There is a great variety of products you can export from India and the business can reap great rewards. But you must know all the steps that take you from initial inception of your company to selling around the world. These 7 Steps will guide you through starting your company to final export from India and planning against the risk of international trade. Hopefully, it will be of help.The Exim Mitra site provides a clear step-by-step process to follow and we’re going to expand on each area it covers by providing more detailed information.
Like in many countries, any operations involving exports requires a legal entity, or a company. Then, if you intend to export from India, depending on your circumstances and project, you can choose to establish one of the following business entities:
- One Person Company – regulated by the Companies Act, 2013 and director is not personally liable for the company’s liabilities
- Proprietorship – no formal registration
- Partnership – regulated by the Partnership Act, 1932. Registration is optional
- Public Limited Company
- Private Limited Company (Pvt Ltd) – minimum two directors and two shareholders and limited liabilities
- Limited Liability Partnership – depending on jurisdiction, partners have limited liabilities and not responsible of other partners’ misconduct
The Pvt Ltd is the most popular company setup as it doesn’t require great capital and allows shareholders to have limited liabilities in case of insolvency or bankruptcy. Minimum capital requirement is 1 Lakh (Rs. 100,000) and can have up to 50 shareholders. Different is the Public Limited Company with a minimum of 7 shareholders and capital requirement of 5 Lakh, with at least 3 directors.
To setup a company you must register it with the Ministry of Corporate Affairs (MCA). To do this you should produce and submit the following documents:
- Each person proof of identity – submission of ID, passport, etc.
- Each person proof of address – submission of utilities bills, etc.
- Permanent Account Number (PAN) – a 10-digit alphanumeric ID for tax purposes
- Proof of registered office – submission of electricity, property tax, etc.
For the setup you will pay an incorporation fee and the stamp duty and other taxes. Directors are also required to obtain Digital Signature Certificate (DSC) and a Director Identification Number (DIN).
If you export from India you need a bank account for receiving payment. You will use it to receive and make payment only for business purposes. Your international buyers will need an IBAN and Swift code to process payments to you. Once you have a registered company and obtained your PAN, you can request to open a business bank account in one of the many commercial banks offering such services.
The bank account opening enables you to obtain documents that will help you ask for the import-export license by the Directorate General of Foreign Trade (DGFT). So you cannot avoid this step. According to Indiafilings, to open a bank account for a company you need the following documents:
- Certificate of Incorporation and Memorandum & Articles of Association
- Resolution of the Board of Directors to open an account and identification of those who have authority to operate the account
- Power of Attorney granted to its managers, officers or employees to transact business on its behalf
- Copy of PAN allotment letter
- Copy of the telephone bill
If you instead have chosen setting up a proprietorship and need to open a bank account, requirements may be different. Two banks we found offering accounts specific for traders and companies that export from India are ICICI and HDFC.
Make sure to check the exchange rates and margins applied by the bank. These may be negotiated as you grow your business and increase transactions over time.
Any export business requires licenses that regulate and monitor the flow of goods and services between countries and India is not an exception. Before you start exporting you must request the following:
- Permanent Account Number (PAN)
- IEC and GST
- Certificate of Origin
- Check Standards Regulations and Conformity
- Appoint a Customs House Agent (CHA)
- Obtain an RCMC from your Promotion Council or Board
- Obtain FSSAI License
If you want to export from India it is necessary to request your PAN. It identifies you or your company for income tax purposes and you can apply for it on the Income Tax Department. According to the site, “applying for a PAN is Rs. 93 (excluding good and services tax) for Indian communication address“.
3b. Apply for IEC and GST
On the DGFT website you can apply for the Import-Export Certificate (IEC) at a cost of Rs 500. If you use an agent to file the application for you it may cost you more. Another prerequisite for export from India is GST registration.
3c. Obtain a Certificate of Origin
Depending on your specific goods, you must obtain a Certificate of Origin (CO). This is useful for evidence of the origin of your goods, whether you produce them in India or not. The DGFT website provides this document helping you locate the closest agency issuing a certificate of origin in your state. Further, you will find the Appendices of the FTP 2015-2020 where you can find regional authorities, towns of specialized export, procedures and sample documents.
3d. Check Standards Regulations and Conformity
If your products are subject to specific standards, check the Standardmaps website offering you a quick search tool for finding out the standards and conformity rules applicable to you.
3e. Appoint a Customs House Agent (CHA)
Also, you must appoint a licensed Customs House Agent (CHA) to act as transaction agent for your exports. Depending on the Incoterms rule you use and the arrangement with the CHA, either you or the importer will pay for their services. On the APEDA website, you find the list of authorized CHAs for export from India.
3f. Obtain an RCMC from your Promotion Council or Board
Any exporter must obtain a Registration-cum Membership Certificate (RCMC) to receive benefits from the Customs and Central Excise Authorities. For the RCMC application process and forms, check the various councils and boards according to the product you export. One is the Federation of Indian Export Organisations (FIEO) website.
3g. Obtain FSSAI License
If you intend to export food for human consumption, whether you are a distributor, processor or other operator involved with food, you need to apply for a FSSAI license as ruled by the Food Safety Standards Act 2005. The Wazeer website states that vegetable oils, dairy products, meat and even “relabellers and repackers [with installed capacity of] more than 2MT/day except grains, cereals, and pulses milling units” are also subject to FSSAI license.
Like in other countries, starting an export business involves your knowledge about the product you intend to export from India, and its potential growth demand. First, research statistics from official sources, like the International Trade Center (Intracen).
One tool Intracen offers is Trademap, where you are able to see the volumes involved by product group and country for both import and export. Another useful resource is the Market Analysis studies section. It helps you “assessing products and markets with export potential”. The good news is that you can consult and download most material for free. Other primary sources of statistics and information are:
World Trade Statistics Sources
|World Bank||United Nations Comtrade|
|World Trade Organization (WTO)||Eurostat|
|US Census Bureau||OECD|
|MIT Libraries||Ministry of Commerce India|
4a. Check Exemption from Second Schedule Of Customs Tariff 1975
Once you have gathered information on your chosen product, or category of, and its potential markets, you must research tariffs and export tax. For instance, check which HS Code applies to your products. But export tax doesn’t apply to all products because the Indian government promotes export. You can check possible exemption by consulting the Second Schedule of Export Tariff document for applicable rate of duty. The Customs Tariff Act 1975 offers further information.
However, revenues of export from India are subject to regular taxation such as income and sales tax. For this, hire an accountant with expertise in export. Check this article about Forms under CST for the various exemptions you can exploit using C, F and H forms. You’ll also find a link to a document about obtaining the H form in Delhi.
4b. Research Online Trade Platforms
The second step of your research is about finding potential importers and buyers. For this target them online and offline. In this section, we cover the online aspect of searching, but consider it as part of the Finding and Dealing With Buyers further below. We split it because part of your research is by studying what’s out there and what your competitors do.
Both suppliers and buyers use web portals to get in contact. A recent article by Digital Doughnut provided the top 10 B2B platforms which you should check. Here is our non-exhaustive list of some of the most used ones but do expand your research.
14 B2B trade platforms for your export
|The Dollar Business||Ecplaza|
So, study others suppliers, their offering, pricing, minimum quantities orders, the payment terms and method they accept. Also, check and take note of requests from buyers, their needs and the specifications they ask for your chosen product.
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When it comes to pricing, you have to study all direct and indirect costs before setting the right price. In the above trade platforms websites, you must have noticed how suppliers that export from India price their products. This should give you a first indication on price competition.
Remember that unit or bulk prices vary depending on country of export, quantities and payment terms, among other factors. For example, you should consider which Incoterms rule to use and the associated costs. For example FOB or CIF are the most used.
Some of the questions you should ask yourself are:
- Do I need financing to purchase raw materials for production?
- What are my fixed and variable expenses?
- Do I need financing to export?
- What is the cost of manufacturing?
- How much are the freight charges for shipping and handling?
- Are my products subject to export tax?
- Are there any other duties, expenses, charges?
- What are my packing costs?
However, pricing requires a more detailed analysis on what strategy you want to pursue. For example, do you want to be more price competitive or satisfy your internal cost requirements? How much mark up do you want to reach? For an initial assessment on pricing and related strategies, Eximdesk provides some help.
5a. Incoterms Rule, Freight Agents And Pricing
One cost to include in your calculations is freight and shipping. Like anywhere else, export from India cannot be accomplished unless you have a freight forwarder or agent able to handle all your shipments. FFFAI and JCtrans list forwarders from whom you can get a quote. Once you selected a few, decide to use one for your first shipments and see how good they are.
It’s common to quote pricing on FOB Incoterms. Otherwise, you could quote CIF Incoterms prices. Bear in mind that FOB is more convenient to you since you are only responsible for the loading of goods on the departing vessel from the originating port. The remaining section of the shipment is responsibility of the buyer, including insurance.
5b. Website and Branding Costs
Further, your costs and expenses should not only limited to the production and running of your export business. You should consider having a presence online by setting up a website and branding it accordingly to your products. Having a website is very important. This shows you are an established business and not a random trader. Brand image is also very important.
Graphics, layout and user experience (UX) gives online visitors an idea of your business and how serious you are about trading. Therefore, you should integrate costs relating to website development, logo, payment processors, etc. For example, to allow buyers order directly from your website, a web shop is a solution to consider.
If you cannot find buyers, you don’t have any business to run. Thus your export from India can’t take off. We saw how studying online trade platforms reveals opportunities and provides international buyer leads. But it’s important to establish how good your potential buyers are. In fact, this is one of the aspects seasoned and new exporters often overlook.
- How can you be sure the buyers will actually pay you?
- How do you assess their continued business and reputation?
- Can you rely on their ongoing orders in order to make projections of future sales?
6a. Payment Terms
The most secure payment method is cash before delivery or upon order. You can achieve this by having a web shop on your website or a payment processing system accepting credit cards over the phone or fax. Another option is to have the order paid via international bank transfer.
However, not all export markets, countries and buyers will accept your unilaterally chosen payment terms. It depends on the common practice for payments and what other suppliers offer to stay competitive. Therefore, it’s a bit of adapting to the current state of things.
In our 19 export fundamentals post we provide an explanation of the several methods of payment exporters use. The same apply if you export from India. After cash in advance, the Letter of Credit (L/C) is the second most secure form of payment. The importer’s bank guarantees payment even in case of default of the buyer. But again, study the most preferred methods of payment in your export sector and adjust your prices accordingly.
Maybe you can offer interesting discounts on quantities to attract buyers or deferred payment terms. Said that remember that payment after delivery on deferred terms may bring some troubles. If you haven’t researched your customer properly, you may lose money.
6b. Finding and Selecting Buyers
As a start, create a contact details spreadsheet of the potential buyers you think could be a good match. Then, contact them by introducing your business and your products. Don’t be pushy in your sales pitch. Offer good reasons why they should buy from you and the advantages of your supply, price policy and incentives. Offer to make a video call and discuss in detail for those interested. Some will be used to it and say yes. Don’t expect anything, though. You will have to repeat this process a dozen times.
If your budget allows for it, consider spending some money of advertising on the trade platforms of your choice or run a Google, Bing or Yahoo PPC and SEO for proper indexing of your website. Also, based on the nature of your product, run a Facebook Ads promotional or PPC campaign, or one on Instagram or other social network that matches your brand and product type.
6c. Attend Trade Fairs
You should not limit yourself to online search. Understand that attending trade fairs and exhibitions in your particular sector is also very productive. Have plenty of business cards to hand over to potential buyers at their stand and possibly an introduction brochure. A well designed presentation will help you gain trust.
Exchange as many contact methods as possible to facilitate your prospect to contact you with their preferred method. These could be a combination of landline, mobile, fax, email, Whatsapp, Skype, LinkedIn and others. For example, in China WeChat is used by many. Finally, don’t forget that your social presence is also important. Provide links to your most visited social profiles too.
Below you find a number of sites where you can research the trade fairs of your interest, inside and outside of India:
Lastly, one major tool that web technology provides today is email marketing. Once you have gathered your buyers’ contacts, choose an email marketing tool to send your offers. Keep contact alive and frequent. If you leave it for long, the person you spoke to may not remember you anymore and you could miss a potential sale.
This January 2018 article from PCMag gives you a fully detailed description of the top 10 email marketing tools from which to choose.
6d. Appoint an Export Agent
Find a local sales agent in the country of your interest. They usually work to identify the right buyer for you and they may offer support to facilitate the import of the goods in their country. This way, you reduce effort in finding new suppliers in each market. In addition, you only pay on a commission basis, that is, only when a sale completes.
Even if you have planned and setup everything well, you are still subject to the several risks of international trade. One is buyer risk, that is, customers not paying your goods once received. But unless you accept payment in advance, even if you are covered by a L/C, country and currency risks persists, to name a few.
Let’s see some problems you would encounter with an example where you export from India to Brazil.
When the invoice is due, your buyer may be unable to access foreign currency, say US Dollars. Also, checking the current political and economic conditions and trends helps assess likelihood of restrictions, inflation surge or government protectionist measures.
7a. Political Risk
Political risk involves civil unrest, military threat and regulatory changes and other restrictions and measures. The World Economic Forum 2017 Global Risk study shows that failure of national governance is the number one risk in Latin America. In Europe and Asia, inter-state conflict and profound social instability are in the top 5 risks. If any of these occur, your buyer may default and not pay you.
7b. Commercial Risk
What do you do if importers don’t pay you?
If your payment terms involve trade credit, say Net 30, your accounts receivable will suffer and you risk to make a loss. You also risk that your buyer starts insolvency procedures or applies for bankruptcy without you knowing before it’s too late.
7c. Trade Credit Insurance
One risk mitigation tool at your disposal is trade credit insurance. By applying for a credit insurance policy, you ensure protection of your business liquidity.
For example, if your importer starts insolvency proceedings your insurer will know. Thanks to its access to companies financial data, any changes are tracked and reported. Further, each country insolvency and bankruptcy procedures are different and you would need extensive legal assistance if you credit is unsecured.
There are two types of insurers:
- Private insurers
- Export Credit Agencies (ECAs)
Private insurers determine premiums on several factors. For example if you are an experienced exporter or not. If you are not, they will consider the risk factors in the sale and your business needs.
Benefits: Credit insurance is a cost effective remedy and helps access financing opportunities.
Export Credit Agencies (ECAs) help exporters where private insurers don’t offer cover or think there’s too much risk involved. For example in emerging economies. Financing institutions and banks view ECAs’ insurance cover with favour.
Benefits: export to higher risk markets. Opportunities exist for competitive sales and extended payment terms to customers.
In India, the Export-Import Bank of India provides assistance to exporters through lines of credit as well as research and analysis of destination markets.
7d. Debt Recovery
About a third of world trade transactions are unsecured. If you do not insure or do not take collateral on your sales, the risk of non-payment is all on your shoulders. Even the best customers may default on payment. Therefore, when you face delinquent customers and you haven’t been able to collect your money, you have three options left:
- make a loss – you forgive the debt and write it off to bad debts
- appoint a debt collection agency – you outsource the collection to a professional
- sue your debtor – you find a lawyer to file a lawsuit against your debtor
Making a Loss
Making a loss is bad news because this affects your business cash flow, profitability and may cause you troubles for when you ask for funding. Banks will ask you for your financial statements and check your ability to collect your receivables.
Appoint a Debt Collection Agency
If you exhausted all internal resources and means to collect, it’s better to hire a licensed debt collector or agency. You should hire one who is willing to recover your money on a No Win No Fee basis. This way you can rest assured they will work to collect it because it’s the only way to earn their fee.
Also, make sure the fee is contingent, that is it’s applied to the amount they recover. This solution helps you focus on your business knowing a professional is working to prevent you making a loss. Further, if you appointed a collector in your debtor’s country your collection is carried out in compliance to local laws.
Sue Your Debtor
This is the most expensive and lengthy process. First, the amount you’re trying to recover must justify the expenses you incur in filing a lawsuit. Even if you find a lawyer offering a contingent No Win No Fee collection, you still have to pay for upfront fees and charges. These are expenses for filing the claim to the local court and get the legal proceeding started. Again, you should consider this option in case your claim is substantial. Other faster but still expensive options are mediation and international arbitration.
If you are serious setting up a company to export from India products or services, these 7 steps will certainly guide you in reaching your goal. Export is a great way to connect with other businesses, people and enjoy continued opportunities for growth. Although India is a very large market, if you export your business has the potential to grow many times over. But it’s important to take each step carefully, using the appropriate trade tools to navigate safely and prevent bad outcomes. Good luck.
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This article contains general legal information and material for informational purposes only which are not intended and should not be taken as legal advice. Recoupera is not a collection agency and it is not a law firm or a substitute for an attorney or law firm. All informational material provided may not reflect changes in the law. For legal advice, contact a lawyer.