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TOPIC 8: EXPORT TRADE | COMMERCE FORM 3

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The Meaning and Importance of Export Trade

Explain the meaning and importance of export trade

Is the selling of goods, materials or services to foreign markets. An export is a function of international trade whereby goods produced in one country are shipped to another country for future sale or trade. The sale of such goods adds to the producing nation’s gross output.

IMPORTANCE OF IMPORT TRADE
  • Increasing sales;Exporting
    is one way of increasing your sales potential; it expands the “pie”
    that you earn money from, otherwise you are stuck trying to make money
    only out of the local market. In the case of South Africa, our market is
    relatively small in comparison to the markets of North America, Europe
    and Asia. While the local market may represent enough sales potential
    for smaller firms, for medium and larger companies the local market is
    just too small and the only way to expand sales is to export. It should
    be said, however, if you are not yet selling regionally and nationally,
    then you should first aiming at expanding your market share within the
    local market. Once you have saturated the national market, only then
    should you look beyond the borders of South Africa. It has been said
    that there are no sales barrier that automatically begins where your
    border ends. Increased sales also impact upon your profitability
    (although not always positively), your productivity by lowering unit
    costs, and may increase your firm’s perceived size and stature, thereby
    affecting its competitive position compared with other similar-sized
    organisations. What is more, research and development (R&D) and
    other costs can also be offset against a larger sales base, or the move
    into exports may contribute to the company’s general expansion. For
    others, exports may be a way of testing the opportunities for overseas
    licensing, franchising or production.
  • Increasing profits;Clearly,
    you are not likely to enter the export market in order to make a loss.
    Companies generally strive to make profits and the bigger the profits
    the better. In many instances, exports can contribute to increased
    profits because the average orders from international customers are
    often larger than they are from domestic buyers, as importers generally
    order by the container instead of by the pallet (thereby affecting both
    total sales and total profits). Some products – especially those that
    are unique or very innovative in nature may also command greater profit
    margins abroad than in the local market. Having said this, it is also
    not uncommon – indeed, it is highly likely – that you may receive
    smaller profit margins from your export sales compared with the local
    market. The reason for this is the highly competitive nature of global
    markets that forces exporters to lower prices, squeeze profits and
    reduce costs. You may also find that in some markets you generate higher
    profit margins, while in other markets your profit margins are
    considerably lower.
  • Reducing risk and balancing growth;It
    is risky being bound to the domestic market alone. Export sales to a
    variety of diverse foreign markets can help reduce the risk that the
    company may be exposed to because of fluctuations in local (and foreign)
    business cycles. At any one time, the UK, Australia and Germany will be
    enjoying different growth rates. By selling in all of these countries,
    the risk of low growth in one or more of these countries will be offset
    by increased growth in the others, thus resulting in a balanced
    portfolio of growth overall. In addition, with the challenging labour
    conditions that many firms in South Africa face today, exports may help
    to create and/or maintain jobs thus reducing the risk of a labour
    dispute that could otherwise cripple the company.
  • Lower unit costs;Exports
    help to put idle production capacity to work. This is generally
    achieved the more efficient utilisation of the existing factory,
    machines and staff. What is more, because you are now selling more
    products without increasing total costs to the same extent, this has the
    effect of lowering your unit costs which represents a more productive
    overall operation. Lower unit costs make a product more competitive in
    the local marketplace as well as in foreign markets, and/or can
    contribute to the firm’s overall profitability.
  • Economies of scale;Exporting
    is an excellent way to enjoy pure economies of scale with products that
    are more “global” in scope and have a wider range of acceptance around
    the world (in other words, they can be used in other parts of the world
    without much adaptation). This is in contrast to products that must be
    adapted for each market, which is expensive and time consuming and
    requires more of an investment. The newer the product, the wider range
    of acceptance in the world, especially to younger “customers,” often
    referred to as the “global consumer”. With increased export production
    and sales, you can achieve economies of scale and spread costs over a
    larger volume of revenue. You reduce average unit costs and increase
    overall profitability and competitiveness. Long-term exports may enable a
    company to expand its production facilities in order to achieve an
    economic level of production. (This should not be confused with
    increased throughput on existing capacity, as discussed above.)
  • Minimising the effect of seasonal fluctuations in sales;Being
    in the Southern Hemisphere, South Africa has seasons that are opposite
    to those in the Northern Hemisphere. For companies that sell seasonal
    goods such as fruit growers, and swimwear or suntan lotion
    manufacturers, being able to sell these goods in the Northern Hemisphere
    when our season ends, helps achieve a longer and more stable sales
    pattern. This increases the sales potential for these goods and also
    helps reduce risk.
  • Small and/or saturated domestic markets;One
    good reason to begin exporting is when the local market is too small to
    support a firm’s output or when the market becomes saturated. For
    companies that produce heavy industrial machinery or that have invested
    in large factories, they need to be able to sell enough of their
    manufactured goods to justify the investment and to insure that the unit
    price of goods are kept acceptably low. With relatively small markets
    such as South Africa, it is usually not long before the local market
    becomes saturated and offers limited additional opportunities for sales.
    Many of South Africa’s larger manufacturers have had to turn to foreign
    markets to justify their existence. Examples include most of the motor
    vehicle manufacturers such as Opel, VW and BMW; the paper producers such
    as Mondi and Sappi; and mining houses such as Anglo-American and De
    Beers. The same is true of international firms such as Volvo, Philips
    and Roche. They only way firms such as these can justify their
    investment is to sell abroad because their respective local markets are
    just too small.
  • Overcoming low growth in the home market;It
    is not uncommon for a recession in the local market to act as a spur
    for companies to enter export markets that may offer greater
    opportunities for sales. While this may have the benefit of offering
    ongoing sales potential for the firm in question, the danger with this
    approach is that when the local market improves, these companies abandon
    their export markets to focus on the now buoyant local market. Overseas
    importers become disillusioned with this type of exporter and often see
    all firms from South African being the same and will want nothing more
    to do with South African exporters, even if they are serious.
  • Extending the product life-cycle;All
    products go through a product life-cycle. In the beginning they are
    novel and sales increase quite dramatically, then sales level off and
    they become what is referred to as mature products and eventually sales
    start to decrease and the product goes into decline. Now, a product that
    has entered its decline stage may have a life elsewhere in the world
    and by finding a market where this product could be sold anew, you are
    essentially extending the life-cycle of the product. Alternatively, even
    if it is a fairly common product, it may also be nearing the end of its
    life cycle in other overseas markets (particularly in bigger markets
    such as Germany, the UK and the US) and they may decide to discontinue
    the product. Although the market may have declined to a point that makes
    it uneconomical for these companies to continue manufacturing the
    product in question, the market may still be big enough for you to
    supply the declining market. This has the effect of making more
    efficient use of the existing factory infrastructure and other
    investment spent on producing the product. This extends sales, lowers
    the unit costs even further and may allow for higher margins to be
    generated. When you have a product that is nearing its life cycle, you
    should always strive to see if you can find a market for the product
    abroad.
  • Improving efficiency and product quality ;The
    global market is a highly competitive place and by participating in
    this marketplace, you need to become equally efficient and quality
    conscious. It is generally the case that successful exporters are also
    very successful in their home markets because of their heightened
    efficiency and focus on product quality.
Untapped markets
A company may have a very unique product that is not yet available
elsewhere in the world. In this instance, these untapped markets are
likely to drive the firm’s export activities. Other firms may want to
take advantage of high-volume purchases in large markets overseas, such
as in the US, Europe and Asia.
Addressing customer, competitor and cost factors
The
more formal theory of internationalisation discusses customer,
competitor and cost factors that drive the internationalisation process.
The theory argues that in some cases companies may go global in
response to their customers moving abroad. Alternatively, they may
follow their competitors abroad, or may decide to enter a particular
foreign market in order to attack an overseas competitor that has
entered the firm’s domestic market, in the competitor’s own home market.
Finally, companies may go international to take advantage of lower
labour costs, skilled workers or other cost factors (such as lower
telecommunication or energy costs) that are much better in a particular
foreign market. For example, expanding into India to take advantage of
programming skills and lower salaries could translate into a major
advantage for a local software development firm. It should be said,
however, that these factors are more likely to be relevant to larger
firms, instead of small scale export operations.
Status as an exporter
For some companies, the status of being involved in international trade is very important to them.
The wrong reasons for exporting
Too
often, however, many local South Africa companies simply follow their
domestic competitors into exports or they turn to export markets because
of the difficulties encountered in the local marketplace(see low growth
in home market mentioned above). Alternatively, a company may use
exports as means of offloading excess production capacity. None of these
reasons are very solid reasons for moving into exports. In the latter
case, when local sales pick up again the “fair-weather” export firm then
ignores its export markets to concentrate on domestic sales again,
often leaving foreign companies in the lurch thereby creating a bad
impression and a resistance to future export sales.
The Organization Involved in the Export Trade
Identify the organization involved in the export trade
INSTITUTIONS WHICH ARE INVOLVED IN EXPORT TRADE
MARKETING BOARD
The following are the some of the marketing board in Tanzania
  • Cotton marketing board,
  • Coffee marketing boards,
  • Cashew marketing board
FUNCTIONS OF MARKETING BOARD
  • Pooling Resources;Marketing
    boards provide an opportunity for member businesses to pool their
    marketing resources. Boards frequently run ads in several media
    including television, radio, newspapers, magazines and websites
    including social media. Individually, member businesses might not be
    able to afford such comprehensive or even partial media campaigns.
    However, when teamed up with other growers, producers or companies,
    businesses can reap the benefits of a well-coordinated media marketing
    program.
  • Demand;Many agricultural producers
    sell their products to large food companies or directly to commercial
    buyers, including restaurants and distributors. However, consumer taste
    and demand for their product still impacts sales. Consumers with a
    positive regard and taste for cheese cause restaurants and other food
    businesses to incorporate cheese in their offerings, which in turn
    drives business for producers.
  • Branding;Particularly
    in agriculture, both small and large farming and food-producing
    operations lack a brand. That’s in part because consumers don’t need to
    know the names of all the businesses that produce hazelnuts or shrimp,
    since these companies sell to larger distributors, not the public.
    However, branding can inspire consumer demand. Marketing board media
    campaigns can turn a general product such as Louisiana shrimp into a
    brand in itself. The Louisiana Seafood Marketing Board tries to make it
    so that supermarket shoppers check packages for Louisiana shrimp, rather
    than foreign imports — which helps its relatively anonymous member
    businesses.
  • Networking;Although marketing
    boards are not chambers of commerce or even necessarily industry
    associations, member organizations can become involved in meetings and
    campaign direction. As a result, marketing boards provide opportunities
    for companies within an industry to network, form alliances and learn
    about opportunities. Developing industry contacts can have long-term
    benefits, as members who don’t need anything today can find someone to
    call for assistance or cooperation at some unexpected point in the
    future
  • Conducting research
  • Collection and storage
BOARD OF INTERNAL TRADE
The board of internal trade was established by the act of parliament in 1973 to replace the state trading company.
FUNCTIONS
  • Setting and revising internal trade policies
  • Conducting market research
  • Supervising and coordinating internal trade activities.
  • Supervising,designing the accounting and operating system
Exporters
are required to obtain a valid trading/business license from the
city/town council where the business will be conducted. The license is
valid for one year.
The Documents for Export and the Export Procedures in Tanzania
Mention the documents for export and the export procedures in Tanzania
EXPORT PROCEDURES AND DOCUMENTATIONS
Obtain an Export License
Some
products require specific license/permit from the Government
departments/institutions or a controlling body legally empowered to do
so, exporters therefore have to contact the following:
  • Forest department for Forestry products
  • Fisheries department for Fisheries products
  • Wildlife department for Wildlife products
  • Mining department for Minerals/Gemstone products
  • Marketing Boards for Coffee, Tobacco, Cotton, Sisalfibre, Raw Tea, and Raw Pyrethrum.
  • Ministry of Agriculture for Food (staple) products.
Documentation:
Once
an exporter has obtained an order from a buyer abroad and an agreement
has been reached to export goods to the buyer and mode of shipment
determined, the following steps are necessary:
Shipment by air:
The
exporter applies for an export license/permit for the export product if
it falls under the above-mentioned product groups otherwise other
products call no license. After confirmation of cargo space an airway
bill is prepared by the carrier or its agent on presentation of the
following:
  • A commercial invoice,
  • An export license/permit (if required),
  • Technical documents (if required) on health, quality, weight, certificate of origin etc
  • Process
    a Single Bill of Entry (SBE) by attaching all the above documents at
    the customs long room. A customs release/approval is obtained.
  • Goods are taken to the Airport for air freighting vide the cleared documents by customs
Shipment by sea:
  • Apply/obtain a license/permit (if required).
  • Apply/obtain technical documents for your product
  • Apply for shipping space to an agent/shipping company
  • Then
    obtain a single bill of entry from customs, complete it and then attach
    all the previous or required documents for processing the SBE at the
    long room.
  • A shipping company/agent will finally prepare a bill
    of lading after accomplishing customs verification/approval, port
    charges and procedures, cargo loading (FOB).
New procedures for Payment of Duty and Taxes on PSI Consignments:
As from 1st November 2000, payment of duty and taxes on PSI consignments has been made according to the following procedures:
  • On
    receiving a request for an SBE from the importer, the Inspection Agent
    (IA) shall give three copies of the SBE printed on non-security paper.
    For ease of identity this printout shall be stamped “Tax Assessment
    Notice” (TAN).
  • The importer shall go to the relevant bank and pay the assessed duties and taxes.
  • The bank shall stamp the three copies of TAN and give one copy back to the importer along with a receipt of payment.
  • The importer shall return to IA and present the stamped copy and the bank receipt.
  • The
    IA shall keep the stamped copy and a copy of the receipt for their
    record and issue to the importer an SBE printed on security paper.
  • The importer shall use the SBE printed on security paper for clearance of good as usual.
  • Twice a day the IA shall collect one of the copies retained by the bank for bank reconciliation.
Export Documents
This
section covers documents that are commonly used in exporting, but
specific requirements vary by destination and product. It is divided
into the following subsections: common export documents, transportation
documents, export compliance documents, certificates of origin, other
certificates for shipments of specific goods, other export-related
documents, and temporary shipment documents. Learn more about export
documentation. For additional assistance with country-specific
documentation requirements, please email the Trade Information Center
COMMON EXPORT DOCUMENTS
  • Commercial Invoice
    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.
  • Export Packing List
    Considerably more detailed and informative than a standard domestic
    packing list, an export packing list lists seller, buyer, shipper,
    invoice number, date of shipment, mode of transport, carrier, and
    itemizes quantity, description, the type of package, such as a box,
    crate, drum, or carton, the quantity of packages, total net and gross
    weight (in kilograms), package marks, and dimensions, if appropriate.
    Both commercial stationers and freight forwarders carry packing list
    forms. A packing list may serve as conforming document. It is not a
    substitute for a commercial invoice. In addition, U.S. and foreign
    customs officials may use the export packing list to check the cargo.
  • Pro Forma Invoice
    A pro forma invoice is an invoice prepared by the exporter before
    shipping the goods, informing the buyer of the goods to be sent, their
    value, and other key specifications. It also can be used as an offering
    of sale or price quotation.
TRANSPORTATION DOCUMENTS
  • Airway BillAir freight shipments require airway bills. Airway bills are shipper-specific (i.e., USPS, Fed-Ex, UPS, DHL, etc.).
  • Bill of LadingA
    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 non-negotiable, 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. See
    also: straight bill of lading and liner bill of lading.
  • Electronic Export Information Filing (formerly known as the Shipper’s Export Declaration) Electronic
    Export Information (EEI) is the most common of all export control
    documents. It is required for shipments above $2,500* and for shipments
    of any value requiring an export license. It has to be electronically
    filed via the AES Direct online system, which is a free service from

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