CASE – 1
Ms. Nilima and Ms. Sonia are very good friends. After completing their graduation in literature from a reputed college in Delhi University, they got a chance in modeling. This aroused their interest in the fashion industry. They decided to join a fashion institute to acquire proficiency in the field of designing of the ready made garments and completed two year course in designing. They have been working in the fashion industry for the last 3 years. Recently, they had been to USA in connection with a fashion show organised by one of their clients. They found that there is a lot of potential for the export of ready made garments to USA and other West European countries from India. They are now motivated to start their own export business in the field of ready made garments particularly women’s designer wear. They are willing to invest Rs. 5 lakhs each and have strong financial support to invest more money as well. As far as product is concerned, they have sufficient knowledge of fabrics, designs, accessories, dyeing, printing and fabrication processes. Ms. Sonia has also completed her MBA in International marketing from a reputed institute in Delhi. They have decided to establish their export business but do not know about the formalities involved in the establishment of their export business. They have approached you as a consultant in foreign trade for guidance.
Question:
You are required to prepare a detailed report for their guidance so that they can establish their export business.
CASE – 2
XYZ Pvt. Ltd. has been engaged in the business of plastic toys for the last 5 years in New Delhi. Mr. X, the Managing Director of the company had conducted a study to understand the export potential of his range to toys. After a detailed study of the market reports on toys, he came to the conclusion that there was a lot of potential for the export of toys to the countries in the Middle East and West European countries. He has his own manufacturing unit at Okhla in New Delhi and commands 23 per cent share of the market for toys in India. The value of production, sales and earnings before interest and taxes (EBIT) for the last 5 years are as follows:
| Year | Production
(Rs. in Lakhs) |
Sales
(Rs. in Lakhs) |
EBIT
(Rs. in Lakhs) |
| 1995
1996 1997 1998 1999 |
50
95 135 180 230 |
60
104 162 216 276 |
5
9 15 20 25 |
He now plans to diversify into exports but does not know how to begin. He has engaged you as his export trade consultant and desires to know the initial formalities to start the export business and how to plan for marketing of the toys.
Question:
You are required to prepare a detailed note advising him the initial steps that he should take to diversify into the area of exports and a complete Export Marketing Plan for execution.
CASE – 3
M/S Vivek International, Sheikh Sarai, New Delhi is engaged in the exports of gents shirts made of 100 per cent cotton fabrics. The details of the production capacity and other aspects are given below:
- Product: Gents Shirts
- Production Capacity installed: 4000 Shirts per month
- Present capacity utilization: 2000 Shirts per month
- Break-even level: 1400 Shirts per month
- Fixed Costs: INR. 140,000/- per month
- Variable Cost per shirt: INR 400 (or USD 10)
- Selling Price / FOB Ex- New Delhi INR 500 (or USD 12.5)
(This is based on average rate of exchange of 1 USD = INR 40)
Duty drawback rate; 15% of FOB Value (Assumed for easy calculations)
M/S Vivek International has received an enquiry for the supply of 1600 Shirts per month for the next one year to an importer in New York, U.S.A. But the initial talks with the importer have revealed that he would not be willing to pay USD 12.5 per shirt. He is quite inclined to pay much lower price. Since, this order would help increase capacity utilization, the economies of scale would reduce the variable cost in rupee terms by 10%. M/S Vivek International has decided to take this order.
Question:
You are requested to prepare a decision analysis to suggest the range of FOB prices (the minimum and the maximum) for negotiation of price with the importer. It may also be noted that the INR may weaken to a level of USD = INR 46 over the period of supply.
CASE – 4 ON EXPORT PROMOTION
Mr. Ram Kumar of M/S Khanna Road Carriers, New Delhi has recently ventured into export trade under the name and style of the firm called Exclusive Creations. He studied a few market reports and then decided to take up wooden handicrafts. He contacted European Business Information Centre, New Delhi and could get a few trade enquiries for the export of wooden handicrafts.
He got a positive response from M/S Arts’N Wood in Germany. This buyer is a wholesaler-importer of Orient gift items, and accessories, with warehouse in Frankfurt and also in Sydney, Australia. After a initial round of correspondence with Mr. Joe Branke, of M/S Arts’N Wood, Mr. Branke showed his interest in wooden boxes with brass inlay of animal motifs. Mr. Kumar quoted a price of US$ 5 F.O.B. Ex- New Delhi per box. In view of the current demand trends in the market, Mr. Branke asked for a sample. He approved the sample with minor changes and initially placed a token order worth US$ 5000 for the supply of 1000 pieces on 5th October, 1999 to Mr. Kumar of the Exclusive Creations. Mr. Branke has assured Mr. Kumar that they could look forward to larger volumes of business in future, depending upon the present order. Mr. Kumar had taken the sample from a supplier in Nagina, Distt. Bijnore (UP) and was assured of its supply.
The main features of this sample order were as follows:
| (i) Product description & specification | Square wooden boxes (10” x 10”) with brass inlay and of animal motifs. |
| (ii) Quantity | 1000 Pcs. |
| (iii) Rate and Amount | US$ 5.00 F.O.B. Ex- New Delhi Amt. $ 5000. |
| (iv) Terms of Payment | US$ 2500 along with order and rest on D/P basis. |
| (v) Delivery | Goods to be consigned on or before 20th October, 1999 to their warehouse in Australia. |
Mr. Ram Kumar faxed a confirmation of order to Mr. Branke on October 6, 1999. He also placed order with his supplier same day for supply-by October 17, 1999.
Mr. Kumar could send the shipment on Nov. 1, 1999 since he got supply of wooden boxes on 25th October, 1999, and then the supply of card boxes for packing was also delayed due to workers strike.
Mr. Kumar sent a fax to Mr. Branke on Nov. 10, conveying his thanks for the remaining payment of US$ 2500 and expressed the hope that this sample shipment sent by him would be the beginning of their long term mutually beneficial relationship.
Mr. Kumar was, however, taken aback on receiving a fax dated November 12, 1999 from Mr. Branke in which he had stated that the wooden boxes were not as per approved sample. Mr. Branke stated that the carvings on the boxes did not have the same finish as per sample and that the brass inlays were chipped from various places, in addition to their blackening. He expressed his unhappiness over the manner in which the shipment was sent. He also referred to hold-up of the shipment by the customs authorities in Sydney as it was not fumigated as required under the Australian laws. The shipment was quarantined at the customs and as a result, Mr. Branke had to pay $300 on account of fumigation tax and warehouse charges. he had to travel 200 kms away from Sydney to get the goods fumigated. As a result of this delay, Mr. Branke lost out on some good orders.
Mr. Branke did not touch the subject of future business with Mr.
Ram Kumar of the Exclusive Creations in his fax dated November 12, 1999.
Mr. Ram Kumar sent another Fax on November 13, 1999 explaining his position but could not elicit any response from Mr. Branke. Mr. Kumar followed it up but he drew blank.
This development was a serious set back to the efforts of Mr. Ram Kumar as he had planned to penetrate the German/Australian Market in a big way. He wants to control the situation. He has thought of a business trip to Sydney to win back the confidence of Mr. Branke and also look for opportunities for promotion of his product in the Australian Market to make a serious beginning in business.
Mr. Ram Kumar has approached you to help him. He is seeking your assistance in regard to the following questions:
- How to analyse the situation and what is real problem(s) being faced by him?
- What steps should he take to deal with this situation, in view of the fact that the items selected for exports have potential market?
- How should he plan to further promote his item(s) in the German / Australian Market?
CASE – 5
Mr. Rohit Gupta and Mr. Vikas Khanna decided to enter into partnership to start the business of exporting leather goods (hand bags, belts, purses, wallets etc.) they entered into partnership agreement on January 1, 1997 and signed the partnership deal on the same. They agreed to name the firm as R V International located at B-225, Sarita Vihar, New Delhi. They also agreed to contribute Rs. 75,000/- each towards the initial capital of the firm. A bank account was opened by them with Bank India, Barakhamba Road, New Delhi. On January 1, 1997 (Current Account No. 01256) with an initial deposit of Rs. 70,000/- M/S R V International applied for the grant of Importer – Exporter Code (IEC) No. the Joint DGFT, Asaf Ali Road, New Delhi on January 2, 1997. (The IEC No. 5005217 was allotted to the firm on 25 January, 1997 was as follows:
Balance Sheet as on 1.1.1997
| Liabilities | Amount | Assets | Amount |
| Capital A/cs
Rohit Gupta Vikas Khanna |
Rs.
75,000 75,000 |
Cash in hand Cash at Bank Bank of India |
Rs.
80,000 70,000 |
| 1,50,000 | 1,50,000 |
Mr. Rohit Gupta approached Trade Information Centre, New Delhi for guidance to get some order. Following the advice, Mr. Rohit Gupta could get an order on February 25, 1997 from M/S Lionel Trains Inc. 50526. R.W. Boulevard Chesterfield Michigan, U.S.A. for the supply of 1500 leather bags (Design: RV 1021) for USD 15000 F.O.B. Ex- New Delhi. It was agreed that M/S Lionel Trains Inc. shall pay USD 2,000 as advance and the remaining USD 13000 on D/P basis. The shipment was agreed to be sent on or before May 31, 1997. The demand draft for USD 2000 issued by importer’s Bank (Bank of America, Chesterfield Michigan) was received on March 2, 1997.
Mr. Vikas Khanna took up the responsibility for the execution of this order. He identified the following firms for supply of hand bags and packaging/packing materials. The agreed terms and conditions are:
For Supply of hand bags: : M/s Creation Impex,
A042, Sector 19, NOIDA UP
Total Qty : 1550 Nos.
Supply by : May 05, 1997
Total Amount : Rs. 271,250
Advance payment : Rs. 1,50,000
Balance of delivery
For Supply of Packaging/PackingMaterial : M/S Ashima Finishers
: D-126, Naraina Indl.Area,
: N.Delhi
Total Amount : Rs. 37,800
Advance Payment : Rs. 17,000
Balance on delivery
Supply by : May 05, 1997
The costing details and statement of fixed expenses are as follows:
Cost details for one Leather hand bag :
Variable Expenses : $
Purchase Price : 5.00
Office Overhead : 0.50
Packaging/Packing : 0.72
Documentation and Agent Fee : 0.03
ECGC Shipment :
(Comprehensive Risks) Policy Insurance
Premium : 0.05
FOB/Cash Cost per bag : $6.30 INR 220.50
FOB Price Ex- New Delhi : $10.00 INR 350.00
Margin : $3.70 INR 129.50
(Rate of Exchange) : USD = INR 35)
Fixed expenses per Month
Rent : Rs. 10,000
Salaries : Rs. 13,500
Telephone/Electricity, Rentals : Rs. 800
Total : Rs. 24,300
The Balance Sheet and Profit and Loss Account of M/S R V International, as on 28.12.1997 are as follows:
R.V. International
Profit & Loss A/c for the period 1.1.1997 to 28.2.1997
| Particulars | Rs. | Particulars | Rs. |
| Printing Expenses
Stationery Fee for IEC No. Liaison Expenses Rent Salaries to staff Telephone Bill of Exchange Electricity Bill Payment to Couriers Payment to Consultant Free Sample Interest Accrued: Loans from Ravi Khanna Loan from XYZ Finance Office Expenses
|
1,500
1,500 1,000 1,500 10,000 13,500 3,000 1,600 900 5,000 35,000
1,300 800 4,000 |
By Net operating loss | 80,600 |
| 80,600 | 80,600 |
R.V. International
Balance Sheet as on 28.2.1997
| Liabilities | Rs. | Assets | Rs. |
| Capital A/cs
Rohit Gupta Vikas Khanna 13% Unsecured loan from Mr. Ravi 17% Secured Loan from XYZ Fin.Co. Accrued Ravi Khanna Rs. 1300 XYZ Finance Co. 800
Total |
75,000 75,000
1,30,000
70,000
2100 |
Cash in Hand
Cash at Bank Bank of India Furniture & Furnishings Computer Inventories
Net operating loss |
6,500
30,000
1,40,000 50,000 45,000
80,000 |
| 3,52,100 | 3,52,100 |
M/S R V International do not have sufficient funds to execute this order.
Mr. Vikas Khanna would like to apply for pre-shipment finance (packing credit). He is not sure whether he would be able to obtain the funds from the bank. He seeks you advice in this matter.
CASE – 6 EXECUTION OF EXPORT ORDER
You are given below the purchase order placed by M/s R.S. Office Products from Germany with M/s Viraz Global Exporters, Saket, New Delhi, the exporter from India. The payment terms stipulated in the order relate to payment by means of irrevocable letter of credit. The order and the letter of credit are given below. You are appointed as the team leader for the execution of this order by the managing partner of the export firm for the execution of this order.
| PURCHASE ORDER |
Order Placed by : R.S. OFFICE PRODUCTS GmbH
MAX PLANK-STRASSE 13
D-68519 BERLIN GERMANY
Order No. : 48588
Date : 26.08.96
Supplier : VIRAJ GLOBAL EXPORTERS
H-53, C, SAKET
NEW DELHI 110 017
Article Description : OVERALL
Article details / materials : 100% Boumolle, 40’s Cambric (40×40/92×80)
Colour / Print : Blue / Printed Marigold Binding band at back
In Colour 200 pcs
Size Quantity in Pcs Unit Price in DEM
98 20 40.00
104 20 40.00
116 40 40.00
128 60 40.00
140 60 40.00
Delivery Date : 30.10.96
Packing Instruction : Shipment in standard cartons with polybags
single piece packing according to our shipping
instructions.
Total Amount : DM 8000.00
Export Licence category : 78 (Non-Restrained)
Terms of Payment : L/C
Mode of transport : Air
Destination : Berlin
Further agreements : Polybag / Normacarton N4, 60 x 40 x 40 cm
The supplier has to pay a fine if the stipulated delivery dates are not met, no matter whether he caused the delay or not. The fine amounts to 0.5% per calendar day, however not more than 20% of the total remuneration agreed. We can insists on the fine until final account has been done, even if we don not expressly reserve the right thereto on accepting the late delivery.
Special Regulations
The supplier assures that the goods are in compliance with the amendment degree of the ordinance on consumer articles (the respective version valid) and undertakes to bear the consequential damages which may result from any non-observance.
Production can only be started after our Quality Control Department did release size set, sample and test-material.
The waste management charges for the specially agreed transport packaging are 0.7% and sales packaging has to be marked with the “Green Dot”.
The contract is subject to German law, proper venue is Frankfurt/ Main.
DOCUMENTARY CREDIT
DESTINATION SYNBINBBAXXX SW 1996083OFS0000004200
SESS 2355 DATE RECD 30-Aug-96-9:07
ORIGINATOR DEUTSCHE BANK FROM SWIFT
SESS 2024 BERLIN DATE Sent 29-Aug-96
27 / Sequence of Total Pages : 1 / 2
46A / Form of documentary credit : Irrevocable / Transferable
26 / Documentary credit number : 1261A3956
31C / Date of issue : 96/08/29
31D/ Date and place of expiry : 96/11/20 BERLIN, Germany
51A/ Applicant bank : DEUTSCHE BANK
BERLIN, Germany
51B / Advising bank : SYNDICATE BANK
SAKET NEW DELHI, India
50 / Applicant : R.S. OFFICE PRODUCTS GmbH
MAX PLANK – STRASSE 13
D-68519 BERLIN, Germany
59 / Beneficiary : VIRAJ GLOBAL ENTERPRISES
H-53 C, SAKET
NEW DELHI 110017
320 / Currency code amount : DEM 7944.00
41A / Available with/by-swift addr : DEUTCHE BANK
BERLIN, Germany
By payment
43p / Partial shipment : ALLOWED BUT ONLY
COMPLETED ARTICLE GROUPS
43t / Transhipment : ALLOWED
44A/ON board/disp/taking charge : INDIAN AIRPORT
44B/For transportation to : BERLIN, Germany
44C/Latest date of shipment : 96 /10 / 30
45A/Descr goods and/ or services : Goods (Girl’s Overall) as per
purchase order no.48588 dated
26.8.96
6130004858 DM 8,000,00 GSP Form ‘A’ by air
Less 0.7 percent (ENVIRONMENT BONUS)
L/C Amount DEM 7.944,00
FOB INIDAN AIRPORT OR
CFR BERLIN AIRPORT
(SEE ADDTITIONAL CONDITIONS)
46A/document required : See MT 701
27/Sequence of Total Pages : 2 / 2
20/documentary credit number : L261A3956
47A / additional conditions :
_____________________________________________________________
- If the shipment is delayed for more than 14 days, Terms of shipment must change from FOB Indian Airport to Airfreight CFR Berlin
- A discrepancy fee of DEM 120.00 and Telex/Swift charges, if any, will be deducted from the proceeds if documents are presented with discrepancy and acceptance of such documents does not in any way alter the terms and conditions of this credit.
46B/ document required – MT 701 - Signed commercial invoice, original + 5 copies stamped and signed by SGS (India) Ltd., stating L.C. No. and purchase order no.
- Copy of export cert. showing Germany as importing country, consigned to R.S. office products Gmbh, D-68519, Berlin, Germany.
- GSP certificate Form ‘A’ issued or certified by A Chamber of Commerce or any equal public authority consigned to R.S. office products GmbH, D-68519, Berlin, Germany.
- Inspection certificate issued by SGS (India) Ltd. and signed by authorised representative.
- In case of airfreight, master airway bill (MAWB) indicating exact Flight No. + date, consigned to applicant, marked freight collect, Ist notify: Applicant 2nd notify: wellmann, nuernberg, evidencing that beneficiary’s certificate, one copy of invoice and packing list are accompanying the goods. AWB to b issued by concord logistics (India) pvt. Ltd., negotiable.
- In case of Sea-Air freight, comb, transport doc, consigned to applicant, marked, freight collect, 1st notify: applicant, 2nd notify: Hellmann Nufrnberg, evidencing that one copy of invoice and packing list are accompanying the goods.
LB charges All commissions and charges in your
country are beneficiary’s account
48/ period of presentation 10 days after the date of issuance of
the shipping docs but within credit’s
validity.
49/ confirmation instruction without
78/ instruction to pay/acc/
Vie bk Pls send all docs in one lot by courier
TO DEUTSCHE BANK, BERLIN, GERMANY
57D/ advise thru bank-amme add Your New Delhi Saket Branch
(Syndicate Bank)
72/ Sender to receiver information Reimbursement:
After Receipt L/C conform we shall
remit proceeds.
Question:
As a team leader, you are required to prepare a detailed plan for the implementation of this order to ensure the shipment is sent in time.