Whether you’re an established SME or a fresh young professional looking to enter the Indian trade world, you can gain a tremendous advantage by diversifying into exports. If you manufacture a world-class product and are capable of meeting stringent quality requirements, selling to overseas buyers can give your sales and profits a great boost.
But setting up an export business can be a daunting prospect for somebody new to the sector. From choosing the product to export to understanding laws governing the sector to procuring finances to get you off the ground, there are several aspects you need to consider. Here are a few key things to keep in mind:
Which product should you export?
Ideally, you should select a product that you already manufacture or are familiar with. Of course, you should ascertain that there is a demand for this in your target country.
But it is entirely possible to branch out into a new field when you promote your export business. Just remember that you will have to take out the time to learn about your chosen area of operations and gain the required level of expertise.
Just for context, the following export product groups represent the highest dollar value in Indian global shipments during 2017:
- Gems, precious metals: US$42.6 billion (14.4% of total exports)
- Mineral fuels including oil: $35.9 billion (12.1%)
- Machinery including computers: $16.7 billion (5.6%)
- Vehicles: $16.2 billion (5.5%)
- Organic chemicals: $13.6 billion (4.6%)
- Pharmaceuticals: $12.9 billion (4.4%)
- Iron, steel: $11.7 billion (4%)
- Clothing, accessories (not knit or crochet): $9 billion (3%)
- Electrical machinery, equipment: $8.8 billion (3%)
- Knit or crochet clothing, accessories: $8.3 billion (2.8%)
While it may not be feasible for everyone to enter all these segments (for example, gems & precious metals as well as mineral fuels), these could be good sectors to start in for exporters looking to earn top dollar. However, also be prepared for loads of competition.
Regulatory requirements
Your export business can operate as a sole proprietorship, partnership, or limited company. You will also need a dedicated bank account. When you open one, you should ensure that your bank has the competence and experience to handle foreign exchange transactions. It will be worth your while to spend a little time with the dealing officer to familiarise yourself with the procedures connected with export transactions.
There are three crucial documents that you must have to start an export business:
PAN: This is a unique 10-digit alphanumeric identity issued to each taxpayer by the Income Tax Department. If you don’t have one for your business, you should apply immediately.
IEC number: Every exporter requires an Importer Exporter Code (IEC) number. This is issued by the Directorate General of Foreign Trade. You need to apply only once as your IEC registration is valid for an unlimited period of time.
RCMC: Your application for a Registration Cum Membership Certificate (RCMC) should be made to the Export Promotion Council/Commodity Board/Development Authority who handles the product that you will be dealing with. Do note that the RCMC is mandatory for an authorization to import/export certain restricted items, and/or for any benefit or concession under Foreign Trade Policy (FTP) like duty drawback, duty credit scrips, etc.
Financing your export consignment (post-shipment financing)
When you are selling to a customer who is located thousands of miles away, you need to take special care about getting paid for the goods that you ship. Most of your clients will not pay in advance.
One way to meet your working capital requirement is to tie up with an invoice factoring facility like Drip Capital. You can get an upfront payment from the factoring company within a matter of days of shipping the consignment. For example, Drip Capital offers working capital to exporters ranging from US$100,000 to US$2.5 million, depending on the exporter’s size and requirement. The financing is offered without any collateral. Exporters can apply to Drip by completing a 10-minute online application, requiring minimal paperwork. Drip uses electronic data and an automated risk assessment platform, thereby ensuring a quick turnaround of 48-72 hours.
Making a success of your export business
Exporting your products to overseas markets can be very lucrative. However, you need to be especially careful when dealing with buyers in other countries. Ensure that your products meet the buyer’s specifications and that you adhere to your committed timelines.
A common perception is that export is a very costly business and therefore only suitable for large players or individuals with plenty of spare money. However, that’s not true at all. There are plenty of SMEs working as exporters, and in fact, SMEs are an important contributor to the country’s exports. Their share has been growing in recent years and climbed from 42% of total exports in 2013-14 to 45% in 2014-15 before reaching the 50% mark in 2015-16.
It may take some time to establish yourself, but once you have built your reputation, it will be possible to expand rapidly. This basic guide should give you the elementary details you require to conceptualize your export business. Remember -- there are no shortcuts to success. Stick through the grind, and build your trade network slowly -- you are sure to taste the fruits of success sooner rather than later!
