packaging for exports are organised in
various parts of the country. These programmes are organised in association with Indian
Institute of Packaging which has requisite expertise on the subject. Basic objective of
these programmes is to generate the much needed consciousness in the industry and to
educate the entrepreneurs about the scientific techniques of Packaging. With the
assistance of EAN India to sensitize Indian exporters about barcoding. 7 training sessions
were conducted in 2000-01 at different locations across the country.

Technical & Managerial Consultancy Services

Technical & Managerial Consultancy Services to the SSI manufacturers/exporters is
provided through a network of field offices of this office so as to ensure higher level of
production and generation of higher exports.
National Awards for Quality Products
With a view to encourage the small scale units for producing Quality goods, National
Awards for Quality Products are given to the outstanding small scale units, who have
made significant contribution for improving quality of their products. The scheme is
being operated since 1986. Winners of National Awards get a Trophy, a Certificate and a
Cash Prize of Rs.25,000/-($559.6) National Awards encourage Small Scale Industries
units to produce quality goods which further enables them to enter into export market.

3. Objectives of the study (customer satisfaction)

OBJECTIVES OF THE STUDY:

The main aim of this study is to investigate the pros and cons of the
Export Development finance scheme of NSIC for SSI units for the
export of their products in the present economic scenario under
globalization.

1.To study about the SSI.

2.To study about the export of SSI Products.
3.To study about the Export development finance to SSI units
4.To draw conclusions.
5.To forward certain suggestions and recommendations based on the
observations.

The principal objectives of Export Policy are:

1. To facilitate sustained growth in exports to attain a share of atleast 1% of global
merchandise trade.
2. To stimulate sustained economic growth by providing access to essential raw
materials, intermediates, components, consumables and capital goods required for
augmenting production and providing services.
3. To enhance the technological strength and efficiency of Indian agriculture, industry
and services, thereby improving their competitive strength while generating new
employment opportunities, and to encourage the attainment of internationally accepted
standards of quality.
4. To provide consumers with good quality goods and services at internationally
competitive prices while at the same time creating a level playing field for the domestic
producers.

The objectives will be met through the coordinated efforts of the State Governments and
all the departments of the Government of India in general and the Ministry of Commerce
and Industry and the Directorate General of Foreign Trade and its network of Regional
Offices in particular, with a shared vision and commitment and in the best spirit of
facilitation, in the interest of promotion of trade in goods and services
4. Methodology of study:
METHODOLOGY:

The primary data was collected through personal contacts with officials of NSIC and SSI
entrepreneurs. The secondary data regarding SSI, was collected from journals, research
reports prepared by ministry of SSI etc.
The following two methods are applied to extract the necessary data.
1.Primary data-through questioner:
A questioner has been prepared and submitted to 25 different SMEs in and around
hyderbad and based on there responses the
2. Secondary data based on company source.
The NSIC being the nodal agency for all SMEs a lot of data available regarding the Small
and Medium entrepreneurs. This information has been studied and used at different
phases of the project work.

5. Limitations
1. The suggestions are based on the data collected during the project work and
information available with NSIC,Hyderabad.
2. The companies visited are mostly from Electronic industry. Hence the problems
reflected during the study are most of electronic cluster.
3. The data collected is mostly from component manufacturers and the SMEs
involved in service sector needs a separate study.

Chapter-2

1. Profile of the industry

NSIC PROFILE

National Small Industries Corporation Ltd. was established in 1955 by the Government
of India with a view to promote, aid and foster the growth of Small Industries in the
country. NSIC continues to remain at the forefront of industrial development throughout
the country, with it’s various programs and projects, to assist the small scale sector in the
country. Recent Transitions of industrial climate and liberalization of the total economic
environment within the country and international arena has witnessed tremendous
changes in the domestic as well as international markets. These sudden changes have
thrown up as many opportunities as challenges to the Small Scale Enterprises in the
country. Over a period of four decades of this transition, growth and development of
small scale sector, it has proved its strength within the country and abroad dynamically,
showing its progressive attitude towards modernization, upgradation of technology,
quality consciousness, strengthening linkages with large and medium scale enterprises
and boosting exports of products from Small Enterprises. The Small Scale Sector
continues to remain an important instrument for enterprise building, dispersal of
industries for even regional economic development and employment generation. NSIC
has been successfully able to play its assigned role in this endeavor. Due to changed
industrial scenario and gradual globalization of the economy, small scale sector has to
face stiff competition as the insulated and protected market conditions are no more going
to be available to it. To enable the Small Scale sector to meet this challenge, NSIC has
already initiated various steps so that SSIs can play their due role, even during
polarization of various economic forces.

QUALITY POLICY

We shall endeavor to achieve total customer satisfaction at all times. We shall

continuously upgrade our service quality, communication facilities and skill sets to meets
customer requirements efficiently.
We shall constantly adapt, innovate and refine our processes in line with global business
trends to maintain credibility and leadership in our fields.

We commit ourselves for effective and prompt service on the basis of fair play,
transparency and sincere endeavor for the promotion and growth to small-scale
industries.

We shall strive to achieve operational efficiency by attaining better productivity and

profitability.

We shall abide by statutory and legal regulations while carrying out our activities.

QUALITY OBJECTIVES

To achieve reduction in cost of operations for attaining better productivity.

To achieve reduction in service delivery time.

To design and launch new assistance programmers in keeping with emerging market
trends and the needs of customers.

To keep pace with the changes in business environment and continuously upgrade the
professional skills of all employees for development of customer centered business.
To provide congenial work environment for effective contribution by every employee in
all aspects of our services to the customers.

To maintain safe, clean and hygienic work environment.

FOCUS ON SPECIFIC SECTORS

 Agro and Food Processing

  Auto components
 Biotechnology
 Glass and Ceramics
 Dimensional Stones
 Information Technology
 Knitwear and Garments
 Leather and Leather Products
 Light Engineering
 Low Cost Building Materials
 Pharmaceuticals and Chemicals

The Corporation provides integrated Technology, Marketing, Infomediary Service and

Financial support to Small Scale Sector.

MARKETING SERVICES

NSIC provides diversified marketing support to SSI’s through various marketing

assistance schemes for reaching multidimensional and multi-locational markets in India
and abroad. NSIC acts as a nodal agency to bring SS'I’s closer to various Government
purchasing agencies, the largest buyer of various types of products and services, with the
intention of creating confidence in the purchasing agencies about SMEs and their
capability to supply goods and services of requisite quality, competitive prices and
adherence to agreed delivery schedules.

Tender Marketing

The Corporation participates in bulk global tender enquiries and local tenders of Central
& State Government and Public Sector Enterprises on behalf of small scale units. It is
aimed to assist SSIs with ability to manufacture quality products but which lack brand
equity & credibility or have limited financial capabilities. Under this scheme, the
Corporation has identified large number of items for which it actively participates in
tenders of these Departments and Enterprises. On receipt of the orders, Corporation farms
out these orders to the units on whose behalf it has quoted. This assistance has enabled a
large number of small units to compete for the orders, which are normally out of reach of
the individual units because of the bulk requirement.

Consortia Marketing

A SSI unit in its individual capacity faces problem very often to procure & execute large
orders, which inhibits and restricts the growth of SSIs. NSIC, accordingly adopted
Consortia Approach and built groups/consortia of units manufacturing same products,
thereby easing out marketing problem of SSIs. The Corporation explores market and
secures orders for bulk quantities. These orders are then farmed out to small units in tune
with their production capacity. Testing facilities are also provided to enable units to
improve and maintain the quality of their products conforming to the standard
specifications.

Government Stores Purchase Programme

The Government is the single largest buyer of a variety of goods. With a view to increase
the share of purchases from the small scale sector, the Government Stores Purchase
Programme was launched in 1955-56. NSIC registers SSI units under Single Point
Registration scheme for participation Government Purchases.

TECHNOLOGY SERVICES

NSIC provides technical support to SSIs through 'NSIC Technical Services Centres' and a
number of extension and sub centres spread across the country. The range of technical
services provided through these centres include training in Hi-Tech as well as
conventional trades, testing, common facilities, toolkits, energy audit, environment
management etc.
In addition to this access to latest information in connection with technology upgradation
and its transfer is provided to SSIs through the 'Technology Transfer Centre' at New
Delhi.

Various Technical Services Centres in India along with their area of specialization are as
follows:

NTSC, OKHLA:
 Machine Tools, Design & Testing, Rural Technology and Computer Applications

NTSC, HOWRAH:
 Plastic Machinery and Instrumentation

NTSC, RAJKOT:
 Diesel Engine Development & Testing, Energy Conservation, Energy Audit,
Sheet Metal and Wood Working Machinery

NTSC, CHENNAI:
 Leather and Footwear

NTSC, HYDERABAD:
 Electronics and Computer Application

NTSEC, ALIGARH:
 Lock & Brass Hardware

NTSEC, RAJPURA:
 Domestic Electrical Appliances

NTSEC, GUWAHATI:
  Training on Sheet Metal, Leather Wear, Energy Audit & Enterprise Buiding.

INFOMEDIARY SERVICES

Information today is becoming almost as vital as the air we breathe. We need it every
minute of our working lives. And with the increase in competition and melting away of
international boundaries, the demand for information is reaching new heights.

Keeping in mind the information needs of small industries NSIC has launched its
“Infomediary Services”. A one-stop, one-window bouquet of aids that will provide
information on business, technology and finance, and also exhibit the core competence of
Indian SMEs in terms of price and quality-internationally, as well as domestically.
NSIC’s Infomediary Services use a professionally managed HR base and modern
technology for dissemination of vital information-websites, sector-specific newsletters
(both print and electronic), and e-mails. Potential beneficiaries would be entrepreneurs-
both existing and aspiring-R&D labs, SMEs seeking business collaboration and co-
production opportunities, joint ventures, exporters and importers, and those looking for
technology transfer.

Salient Features

 Sector based focus

 Information on Trade and tender leads, events
 Virtual Catalogue shows
 Internet-related support
 Banner display on NSIC’s Website
 Access to a wide range of technologies from India and abroad
 Access to national and international business leads, JV opportunities and trade
information
  Comprehensive information on Government policies, rules and regulations,
schemes and incentives
 Access to industrial databases, members’ directory and importers/exports
directories
 Access to NSIC’s Business Centre with facilities such as conference hall, fax,
telephone, photocopy and A/V aids etc.
 Access to a wide range of assistance for participation in business delegations,
exhibitions/fairs
 Availability of a wide range of escort services, e.g., product design, credit and
support rating, developing catalogues and product literature, energy and
environment audit, introduction of information technology (IT) solution in
Business operations.
 Skill up gradation Training, mentoring services, common facility at NSIC
Technical Services Centre(s), banners display on websites and market studies.

Access to Infomediary services is through Premium and Basic memberships. For details
on membership benefits and online registration visit www.nsicindia.com.

For further information on membership benefits, banner advertisements on Infomediary

site, contact:

Infomediary Division
National Small Industries Corporation Ltd.
NSIC-STP complex, Okhla Industrial Estate
New Delhi- 110020, India
Tel: 91-11-6926145, 6926275 (Ext. 423)
Fax: 91-11-6927502
Email: [email protected]
Website: www.nsicindia.com
EXPORT SERVICES

NSIC is a recognized Export House. NSIC is involved in exporting product and projects
of Small Scale Industries of India to other countries. The major areas of operation are:

 Export of Indian products like handicrafts, leather items, hand tools etc.
 Supply of Small Industry Projects on turnkey basis.
 Export of IT solutions from India.
 Export of Relief supplies from India to UN and other International Agencies.

Product

NSIC is associated with the exports of Small Scale Industries products to other countries.

Project

NSIC undertakes export of industrial projects under its scheme associated with the
exports of Small Scale Industries products to other countries on turnkey basis. NSIC
provides a package of services for setting up of Industrial Projects to other countries

IT Export

NSIC operates on behalf of a consortium of Software Companies and bids for large
tenders and projects worldwide for Software Exports. This enables NSIC to offer
comprehensive solution to the customer on a high productive and cost effective basis.

UN Supply
The United Nations, including its various agencies, like UNICEF, WHO, UNFPA, WFP,
UNOPS, UNDP, UNHCR, etc., represents an international market of about US$ 3 billion
for suppliers of virtually all type of goods and services. Such a market is well worth
serious consideration.

EXHIBITION SERVICES

NSIC organises and participates in domestic and specialised product & technology
related & international exhibitions to help SSIs in marketing their products and projects
in both national and international arenas. These exhibitions facilitate:

 Marketing of products and projects of SSIs

 Closer interaction between technology seekers and offerers
 Development of mutual contact to discuss all issues involving technology
transfer, technical collaboration etc.

Techmart

NSIC has so far organised nine International Technology Fair - 'Techmart' coinciding
with India International Trade Fair at the Hall of States, Pragati Maidan, New Delhi.
'Techmart' is a centre stage for those associated with the small sector and interested in
keeping abreast with the latest technological developments in the Indian small sector. It
assisted small enterprises to market their products and services and help large companies
and buyers to identify SMEs in becoming their ancillaries, partners in joint ventures and
sub contracting.

Udyog Expo

The new spirit of economic liberalisation has unleashed hidden capabilities of the vibrant
Indian small scale sector. On one hand is the era of growth, and on the other is the
growing competition from from imports. In tune with this NSIC is organising
international technology fair in south of India - UDYOG EXPO from 19-24 Sept., 2001
at CODISSIA Trade Fair Complex, Coimbatore. UDYOG EXPO 2001 will be the stage
for those associated with the small sector. It would assist small enterprises to market their
products and services and help large companies and buyers to identify SMEs in becoming
their ancillaries, partners in joint ventures and sub-contracting.

FINANCIAL SERVICES

Financial Services Division of NSIC provides assistance to the small enterprises. The
main features of the financial services offered are:

 Financial assistance for the production and marketing activities under one roof
with speed and efficiency.
 Prompt clearance of the proposals with minimum processing time and without
cumbersome paper work.
 On the spot assistance in preparing the proposals and completion of document
formalities
 Attractive interest rates and service charges with liberal terms of margin, level of
assistance and repayment schedules.
 Working Capital finance for meeting emergent needs of small enterprises and
export oriented units for export development

Hire Purchase Scheme

The Hire Purchase Scheme is aimed at promoting the development of small scale
industrial sector in the country. This scheme is in operation for the last 40 years. NSIC
has supplied 66,907 machines of the value of Rs. 422.80 crores to 28,956 units upto
1997-98. Hire-Purchase scheme is available on attractive terms to Technocrats, Women
Entrepreneurs, Backward Areas, SC/ST category Entrepreneurs.

Equipment Leasing Scheme

The Equipment Leasing Scheme is aimed at Expansion, Modernisation, Diversification &
Technological Upgradation of existing & financially viable Small Scale Industries (SSIs),
Ancillary Units & Enterprises. This scheme is in operation for the last 40 years. NSIC has
supplied 1597 machines of the value of Rs. 6670.48 crores to 1003 units upto March,
2000.

Bill Financing Scheme

The Large and Medium Scale Units generally buy products, sub-assemblies etc. from the
SSI sector on a deferred payment basis which results in shortage of funds for the SSI
units. Accordingly NSIC has evolved a scheme of financing sale bills of the SSI's i.e; Bill
Financing Scheme. Under this scheme bills drawn by small scale units for the supplies
made to the reputed and well established enterprises and duly accepted by them will be
financed / discounted by NSIC for a maximum period of 90 days.

Raw Material Assistance

Raw Material Assistance Scheme aims at helping Small Scale Industries/Enterprises by

way of financing the purchase of Raw Material (both indigenous & imported). This gives
an opportunity to SSI to focus better on manufacturing quality products.

Export Development Finance

Finance for export development to export oriented units is provided under this scheme for
meeting their emergent requirements. Under this scheme pre and post shipment finance is
also provided to the units.

Composite Term Loan Scheme

The Composite Term Loan is granted for acquisition of Land & Building, Machinery &
Equipment and Working Capital to Tiny units with total assistance upto Rs. 25.00 Lacs.

Italian Line of Credit

The Italian Ministry of Foreign Affairs and the Govt. of India agreed on a ‘Programme
for the development of small and medium enterprises’. The Italian Government has made
available to the Indian Government a soft loan of Lire 10 billion (Rs. 2030.00 Lacs
approx.) for extending line of credit to the NSIC. NSIC has been appointed by the Govt.
of India for operating the, ‘Programme for development of small and medium
enterprises’, which focuses on the selected sectors.

INTERNATIONAL PROGRAMME

International Programmes of NSIC aim at developing and fostering sustainable enterprise

to enterprise business relationships between Indian enterprises and enterprises in other
countries.

Strategy

The strategy is to play upon the strengths of Indian enterprises and match these strengths
with that of foreign enterprises identified through partner institutions in selected
countries. NSIC advocates a partnership approach rather than a one-way
transaction/transfer of technology or short-term business relationship. This approach is
expected to lead to a sustainable and two-way relationship, which can be termed as
partnership rather than one way flow of information from a seller of technology to a
buyer in India and vice -versa.

Partner Institutions
NSIC has identified partner institutions in different countries through interactive sessions
with industry associations & leading small entrepreneurs. The partner institutions actively
co-operate with NSIC in identifying enterprises in their respective areas who are
interested to enter into long term and durable relationships with Indian enterprises.

Technology & Trade Missions

Details of all previous and forthcoming Technology and Trade Missions can be had from
Technology Transfer Centre, New Delhi

SOFTWARE TECHNOLOGY PARKS

NSIC has setup NSIC-STP Complex at New Delhi and Chennai under the Software
Technology Parks of India (STPI) Scheme. Software Technology Parks facilitate small
scale units to establish their units for the 100% export of software products.

STPI Scheme

To give a philip to software exports and to encourage entrepreneurs in this industry,

Software Technology Parks of India (STPI) an autonomous society was set up by Govt.
of India under DOE. These Software Technology Parks cater to the needs of
entrepreneurs establishing units for 100% export of software and also act as the nodal
point for day-to-day formalities and as the resource centre for member units. The units
operating under this scheme enjoys various benefits.

NSIC Software Technology Park is one of such parks established by the National Small
Industries Corporation Ltd. (A Govt. of India Enterprise, Ministry of Industry) under the
STPI scheme to promote small entrepreneurs in software development.

Salient Features of STP Scheme:

  Approvals are given under single window clearance mechanism.
 Approvals for project involving imported capital goods upto a cost of US $ 10
million with Indian investment are cleared by jurisdictional STP authorities in a
time bound manner under delegated authority.
 100% foreign equity is permitted.
 All the imports in the STP units are completely duty free.
 Re-export of capital goods are permitted.
 Domestic purchases by STP units are eligible for the benefit of deemed exports.
 Subcontracting of software development activity by STP units is permitted.
 Use of computer system for training purposes is permissible subject to the
condition that no computer terminals are installed outside the STP premises.

Benefits

 Duty Free Imports: No import license is required. Import certificates are issued on
request by Director STPI (Noida / Chennai) for duty free Imports of Capital
Goods/Raw Material/Components.

 Excise Relief: Excise exemption is available on Capital goods bought from

Domestic Market on request from Director, STPI (Noida / Chennai) .
 Income Tax Holiday: Income tax holiday is available for STP units for a block of
ten years OR upto the year 2010, whichever is earlier.
 DTA Sales: The sales in domestic tariff area are permissible upto 25% of the
exports in value terms made by the STP unit.
 Location Of NSIC-STP: NSIC Software Technology Park, New Delhi is located in
a prime location at Okhla Industrial Area adjacent to NSIC Bhawan. This location
is in the near vicinity to Nehru Place. (the commercial centre of computer
industry)
NSIC Software Technology Park, Chennai is located in a prime location at Guindy
Industrial Estate with a total built area of 48,000 Sq. Ft. This location is in the near
vicinity to domestic and international Airports.

Infrastructure

Following facilities are available at NSIC Software Technology Park.

 Built-up Space: This enables the software industries to commence their operations
with minimum gestation period. A complete environment for software
development is thus set up as you work in the cluster of software industries. Space
is available in multiples of 1000 sq.ft.
 Instant Power Connection: Instant power connections are available at these
locations. Generator facility is also available on site, which will allow software
units to work without any interruptions.
 High Speed Data Link: High speed data communication facility through satellite
connection is available. The member units can avail 64 kbps, 19.2 and 9.6 kbps
dedicated leased channels. TCP/IP connections are also available.
 Business Centre: A business centre comprising of Conference Hall, Photocopier,
Fax, Training aids, etc. is available inside the STP complex for the member units.
 Telephones: Each member units will be provided with one telephone line for
business promotion on occupation.

Obligations for the Units

 Export Obligation: Member Units in STP Scheme have to fulfill export obligation
as per the following formula.

US $ 0.25 Million

OR
 5 times of CIF Value of imported capital goods whichever is higher and 20% net
Foreign Exchange against export earnings
 Monitoring of Private Bonded Warehouse: In order to facilitate duty free imports
the operation is required to be within customs bonded area. Units have to get the
customs bonding done for the area where they are going to establish their
software development and exporting unit.

Application Procedure

For establishing a unit under NSIC-STP Complex, download the application forms from
the following links. Fill in the application form (pl. ensure that you give all the required
information) and contact Project Officer, NSIC-STP at the contact points given below.
Please note that blank application forms are also available at the office of Project Officer,
NSIC-STP.

Contact Details

NSIC-STP, New Delhi

Project Officer
NSIC-STP Complex
Adjacent to NSIC Bhawan
Okhla Industrial Estate
New Delhi - 110 020
E-Mail: [email protected]

NSIC-STP, Chennai
Project Officer
NSIC-STP Complex
B-24, Guindy Industrial Estate
Ekkaduthangal,
Chennai - 600 032
E-Mail: [email protected]

MENTORING SERVICES

Over a period of time, it has been observed that unbalanced management skills in small
enterprises are a major cause for early sickness and non-performance in the SSI sector.
One of the effective ways to address strategic issues which face small enterprises, is to
have a Mentor-Pupil relationship in which the Mentor is an experienced person with a
back ground of running his own enterprise (preferably in the same industrial sector) who
volunteers his services at no or notional cost to individual or a group of units and the
Pupil is the unit / units being assisted, whereas an Advisor is a senior professional,
generally retired and a specialist in a specific area.

Most of the SSI units are not sensitive to the changes in the environment and fast
changing developments in the business scenario in terms of easy imports, fast
dismantling of tariff barriers, removal of quantitative restrictions, integration with the
information society and other core issues resulting from compliance with WTO / IPR
regime. The Mentors / Advisors provide the necessary professional and moral support in
the early life cycle of an enterprise and this handholding is akin to a child growing up
under the protective care of the parent. Mentors / Advisors can also be provided to
existing units facing critical operational problems due to changes in environment.

Envisaged Role of a Mentor

The Mentor will play a very crucial role of handholding in the initial stages of an
enterprise. He will be the guardian angel to whom an entrepreneur can turn when in
distress. The Mentor will provide business guidance and share his experience and skills
with the entrepreneur. The Mentor and the Mentee have to mutually agree on the time
the Mentor will spend with the Mentee. This can vary from several hours a week to
several days in a month. The Mentor may have one or more Mentees in a cluster of
industries depending on the nature of support needed. Mentor-Mentee relationship will be
generally a long-term association.

Envisaged Role of an Advisor

The Advisor will resolve specific issues and problems related to the unit or a group of
units based on his knowledge and experience. He will also ensure implementation of the
suggestions and solutions offered for effective translation on the ground so that the
beneficiary obtains anticipated results. Unlike a mentor, the advisor will be associated
with a particular unit or group of units for a short period to advise on specific issues.

Areas of Operations

 Marketing
 Manufacturing and systems
 Production processes
 Product Design and Packaging
 Usage of Information Technology
 Finance and other fiscal issues such as taxation etc.
 Quality & standards
 Environmental Issues
The above services will be offered in the selected clusters.

SEMINARS

NSIC organises Seminars, work-shops and conferences with a view to:

 Make SSI units conversant with the developments taking place at different places
within the country and outside.
  Inform about the opportunities available for business growth.
 Disseminate information on the challenges both existing and potential.
 Sensitize the SSI units on the needs of technology upgradation.
 Disseminate information on facilities being offered by various institutions both
national and international Facilities can relate to institutional support in the area
of marketing, financing, skill upgradation and training.

NSIC has organised a series of workshops for SSI clusters located at Ahmedabad,
Bangalore, Mumbai, Calcutta, Indore, Ludhiana and New Delhi. These workshops
covered areas relating to Electrical and Electronics, Light Engineering, Packaging,
Software Exports, Information Technology, Food Processing, Machine Tools, Hosiery,
Building Materials, Chemicals, Drugs & Pharmaceuticals, Textiles, Sports Goods,
Leather and Foundry sectors.

The workshops facilitated interaction amongst SSI Units, technology generators and
suppliers as well as financial institutions and state level technical consultancy and
industrial promotion organisations for evolving packages both for financing and
technology. These seminars address to financial, marketing & technology related issues
relevant to SMEs.

Chapter-3

1. Review of the literature (reference from books)

Study Phase:

Developing an Export Strategy

There are several ways to evaluate the export potential of your products and services in overseas
markets. The most common approach is to examine the success of your products domestically. If
your company succeeds at selling in the NATIONAL. market, there is a good chance that it will
also be successful in markets abroad, at least those where similar needs and conditions exist.

Another means to assess your company's potential in exporting is by examining the unique or
important features of your product. If those features are hard to duplicate abroad, then it is likely
that you will be successful overseas. A unique product may have little competition and demand
for it might be quite high.

Finally, your product may have export potential even if there are declining sales in the
NATIONAL. market. Sizeable export markets may still exist, especially if the product once did well
in the United States but is now losing market share to more technically advanced products. Other
countries may not need state-of-the-art technology and/or may be unable to afford the most
sophisticated and expensive products. Such markets may have a surprisingly healthy demand for
NATIONAL. products that are older or considered obsolete by NATIONAL. market standards.

Assessing Your Company's Export Readiness

Answering these general questions about how exporting will enhance into your company's short,
medium and long-term goals will help determine your company's readiness to export:

• What does the company want to gain from exporting?

• Is exporting consistent with other company goals?
• What demands will exporting place on the company's key resources, management and
personnel, production capacity, and finance and how will these demands be met?
• Are the expected benefits worth the costs, or would company resources be better used
for developing new domestic business?
Developing an Export Plan

Once you have decided to sell your products abroad, it is time to develop an export plan. A
crucial first step in planning is to develop broad consensus among key management on the
company's goals, objectives, capabilities, and constraints. In addition, all aspects of an export
plan should be agreed upon by the personnel involved in the exporting process, as they will
ultimately execute the export plan.

The purposes of the export plan are (a) to assemble facts, constraints, and goals and (b) to
create an action statement that takes all of these into account. The statement includes specific
objectives, it sets forth time schedules for implementation, and it marks milestones so that the
degree of success can be measured and help motivate personnel.

At least the following ten questions should ultimately be addressed:

1. Which products are selected for export development? What modifications, if any, must be
made to adapt them for overseas markets?
2. Which countries are targeted for sales development?
3. In each country, what is the basic customer profile? What marketing and distribution
channels should be used to reach customers?
4. What special challenges pertain to each market (competition, cultural differences, import
controls, etc.), and what strategy will be used to address them?
5. How will the product's export sale price be determined?
6. What specific operational steps must be taken and when?
7. What will be the time frame for implementing each element of the plan?
8. What personnel and company resources will be dedicated to exporting?
9. What will be the cost in time and money for each element?
10. How will results be evaluated and used to modify the plan?

The first time an export plan is developed, it should be kept simple. It need be only a few pages
long, since important market data and planning elements may not yet be available. The initial
planning effort itself gradually generates more information and insight. As the planners learn more
about exporting and your company's competitive position, the export plan will become more
detailed and complete From the start, the plan should be viewed and written as a management
tool, not as a static document. Objectives in the plan should be compared with actual results to
measure the success of different strategies. The company should not hesitate to modify the plan
and make it more specific as new information and experience are gained.
A detailed plan is recommended for companies that intend to export directly. Companies
choosing indirect export methods may require much simpler plans. For more information on
different approaches to exporting and their advantages and disadvantages, NOTE: Many
companies begin export activities hap-hazardly, without carefully screening markets or options for
market entry. While these companies may or may not have a measure of success, they may
overlook better export opportunities. If early export efforts are unsuccessful because of poor
planning, your company may be misled into abandoning exporting altogether. Formulating an
export strategy based on good information and proper assessment increases the chances that
the best options will be chosen, that resources will be used effectively, and that efforts will
consequently be carried through to success.

Developing a Marketing Plan

As you can imagine, many foreign markets differ greatly from the United States. Some
differences include climatic and environmental factors, social and cultural factors, local availability
of raw materials or product alternatives, lower wage costs, varying amounts of purchasing power,
the availability of foreign exchange, and government import controls. Once you have decided that
your company is able and committed to exporting, the next step is to develop a marketing plan.
A clearly written marketing strategy offers six immediate benefits:

1. Because written plans display strengths and weaknesses more readily, they are a great
help in formulating and polishing an export strategy.
2. Written plans are not easily forgotten, overlooked, or ignored by those charged with
executing them. If deviation from the original plan occurs, it is likely to be due to a
deliberate and thoughtful choice.
3. Written plans are easier to communicate to others and are less likely to be
misunderstood.
4. Written plans allocate responsibilities and provide for an evaluation of results.
5. Written plans are helpful when seeking financial assistance. They indicate to lenders that
you have a serious approach to the export venture.
6. Written plans give management a clear understanding of what will be required of them
and thus help to ensure a commitment to exporting. Actually, a written plan signals that
the decision to export has already been made.

This last advantage is especially noteworthy. Building an international business takes time. It
usually takes months, sometimes even several years, before an exporting company begins to see
a return on its investment of time and money. By committing to the specifics of a written plan, top
management can make sure that the firm will finish what it begins and that the hopes that
prompted its export efforts will be fulfilled.

Market Research

To successfully export your product, you should examine foreign markets through research. The
purpose is to identify marketing opportunities and constraints abroad, as well as to identify
prospective buyers and customers.

Market research encompasses all methods that a company can use to determine which foreign
markets have the best potential for its products. Results of this research inform the firm of: the
largest markets for its product, the fastest growing markets, market trends and outlook, market
conditions and practices, and competitive firms and products.
Your firm may begin to export without conducting any market research if it receives unsolicited
orders from abroad. Although this type of selling is valuable, the company may discover even
more promising markets by conducting a systematic search. If your firm opts to export indirectly
by using an intermediary such as an Export Management Company (EMC) or Export Trading
Company (ETC), you may wish to select markets to enter before selecting the intermediary.
Because many intermediaries such as EMCs and ETCs have strengths in certain markets, it is
valuable to select the intermediary after deciding on markets to enter. You may also want to do
market research if you export indirectly.

A firm may research a market by using either primary or secondary data resources. In conducting
primary market research, a company collects data directly from the foreign marketplace through
interviews, surveys, and other direct contact with representatives and potential buyers. Primary
market research has the advantage of being tailored to the company's needs and provides
answers to specific questions, but the collection of such data is time-consuming and expensive.

When conducting secondary market research, a company collects data from various sources,
such as trade statistics for a country or a product. Working with secondary sources is less
expensive and helps the company focus its marketing efforts. Although secondary data sources
are critical to market research, they do have limitations. The most recent statistics for some
countries may be more than two years old. Moreover, the data may be too broad to be of much
value to a company. Statistics may also be distorted by incomplete data-gathering techniques.
Finally, statistics for services are often unavailable. Yet, even with these limitations, secondary
research is a valuable and relatively easy first step for a company to take. It may be the only step
needed if the company decides to export indirectly, since the intermediary firm may have
advanced research capabilities.

Methods of Market Research

Because of the expense of primary market research, most firms rely on secondary data sources.
The three following recommendations will help you obtain useful secondary information:

1. Keep abreast of world events that influence the international marketplace, watch for
announcements of specific projects, or simply visiting likely markets. For example, a
thawing of political hostilities often leads to the opening of economic channels between
countries.
 2. Analyze trade and economic statistics. Trade statistics are generally compiled by product
category and by country. These statistics provide the NATIONAL. firm with information
concerning shipments of products over specified periods of time. Demographic and
general economic statistics, such as population size and makeup, per capita income, and
production levels by industry can be important indicators of the market potential for a
company's products.
3. Obtain advice from experts. There are several ways of obtaining this advice:

• Contact experts at the NATIONAL. Department of Commerce and other

government agencies.
• Attend seminars, workshops, and international trade shows.
• Hire an international trade and marketing consultant.
• Talk with successful exporters of similar products.
• Contact trade and industry association staff.

Gathering and evaluating secondary market research can be complex and tedious. However,
several publications are available that can help simplify the process. The following approach to
market research refers to these publications and resources that are described later in this
chapter.

A Step-by-Step Approach to Market Research

Your company may find the following approach useful. It involves screening potential markets,
assessing the targeted markets, and drawing conclusions.

A. Screen Potential Markets

• Step 1. Obtain export statistics that indicate product exports to various countries.
Published export statistics provide a reliable indicator of where NATIONAL. exports are
currently being shipped. The NATIONAL. Census Bureau provides these statistics in a
published format. Trade statistics also can be obtained using the National Trade Data
Bank (NTDB).
• Step 2. Identify five to ten large and fast-growing markets for the firm's product. Look at
them over the past three to five years. Has market growth been consistent year to year?
 Did import growth occur even during periods of economic recession? If not, did growth
resume with economic recovery?
• Step 3. Identify some smaller but fast-emerging markets that may provide ground-floor
opportunities. If the market is just beginning to open up, there may be fewer competitors
than in established markets. Growth rates should be substantially higher in these
countries to qualify as up-and-coming markets, given the lower starting point.
• Step 4. Target three to five of the most statistically promising markets for further
assessment. Consult with a Department of Commerce Export Assistance Center
(business associates, freight forwarders, and others to further evaluate targeted markets.

B. Assess Targeted Markets

• Step 1. Examine trends for company products as well as related products, that could
influence demand. Calculate overall consumption of the product and the amount
accounted for by imports. The National Trade Data Bank (NTDB)and the National
Technical Information Service (NTIS) offer Industry Sector Analyses (ISAs), Country
Commercial Guides (CCGs), and other reports that give economic backgrounds and
market trends for each country. Demographic information (such as population and age)
can be obtained from World Population (Census) and Statistical Yearbook (United
Nations).
• Step 2. Ascertain the sources of competition, including the extent of domestic industry
production and the major foreign countries the firm is competing against in each targeted
market by using ISAs and competitive assessments. This information is available from
the NTDB and the NTIS. Look at each competitor's NATIONAL. market share.
• Step 3. Analyze factors affecting marketing and use of the product in each market, such
as end-user sectors, channels of distribution, cultural idiosyncrasies, and business
practices. Again, the ISAs and Customized Market Analyses (CMAs) offered by the
Department of Commerce are useful.
• Step 4. Identify any foreign barriers (tariff or non tariff) for the product being imported into
the country (identify any NATIONAL. barriers (such as export controls) that affect exports
to the country.
• Step 5. Identify any NATIONAL. or foreign government incentives that promote
exporting of your particular product or service
• C. Draw Conclusions

After analyzing the data, the company may conclude that its marketing resources would be
applied more effectively to a few countries. In general, if the company is new to exporting, then
efforts should be directed to fewer than ten markets. Exporting to one or two countries will allow
the company to focus its resources without jeopardizing its domestic sales efforts. The company's
internal resources should determine its level of effort.

The next section describes the publications that have been mentioned as well as additional
sources. Because there are many research sources, the firm may wish to seek advice from their
local Export Assistance Center).

Sources of Market Research

There are many domestic, foreign, and international sources of information concerning foreign
markets. Several of these sources are given here and others may be found in the bibliography to
this publication. This information ranges from simple trade statistics to in-depth market surveys.

Trade statistics indicate total exports or imports by country and by product. They allow an
exporter to compare the size of the market for a product in various countries. Some statistics also
reflect the NATIONAL. share of the total country market in order to gauge the overall
competitiveness of NATIONAL. producers. By looking at statistics over several years, an exporter
can determine which markets are growing and those that are shrinking.

Market surveys provide a narrative description and assessment of particular markets along with
relevant statistics. The reports are often based on original research conducted in the countries
studied and may include specific information on both buyers and competitors.

The following sources fall into two broad categories: 1) general information resources, and 2)
industry and country specific resources. Each category is also divided into several subgroups.

One of the best sources of information is personal interviews with private and government
officials and experts. A surprisingly large number of people in both the public and private sectors
are available to assist exporters in any aspect of international market research. Either in face-to-
face interviews or by telephone, these individuals can provide a wealth of market research
information.

In the private sector, sources of market research expertise include local chambers of commerce,
world trade centers or clubs, and trade associations. Most state governments maintain active
export promotion offices. In the federal government, industry and commodity experts are
available through the Departments of Commerce, State and Agriculture, and the Small Business
Administration (SBA).

General Information

• Business America. This monthly publication of the Department of Commerce contains

country-by-country marketing reports, incisive economic analyses, worldwide trade leads,
advance notice of planned exhibitions of NATIONAL. products worldwide, and success
stories of export marketing.
• Commerce Business Daily (CBD). CBD is published daily, Monday through Friday
(except holidays), by the Department of Commerce. It lists government procurement
invitations over $25,000, contract awards, subcontracting leads, sales of surplus
property, and foreign business opportunities, as well as certain foreign government
procurements. It is available by subscription and on-line (electronically). This information
center was established as a comprehensive source for NATIONAL. companies seeking
information on federal programs and activities that support NATIONAL. exports, including
information on overseas markets and industry trends. The center maintains a
computerized calendar of NATIONAL. government-sponsored domestic and overseas
trade events.
• Trade Information Center. This information center was established as a comprehensive
source for NATIONAL. companies seeking information on federal programs and activities
that support NATIONAL. exports, including information on overseas markets and industry
trends. This center maintains a computerized calendar of NATIONAL. Government-
sponsored domestic and overseas trade events.
• Economic Bulletin Board (EBB). EBB is a great resource for business, economic, and
trade information on a daily basis in a traditional dial-up platform. You can connect to this
vast collection of information and download trade leads, market research reports, and the
Commerce Business Daily via your computer. Subscription costs are low and vary,
depending on which information you choose to access.
• The National Trade Data Bank (NTDB). The NTDB is one of the primary sources of
export information from the federal government. The NTDB is a must-have resource,
gathering trade information from over 20 different government agencies into one place.
The NTDB is a low-cost business service run by the Department of Commerce, which
provides market research reports, Country Commercial Guides, contacts overseas, trade
statistics, policy and trade practices, legal ramifications of exporting, an export promotion
calendar, and publications (for example, A Basic Guide to Exporting and SBA's Breaking
 into the Trade Game). The NTDB is updated daily on the Internet) and updated monthly
on CD-ROM. The CD-ROM version is avail-able to use for at over 1,000 federal
depository libraries throughout the country.
• STATUS: A comprehensive collection of business, economic and trade information
available on the Web. Through this address you can access the NTDB, daily trade leads
and economic news, the Commerce Business Daily and the latest economic press
releases and statistical series from the federal government.
• STAT-USA:This fax on demand service providing instant hard copy of business and
economic information from the federal government. All releases are available 24 hours a
day, seven days a week. The most popular fax documents include the daily trade leads
and numerous NATIONAL. government economic press releases.
• TRADESTATS. A comprehensive source for NATIONAL. export and import data, both
current and historical. Maintained by the Commerce Department's Office of Trade and
Economic Analysis, this web site contains total and disaggregated NATIONAL. trade
statistics by country and commodity classifications, state and metropolitan area export
data, and trade and industry statistics. Much of this data is downloadable. The Web site
address is
• Selected SBA market research-related general resources. The Small Business
Administration publishes many helpful guides to assist small and medium-sized
companies, including: Marketing for Small Business: An Overview, Researching Your
Market, Breaking into the Trade Game, or the videos Marketing: Winning Customers with
a Workable Plan, The Basics of Exporting. Contact the Small Business Answer Desk,

International Information

• UN Statistical Yearbook. Published by the United Nations (UN), this yearbook is one of
the most complete statistical reference books available. It provides international trade
information on products, including information on importing countries useful in assessing
import competition. The yearbook contains data for 220 countries and territories on
economic and social subjects, including population, agriculture, manufacturing,
commodity, export-import trade, and many other areas. The most current addition is from
1993; it is available in hard copy and CD-ROM.
• World Bank Atlas. The World Bank Atlas provides demographics, gross domestic
product, and average growth rates for every country. The latest edition, 1997, covers
data through 1996.
 • World Fact book. Produced annually by the CIA, this publication provides country-by-
country data on demographics, economy, communications, and defense. The data is
available through a subscription to the NTDB .
• International Financial Statistics (IFS). Published by the International Monetary Fund,
IFS presents statistics on exchange rates, money and banking, production, government
finance, interest rates, and other subjects. It is available in hard copy as a monthly
subscription or on CD-ROM. Contact the International Monetary Fund,
• World Population Profile. This valuable resource is produced by the Bureau of the
Census of the NATIONAL. Department of Commerce. Census collects and analyzes
worldwide demographic data that can help exporters identify potential markets for their
products. Information on each country - total population, fertility, mortality, urban
population, growth rate, and life expectancy - is updated every two years. The document
also contains detailed demographic profiles of individual countries, including analysis of
labor force structure, and infant mortality.

Making the Government Work for You

Now that you have had an opportunity to examine some of the complex factors involved in an
exporting and marketing plan, you may choose to look for advice or assistance. Advice and
assistance are available to your company at little or no cost. This chapter gives a brief overview
of assistance available through federal, state, and local government agencies, as well as in the
private sector. Other chapters in this guide will provide more information on the specialized
services of these organizations and how to use them.

You may feel overwhelmed at first by the number of sources of advice available. Although it is not
necessary to use all of these resources, it is valuable to know at least a little about each of them.
Each organization contacted can contribute different perspectives based on different experience
and skills.

Assistance Sources
The Trade Information Center,
NATIONAL. Department of Commerce

The Trade Information Center (TIC) is an excellent source for export assistance. The TIC
operates the toll free 1-800-USA-TRADE (1-800-872-8723) number for the Department of
Commerce and is a comprehensive resource for information on federal export assistance
programs. TIC staff can provide your company with information on 1) locating and using
government programs, 2) the export process, 3) sources of general market information, and 4)
basic export counseling. TIC trade specialists also answer technical questions on how to access
reports and statistics from the computerized National Trade Data Bank (NTDB). You may also
request a free copy of the Export Programs Guide: A Business Guide to Federal Export
Assistance, which describes the programs of the 20 federal agencies involved in exporting.
NATIONAL. Department of Commerce

The NATIONAL. and Commercial Service (the Commercial Service) of the Department of
Commerce has developed and maintains a network of international trade specialists in the United
States to help American companies export their products and conduct business abroad. Trade
specialists operate offices known as Export Assistance Centers (EACs) located in almost 100
cities in the NATIONAL. and Puerto Rico that assist small and medium-sized companies. EACs
are known as "one-stop shops" because they combine the trade and marketing expertise and
resources of the Commercial Service along with the finance expertise and resources of the Small
Business Administration (SBA) and the Export-Import Bank (Ex-Im Bank). Thus they provide
companies with a wide array of services in one location). EACs also maximize resources by
working closely with state and local government as well as private partners to offer companies a
full range of expertise in international trade, marketing and finance.

Trade specialists will counsel your company on the steps involved in exporting, help you assess
the export potential of your products, identify markets, and locate potential overseas partners.

Each EAC can offer information about:

• Services to locate and evaluate overseas buyers and representatives;

• International trade opportunities abroad;;
• Foreign markets for NATIONAL. products and services;
• Foreign economic statistics;
• Export documentation requirements;
• NATIONAL. export licensing and foreign nation import requirements;
• Export trade financing options;
• International trade exhibitions, and;
• Export seminars and conferences.
Export Intermediaries

Export intermediaries are of many different types, ranging from giant international companies to
highly specialized, small operations. They provide a multitude of services, such as performing
market research, appointing overseas distributors or commission representatives, exhibiting a
client's products at international trade shows, advertising, shipping, and arranging documentation.
In short, the intermediary can often take full responsibility for the export end of the business,
relieving the manufacturer of all the details except filling orders.

Intermediaries may work simultaneously for a number of exporters on the basis of commissions,
salary, or retainer plus commission. Some take title to the goods they handle, buying and selling
in their own right. Products of a trading company's clients are often related, although the items
usually are noncompetitive. One advantage of using an intermediary is that it can immediately
make available marketing resources that a smaller firm would need years to develop on its own.
Many export intermediaries also finance sales and extend credit, facilitating prompt payment to
the exporter.

World Trade Centers and International Trade Clubs

Local or regional world trade centers and international trade clubs are composed of area
business people who represent firms engaged in international trade and shipping, banks,
forwarders, customs brokers, government agencies, and other service organizations involved in
world trade. These organizations conduct educational programs on international business and
organize promotional events to stimulate interest in world trade. There are 320 world trade
centers or affiliated associations located in major trading cities throughout the world. By
participating in a local association, a company can receive valuable and timely advice on world
markets and opportunities from business people who are already knowledgeable on virtually any
facet of international business. Another important advantage of membership in a local world trade
club is the availability of benefits - such as services, discounts, and contacts - from affiliated clubs
in foreign countries.
Chambers of Commerce and Trade Associations

Many local chambers of commerce and major trade associations in the United States provide
sophisticated and extensive services for members interested in exporting. Among these services
are the following:

• Conducting export seminars, workshops, and roundtables;

• Providing certificates of origin;
• Developing trade promotion programs, including overseas missions, mailings, and event
planning;
• Organizing NATIONAL. pavilions in foreign trade shows;
• Providing contacts with foreign companies and distributors;
• Relaying export sales leads and other opportunities to members;
• Organizing transportation routings and shipment consolidations;
• Hosting visiting trade missions from other countries;
• Conducting international activities at domestic trade shows;

In addition, some industry associations can supply detailed information on market demand for
products in selected countries or refer members to export management companies. Industry
trade associations typically collect and maintain files on international trade news and trends
affecting manufacturers. They often publish articles and newsletters that include government
research.

American Chambers of Commerce Abroad

A valuable and reliable source of market information in any foreign country is the local chapter of
the American Chamber of Commerce. These local chapters are knowledgeable about local trade
opportunities, actual and potential competition, periods of maximum trade activity, and similar
considerations.

American Chambers of Commerce abroad usually handle inquiries from any NATIONAL.
business. However, detailed service is ordinarily provided free of charge for members of affiliated
organizations. Some chambers have a set schedule of charges for services rendered to non-
members. For contact information on American chambers in major foreign markets, call 1-800-
USA-TRADE.
International Trade Consultants and Other Advisers

International trade consultants can advise and assist a manufacturer on all aspects of foreign
marketing. Trade consultants do not normally deal specifically with one product, although they
may advise on product adaptation to a foreign market. They research domestic and foreign
regulations and also assess commercial and political risk. They conduct foreign market research
and establish contacts with foreign government agencies and other necessary resources, such as
advertising companies, product service facilities, and local attorneys.

These consultants can locate and qualify foreign joint venture partners, as well as conduct
feasibility studies for the sale of manufacturing rights, the location and construction of
manufacturing facilities, and the establishment of foreign branches. After sales agreements are
completed, trade consultants can also ensure that implementation is smooth and that any
problems that arise are dealt with effectively.

Trade consultants usually specialize by subject matter and by global area or country. Their
consultants can advise on which agents or distributors are likely to be successful, what kinds of
promotion are needed, who the competitors are, and how to conduct business with them. They
are also knowledgeable about foreign government regulations, contract laws, and taxation. Some
firms may also be more specialized than others. For example, some may be thoroughly
knowledgeable on legal aspects and taxation and less knowledgeable on marketing strategies.

Many large accounting firms, law firms, and specialized marketing firms provide international
trade consulting services. When selecting a consulting firm, the exporter should pay particular
attention to the experience and knowledge of the consultant who is in charge of its project. To find
an appropriate firm, advice should be sought from other exporters and some of the other
resources listed in this chapter, such as the Export Assistance Centers and local chambers of
commerce.

Consultants are of greatest value to a firm that has specific requirements. For this reason, and
because private consultants are expensive, it pays to take full advantage of publicly funded
sources of advice before hiring a consultant.

Export Seminars

In addition to individual counseling sessions, an effective method of informing local business

communities of the various aspects of international trade is through the conference and seminar
program. Each year, EACs participate in approximately 5,000 conferences, seminars, and
workshops on topics such as export documentation and licensing procedures, country-specific
market opportunities, export trading companies, and NATIONAL. trade promotion and trade
policy initiatives. The seminars are usually held in conjunction with DECs, local chambers of
commerce, state agencies, and other trade organizations. SBA field offices also co-sponsor
export training programs with the Department of Commerce, other federal agencies, and various
private sector international trade organizations..

Chapter-4

1. Practice in the company

Developing an Export Strategy

The most common methods of exporting are indirect selling and direct selling . In indirect selling,
an export intermediary such as an export management company (EMC) or an export trading
company (ETC) normally assumes responsibility for finding overseas buyers, shipping products,
and getting paid. In direct selling, the NATIONAL. producer deals directly with a foreign buyer.
The paramount consideration in determining whether to market indirectly or directly is the level of
resources a company is willing to devote to its international marketing effort. Other factors to
consider when deciding whether to market indirectly or directly include:

• The size of your firm;

• The nature of your products;
• Previous export experience and expertise;
 • Business conditions in the selected overseas markets.

Approaches to Exporting

The way your company chooses to export its products can have a significant effect on its export
plan and specific marketing strategies. The basic distinction among approaches to exporting
relates to the company's level of involvement in the export process. There are at least four
approaches, which may be used alone or in combination:

1. Passively filling orders from domestic buyers who then export the product. These
sales are indistinguishable from other domestic sales as far as the original seller is
concerned. Someone else has decided that the product in question meets foreign
demand. That party takes all the risk and handles all of the exporting details, in some
cases without even the awareness of the original seller. (Many companies take a
stronger interest in exporting when they discover that their product is already being sold
over-seas.)
2. Seeking out domestic buyers who repre-sent foreign end users or customers.
Many NATIONAL. and foreign corporations, general contractors, foreign trading
companies, foreign government agencies, foreign distributors and retailers, and others in
the United States purchase for export. These buyers are a large market for a wide variety
of goods and services. In this case a company may know its product is being exported,
but it is still the buyer who assumes the risk and handles the details of exporting.
3. Exporting indirectly through intermediaries. With this approach, a company engages
the services of an intermediary firm capable of finding foreign markets and buyers for its
products. EMCs, ETCs, international trade consultants, and other intermediaries can give
the exporter access to well-established expertise and trade contacts. Yet, the exporter
can still retain considerable control over the process and can realize some of the other
benefits of exporting, such as learning more about foreign competitors, new technologies,
and other market opportunities.
4. Exporting directly. This approach is the most ambitious and difficult, since the exporter
personally handles every aspect of the exporting process from market research and
planning to foreign distribution and collections. Consequently, a significant commitment of
management time and attention is required to achieve good results. However, this
approach may also be the best way to achieve maximum profits and long-term growth.
With appropriate help and guidance from the Department of Commerce, state trade
offices, freight forwarders, international banks, and other service groups, even small or
medium-sized firms can export directly if they are able to commit enough staff time to the
 effort. For those who cannot make that commitment, the services of an EMC, ETC, trade
consultant, or other qualified intermediary are indispensable.

Approaches 1 and 2 represent a substantial proportion of total NATIONAL. Sales, perhaps as

much as 30 percent of NATIONAL. exports. They do not, however, involve the firm in the export
process. There is no single source or special channel for identifying domestic buyers for overseas
markets. In general, they may be found through the same means that NATIONAL. Buyers are
found, for example through trade shows, mailing lists, industry directories, and trade
associations.)

If the nature of the company's goals and resources makes an indirect method of exporting the
best choice, little further planning may be needed. In such a case, the main task is to find a
suitable intermediary firm that can then handle most export details. Firms that are new to
exporting or are unable to commit staff and funds to more complex export activities may find
indirect methods of exporting more appropriate.

However, using an EMC or other intermediary does not exclude all possibility of direct exporting
for your firm. For example, your company may try exporting directly to such "easy" nearby
markets as Canada, Mexico, or the Bahamas while letting an EMC handle more ambitious sales
to Egypt or Japan. You may also choose to gradually increase the level of direct exporting later,
after experience has been gained and sales volume appears to justify added investment.

Consulting advisers before making these decisions can be helpful. The next chapter presents
information on a variety of organizations that can provide this type of help - in many cases, at no
cost.

Import Regulations of Foreign Governments

Import documentation requirements and other regulations imposed by foreign

governments vary from country to country. It is vital that exporters be aware of the
regulations that apply to their own operations and transactions. Many governments, for
instance, require consular invoices, certificates of inspection, health certification, and
various other documents. For sources of information about foreign government import
regulations,

Customs Benefits for Exporters

Drawback of Customs Duties

Historically, the word "drawback" has denoted a situation in which the duty or tax, lawfully
collected, is refunded or remitted, wholly, or partially, because of a particular use made of
the commodity on which the duty or tax was collected.

Drawback was initially authorized by the first tariff act of the United States in 1789. Since
then, it has been part of the law, although from time to time the conditions under which it
is payable have changed.

The rationale for drawback has always been to encourage American commerce or
manufacturers to compete in foreign markets without the handicap of including costs, and
consequently in his sales price, the duty paid on imported merchandise.

Types of Drawback

Several types of drawback are authorized under section 1313, Title 19, United States
Code:

1. If articles are exported or destroyed, which were manufactured in the United

States with the use of imported merchandise, then the duties paid on the
imported merchandise used may be refunded as drawback, (less 1 percent which
is retained by the NATIONAL. Customs Service (Customs) to defray costs
(section 1313(a) drawback).
2. If both imported merchandise and any other merchandise of the same kind and
quality are used to manufacture articles, some of which are exported or
destroyed before use, then drawback not exceeding 99 percent of the duty which
was paid on the imported merchandise is payable on the exports. It is immaterial
whether the actual imported merchandise or the domestic merchandise of the
same kind and quality was used in the exported articles. This provision in the
code makes it possible for firms to obtain drawback without the expense of
maintaining separate inventories for imported and domestic merchandise
(section 1313(b) drawback - the substitution provision).
3. If merchandise is exported or destroyed because it does not conform with sample
or specifications, or was shipped without the consent of the consignee, then 99
percent of the duties which were paid on the merchandise may be recovered as
drawback.
4. When certain products manufactured with the use of domestic alcohol are
exported or shipped to various island possessions, a drawback of the internal
 revenue taxes paid on the domestic alcohol may be refunded (section 1313(e)
drawback).
5. If imported salt is used to cure fish, the duties on the salt may be remitted
(section 1313(e) drawback).
6. If imported salt is used to cure meat which is exported, a drawback, in amounts
not less than $100, of duties paid on the salt may be obtained (section 1313(f)
drawback).
7. If imported materials are used to construct and equip vessels and aircraft built for
foreign account and ownership, 99 percent of the duties paid on the materials
may be recovered as drawback, even though the vessels and aircraft are not, in
the strict meaning of the word, exported (section 1313(g) drawback).
8. If imported merchandise is used in the United States to repair jet aircraft engines
originally manufactured abroad, the duties paid on the imported merchandise
may be recovered as drawback, in the amounts not less than $100, when the
engines are exported (section 1313(h) drawback).
9. If imported merchandise is exported without being used, or destroyed under
Customs supervision, 99 percent of the duties paid on the merchandise may be
recovered as drawback (section 1313(j) drawback).

If merchandise that is commercially interchangeable with imported merchandise is

exported or destroyed under Customs supervision and at the time of exportation or
destruction has not been used, 99 percent of the duties on the merchandise may be
recovered as drawback (section 1313(j) drawback).

Packaging material used to package merchandise exported or destroyed under section

1313(a), (b), (c), or (j), may receive 99 percent of the duties paid on the packaging
materials as drawback (section 1313(q) drawback).

How to Obtain Drawback

As most manufacturers are interested in sections 1313(a) and (b), only the procedures
for obtaining drawback under these provisions are discussed.

The purpose of drawback is to enable a manufacturer to compete in foreign markets. To

do so, however, the manufacturer must know, prior to making contractual commitments,
that he will be entitled to drawback on his exports. The drawback procedure has been
designed to give the manufacturer this assurance and protection.
Drawback Proposal

To obtain drawback, first prepare a drawback proposal (statement) and file it with a
Regional Commissioner of Customs for section 1313(a) drawback and with the Entry
Rulings Branch, Customs headquarters, for other types of drawback, including
combination 1313(a) and (b) drawback.

There are currently several general drawback contracts available (orange juice, steel,
sugar, component parts, and grieve goods) which eliminate the need for submission of a
proposal. These have been published in the Customs Bulletin and Decisions with
instructions as to the procedure for adhering to them.

Approval

The approval of section 1313(a) proposal takes the form of a letter from a Regional
Commissioner of Customs to the applicant. The approval of a section 1313(b) drawback
proposal takes the form of a letter from NATIONAL. Customs Service headquarters to the
Regional Commissioner of Customs where the applicant will file claims. The applicant
receives a copy of this letter. Synopses of all contracts are published in the Customs
Bulletin and Decisions The proposal and approval together is called a drawback contract
or drawback rate.

If the manufacturer desires to have his contract (rate) changed in any way, he should file
a new proposal (statement) and the procedure is the same as above.

Completion of Drawback Claims

Claims must be filed within three years after the exportation of the articles. To prevent
tolling by the statute of limitations, a claim may be filed before a drawback contract (rate)
is effective, although no payments will be made until the contract is approved. For
completion of same condition

Export Procedure

It is necessary for a drawback claimant to establish that the articles on which drawback is
being claimed were exported within five years after importation of the imported
merchandise which is the basis for the drawback. In the case of same condition
drawback, the time period for exportation is three years after importation. There are three
methods which can be used to do so, and these are described in sections 191.51 through
191.56 of the Customs Regulations. Before exporting, a future claimant should make
certain that he is taking the necessary steps to comply with one of these procedures.

Export of qualified NATIONAL.-made petroleum products may be shown by matching

production at a specific refinery with exports of qualified petroleum of the same kind and
quality that occur within 180 days after the refinery produced the designated petroleum
product.

Export of qualified imported petroleum products may be shown by matching the amount
imported with exports of qualified petroleum products of the same kind and quality that
occur within 180 days after the import (section 1313(p) drawback).

Payment of Claims

When a claim has been completed by the filing of all required documents, the entry will
be liquidated by the Regional Commissioner of Customs to determine the amount of
drawback due. Drawback is payable to the exporter unless the manufacturer reserves to
himself the right to claim the drawback.

Accelerated Payment

Accelerated payment of drawback under certain conditions is authorized by section

192.72 of the Customs Regulations. Accelerated payment generally will ensure that a
claimant will receive his drawback no later than two months after he files a claim.
Accelerated drawback currently applies to same condition drawback.

Effect of the North American Free Trade Agreement

The North American Free Trade Agreement (NAFTA) provisions on drawback will apply
to goods imported into the United States and subsequently exported to Canada on or
after January 1, 1996. The NAFTA provisions on drawback will apply to goods imported
into the United States and subsequently exported to Mexico on or after January 1, 2001.

Drawback
Under the NAFTA, the amount of Customs duties that will be refunded, reduced, or
waived is the lesser of the total amount of Customs duties paid or owed on the finished
good in the NAFTA country to which it is exported, for purposes of sections 1313(a), (b),
(f), (h), and (g).

No NAFTA country, on condition of export, will refund, reduce, or waive the following:
antidumping or countervailing duties, premiums offered or collected pursuant to any
tendering system with respect to the administration of quantitative import restrictions,
tariff rate quotas or trade preference levels, or a fee pursuant to section 22 of the
NATIONAL. Agricultural Adjustment Act. Moreover, same condition substitution drawback
was eliminated as of January 1, 1994.

NATIONAL. Foreign-Trade Zones

Exporters should also consider the customs privileges of NATIONAL. foreign-trade

zones. These zones are domestic NATIONAL. sites that are considered outside
NATIONAL. customs territory and are available for activities that might otherwise be
carried on overseas for customs reasons. For export operations, the zones provide
accelerated export status for purposes of excise tax rebates and customs drawback. For
import and re export activities, no customs duties, federal excise taxes, or state or local
ad valorem taxes are charged on foreign goods moved into zones unless and until the
goods, or products made from them, are moved into customs territory. This means that
the use of zones can be profitable for operations involving foreign dutiable materials and
components being assembled or produced here for re export. Also, no quota restrictions
ordinarily apply to export activity.

There are now 217 approved foreign-trade zones in port communities throughout the
United States. Associated with these projects are some 356 sub zones. These facilities
are available for operations involving storage, repacking, inspection, exhibition,
assembly, manufacturing, and other processing.

More than 2,800 business firms used foreign-trade zones in fiscal year 1995. The value
of merchandise moved to and from the zones during that year exceeded $143 billion.
Export shipments from zones and sub zones amounted to nearly $17 billion.

Information about the zones is available from the zone manager, from local Commerce
Export Assistance Centers, or from the Executive Secretary, Foreign-Trade Zones Board,
International Trade Administration, NATIONAL. Department of Commerce, and
Washington, D.C. 20230.

Foreign Free Port and Free Trade Zones

To encourage and facilitate international trade, more than 300 free ports, free trade
zones, and similar customs-privileged facilities are now in operation in some 75 foreign
countries, usually in or near seaports or airports. Many NATIONAL. manufacturers and
their distributors use free ports or free trade zones for receiving shipments of goods that
are reshipped in smaller lots to customers throughout the surrounding areas.

NATIONAL. Customs Bonded Warehouse

A Customs bonded warehouse is a building or other secured area in which dutiable

goods may be stored, manipulated , or undergo manufacturing operations without
payment of duty. Authority for establishing bonded storage warehouses is set forth in
Title 19. United States Code (NATIONAL.C.) section 1555. Bonded manufacturing and
smelting and refining warehouses are established under Title 19, NATIONAL.C., sections
1311 and 1312.

Upon entry of good into the warehouse, the importer and warehouse proprietor incur
liability under a bond. The liability is canceled when the goods are:

o Exported;
o Withdrawn for supplies to a vessel or aircraft in international traffic;
o Destroyed under Customs supervision; or
o Withdrawn for consumption within the United States after payment of duty.

Types of Customs Bonded Warehouses

Nine different types or classes of Customs bonded warehouses are authorized under
section 19.1, Customs Regulations (19 CFR 19.1):
 1. Premises owned or leased by the government and used for the storage of
merchandise that is undergoing Customs examination, is under seizure, or is
pending final release from Customs custody. Unclaimed merchandise stored in
such premises shall be held under "general order." When such premises are not
sufficient or available for the storage of seized or unclaimed goods, such goods
may be stored in a warehouse of class 3,4,or 5;
2. Importers' private bonded warehouses used exclusively for the storage of
merchandise belonging or consigned to the proprietor thereof. A class 4 or 5
warehouse may be bonded exclusively for the storage of goods imported by the
proprietor thereof, in which case it should be known as a private bonded
warehouse;
3. Public bonded warehouse used exclusively for the storage of imported
merchandise;
4. Bonded yards or sheds for the storage of heavy and bulky imported
merchandise; stables, feeding pens, or corrals, or other similar buildings or
limited enclosures for the storage of imported animals; and tanks for storage of
imported liquid merchandise in bulk;
5. Bonded bins or parts of buildings or elevators to be used for the storage of grain;
6. Warehouses for the manufacture in bond, solely for exportation, of articles made
in whole or in part of imported materials or of materials subject to internal
revenue tax; and for the manufacture for home consumption or exportation of
cigars made in whole of tobacco imported from one country;
7. Warehouses bonded for smelting and refining imported metal-bearing materials
for exportation or domestic consumption;
8. Bonded warehouses established for the cleaning, sorting, repacking, or
otherwise changing the condition of, but not the manufacturing of, imported
merchandise, under Customs supervision, and at the expense of the proprietor;
9. Bonded warehouses, known as duty-free stores, used for selling conditionally
duty-free merchandise for use outside the Customs territory. Merchandise in this
class must be owned or sold by the proprietor and delivered from the warehouse
to an airport or other exit point for exportation by, or on behalf of, individuals
departing from the Customs territory for foreign destinations.

Advantages of Using a Bonded Warehouse

There are several advantages of using a bonded warehouse. No duty is collected until
merchandise is withdrawn for consumption. An importer, therefore, has control over use
of money until the duty is paid upon withdrawal of merchandise from the bonded
warehouse. If no domestic buyer is found for the imported articles, the importer can sell
merchandise for exportation, thereby canceling his obligation to pay duty.

Many items subject to quota or other restrictions may be stored in a bonded warehouse.
Check with the nearest Customs office before assuming that such merchandise may be
placed in a bonded warehouse.

Duties owed on articles that have been manipulated are determined at the time of
withdrawal from the Customs bonded warehouse.

Merchandise: Entry, Storage, Treatment

All merchandise subject to duty may be entered for warehousing except perishables and
explosive substances other than firecrackers.

Full accountability for all merchandise entered into a Customs bonded warehouse must
be maintained; that merchandise will be inventoried and the proprietor's records will be
audited on a regular basis. Bonded merchandise may not be commingled with domestic
merchandise and must be kept separate from unbounded merchandise.

Merchandise in a Customs bonded warehouse may, with certain exceptions, be

transferred from one bonded warehouse to another in accordance with the provisions of
Customs Regulations. Basically, merchandise placed in a Customs bonded warehouse,
other than class 6 or 7, may be stored, cleaned, sorted, repacked, or otherwise changed
in condition, but not manufactured

Articles manufactured in a class 6 warehouse must be exported in accordance with

Customs Regulations. Waste or byproduct from a class 6 warehouse may be withdrawn
for consumption upon payment of applicable duties. Imported merchandise may be
stored in a Customs bonded warehouse for a period of five years.

How to Establish a Customs Bonded Warehouses

Application
An owner or lessee seeking to establish a bonded warehouse must make written
application to his or her local Customs port director describing the premises, giving the
location, and stating the class of warehouse to be established.

Except in the case of a class 2 or 7 warehouse, the application must state whether the
warehouse is to be operated only for the storage or treatment of merchandise belonging
to the applicant, or whether it is to be operated as a public bonded warehouse.

If the warehouse is to be operated as a private bonded warehouse, the application must

also state the general character of the merchandise to be stored therein, with an estimate
of the maximum duties and taxes that will be due on the merchandise at any one time.

Other Requirements

The application must be accompanied by the following:

A certificate signed by the president or a secretary of a board of fire underwriters that the
building is a suitable warehouse and acceptable for fire insurance purposes. At ports
where there is no board of fire underwriters, certificates should be obtained and signed
by officers of agents of two or more insurance companies.

A blueprint showing measurements to be bonded.

If the warehouse to be bonded is a tank, the blueprint shall show all outlets, inlets, and
pipelines and shall be certified as correct by the proprietor of the tank. A gauge table
showing the capacity of the tank in NATIONAL. gallons per inch or fraction of an inch of
height, shall be included and certified by the proprietor as correct.

When a part or parts of the building are to be used as a warehouse, a detailed

description of the materials and construction of all partitions shall be included.

Bonds Required

Bonds for each class of warehouse shall be executed on Customs Form 301.

Duty-free shops (class 9) have specific requirements governing their establishment.

These requirements include location, exit ports, record-keeping systems, and the
approval of local governments.
Where is Customs Offices Located?

The NATIONAL. Customs Service has more than 300 ports of entry in the United States,
Puerto Rico, and the NATIONAL. Virgin Islands. Please consult your local telephone
directory under "NATIONAL. Treasury Department, Customs Service."

Foreign Sales Corporations

One of the most important steps a NATIONAL. exporter can take to reduce federal
income tax on export-related income is to set up a foreign sales corporation (FSC). This
tax incentive for NATIONAL. exporters replaced the domestic international sales
corporation (DISC), except the interest charge DISC. While the interest charge DISC
allows exporters to defer paying taxes on export sales, the tax incentive provided by the
FSC legislation is in the form of a permanent exemption from federal income tax for a
portion of the export income attributable to the offshore activities of FSCs (26
NATIONAL.C., sections 921-927). The tax exemption can be as great as 15 to 30 percent
on gross income from exporting, and the expenses can be kept low through the use of
intermediaries who are familiar with and able to carry out the formal requirements. A firm
that is exporting or thinking of exporting can optimize available tax benefits with proper
planning, evaluation, and assistance from an accountant or lawyer.

An FSC is a corporation set up in certain foreign countries or in NATIONAL. possessions

(other than Puerto Rico) to obtain a corporate tax exemption on a portion of its earnings
generated by the sale or lease of export property and the performance of some services.
A corporation initially qualifies as an FSC by meeting certain basic formation tests. An
FSC (unless it is a small FSC) must also meet several foreign management tests
throughout the year. If it complies with those requirements, the FSC is entitled to an
exemption on qualified export transactions in which it performs the required foreign
economic processes.

FSCs can be formed by manufacturers, non manufacturers, or groups of exporters, such

as export trading companies. An FSC can function as a principal, buying and selling for
its own account, or as a commission agent. It can be related to a manufacturing parent or
it can be an independent merchant or broker.
An FSC must be incorporated and have its main office (a shared office is acceptable) in
the NATIONAL. Virgin Islands, American Samoa, Guam, the Northern Mariana Islands,
or a qualified foreign country. In general, a firm must file for incorporation by following the
normal procedures of the host nation or NATIONAL. possession. Some nations, offer tax
incentives to attract FSCs. To qualify, a company must identify itself as an FSC to the
host government. Consult the government tax authorities in the country or NATIONAL.
possession of interest for specific information.

A country qualifies as an FSC host if it has an exchange of information agreement with

the United States approved by the NATIONAL. Department of the Treasury. As of
September 17, 1996, the qualified countries were Australia, Austria, Barbados, Belgium,
Bermuda, Canada, Costa Rica, Cyprus, Denmark, Dominica, the Dominican Republic,
Egypt, Finland, France, Germany, Grenada, Guyana, Honduras, Iceland, Ireland,
Jamaica, Korea, the Marshall Islands, Malta, Mexico, Morocco, Netherlands, New
Zealand, Norway, Pakistan, Peru, the Philippines, St. Lucia, Sweden, and Trinidad and
Tobago. Since the Internal Revenue Service (IRS) does not allow foreign tax credits for
foreign taxes imposed on the FSCs qualified income, it is generally advantageous to
locate an FSC only in a country where local income taxes and withholding taxes are
minimized. Most FSCs are incorporated in the NATIONAL. Virgin Islands or Guam.

The FSC (unless it is a small FSC) must have at least one director who is not a
NATIONAL. resident, must keep one set of its books of account (including copies or
summaries of invoices) at its main offshore office, cannot have more than 25
shareholders, cannot have any preferred stock, and must file an election to become an
FSC with the IRS. Also, a group may not own both an FSC and an interest charge DISC.

The portion of the FSC gross income from exporting that is exempt from NATIONAL.
corporate taxation is 30 percent for a corporate-held FSC if it buys from independent
suppliers or contracts with related suppliers at an "arm's-length" price - a price equivalent
to that which would have been paid by an unrelated purchaser to an unrelated seller. An
FSC supplied by a related entity may also qualify to use the special administrative pricing
rules to compute its tax exemption. Although an FSC does not have to use the two
special administrative pricing rules, these rules may provide additional tax savings for
certain FSCs.

Small FSCs and interest charge Discs are designed to give export incentives to smaller
businesses. The tax benefits of a small FSC or an interest charge DISC are limited by
ceilings on the amount of gross income that is eligible for the benefits.
The small FSC is generally the same as an FSC, except that a small FSC must file an
election with the IRS designating itself as a small FSC - which means it does not have to
meet foreign management or foreign economic process requirements. A small FSC tax
exemption is limited to the income generated by $5 million or less in gross export
revenues.

An exporter can still set up a DISC in the form of an interest charge DISC to defer the
imposition of taxes for up to $10 million in export sales. A corporate shareholder of an
interest charge DISC may defer the imposition of taxes on approximately 94 percent of its
income up to the $10 million ceiling if the income is reinvested by the DISC in qualified
export assets. An individual who is the sole shareholder of an interest charge DISC can
defer 100 percent of the DISC income up to the $10 million ceiling. An interest charge
DISC must meet the following requirements: the taxpayer must make a new election; the
tax year of the new DISC must match the tax year of its majority stockholder; and the
DISC shareholders must pay interest annually at NATIONAL. Treasury bill rates on their
proportionate share of the accumulated taxes deferred.

A shared FSC is an FSC that is shared by 25 or fewer unrelated exporter-shareholders to

reduce the costs while obtaining the full tax benefit of an FSC. Each exporter-shareholder
owns a separate class of stock and each runs its own business as usual. Typically,
exporters pay a commission on export sales to the FSC, which distributes the
commission back to the exporter.

States, regional authorities, trade associations, or private businesses can sponsor a

shared FSC for their state's companies, their association's members, or their business
clients or customers or for NATIONAL. companies in general. A shared FSC is a means
of sharing the cost of the FSC. However, the benefits and proprietary information are not
shared. The sponsor and the other exporter-shareholders do not participate in the
exporter's profits, do not participate in the exporter's tax benefits, and are not a risk for
another exporter's debts.

For more information about FSCs, NATIONAL. companies may contact the Office of the
Associate Chief Counsel for International Commerce,
Intellectual Property Considerations

Intellectual property refers to a broad collection of rights relating to such matters as works
of authorship, which are protected under copyright law; inventions, which are protected
under patent law; marks, which are protected by trademark law; as well as designs and
trade secrets. No international treaty completely defines these types of intellectual
property, and the laws of the various countries differ from each other in significant
respects. National intellectual property laws create, confirm, or regulate a property right
without which others could use or copy a trade secret, an expression, a design, or a
product or its mark and packaging.

The rights granted by a NATIONAL. patent, trademark registration, copyright, or mask

work (semiconductor chip) registration extend only through the United States and its
territories and possessions. They confer no protection in a foreign country. There is no
such thing as an international patent, trademark, or copyright. To secure rights in any
country, you must apply for a patent or register a mask work or trademark in that country.
Copyright protection depends on national laws, but registration is typically not required.
There is no real "short cut" to worldwide protection of intellectual property. However,
some advantages and minimum standards for the protection and enforcement of
intellectual property exist under treaties or other international agreements.

International Agreements: The oldest treaty relating to patents, trademarks, and unfair
competition is the Paris Convention for the Protection of Industrial Property. The United
States and over 130 other countries are parties of this treaty. The Paris Convention sets
minimum standards of protection and provides two important benefits: the right of
national treatment and the right of priority.

Over generalizing, "national treatment" means that a Paris Convention country will not
discriminate against foreigners in granting patent or trademark protection. Rights may be
greater or less than those provided under NATIONAL. law but the rights given will be the
same as that country provides to its own citizens.

An invention may become public and therefore unpatentable in many countries, when a
patent is issued or an application is laid open to inspection in any country. In addition, a
delay in filing a patent or trademark application leaves open the possibility that those
rights will be lost because of intervening acts such as sale of the invention or registration
of the trademark by another. The Paris Convention's "right of priority" provides a solution
to this problem by giving an inventor an alternative to filing applications in many countries
simultaneously. It allows the applicant one year from the date of the first application filed
in a Paris Convention country (six months for a design or trademark) in which to file in
other countries. Publication or sale of an invention after first filing will therefore not
jeopardize patentability in countries which grant a right of priority to NATIONAL.
applicants. Not all countries adhere to the Paris Convention but these benefits may be
available under another treaty or bilateral agreement. These substantive obligations have
been incorporated into the World Trade Organization (WTO) Agreement on Trade
Related Aspects of Intellectual Property (TRIPs), by reference for adherence by WTO
members.

The United States is also a party to the Patent Cooperation Treaty (PCT), which provides
procedures for filing patent applications in its member countries. The PCT allows an
applicant to file one "international application" designating member countries in which a
patent is sought, with the same effect as filing national applications in each of those
countries. The applicant may then later proceed with the filing of separate "national"
applications in those countries.

The United States' international copyright regulations are governed principally by the
Berne Convention for the Protection of Literary and Artistic Works ("Berne"), to which
more than 120 other nations adhere. The United States is also a member of the Universal
Copyright Convention (UCC) and has special bilateral relations with a number of foreign
countries. Under the Berne Convention, works created by a national of a Berne Union
country, or works first or simultaneously published in a Berne country are automatically
eligible for protection in every other country of the Berne Union, without registration or
compliance with any other formality of law. This is true of works first published in the
United States on or after March 1, 1989 the date on which the United States acceded to
the Berne Convention. Works first published before March 1989 were protected in many
countries by virtue of the United States' membership in the UCC, if published with the
formalities specified in that convention. Older works may also be protected as a
consequence of simultaneous publication in a Berne country, or by virtue of bilateral
obligations. In any event, the requirements and protection available vary from country to
country, and should be investigated before first publication anywhere.

North American Free Trade Agreement and Agreement on Trade-related Aspects of

Intellectual Property: Both the North American Free Trade Agreement(NAFTA) and the
Agreement on Trade-related Aspects of Intellectual Property (TRIPs) (which is under the
auspices of the World Trade Organization) establish minimum standards for the
protection and enforcement of intellectual property. Neither of these agreements bestow
rights upon NATIONAL. intellectual property owners. Rather, both agreements ensure
that a member state that is party to one or both of these agreements provides a certain
level of protection to those individuals or companies protected under that member state's
laws.

Patents: NATIONAL. patent law differs from the laws of most other countries in several
important aspects. The NATIONAL. patent law grants a patent to the first inventor even if
another person independently makes the invention and files an application first. Most
other countries award the patent to the inventor who first files a patent application. The
United States also provides a one-year "grace period" that does not preclude an inventor
from obtaining protection after an act such as publishing, offering for sale, or using the
invention which would make the invention public. Many countries, including most
European countries, lack such a grace period to allow an inventor to so disclose the
invention prior to filing a patent application. In countries with an "absolute novelty" rule, a
patent application must be filed before making the invention public anywhere. Hence,
even the publication of an invention in a NATIONAL. patent grant is a disclosure that can
defeat the right to obtain foreign patents, unless the applicant is entitled to claim the "right
of priority" under the Paris Convention, as described.

Unlike the United States, many countries require that an invention be "worked" locally to
retain the benefit of the patent. "Working" may require commercial-scale manufacture
within the country, or may be met by importation of goods covered by the patent,
depending on a particular country's law. The Paris Convention permits penalties for
nonworking, which may include a compulsory license at a reasonable royalty followed by
possible forfeiture of the patent for continuing to fail to work an invention.

For an invention made in the United States, NATIONAL. law prohibits filing abroad
without a foreign filing license from the Patent and Trademark Office unless six months
have elapsed since filing a NATIONAL. application. This prohibition protects against
transfer of information which might damage the national security. The penalties for filing
abroad without following these requirements range from loss of NATIONAL. patent rights
to possible imprisonment if classified information is released. In addition, other export
control laws require that a license be obtained prior to the export of certain technologies,
even if no patent application is filed, or bar their export altogether.

Trademarks: A trademark is a word, symbol, or device which identifies and distinguishes

the source of sponsorship of goods and may serve as an index of quality. Service marks
perform the same function for businesses dealing in services rather than goods. For
example, an airplane manufacturer might register its service mark. In the United States,
rights to trademarks, service marks, and other marks such collective marks are acquired
through use or prior foreign registration. However, in most countries, trademark rights are
acquired only through registration, and many countries require local use of the registered
mark to maintain the registration. Whether a given mark can be registered in a particular
country will depend on the law of that country. For example, some countries do not
protect service marks. The United States is not a member of any agreement under which
a single filing will provide international protection, although the right of priority under the
Paris Convention confers a substantial benefit.

Expanding businesses sometimes face a period of time in which their mark may be
known and perhaps registered in the United States, but they are not quite ready to do
business abroad. It is prudent to decide early where trademark protection will be needed
and to protect rights by filing in those countries. Where to file is a business decision,
balancing the expense of registration against its benefit. At a minimum, you will want to
file in countries in which you will do business. You may also find it desirable to file in
countries which are known sources of counterfeit goods, although some require local use
to maintain a registration. Although trademark laws impose no deadlines for registering a
mark, as a practical matter, a business should register promptly in order to avoid having
its mark registered by someone else.

Although not a legal requirement, it may help to investigate the connotation of a

trademark, trade name, number, or trade dress before making a major investment in
another country. A different language or culture may have unfavorable, silly, or even rude
meanings for words or symbols with neutral or favorable connotations in the United
States. Even packaging colors may connote different meanings. For example, white may
imply purity in the United States, but it is the color of mourning in most of the Far East.

Trade names are also protected on a country-by-country basis. Although the Paris
Convention requires protection of trade names, they are not necessarily registered as is
the case in the United States. Each country protects them in accordance with its own
business practices.

Copyrights: A copyright protects original works of authorship. In the United States, this
protection gives the owner the exclusive right to reproduce the work, prepare derivative
works, distribute copies, or perform or display the work publicly.
In the United States, "original works of authorship" include literary, dramatic, musical,
artistic, and certain other intellectual works. A computer program, for example is
considered a literary work protected by copyright in the United States and in a large and
increasing number of foreign countries.

In most countries, the place of first publication determines whether copyright protection is
available. Some countries require certain formalities to maintain copyright protection.
Many other countries, particularly member countries of the Berne Union, offer copyright
protection without these formalities. Still others offer little or no protection for the works of
foreign nationals. Before publishing a work anywhere, it is advisable to investigate the
scope of protection available, as well as the specific legal requirements for copyright
protection in countries in which copyright protection is desired.

Semiconductor Chips and Mask Works: The Semiconductor Chip Protection Act of
1984 provides a special system of legal protection for original mask works used in the
production of semiconductor chips. It confers the exclusive right to produce and distribute
mask works for a term of ten years, subject to registration by the Copyright Office.

The act also created an incentive for other countries to provide such protection since its
benefits are available to any foreign national whose home country's laws extend similar
protection to NATIONAL. nationals. Protection on an interim basis is available to foreign
nationals whose country undertakes good faith efforts to provide protection for mask
works of NATIONAL. nationals. The Secretary of Commerce, through the Patent and
Trademark Office, determines which countries are entitled to protection under this act.

Unfair Competition and Related Rights: In the United States, federal law protects
exclusive rights in patents, copyrights, and mask works. Other intangible property such
as trademarks, trade names, business goodwill, trade secrets, and know-how are
protected against unfair competition by federal and state law.

Most developed countries have unfair competition laws similar to the United States,
although details vary. The European Union, for example, bans "restrictive business
practices" that would restrict trade among the countries of the Union.

Not all countries have unfair competition laws, and even in some countries that do have
them, their coverage may not be as extensive as in the United States. For example,
protection for trade secrets of valuable unpatented technology may be inadequate.
Before divulging any information which could be helpful to a potential competitor, it would
be wise to investigate the protection available in the recipient's country and in any country
which may be a potential market. Written agreements also should be used to protect all
trade secrets that are divulged (e.g. licensing agreements and employment agreements).

Social and economic policies may also affect the value of intellectual property. Some
countries restrict the right to do business unless the foreign concern assists in meeting
certain goals. Typical examples include requirements for generic labels of comparable
size with the trademark, requirements for local working of patented inventions, better
treatment for businesses with local ownership, and restrictions on intellectual property
regulations may still require submission of proprietary information to the authorities,
without restricting access to it by local competitors. The best rule is to investigate before
you invest.

Enforcement: After securing valuable intellectual property, the owner must enforce it
vigorously to derive the maximum benefit. The ease of enforcement depends on local
law, the resources of the intellectual property owner, the attitude of local officials, and
many other factors. In general, the United States views intellectual property as a private
right to be enforced by its owner.

Enforcement must be accomplished through local law. In the United States and many
countries, intellectual property rights are enforced by a civil suit for infringement. The
intellectual property owner may be awarded damages or an injunction against
infringement. Preliminary injunctions may also be available to prevent ongoing violations
of intellectual property rights before a final decision on the merits by a court.

In the United States, the owner may protect against importation of infringing goods by
recording a trademark or copyright with the NATIONAL. Customs Service. An intellectual
property owner also may bring a proceeding before the International Trade Commission
under Section 337 of the Tariff Act of 1930 for an exclusion order to prevent infringing
goods from entering the country or a cease and desist order to prevent an infringing use
once the goods have entered the country.

In more serious matters, criminal penalties may apply. The Trademark Counterfeiting Act
of 1984 imposes heavy criminal penalties for trafficking in goods or services which bear a
counterfeit mark. These penalties can amount to a fine of as much as $1 million and 15
years imprisonment of individuals. Civil penalties can include the recovery of the
trademark owner of treble damages and attorney's fees. Ex prate seizure orders are also
authorized in certain cases.
 Piracy of copyrighted materials is also subject to criminal penalties. In the United States,
a person who willfully infringes a copyright for financial gain is subject to a $25,00 fine,
one-year imprisonment, or both. If the offense involves a substantial number of infringing
copies of phonorecords or motion pictures, or trafficking in counterfeit labels for
phonorecords, motion pictures, or other audiovisual works, the penalties may be as much
as $250,000 and five-year imprisonment. In addition, a court may order seizure and
destruction or other disposition of infringing copies and equipment used in their
manufacture.

Some foreign countries provide criminal penalties for infringement, either as the exclusive
remedy or in addition to private suits. The remedies available against an infringer will vary
from country to country.

Ease of enforcement will depend on a number of factors. If a government action is

required, as with criminal penalties, are the local authorities cooperative? If private
remedies are available, may the intellectual property owner get an injunction as well as
damages? How long will it take to get enforcement? What methods are available to
obtain proof? These and other questions are part of a detailed study that should be done
for each country before investing.

Shipping Your Product

When shipping a product overseas, the exporter must be aware of packing, labeling,
documentation, and insurance requirements. It is important that exporters ensure that the
merchandise is:

• Packed correctly so that it arrives in good condition;

• Labeled correctly to ensure that the goods are handled properly and arrive on time at the
right place;
• Documented correctly to meet NATIONAL. and foreign government requirements, as well
as proper collection standards; and
• Insured against damage, loss, pilferage and delay.
Most exporters rely on an international freight forwarder to perform these services because of the
multitude of considerations involved in physically exporting goods.

Freight Forwarders

An international freight forwarder is an agent for the exporter in moving cargo to an overseas
destination. These agents are familiar with the import rules and regulations of foreign countries,
the export regulations of the NATIONAL. government, the methods of shipping, and the
documents related to foreign trade. Export freight forwarders are licensed by the International Air
Transport Association (IATA) to handle air freight and the Federal Maritime Commission to
handle ocean freight.

Freight forwarders assist exporters in preparing price quotations by advising on freight costs, port
charges, consular fees, costs of special documentation, insurance costs, and their handling fees.
They recommend the packing methods that will protect the merchandise during transit or can
arrange to have the merchandise packed at the port or containerized. If the exporter prefers,
freight forwarders can reserve the necessary space on a vessel, aircraft, train, or truck. The cost
for their services is a legitimate export cost that should be included in the price charged to the
customer

Once the order is ready for shipment, freight forwarders should be review all documents to
ensure that everything is in order. This is of particular importance with letter of credit payment
terms. They may also prepare the bill of lading and any special required documentation. After
shipment, they can route the documents to the seller, the buyer, or to a paying bank. Freight
forwarders can also make arrangements with customs brokers overseas to ensure that the goods
comply with customs export documentation regulations. A customs broker is an individual or
company that is licensed to transact customs business on behalf of others. Customs business is
limited to those activities involving transactions related to the entry and admissibility of
merchandise; its classification and valuation; the payment of duties, taxes, or other charges
assessed or collected; or the refund, rebate, or drawback thereof.

Packing

Exporters should be aware of the demands that international shipping puts on packaged goods.
Exporters should jeep four potential problems in mind when designing an export shipping crate:
breakage, moisture, pilferage and excess weight.
Generally, cargo is carried in containers, but sometimes it is still shipped as break-bulk cargo.
Besides the normal handling encountered in domestic transportation, a break-bulk shipment
transported by ocean freight may be loaded aboard vessels in a net or by a sling, conveyor, or
chute, that puts an added strain on the package. During the voyage, goods may be stacked on
top of or come into violent contact with other goods. Overseas, handling facilities may be less
sophisticated than in the United States and the cargo could be dragged, pushed, rolled, or
dropped during unloading, while moving through customs, or in transit to the final destination.

Moisture is a constant concern because condensation may develop in the hold of a ship even if it
is equipped with air conditioning and a dehumidifier. Another aspect of this problem is that cargo
may also be unloaded in precipitation, or the foreign port may not have covered storage facilities.
Theft and pilferage are added risks.

Buyers are often familiar with the port systems overseas, so they will often specify packaging
requirements. If the buyer does not specify this, be sure the goods are prepared using these
guidelines:

• Pack in strong containers, adequately sealed and filled when possible.

• To provide proper bracing in the container, regardless of size, make sure the weight is
evenly distributed.
• Goods should be palletized and when possible containerized.
• Packages and packing filler should be made of moisture-resistant material.
• To avoid pilferage, avoid writing contents or brand names on packages. Other
safeguards include using straps, seals, and shrink wrapping.
• Observe any product-specific hazardous materials packing requirements.

One popular method of shipment is to use containers obtained from carriers or private leasing
companies. These containers vary in size, material, and construction and accommodate most
cargo, but they are best suited for standard package sizes and shapes. Also, refrigerated and
liquid bulk containers are usually readily available. Some containers are no more than semi-truck
trailers lifted off their wheels, placed on a vessel at the port of export and then transferred to
another set of wheels at the port of import.

Normally, air shipments require less heavy packing than ocean shipments, though they should
still be adequately protected, especially if they are highly pilfer able. In many instances, standard
domestic packing is acceptable, especially if the product is durable and there is no concern for
display packaging. In other instances, high-test (at least 250 pounds per square inch) cardboard
or tri-wall construction boxes are more than adequate.
Finally, because transportation costs are determined by volume and weight, specially reinforced
and lightweight packing materials have been developed for exporting. Packing goods to minimize
volume and weight while reinforcing them may save money, as well as ensure that the goods are
properly packed. It is recommended that a professional firm be hired to pack the products if the
supplier is not equipped to do so. This service is usually provided at a moderate cost.

Labeling

Specific marking and labeling is used on export shipping cartons and containers to:

• Meet shipping regulations;

• Ensure proper handling;
• Conceal the identity of the contents;
• Help receivers identify shipments; and
• Insure compliance with environmental and safety standards.

The overseas buyer usually specifies which export marks should appear on the cargo for easy
identification by receivers. Products can require many markings for shipment. For example,
exporters need to put the following markings on cartons to be shipped:

• Shipper's mark;
• Country of origin (NATIONAL.A.);
• Weight marking (in pounds and in kilograms);
• Number of packages and size of cases (in inches and centimeters);
• Handling marks (international pictorial symbols);
• Cautionary markings, such as "This Side Up" or "Use No Hooks" (in English and in the
language of the country of destination);
• Port of entry;
• Labels for hazardous materials (universal symbols adapted by the International Airi
Transport Association and the International Maritime Organization); and;
• Ingredients (if applicable, also included in the language of the destination country).

Packages should be clearly marked to prevent misunderstandings and delays in shipping. Letters
are generally stenciled onto packages and containers in waterproof ink. Markings should appear
on three faces of the container, preferably on the top and on the two ends or the two sides. Ant
old markings must be completely removed from previously used packaging.

In addition to the port marks, the customer identification code, and an indication of origin, the
marks should 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. The exporter should also add any special handling instructions. It is a good idea
to repeat these instructions in the language of the country of destination. and use standard
international shipping and handling symbols.

Customs regulations regarding freight labeling are strictly enforced. For example, many countries
require that the country of origin be clearly labeled on each imported package. Most freight
forwarders and export packing specialists can supply the necessary information regarding
specific regulations.

Documentation

Exporters should seriously consider having the freight forwarder handle the formidable amount of
documentation that exporting requires as forwarders are specialists in this process. The following
documents are commonly used in exporting; but which of them are necessary in a particular
transaction depends on the requirements of the NATIONAL. government and the government of
the importing country.

• Air freight shipments are handled by air waybills, which can never be made in negotiable
form
• A bill of lading is a contract between the owner of the goods and the carrier (as with
domestic shipments). For vessels, there are two types: a straight bill of lading which is
nonnegotiable and a negotiable or shipper's order bill of lading. The latter can be bought,
sold, or traded while the goods are in transit. The customer usually needs an original as
proof of ownership to take possession of the goods
• A commercial invoice is a bill for the goods from the seller to the buyer. These invoices
are often used by governments to determine the true value of goods when assessing
customs duties. Governments that use the commercial invoice to control imports will
 often specify its form, content, number of copies, language to be used, and other
characteristics
• A consular invoice is a document that is required in some countries. It describes the
shipment of goods and shows information such as the consignor, consignee, and value of
the shipment. Certified by the consular official of the foreign country stationed here, it is
used by the country's customs officials to verify the value, quantity, and nature of the
shipment.
• A certificate of origin is a document that is required in certain nations. It is a signed
statement as to the origin of the export item. Certificate of origin are usually signed
through a semiofficial organization, such as a local chamber of commerce. A certificate
may still be required even if the commercial invoice contains the information.
• A NAFTA certificate of origin is required for products traded among the NAFTA
countries (Canada, the United States, and Mexico).
• Inspection certification is required by some purchasers and countries in order to attest
to the specifications of the goods shipped. This is usually performed by a third party and
often obtained from independent testing organizations.
• A dock receipt and a warehouse receipt are used to transfer accountability when the
export item is moved by the domestic carrier to the port of embarkation and left with the
ship line for export.
• A destination control statement appears on the commercial invoice, and ocean or air
waybill of lading to notify the carrier and all foreign parties that the item can be exported
only to certain destinations.
• A Shipper's Export Declaration (SED) is used to control exports and act as a source
document for official NATIONAL. export statistics. SEDs must be prepared for shipments
through the NATIONAL. Postal Service when the shipment is valued over $500. SEDs
are required for shipments not using the NATIONAL. Postal Service when the value of
the commodities, classified under any single Schedule B number, is over $2,500. SEDs
must be prepared, regardless of value, for all shipments requiring an export license or
destined for countries restricted by the Export Administration Regulations SEDs are
prepared by the exporter or the exporter's agent and delivered to the exporting carrier (for
example, the post office, airline, or vessel line). The exporting carrier will present the
required number of copies to the NATIONAL. Customs Service at the port of export

• An export license is a government document that authorizes the export of specific goods
in specific quantities to a particular destination. This document may be required for most
or all exports to some countries or for other countries only under special circumstances.
 • An export packing list considerably more detailed and informative than a standard
domestic packing list. It an itemizes the material in each individual package and indicates
the type of package, such as a box, crate, drum, or carton. It also shows the individual
net, legal, tare, and gross weights and measurements for each package (in both
NATIONAL. and metric systems). Package markings should be shown along with the
shipper's and buyer's references. The list is used by the shipper or forwarding agent to
determine the total shipment weight and volume and whether the correct cargo is being
shipped. In addition, NATIONAL. and foreign customs officials may use the list to check
the cargo.

Documentation must be precise because slight discrepancies or omissions may prevent

merchandise from being exported, result in nonpayment, or even result in the seizure of the
exporter's goods by NATIONAL. or foreign government customs. Collection documents are
subject to precise time limits and may not be honored by a bank if the time has expired. Most
documentation is routine for freight forwarders and customs brokers, but the exporter is ultimately
responsible for the accuracy of its documents.

The number and kind of documents the exporter must deal with varies depending on the
destination of the shipment. Because each country has different import regulations, the exporter
must be careful to provide all proper documentation. The following sources also provide
information pertaining to foreign import restrictions:

Shipping

The handling of transportation is similar for domestic and export orders. Export marks are added
to the standard information on a domestic bill of lading. These marks show the name of the
exporting carrier and the latest allowed arrival date at the port of export. Instructions for the inland
carrier to notify the international freight forwarder by telephone upon arrival should also be
included.

Exporters may find it useful to consult with a freight forwarder when determining the method of
international shipping. Since carriers are often used for large and bulky shipments, the exporter
should reserve space on the carrier well before actual shipment date. This reservation is called
the booking contract.
International shipments are increasingly made on a through bill of lading under a multimodal
contract. The multimodal transit operator (frequently one of the transporters) takes charge of and
responsibility for the entire movement from factory to final destination.

The cost of the shipment, the delivery schedule, and the accessibility to the shipped product by
the foreign buyer are all factors to consider when determining the method of international
shipping. Although air carriers can be more expensive, their cost may be offset by lower domestic
shipping costs (for example, using a local airport instead of a coastal seaport) and quicker
delivery times. These factors may give the NATIONAL. exporter an edge over other competitors.

Before shipping, the NATIONAL. firm should be sure to check with the foreign buyer about the
destination of the goods. Buyers often want the goods to be shipped to a free-trade zone or a free
port where they are exempt from import duties .

Insurance

Damaging weather conditions, rough handling by carriers, and other common hazards to cargo
make insurance an important protection for NATIONAL. exporters. If the terms of sale make the
exporter responsible for insurance, the exporter should either obtain its own policy or insure the
cargo under a freight forwarder's policy for a fee. If the terms of sale make the foreign buyer
responsible, the exporter should not assume (or even take the buyer's word) that adequate
insurance has been obtained. If the buyer neglects to obtain adequate coverage, damage to the
cargo may cause a major financial loss to the exporter.

Shipments by sea are covered by marine cargo insurance

Air shipments may also be covered by marine cargo insurance or insurance may be purchased
from the air carrier.

Export shipments are usually insured against loss, damage, and delay in transit by cargo
insurance. Carrier liability is frequently limited by international agreements. Additionally, the
coverage is substantially different from domestic coverage. Arrangements for insurance may be
made by either the buyer or the seller, in accordance with the terms of sale. Exporters are
advised to consult with international insurance carriers or freight forwarders for more information.

Although sellers and buyers can agree to different components, coverage is usually placed at 110
percent of the CIF (cost, insurance, freight) or CIP (carriage and insurance paid to) value.
Tariffs

Finally, it is very important to consider the effects of tariffs, port handling fees, and taxes when
determining your product's final cost as they can be high. Typically, the importer pays these
charges. However, these costs will influence how much the buyer is willing to pay for your
product.

Methods of Payment

Financing Export Transactions

Export financing is often a key factor in a successful sale. Contract negotiation and closure are
important, but at the end of the day, your company must get paid.

Exporters naturally want to get paid as quickly as possible, while importers usually prefer to delay
payment until they have received or resold the goods. Because of the intense competition for
export markets, being able to offer attractive payment terms customary in the trade is often
necessary to make a sale. Exporters should be aware of the many financing options open to them
so that they choose the most acceptable one to both the buyer and the seller. In many cases,
government assistance in export financing for small and medium-sized businesses can increase
a firm's options. The following factors are important to consider in making decisions about
financing:

• The need for financing to make the sale. In some cases, favorable payment terms
make a product more competitive. If the competition offers better terms and has a similar
product, a sale can be lost. In other cases, the buyer may have preference for buying
from a particular exporter, but might buy your product because of shorter or more secure
credit terms.
• The length of time the product is being financed. This determines how long the
exporter will have to wait before payment is received and influences the choice of how
the transaction is financed.
 • The cost of different methods of financing. Interest rates and fees vary. Where an
exporter can expect to assume some or all of the financing costs, their effect on price and
profit should be well understood before a pro forma invoice is submitted to the buyer.
• The risks associated with financing the transaction. The riskier the transaction, the
harder and more costly it will be to finance. The political and economic stability of the
buyer's country can also be an issue. To provide financing for either accounts receivable
or the production or purchase of the product for sale, the lender may require the most
secure methods of payment, a letter of credit (possibly confirmed), or export credit
insurance or guarantee.
• The need for pre-shipment finance and for post-shipment working capital.
Production for an unusually large order, or for a surge of orders, may present unexpected
and severe strains on the exporter's working capital. Even during normal periods,
inadequate working capital may curb an exporter's growth. However, assistance is
available through public and private sector resources discussed in this chapter.

For help in determining which financing options may be available or the most beneficial to your
exporting endeavors, the following sources may be consulted:

• Your banker;
• Your local Department of Commerce Export Assistance Center (EAC);
• Your local Small Business Administration office;
• The Export-Import Bank in Washington, D.C. and selected cities; and
• Your state export promotion or export finance office.

Extending Credit to Foreign Buyers

Foreign buyers often press exporters for longer payment periods. While it is true that liberal
financing is a means of enhancing export competitiveness, exporters need to weigh carefully the
credit or financing they extend to foreign customers. Moreover, the extension of credit by the
seller to the buyer is more common outside the United States. NATIONAL. sellers who are
reluctant to extend credit may face the possibility of the loss of the sale to their competitors.

A useful guide for determining the appropriate credit period is the normal commercial terms in the
exporter's industry for internationally traded products. Buyers generally expect to receive the
benefits of such terms. For off-the-shelf items like consumer goods, chemicals, and other raw
materials, agricultural commodities, and spare parts and components, normal commercial terms
range with few exceptions from 30 to 180 days. (An allowance may have to be made for longer
shipment times than are found in domestic trade, because foreign buyers are often unwilling to
have the credit period start before receiving the goods.) Custom-made or high-value capital
equipment, on the other hand, may warrant longer repayment periods. Once credit terms are
extended to a buyer, they tend to be precedent for future sales, so the exporter should review
with special care any credit terms extended to first-time buyers.

Exporters should follow the same careful credit principals they follow for domestic customers. An
important reason for controlling the credit period is the cost incurred through use of working
capital or through interest and fees. If the buyer is not responsible for paying these costs, then the
exporter should factor them into the selling price. The exporter also should recognize that longer
credit periods may increase any risk of default. Thus, the exporter must exercise judgement in
balancing competitiveness against consideration of cost and safety.

Customers are frequently charged interest on credit periods of a year or longer but less frequently
on short-term credit (up to 180 days). Most exporters absorb interest charges for short-term credit
unless the customer pays after the due date.

Obtaining cash immediately is usually a high priority with exporters. Converting export
receivables to cash at a discount with a bank is one way to do so. Another way is to expand
working capital resources. A third approach, suitable when the purchase involves capital goods
and the repayment period extends a year or longer, is to arrange for third-party financing. An
example of this is a bank making a loan directly to the buyer for the product, with the exporter
being paid immediately from the loan proceeds while the bank waits for payment and earns
interest. A fourth possibility, when financing is difficult to obtain, is to engage in counter trade to
afford the customer an opportunity to generate earnings with which to pay for the purchase.

These options may involve the payment of interest, fees, or other costs by the exporter. Some
options are more feasible when the amounts are in larger denominations. Exporters should also
determine whether they incur financial liability should the buyer default.

Commercial Banks

The same commercial bank facilities used to finance domestic activities, including revolving lines
of credit for working capital, are often sought to finance export sales until payment is received.
Banks do not regularly extend financing solely on the basis of an individual order as they prefer to
establish an ongoing business relationship.

A logical first step for an exporter seeking to finance short-term export sales is to approach the
local commercial bank with which it already does business. If the bank previously has extended
credit to the exporter, the bank will be familiar with the exporter's financial standing, credit need,
repayment record, and ability to perform. The bank may be willing to raise the overall limit on an
existing working capital line of credit, expand its scope to cover export transactions, or approve a
separate line specifically adapted to export-related transactions such as discounting.

Alternatively, the exporter may wish to approach a commercial bank with an international
department. Such a bank will be familiar with export business and also be in a position to provide
international banking services related to documentary collections and letters of credit, including
the discounting of drafts. An intermediate approach is to retain a relationship with the exporter's
bank, but seek a referral to a correspondent bank that has an international department.

The exporter should visit the bank's international department, to discuss export plans, available
banking facilities, and applicable charges. The exporter may wish to inquire about such matters
as: fees for amending or confirming a letter of credit; processing drafts; and about the bank's
experience in working with NATIONAL. Government agencies that offer export financing
assistance. Generally, the bank's representative handing the exporter's account will not be lodged
in the international department. It is in the exporter's best interest to create and foster a close
working relationship with the international department.

The responsibility for repaying a working capital loan ordinarily rests with the exporter, even if the
foreign buyer fails to pay. The bank takes this contingency into account in deciding on an export
working capital line of credit. It is to the benefit of the bank and the exporter to improve the quality
of the export receivables by using letters of credit by making use of credit insurance, or by using
Export-Import Bank or Small Business Administration working capital guarantees.

An exporter shipping capital goods may want the commercial bank to make medium-term loans
directly to the foreign buyer to finance the sale. Such loans are available for well-established
foreign buyers in more stable markets, but where there is an element of risk, the bank may
require a standby letter of credit, recourse on the exporter in case of default, or similar repayment
reinforcement. The exporter should be knowledgeable about loans from his own bank with
Export-Import Bank medium- and long-term export guarantee programs, assuming that the
commercial bank is willing to utilize them.
Discounting and Banker's Acceptances

A time draft under an irrevocable letter of credit confirmed by a NATIONAL. bank presents
relatively little risk of default, so an exporter may be willing to hold such a draft until it matures.
Unless the exporter has ample funds needed for other purposes, holding drafts will use up
working capital.

As another course of action, the exporter's bank may be willing to buy, or lend against, time drafts
from an exporter that a creditworthy foreign buyer has accepted or agreed to pay at a specified
future date. This in effect converts the time draft into immediate cash. The amount received by
the exporter is less than the face value of the draft. The difference, called a "discount," represents
interest and fees that the bank charges for holding the draft until maturity. The bank may also
require the exporter to reimburse the bank in case the draft is unpaid at the due date.

In a third instance, a commercial bank may undertake to accept the obligation of paying a draft for
a fee; this is called a banker's acceptance. Banker's acceptances are usually in large
denominations. Only a few well-known banks are accepted in the market as "prime-name" banks
for purposes of creating banker's acceptances.

Other Private Sources

Factoring, Forfeiting, and Confirming

Factoring is the discounting of a foreign account receivable that does not involve a draft. The
exporter transfers title to its foreign accounts receivable to a factoring house (an organization that
specializes in the financing of accounts receivable) for cash at a discount from the face value.
Although factoring is sometimes done without recourse to the exporter, the specific arrangements
should be verified by the exporter. Factoring of foreign accounts receivable is less common than
factoring of domestic receivables.

Forfeiting is the selling, at a discount, of longer term accounts receivable or promissory notes of
the foreign buyer. These instruments may also carry the guarantee of the foreign government.
Both NATIONAL. and European forfeiting houses, which purchase the instruments at a discount
from the exporter, are active in the NATIONAL. market. Because forfeiting may be done either
with or without recourse to the exporter, the specific arrangements should be verified by the
exporter.
Confirming is a financial service in which an independent company confirms an export order in
the seller's country and makes payment for the goods in the currency of that country. Among the
items eligible for confirmation (and thereby eligible for credit terms) are the goods themselves;
inland, air, and ocean transportation costs; forwarding fees; custom brokerage fees; and duties.
For the exporter, confirming means that the entire export transaction from plant to end user can
be fully coordinated and paid for over time. Although confirming is common in Europe, it is still in
its infancy in the United States.

These three financing options are less frequently encountered and less widely available than
commercial bank financing. Nevertheless, where offered locally, they help fill a financing gap for
exporters.

Export Intermediaries

In addition to acting as export representatives, many export intermediaries, such as export trading
companies (ETCs) and export management companies (EMCs), can help finance export sales.
Some of these companies may provide short-term financing or may simply purchase the goods to
be exported directly from the manufacturer, thus eliminating any risks associated with the export
transaction as well as the need for financing. Some of the larger companies may make counter
trade arrangements that substitute for financing in some cases.

Buyers and Suppliers as Sources of Financing

Foreign buyers of capital goods may make down payments that reduce the need for financing
from other sources. In addition, buyers may make progress payments as the goods are
completed, which also reduce other financing requirements. Letters of credit that allow for
progress payments upon inspection by the buyer's agent or receipt of a statement by the exporter
that a certain percentage of the product has been completed are not uncommon.

In addition, suppliers may be willing to offer terms to the exporter if they are comfortable that they
will receive payment. Suppliers may be willing to accept assignment of a part of the proceeds of a
letter of credit or a partial transfer of a transferable letter of credit. However, some banks allow
only a single transfer or assignment of a letter of credit. Therefore, the exporter should investigate
the policy of the bank that will be advising or confirming the letter of credit.
Government Assistance Programs

Several federal government agencies, as well as a number of state and local ones, offer
programs to assist exporters with their financing needs. Some are guarantee programs that
require the participation of an approved lender; others provide loans or grants to the exporter or a
foreign government.

Government programs generally aim to improve exporters' access to credit rather than to
subsidize the cost at below-market levels. With few exceptions, banks are allowed to charge
market interest rates and fees including fees paid to the government agencies to cover the
agencies' administrative costs and default risks.

Government guarantee and insurance programs are used by commercial banks to reduce the risk
associated with loans to exporters. Lenders concerned with an exporter's ability to perform under
the terms of sale, and with an exporter's ability to be paid, often use government programs to
reduce the risks that would otherwise prevent them from providing financing. In other cases,
lenders to a foreign buyer of NATIONAL. goods and services are reluctant to provide the
financing without support from a NATIONAL. Government agency.

In overview, the Export-Import Bank (Ex-Im Bank) is the federal government’s largest and most
comprehensive trade finance agency, offering numerous programs to address a broad range of
needs and small and medium-sized, as well as large, exporters. Credit insurance protects against
default on exports sold under short-term credit. Other guarantee and loan programs extend
medium- and long-term credit for durable goods.

Other agencies fill various market niches. The Small Business Administration (SBA) offers
programs to address the needs of smaller exporters. The NATIONAL. Department of Agriculture
offers several medium- and long-term credit programs to foster agricultural exports. OPIC
provides specialized assistance to NATIONAL. firms through its performance bond and contractor
insurance programs for NATIONAL. investments abroad that also can be accessed by
NATIONAL. exporters. The Trade Development Administration provides grants for project
planning activities conducted by NATIONAL. firms and thereby seeks to give a NATIONAL.
imprint on project feasibility studies and design (see Although the Department of Commerce does
not offer any financing programs of its own, export counseling is available through its extensive
network of EACs (Export Assistance Centers). The following descriptions provide a basic
overview of government financing programs.
Pre-export Financing

The Working Capital Guarantee Program enables lenders to provide financing an exporter needs
to purchase or produce a product for export, as well as finance short-term accounts receivable. If
the exporter defaults on a loan guaranteed under this program, Ex-Im Bank reimburses the lender
for the guaranteed portion - generally, 90 percent of the loan - thereby reducing the lender's
overall risk. The Working Capital Guarantee Program can be used either to support ongoing
export sales or to meet a temporary cash flow demand arising from a single export transaction.

The loan principal can be up to 100 percent of the value of the collateral put up by the exporter, a
relatively generous percentage. Eligible collateral includes foreign receivables, exportable
inventory purchased with the proceeds of the loan, and goods in production. The term of the
guaranteed line of credit is generally one year, but a longer period of renewals may be arranged.

Post-export Financing

Ex-Im Bank offers commercial and political risk insurance. Under the majority of policies, the
insurance protects short-term credit extended for the sale of consumer goods, raw materials,
commodities, spare parts, and other items normally sold on terms of up to 180 days. If the buyer
fails to pay, Ex-Im Bank reimburses the exporter in accordance with the terms of the policy.
Coverage is also available for some bulk commodities sold on 360-day terms and for capital and
quasi-capital goods sold on terms of up to five years. Ex-Im Bank insurance is by far the largest
federal program supporting short-term export credit.

Ex-Im Bank insurance policies for exporters include the Small Business Policy, Single-Buyer
Policy, and Multi-Buyer Policy. Another policy, the Umbrella Policy enables an administrator to
handle most administrative duties for a group of exporters. With prior written approval, an
exporter can assign the rights to any proceeds to a lender as collateral for financing.

Ex-Im Bank's policies generally cover up to 100 percent of defaults due to specified political risks,
such as war and expropriation, and up to 95 percent due to defaults arising from other
commercial risks, such as buyer default and insolvency. Exporters generally must meet
NATIONAL. content requirements and, under some policies, must insure all eligible foreign sales.

Ex-Im Bank insurance premiums reflect various risk factors, including length of credit period,
payment method, and the country of the buyer. In keeping with insurance principals, Ex-Im Bank
seeks a reasonable spread of risk among the different export markets and avoids unduly
concentrated credit exposure.
Several private companies also offer export credit insurance covering political and commercial
risks. Private insurance is available for established exporters with a proven track record, often at
competitive premium rates, although underwriting capacity in particular markets may be limited.
Coverage for contract repudiation and wrongful calling of a bid or performance bond may also be
available in the private market. Contact an insurance broker for more information.

Under a separate program, Ex-Im Bank offers its guarantee to encourage banks and other
lenders to make export loans to creditworthy foreign buyers of NATIONAL. goods and services.
Ex-Im Bank's guarantee supports either medium-term financing (one to five years repayment after
delivery or equipment installation) or long-term financing (in most cases, over five and up to ten
years repayment) for heavy equipment and capital projects such as power plants,
telecommunications systems, and transport facilities and equipment. Lenders charge the market
rate for interest on the loan. A minimum 15 percent cash payment is required from the buyer; the
remaining 85 percent is financed. Ex-Im Bank's guarantee covers 100 percent of the political and
commercial of default on the principal on loans. Coverage for the loan's interest is also provided.
Ex-Im Bank guarantees loans made in NATIONAL. dollars or any other freely convertible
currency. Ex-Im Bank charges a fee for its guarantee depending on the risk it assumes and the
duration of the credit.

Ex-Im Bank also extends medium- and long-term loans of its own as an alternative to its
guarantees. Ex-Im Bank loans ate made on the same terms and conditions as guarantees, with
the important difference that the bank sets the interest rate in accordance with international
agreements. Often, an Ex-Im Bank guarantee results in an all-in cost that is lower than an Ex-Im
Bank loan. In fiscal year 1996, $1.2 billion in loans and $6 billion in guarantees were approved by
Ex-Im Bank.

Ex-Im Bank guarantees and loans, by law, must bear a reasonable assurance of repayment. To
satisfy this requirement, Ex-Im Bank takes into consideration the financial soundness of the credit
recipient and capacity to repay the export debt supported by Ex-Im Bank. In some cases, Ex-Im
Bank may require credit enhancements such as a counter-guarantee by the government or by a
creditworthy party. Under Ex-Im Bank's project loan program for major projects lacking a
sovereign guarantee, the bank will help develop an appropriate project structure that offers the
requisite reasonable assurance of repayment..
Multilateral Development Banks

The Multilateral Development Banks (MDBs) are international financial institutions owned by
member governments. Their individual and collective objective is to promote economic and social
progress in their developing member countries. The MDBs (African Development Bank, Asian
Development Bank, European Bank for Reconstruction and Development, Inter-American
Development Bank, and the World Bank Group) achieve this objective by providing loans,
technical cooperation, grants, capital investment, and other types of assistance to governments,
government agencies, and other entities in their developing member countries. The practical
expression of MDB support usually takes the form of a project or study.

Increasingly, the MDBs are providing funding to private sector entities for private projects in
developing countries. A growing number of companies and project developers around the world
are taking advantage of this funding, which is secured based on the financial, economic, and
social viability of the projects in question.

The MDBs have been traditionally been heavily involved in infrastructure and poverty-alleviation
projects. All of the banks support projects in the following sectors: agriculture, energy,
environment, finance, industry, transportation, telecommunications, health, education, urban
development, tourism, micro enterprise, and public sector, as well as other types of economic
reform. All of the banks provide some funding for private ventures.

The design and execution of MDB-financed public sector projects affords lucrative business
opportunities for suppliers, consultants, and contractors from MDB member countries. Many of
the goods and services required for these projects are procured or purchased through
International Competitive Bidding (ICP) or open tendering. These methods require notification to
the international community that a contract is being let; the notification is to provide potential
bidders with timely and adequate notification of a purchaser's requirements and an equal
opportunity to bid.

The MDBs also provide debt, equity, and guarantee financing to eligible private ventures in
developing countries. These funds, offered on commercial terms, can be accessed directly by
private project sponsors and do not require a government guarantee.

The NATIONAL. Government organization responsible for assisting American businesses pursue
MDB opportunities is the Multilateral Development Bank Operations (MDBO) office within the
NATIONAL. Department of Commerce's International Trade Administration.
The MDB Counseling Center is the Commerce Department's centralized repository of electronic
and hard copy information on MDBs. In addition to basic brochures provided by each of the
MDBs, the Counseling Center supplies specific project information and "how to" guides written by
MDBO and commercial liaison staff. Additionally, the Counseling Center provides electronic
access to MDB information via the Commerce Department's National Trade Data Bank (NTDB).
There is a section on the NTDB devoted exclusively to the MDBs, which includes the Monthly
Operational Summary for each bank.

State and Local Export Finance Programs

Several cities and states have funded and operate export financing programs, including
preshipment and post shipment working capital loans and guarantees, accounts receivable
financing, and export insurance. To be eligible for these programs, an export sale must generally
be made under a letter of credit or with credit insurance coverage. A certain percentage of state
or local content may also be required. However, some programs may require only that certain
facilities, such as a state or local port, be used; therefore, exporters may have several options.

As exporters have several options for financing, they should contact a Department of Commerce
EAC (Export Assistance Center) or their state economic development agency for more
information.

After-sales Service

Quality, price, and service are three factors are critical to the success of any export sales effort.
Quality and price are addressed in earlier chapters. Service, which is addressed here, should be
an integral part of any company's export strategy from the start. Properly handled, service can be
a foundation for growth. Ignored or left to chance, it can cause an export effort to fail.

Service is the prompt delivery of the product. It is courteous sales personnel. It is a user or
service manual modified to meet your customer's needs. It is ready access to a service facility. It
is knowledgeable, cost-effective maintenance, repair, or replacement. Service is location. Service
is dealer support.

Service varies by the product type, the quality of the product, the price of the product, and the
distribution channel employed. For export products that require no service - such as food
products, some consumer goods, and commercial disposables - the issue is resolved once
distribution channels, quality criteria, and return policies have been identified.
On the other hand, the characteristics of consumer durables and some consumables demand
that service be available. For such products, service is a feature expected by the consumer. In
fact, foreign buyers of industrial goods typically place service at the forefront of the criteria they
evaluate when making a purchase decision.

All foreign markets are sophisticated, and each has its own expectations of suppliers and
vendors. NATIONAL. manufacturers or distributors must therefore ensure that their service
performance is comparable to that of the predominant competitors in the market. This level of
performance is an important determinant in ensuring a reasonable competitive position, given the
other factors of product quality, price, promotion, and delivery.

An exporting firm's strategy and market entry decision may dictate that it does not provide after-
sale service. It may determine that its export objective is the single or multiple opportunistic entry
into export markets. Although this approach may work in the short term, subsequent product
offerings will be less successful as buyers recall the failure to provide expected levels of service.
As a result, market development and sales expenditures may result in one-time sales.

Service Delivery Options

Service is an important factor in the initial export sale and ongoing success of products in foreign
markets. NATIONAL. firms have many options for the delivery of service to foreign buyers.

A high-cost option - and the most inconvenient for the foreign retail, wholesale, commercial, or
industrial buyer - is for the product to be returned to the manufacturing or distribution facility in the
United States for service or repair. The buyer incurs a high cost and loses the use of the product
for an extended period, while the seller must incur the export cost of the same product a second
time to return it. Fortunately, there are practical, cost-effective alternatives to this approach.

If the selected export distribution channel is a joint venture or other partnership arrangement, the
overseas partner may have a service or repair capability in the markets to be penetrated. An
exporting firm's negotiations and agreements with its partner should include explicit provisions for
repairs, maintenance, and warranty service. The cost of providing this service should be
negotiated into the agreement.

For goods sold at retail outlets, a preferred service option is to identify and use local service
facilities. Though this requires up-front expenses to identify and train local service outlets, the
costs are more than repaid in the long run.
For example, a leading Canadian manufacturer of consumer personal care items uses
NATIONAL. distributors and sales representatives to generate purchases by large and small
retailers across the United States. The products are purchased at retail by individual consumers.
The Canadian firm contracted with local consumer electronic repair facilities in leading
NATIONAL. cities to provide service or replacement for its product line. Consequently, the
manufacturer can include a certificate with each product listing "authorized" local warranty and
service centers.

There are administrative, training, and supervisory overhead costs associated with such a
warranty and service program. The benefit, however, is that the company is now perceived to be
a local company that competes on equal footing with domestic NATIONAL. manufacturers.
NATIONAL. exporters should keep this example in mind when entering foreign markets.

Exporting a product into commercial or industrial markets may dictate a different approach. For
the many NATIONAL. companies that sell through distributors, selection of a representative to
serve a region, a nation, or a market should be based not only on the distributing company's
ability to sell effectively but also on its ability and willingness to service the product.

Assessing that ability to service requires that the exporter ask questions about existing service
facilities; about the types, models, and age of existing service equipment; about training practices
for service personnel; and about the firm's experience in servicing similar products.

If the product being exported is to be sold directly to end users, service and timely performance
are critical to success. The nature of the product may require delivery of on-site service to the
buyer within very specific time parameters. These are negotiable issues for which the NATIONAL.
exporter must be prepared. Such on-site service may be available from service organizations in
the buyer's country; or the exporting company may have to send personnel to the site to provide
service. The sales contract should anticipate a reasonable level of on-site service and should
include the associated costs. Existing performance and service history can serve as a guide for
estimating service and warranty requirements on export sales, and sales can be costed
accordingly. This practice is accepted by small and large exporters alike.

At some level of export activity, it may become cost-effective for a NATIONAL. company to
establish its own branch or subsidiary operation in the foreign market. The branch or subsidiary
may be a one-person operation or a more extensive facility staffed with sales, administration,
service, and other personnel, most of whom are local nationals in the market. This high-cost
option enables the exporter to ensure sales and service quality, provided that personnel are
trained in sales, products, and service on an ongoing basis. The benefits of this option include the
control it gives to the exporter and the ability to serve multiple markets in a single region.

Manufacturers of similar or related products may find it cost-effective to consolidate service,

training, and support in each export market. Service can be delivered by NATIONAL.-based
personnel, a foreign facility under contract, or a jointly owned foreign-based service facility.
Despite its cost benefits, this option raises a number of issues. Such joint activity may be
interpreted as being in restraint of trade or otherwise market controlling or monopolistic. Exporters
that are considering it should therefore obtain competent legal counsel when developing this joint
operating arrangement. Exporters may wish to consider obtaining an export trade certificate of
review, which provides limited immunity from NATIONAL. antitrust laws.

Legal Considerations

Service is a very important part of many types of representation agreements. For better or worse,
the quality of service in a country or region affects the NATIONAL. manufacturer's reputation
there.

Quality of service also affects the intellectual property rights of the manufacturer. A trademark is a
mark of source, with associated quality and performance. If quality control is not maintained, the
manufacturer can lose its rights to the product, because one can argue that, within that foreign
market, the manufacturer has abandoned the trademark to the distributor.

It is, therefore, imperative that agreements with a representative be specific about the form of the
repair or service facility, the number of people on the staff, inspection provisions, training
programs, and payment of costs associated with maintaining a suitable facility. The depth or
breadth of a warranty in a given country or region should be tied to the service facility to which the
manufacturer has access in that market. It is important to promise only what can be delivered.

Another part of the representative agreement may detail the training the exporter will provide to
its foreign representative. This detail can include frequency of training, which must be trained,
where the training is provided, and which party absorbs travel and per diem costs

Each foreign market offers a unique opportunity for the NATIONAL. exporter. Care and attention
to the development of in-country sales and distribution capabilities is paramount. Delivery of after-
sales service is critical to the near- and long-term success of the NATIONAL. company's efforts in
any market.
Senior personnel should commit to a program of regular travel to each foreign market to meet
with the company's representatives, clients, and others who are important to the success of the
firm in that market. Among those persons would be the commercial officer at the Commercial
Service's post and representatives of the American Chamber of Commerce and the local
chamber of commerce or business association.

The benefits of such a program are twofold. First, executive management learns more about the
foreign marketplace and the firm's capabilities. Second, the in-country representative appreciates
the attention and understands the importance of the foreign market in the exporter's long-term
plans. As a result, such visits help build a strong, productive relationship.

2. Analysis & interpretation

1. Export Items and Manufacturing Units

no.of.units
no.of.units produced

250

200

150

no.of.units

100

50

0
1 2 3 4 5 6 7 8 9
10 11 12 13 14
products

The data collected in the survey has been plotted as shown in the above graph which
indicates that most of the export form Electronic SMEs is on basic component kind of
items only. This indicates that the exports are based on the individual components that
are going to be used in other major equipments. The major export segment includes the
chokes ,coils , power leds, power supplies and stabilizers.

s.no product no.of.units

1 chokes&coils 237
2 dcpowersupply 55
3 defence 66
4 leds 44
5 nonfervous 34
6 payphones 71
7 pco 87
8 plasticmould 45
9 powerleds 140
10 powersavers 34
11 powersuppilers 78
12 software tools 118
13 stabilizers 120
14 transformers 54
2.Products Vs %exports
 p r o d u c t v s e x p o rts

70%

60% 60%
55%
50% 50% 50% 50%
4 7 .5 0 % 4 7 % 4 8 % 4 7 .5 0 %
45%45% 45% 45%
40% 40%
% o f E x p o rts
% of exports

30%

20%

10%

0%
pco
s
led
e
enc

pay o us

pow rleds

tran zers
nes

rs

rs
pow ld
ow ls

sta ls
pow ave
def

ferv

twa s

rme
ly

u
ph o
dcp s&coi

sof ppiler
oo
e

bili
upp

mo

ers

re t
non

sfo
stic
ers
ke

u
ers
pla
cho

n a m e o f th e p r o d u c t

According to the survey data the export percentage in higher for non-fervous
components, Power leads & transformers. This is because of the technical known how
and experience available with the SMEs.For pco and power savers the experience needs
to be gained and new techniques to be implemented to improve the exports
 % of
s.no product Exports
1 Chokes& coils 50%
2 dcpowersupply 45%
3 defence 45%
4 leds 40%
5 nonfervous 60%
6 payphones 55%
7 pco 45%
8 plastic mould 50%
9 powerleds 47.50%
10 powersavers 45%
11 powersuppilers 47%
12 software tools 48%
13 stabilizers 47.50%
14 transformers 50%
 3.Bank’s contribution in financing exports

Bank's contribution in Financing Exports

AB, 1.62, 21%

SBI, 2.75, 36% DCB, 0.015, 0%

HDFC, 0.069, 1%

NSIC, 2.5048, 33%

SBH, 0.69192, 9%

AB DCB HDFC NSIC SBH SBI

The banks involved in export finance are providing diversified support to the different
export groups. The electronic SMEs participated in the survey are interested both pre-
shipment and post-shipment finance. The different financial institutions are their fiancé
amount has been plotted in the above graph from which it is evident that most of the
SMEs are depending on the nationalized banks or govt. financial institutions like NSIC.

FIN.
BANK GRANTED
 AB 1.62
DCB 0.015
HDFC 0.069
NSIC 2.5048
SBH 0.69192
SBI 2.75
TOTAL 7.65072

4.Countries Vs %exports
% of exports to countries

70%
60%
60% 55%
50% 50% 50%
47% 47% 48%
50% 45% 45% 45% 46%
Export %

40%

30%

20%

10%

0%
newzeal singapor
japan africa australia dubai england france germany nepal portugal usa
and e

% of exports 45% 47% 50% 45% 47% 60% 48% 50% 55% 50% 45% 46%
Country

% of
Country exports
Japan 45%
Africa 47%
Australia 50%
Dubai 45%
England 47%
France 60%
Germany 48%
Nepal 50%
New
Zealand 55%
Portugal 50%
Singapore 45%
Usa 46%
Most of the export related electronic components are towards the European countries
such as France, Portugal, England and Germany. These exports are mostly in the areas of
high precision components, which are going to be assembled in the heavy equipment.

5.production Vs. exports

P ro d u c tio n V s E x p o rts

16
14
12
Amount(in Crores)

10
Total ex ports
8
Total production
6
4
2
0
o
s

ds
led

pc

ers
s

s
rs
ftw ers

sta ls
ply

ne

er
w e ls

ize
rle

oo
i

av
t

m
Co

ho
up

pa on
en

p il
nts
we

et

b il

for
rs

up
is i
yp
rs

lom

ne
&

we

ar
po

ns
ec

rs
es

po
ep

po

tra
we
pr
po
ok

om

so
ev

s&

po
dc
Ch

md

dc
ng

lde
sto

sti
ca

ou
cu

us

cm
ce

rvo

st i
fen

nfe

pla
de

no

P rod ucts

This is graph indicates the share of exports in the total production capacity of the units.
This shows that most of the exports are not even half the production. The reason behind
the less export percentage has been assigned to the quality and timely deliver of the units
involved.

Total
exports production
1.591 3.03
0.009 0.02
0.2025 0.45
2 5
0.54 0.9
1.43 2.6
 0.225 0.5
0.08 0.16
0.029 0.06
0.225 0.5
0.0141 0.03
0.00672 0.014
4.4 9.6
0.02 0.04

Chapter-5
1.Findings:

The following observations have been made during the project work.

1. The Small and Medium industries are not paying the necessary attention
towards the exports.
2. Most of the SMEs not aware of the procedure involved in the exports.
3. The electronic components manufactured here got a very good demand in
foreign countries.
4. Most of the exports are at sub-components level but not at full product
level.
5. The assistance is required both at Pre-Shipment and Post-shipment phases.
6. 40% of the companies visited are looking for financial assistance, where
as 55% are looking forward for the assistance in legal and procedural
matters of the exports.
7. Most of the SMEs are not having any quality benchmark and not aware of
the quality standards to consider the product for exports.
8. Marketing strategies adopted for exports are not adequate.
 2. Suggestions:

The following suggestions can be put forward to improve the export capabilities of the
SMEs.

1. The interest rates seem to be on higher side in case of NSIC.

2. The period of finance should be of minimum of 6 months instead
of 90 days.
3. Awareness campaigns should be organized by the institutions such
as NSIC, SIDO and other Nationalized Banks related to finance,
legal and procedural assistance available regarding the exports.
4. The SMEs opting for exports should have a quality certification
such as ISO 9001:2000.
5. All the SMEs shuld make use of new technologies such as IT and
internet in their day to day operations.
6. Each SME should float a web site with all the details of the
products with specifications.
7. The SMEs should participate in international trade
fairs/exhibitions.
8. The timely deliver of the product is very important.
9. The quality of the product should be given the highest priority.
10. SMEs should approach the international market as consortia to
compete with international players in exports.
11. Most of the SMEs are looking for an incubator kind of facilities in
the first one/two years of their enterprise to participate in exports.
12. Govt. organizations such as NSIC,SIDO and SIDBI should involve
in developing export zones related to the products of SMEs.
 3. Bibliography (reference books)

S.NO Name of the book Author

1. Building an import/export business Kenneth
D.weiss
2. import/export (how to get started in international) Carl A. Nelson
3. Start your own import/export business Joann Padgett
4. Export/import procedures and documentation Thomas
E.Johnson
5. Managing exports (navigating the complex rules, controls, barriers frank Reynolds
laws)
6. Finance for managers (Harvard business essentials) Harvard
business school
press
7. The essential of finance & accounting for non-financial managers Edward fields
8. Essentials of corporate finance+ self study CD-ROM +power web Stephen A.
Ross
9. Foundations of finance: the logic & practice of financial Arthur
management J.Keown
10. Corporate finance Scott
B.SMART

4. Annexure:I

QUESTIONER:
A SURVEY ON
EXPORT DEVELOPMENT FINANCING
FOR NSIC-HYDERABAD

1) Name of the company:

2) Address:
3) Name of the CEO/Manager:
4) Products/Services oriented: Products Services
5) If Product oriented, mention the name of the products manufactured:

6) If Service oriented, mention the types of services provided:

7) What is the turn over (approximate)?

8) Are involved in exports: Yes No
9) Mention the names of the countries:

10) What products you are exporting

11) Since how long you are involved in exports.

12) Any export development finance is taken: Yes No
13) Are you planning any exports in near future (Specify the period in months):
14) Name of the Bank or Institution provided Export development finance:
15) Are you looking for any finance regarding the exports (expected): Yes No
16) What kind of finance is expected?
(i) Pre-Shipment
(ii) Post-Shipment
(iii) Both
17) Are you aware of NSIC schemes: Yes No
18) Are you registered with NSIC: Yes No
19) Under which schemes you are registered :
20) Quantity of Production per year:
21) How much % of your production intended for exports:
22) Shipment mode:
23) Post shipment difficulties:
24) Pre-shipment problems if any:
25) If you are looking for pre-shipment finance, Mention the amount expected:
 26) If you are looking for post-shipment finance Mention the amount expected:
27) What kind of further services regarding exports you are looking for:

28) Is Financing Obtained Through Other Public Funded Programs (like SME support
institutions, co-sponsored by local governments/associations); Yes No
29) If yes, which ones? What are their terms and instruments?

30) Is Self-Financing an Important Factor in Business Financing? Yes No

31) Please rate the quantity and quality of skilled manufacturing labor available in this
country.(Select your option on the scale of 5 )

Very Poor Poor Average Good Very Good

Quantity: 1 2 3 4 5

Quality: 1 2 3 4 5

32) Please rate indigenous industrial management capabilities to develop, produce, and
market technology-intensive products

Very Poor Poor Average Good Very Good

1 2 3 4 5

33) Any Suggestions:

Date:

Signature:

LIST OF COMPANIES VISITED

S.NO NAME OF THE COMPANY
1 KWALITY PHOTONICS PVT.LTD
2 JAYA ENTERPRISES
 3 SERVO MAX INDIA LTD
4 BHAGYA LAKSHMI INDUSTRIES
5 POWER TRONICS
6 META SUN ELECTRICAL
7 ELECTRO MAGNETIC DEVICES
8 ELMAS POWER SYSTEM
9 VERATRONIKS
10 KAVDEVI
11 SPECK SYSTEMS LTD
TOUCH STONE ELECTRONICS
12 PVT.LTD
13 TWIN DATA SYSTEMS PVT LTD
14 SCALE MASTER ADLAM PVT.LTD
15 ELECTRO MECHANO
APOLLO COMPUTING
16 LABORATORIES
17 DECCAN POWER PRODUCTS
18 CD ELECTRO DEVICES PVT LTD
19 ATLANTA SYSTEM
20 INTERGRAPH PVT. LTD

Appendix :II

SMALL INDUSTRIES
DEVELOPMENT BANK OF INDIA
(SIDBI)
 SIDBI SCHEMES

1. International financing

The main objective of the various International Finance schemes is to

enable small-scale industries to raise finance at internationally competitive rates to
fulfill their export commitments.
The financial assistance is being offered in USD and Euro currencies.
Assistance in Rupees is also considered, independent of foreign currency limits.
SIDBI has a license to deal in foreign exchange as a "restricted"
Authorized Dealer (i.e. SIDBI confines its foreign exchange activities only to its
own exposures and to exposures for its customers.
The Mumbai Head Office (MHO) of SIDBI operates as a Category 'A'
branch that maintains foreign currency positions, nostro account with foreign
correspondent banks and provides cover to other branches (Category 'B' branches)
that carry out forex business.

It has a Dealing Room at Mumbai that acts as a central service provider to all
branches.
 2. POSTSHIPMENT CREDIT IN FOREIGN CURRENCY
(EBF)/RUPEE (PSCR)

Purpose

To provide post-shipment credit in foreign currency at internationally competitive

rates of interest by discounting of usance export bills / purchase of sight/demand
export bills and negotiation of bills under LCs.

Eligible Borrowers

All SME units and Export / Trading houses sourcing their requirements from SMEs
with

a. profit making units with proven track record in exports for last three years
and sound financial position
b. requirement of export finance assistance of at least Rs.100 lakh

Norms

Need based limit, depending on the normal trade terms and credit period given to
overseas buyers by exporters not exceeding 180 days. Assistance in rupees is also
considered independent of FC limits.

Rate of interest-

For EBF - Not exceeding 0.75% over 6 Month LIBOR.

For PSCR - As per RBI guidelines and the score chart introduced by SIDBI.

3. PRE SHIPMENT CREDIT IN FOREIGN CURRENCY

(PCFC)/RUPEE (PCR)
Purpose

To enable

Small scale industries to raise finance at internationally competitive rates as per

Reserve Bank of India guidelines to fulfill their export commitments.

Eligible Borrowers

Industrial concerns in the small scale sector and Government recognized Export /
Trading Houses sourcing their requirement for export from SME sector with

a. profit making units with proven track record in exports for last three years
and sound financial position
b. requirement of export finance assistance of at least Rs.100 lakh

Norms

Pre-shipment Credit in Foreign Currency (PCFC) is being extended in USD & EURO
Currencies. Assistance in Rupees is also considered independent of FC limits.

Quantum - need based linked to working capital gap.

Period of Credit - linked to production cycle (Maximum - 180 days)

Margin - minimum 10% and maximum 25%

Repayment - by discounting / negotiation of Export bills within a maximum period of

180 days

Rate of interest -

For PCFC - Not exceeding 0.75% over 6 Month LIBOR.

For PCR - As per RBI guidelines and the score chart introduced by SIDBI.
4. FOREIGN CURRENCY TERM LOAN SCHEME (FCTL)

FCTL will be extended in USD & Euro currencies.

Rate of interest :- Market related rates up to 3.5% to 4.0% over 6 month LIBOR for
USD and Euro.

For acquisition of fixed Assets

Purpose

For setting up new projects as well as for expansion, diversification, technology up

gradation and modernization of existing units with good track record covering both
indigenous and imported. The units should preferably be export-oriented.

Eligible Borrowers

Industrial concerns in the SME sectors.

Norms

Repayment - maximum 5 years with a moratorium of 1 year, linked to the cash flow
of the unit.
For Working capital purposes
Purpose

For meeting working capital requirements, both indigenous and imported.

Eligible Borrowers

SME units and Export / Trading Houses sourcing their requirements for export from
SME sector and having consistent export performance.

Norms

Repayment - maximum 5 years.

5. OPENING OF FOREIGN LETTERS OF CREDIT(FLCS)

Purpose

To enable small scale industries to import capital equipment for new projects,
expansion, diversification, technology up gradation and modernization of existing
units.

To enable import of raw materials, consumables etc. by SME units and Export /
Trading Houses sourcing their requirements for export from SMEs

Eligible Borrowers

Industrial concerns in the small scale sector and Export / Trading Houses sourcing
their requirements from SME sector.
Norms

Currency - USD, EUR, JPY

LC in other convertible currencies are also opened subject to the cross currency
exchange risk being borne by the importer.

Amount - minimum of USD 25,000 or equivalent, however FLCs for lesser amounts
may be considered on case to case basis.

Margin - 100% or backed by a term loan or Pre-shipment credit limits sanctioned by

SIDBI/Primary Lending Institutions

Charges - As per FEDAI guidelines

6. LINE OF CREDIT FOREIGN CURRENCY TO COMMERICAL

BANKS (LOCFC)
Purpose

For providing resource support to institutions/banks for extending export and

domestic credit to SME units, Government recognized Export Houses / Trading
Houses sourcing their requirements from SSIs.

Eligible Borrowers

All Commercial bank in private and public sector and approved factoring companies.

Norms

Currency - USD / EURO

Amount - Need based

Validity - One year or shorter period from the date of sanction

Rate of interest - Market related spread over 6 Month LIBOR.

7. BOOKING OF FORWARD CONTRACT

Purpose

To provide SIDBI's clients with the facility of hedging of foreign exchange risks
related to their import / export transactions.

Eligible Borrowers

Assisted borrowers having exposure in foreign currency.

Norms

Currency - Presently can be booked in USD / EURO / JPY

Amount - Minimum of USD 25,000 or equivalent. However Forward Contracts for

lesser amounts may be considered on case to case basis.

Charges - As per FEDAI guidelines

8. MARKETING FINANCE

A.MARKETING FUND FOR WOMEN

OBJECTIVE
The assistance under the Fund is available to women entrepreneurs and
organizations involved in marketing of products manufactured by women
entrepreneurs to increase their reach, both in domestic and international markets.

ELIGIBLE BORROWERS

• SSI units managed by women entrepreneurs.

• Marketing related service providers Organizations / units in the corporate /
co-operative / NGO sectors which are providing support services like internet,
trade related information, advertising, marketing research, warehousing,
common testing centers, etc. to enterprises owned and managed by women.
• Marketing related service providers Organizations / units in the corporate /
co-operative / NGO sectors which are providing support services like internet,
trade related information, advertising, marketing research, warehousing,
common testing centers, etc. to enterprises owned and managed by women.

CONSORTIA

Organizations / Associations / Women Groups / Marketing Consortia that have an

exclusive marketing mandate and have, as their vendor base, a wide range of small
and tiny units owned and managed by women entrepreneurs.
While the terms and conditions for sanction of assistance would be flexible,
they would essentially depend upon the soundness of the management,
track record of performance and viability of future operations.

DEVELOPMENTAL ASSISTANCE

Besides providing financial assistance as mentioned above, SIDBI could also

consider, on a selective basis, developmental assistance by way of soft loans/grants
for organizing group activities and programmers such as trade fairs, exhibitions,
buyer-seller meets, seminars, workshops, training programmers, etc. to promote
marketing of products manufactured by women entrepreneurs.
B.MARKETING OF SSI PRODUCTS

OBJECTIVE

• To provide financial assistance to SSI units to undertake various activities

necessary to increase their sales turnover in the domestic and export
markets.
• To finance corporate entities to enable them to provide support services
and/or infrastructural facilities to small scale sector to improve its marketing
capabilities

ELIGIBLE BORROWERS

• Existing SSI units in the small scale sector with a good track record and
sound financial position are eligible for assistance under the scheme. New
units could also be considered on a selective basis.
• Specialized organizations incorporated as corporate entities and providing
marketing assistance, infrastructure and support services to industrial
concerns in the small scale sector.

PURPOSE

• Assistance under the scheme may be availed of for undertaking various

marketing related activities such as:
 1. Marketing research.
2. R & D, product up gradation and standardization.
3. Preparation of strategic marketing plan
4. Advertising, branding, catalogue preparation, production of audio-
visual aids, etc.
5. Participation in trade fairs and exhibitions, undertaking sales
promotion tours, etc.
6. Establishing distribution network including showrooms/retail outlets
and warehousing facilities.
7. Training of personnel in activities relevant to marketing etc.
• For setting up new showrooms and/or renovation of existing showrooms for
marketing predominantly small scale, cottage and village industry products.
Such showrooms could be set up within the country or abroad.
• Development of infrastructure like permanent exhibition centers, industrial
parks e.g. garment and software parks, marketing emporia, design and
fashion forecasting studios, auction houses (say for floriculture products),
container depots and container freight stations and trade centers (within India
and abroad) Such infrastructural projects should largely benefit the small
scale, cottage and village industries.
• Setting up of facilities for providing marketing support to SSI units, e.g. data
bank, libraries, internet services, etc.
• Any other activity directed towards promoting the marketing of SSI products
in domestic or international markets.

AMOUNT OF LOAN

Would be need based, but would not normally be below Rs. 10 lakh per borrower.

PROMOTER'S CONTRIBUTION

As may be requested to arrive at a Debt Equity Ratio of not more than 2 : 1.

RATE OF INTEREST
May be fixed in a broad band up to 3.5% above the applicable prime lending rate

SECURITY

Exclusive charge over the assets acquired out of the loan; first/second charge on
existing fixed assets and other collateral security as may be deemed necessary

PERIOD OF INTEREST

This may vary from three to eight years with a moratorium up to one year.

9. OTHER SCHEMES

A.SCHEME FOR DOMESTIC FACTORING (FAC)

Purpose

To provide factoring service to the manufacturers in SSI sector supplying their

products on credit terms to various purchasers in the domestic market with a view to
assisting them in their receivable management as also providing them with finance
against the receivables factored.

Eligible Borrowers

Facilities are extended to existing units in SSI sector - with good track record of
performance and sound financial position - supplying components/ parts/
accessories/ sub-assemblies etc. on short term credit to well established purchasers
units. They should have been in operation for at least three years and have earned
profits and/or declared dividend during the two years prior to taking up the scheme.

Norms
Sales of the unit should preferably be spread over a minimum of 3 customers with
maximum sales concentration in a single buyer being less than 50%. Maximum
credit period shall be of 90 days.