In the complex world of international trade, navigating the ebbs and flows can be quite challenging, particularly when it comes to commission-based trade in the export-import business. The nature of this trade often involves exporters and importers from various corners of the world, each with their own sets of regulations and guidelines. One such important player in this global marketplace is India, regulated by the Reserve Bank of India (RBI). It's paramount for those engaging in export-import business to adhere to the RBI guidelines to ensure seamless and legal trade activities.
However, it seems that there is a considerable gap between the prescribed guidelines and the actual practices in the trade, especially when it comes to dealing with the United Arab Emirates (UAE) market. This divergence can lead to many challenges, such as issues with payment terms, excessive commission rates, complications with bank requirements, lack of transparency, and a general sense of distrust. Let's dissect these challenges one by one to provide a clear understanding of the situation.
- Violation of Payment Terms
In most cases, exporters and importers agree to use certain payment terms, such as Documents Against Acceptance (DA). Under DA, the full bill value is expected to be paid upon receipt of the shipment. However, it seems that this is often not the case. If you're an exporter facing this issue, I advise reviewing your agreements thoroughly and taking legal action if necessary.
- Excessive Commission Rates
In some markets, particularly the Al Aweer market in the UAE, commission rates are reportedly as high as 5% of the sales value. This substantial rate can severely eat into exporters' profits, pushing them into a loss. As a rule of thumb, it's essential to negotiate commission rates before finalizing trade deals.
- Banking Issues and Electronic Bank Realization Certificate (EBRC)
The EBRC is a mandatory process for Indian exporters to confirm receipt of payment against exports. However, if you're receiving less than the bill value due to reasons like excessive commissions or trade terms violation, you may face difficulties in setting EBRC. In this situation, working with a professional trade consultant can help you navigate these complexities.
- Lack of Sales Transparency
It's common for UAE buyers to only provide a basic Excel sheet with prices, without revealing the end customer details. This practice can lead to a lack of transparency and make it difficult for exporters to track the true value of their goods. To counter this, it might be beneficial to request additional information from your buyers, or better yet, seek to establish direct relationships with end customers.
- Role of Commission Agents
In the UAE market, some people act like buyers, but they're really commission agents. This means they help sell your goods, but they don't take on any of the risk or costs.
As the exporter, you end up paying for a lot more than just the products you're selling. There are all kinds of extra costs. For example, you might have to pay for parking, customs charges in the UAE, agent fees, and labor costs. You're also responsible if any products or containers get damaged.
When your goods get to the UAE, the commission agents pay you upfront. But then they start subtracting from this payment. First, they take out their commission, which is usually 5% of the sales value. Then, they take out all the expenses they had in the UAE. In the end, you only get what's left over.
In many cases, exporters believe they are dealing directly with UAE buyers, when in fact, they are interacting with commission agents. This can lead to misunderstandings, as these agents are primarily concerned with their own profits rather than the well-being of exporters. A deep understanding of your market and trade partners can prevent such instances.
- Need for Transparency in Sales and Pricing
For any business, especially in international trade, transparency is a cornerstone of success. Regular visits by exporters to their target markets can foster an understanding of the sales processes, pricing strategies, and, ultimately, can lead to a fairer business relationship.
- Incorporation in the UAE
Given the myriad challenges faced, many exporters are exploring the possibility of incorporating their companies in the UAE. This approach can potentially provide more control over business operations, closer proximity to customers, and possibly higher profits.
- Profit Shown as Shipment Advance
Sometimes, the profit received is shown as an advance for the next shipment, which can create a clouded financial picture for the exporter. It's important to keep your financial records clear and distinct for each shipment.
Now, let's shift gears and focus on concrete strategies and techniques that can help exporters navigate these challenges, increase their credibility, and ultimately, enhance their profitability.
- DNB Credibility Check Report
An essential step for any exporter is to verify the credibility of their buyer. This can be accomplished through a DNB (Dun & Bradstreet) Credibility Check Report. DNB is a leading international corporation that provides commercial data, analytics, and insights for businesses. By obtaining a DNB report, you can gain valuable information about your buyer's credit history, financial stability, and overall reputation. This can significantly mitigate the risks associated with non-payment or late payment.
- Use of Electronic Bill of Lading (eBL) with DA Payment Terms
As an exporter, you can use an electronic Bill of Lading (eBL) which serves as a legal document between you and the carrier, acknowledging the receipt of cargo for shipment. The eBL is crucial as it makes transactions faster, reduces the risk of loss or damage, and provides the buyer and the bank with real-time visibility of the transaction. Coupling eBL with Documents Against Acceptance (DA) payment terms can ensure a smooth and reliable transaction.
- Obtain Credit Insurance
Getting credit insurance can protect your business from non-payment of commercial debt. It ensures that your invoices will be paid and allows you to reliably manage the commercial and political risks of trade that are beyond your control.
- Brand Building vs. Commodity Selling
At the end of the day, a significant differentiator in the market is your brand. As the saying goes, "If you're not a brand, you're a commodity." A commodity competes on price and availability, while a brand competes on reputation and recognition. Brands like Dole Bananas have established their name, selling at their own price terms due to the value they've created in the market.
If you're in a position where you feel you're selling a commodity, it's time to consider building a brand. Branding not only allows you to have more control over pricing but also creates customer loyalty, leading to repeat business. To create a strong brand, focus on quality, establish a unique selling proposition, and invest in marketing efforts to increase visibility and recognition.
- Product Diversification
With your brand established, consider diversifying your product offering. For instance, if you're exporting chickoo (also known as sapodilla), you could explore related or processed food products like chickoo pulp, chickoo juice, or even chickoo desserts. This diversification can open up new markets and increase your overall sales and profitability.
Remember, the export-import business is not a static one; it requires constant learning, adaptation, and evolution. By implementing these strategies, you'll be well on your way to navigating the complexities of commission-based trade, boosting your profitability, and establishing your brand in the global marketplace.
Regarding the benefits of Barai Overseas Export Import Consultation services, here are some ways they can help:
-
Expert Guidance: Barai Overseas boasts of experienced professionals who have a deep understanding of the export-import business. Their guidance can help you navigate the complex landscapes of international trade.
-
Regulatory Compliance: Understanding and complying with regulations can be a daunting task. Barai Overseas can help ensure your transactions adhere to RBI guidelines and other international trade regulations.
-
Risk Management: With their expertise, Barai Overseas can help you manage risks, such as buyer credibility and payment defaults. They can guide you on obtaining a DNB Credibility Check and credit insurance.
-
Brand Development and Marketing Strategies: Barai Overseas can assist in transforming your commodity into a brand, offering advice on marketing strategies, unique selling proposition development, and customer engagement.
-
Business Diversification: With their comprehensive understanding of various markets, Barai Overseas can guide you on possible product diversification strategies to increase profitability.
Furthermore, secure payment terms are crucial for safeguarding your interests. Whether it's Cash in Advance (CIA), Letter of Credit (LC), or Documents Against Payment (D/P), choose a payment term that ensures you receive your money in full and on time.
When you sell your goods at a fixed price, you know exactly how much money you're going to make. This certainty can help you plan your finances better. In comparison, variable pricing can lead to unpredictability in profits and potential financial risks.
Remember, the key to successful international trade lies in minimizing risks and optimizing profits. This can be achieved by sticking to fixed pricing, secure payment terms, and getting expert guidance from experienced export-import consultants like Barai Overseas. They can provide valuable advice tailored to your specific needs and help you navigate the challenging yet rewarding landscape of global commerce.
Tags: Startup Exporter Guide to Certifications, Credibility, and Pricing Transparency