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Meaning and Forms of Exports

The word “export” relates to the transport or shipping of goods and services to other countries. The country which sells the product is called “exporter”, whereas the buyer country of the product is called “Importer”. For example, when a Gulf country is selling oil to India, Gulf country becomes the exporter and India becomes an importer of oil. In international trade, ‘export’ is defined as the sale of goods and services produced in the home country to other cross border countries. In economics, exports refer to any product or commodity which can be transported from one country to another in a legal and appropriate manner for the purpose of trade.

The exported items are provided by domestic producers for fulfilling the needs of foreign consumers. Export can also be defined as the selling of goods and services across borders so that the country can earn foreign exchange. The activity of export involves the least accountability from the exporter.

forms of exports

Forms of Exports

Export can be classified into various categories and these categories may keep expanding with growing export. Export can be classified into various categories and these categories may keep expanding with growing export:

1)Agriculture Exports:

In majority of the developing countries, agricultural activities are the basic means of livelihood for the people. With the greater use of technology in the agriculture sector, the yields of different crops have increased tremendously. This has led to a surplus in the agricultural production of certain items of many countries like India. The export of agricultural commodities helps to increase the level of national income as well as foreign exchange in the economy. The countries can afford the import of other products due to such export activities. It also causes the scarcity of required goods in the domestic country. This may further affect the price level in the domestic market and lead to an increase in prices. Hence, every country focuses on enhancing the productivity of those agricultural products which have high demand in foreign markets.

2) Textile Exports:

In the international trade sector, the export of commodities from the textile industry also occupies an important position. These commodities include products like readymade garments, silk, cotton, and fiber textiles, woollens, handicrafts, jute, coir, etc. In many developed and developing countries, textile export has contributed tremendously to the economy.

3) Electronic Goods Exports:

The global trend indicates that electronic goods contribute 10.2% of all the earnings from international trade. The major exporting commodities in the electronic sector include computers, laptops, radio, television, deep freeze refrigerators, electro-medical equipment, etc. The Asian countries like China, Japan, Malaysia, and Taiwan are major exporters of electronic commodities across the world. 85% of countries in the world are net importers of electronic commodities and this implies that the bulk of global exports are done by these Asian countries. That is why these economies are sometimes referred to as Tiger economies of Asian Tigers.

4) Pharmaceutical Exports:

Similar to the above industries, Pharmaceutical industry has also made rapid progress over the last few years and now contributes to a large chunk of the international market. In Pharmaceutical export, the exporters of medicines require export certification from international bodies like WHO and the Department of Health. Indian companies like Ranbaxy have a very good reputation in the global pharmaceutical market and have been recognised as a reliable and high-quality source of phanna intermediaries and drug formulations. The pharmacy industry in India is rated high among the global peers for its product quality, technology and variety of medicines and drugs that are manufactured and exported to other countries. Indian healthcare is also emerging as a very good service provider and hospitals like Apollo have a very good brand recall in the global healthcare market.

5) Jewellery Exports:

Another emerging segment in international export which is gaining prominence is gems and Jewellery industry. This industry is very fascinating in the modern fashion and glamour oriented world and comprises categories of pearl, gemstones, and jewellery. The Indian jewellery industry has been able to achieve a good standing in the international jewellery market. India is considered as a prominent hub in the manufacturing and exporting of traditional and handmade jewellery. It has thus been able to carve a place for itself when confronted with machine made commercial jewellery market.

6) Services Exports:

The export of non-tangible goods such as technical, professional, and general services provided to other countries is known as export of services. For example, software services, nursing, telecommunication, entertainment, event management, consultants, etc. The exporting companies which are providing services to the foreign clients are referred to as service providers.

7) National Accounts Exports:

The transactions of goods and services from residents to non-residents of a country across nations are known as national accounts exports. Such transactions involve incoming and outgoing foreign exchange. The export involves transactions during sales, barter, gifs or grants exchanged among residents of two countries. Export in case of national account can be explained under the following two categories:

  • Goods Export: Goods export involves the transfer of ownership of goods from a resident to a non-resident of a country. In many cases, the national accounts infer a change in ownership even though no physical transfer of the product takes place. On the other hand, in some cases, national account export occurs even without transfer of ownership. For example, cross bonier financing, leasing, deliveries between associates of the same firm, goods transferred across the border for the purpose of repair or processing. In all these cases the ownership of commodities or services is formally not transferred, yet, national account export takes place.
  • Services Export: Services export consists of all the services which are given by residents to the non-residents of a country. Any kind of direct purchase of services made by the non-residents in the other country is referred o: marked as export of services. For example, the expenditures incurred by tourists from other countries in exchange for tourist services provided to them are calculated under the exports of services of that country. While calculating the export of services under the national account, the export of illegal services should also be calculated.

8) Project Exports:

When a country initiates a project in another country. it is called project export. A project has been defined as something that is a non-routine, non-repetitive and unique undertaking which has discrete goals in terms of time, financial aspects and performance.

9) Deemed Exports:

Such type of export is introduced by the Export-Import Policy of the Government of India. It refers to exports in which the goods and services that have been transacted are not transferred. physically to another country, but its payment is received in the country of origin.

Meaning and Determinants of Economic Development

The economic environment refers to those economic factors which largely influence the functioning of a global business organization in any country. These factors consist of production processes and the wealth distribution system prevalent in countries. The economic environment also affects the marketing activities of the organization. In addition to this, the market size and consumers’ willingness to spend also plays a vital role in determining the economic environment of a particular nation.

Thus, some of the other economic factors are interest rates, inflation, disposable income, savings of the society, etc. All these factors prevalent in the environment influence the purchasing power of the consumers in that particular country. Moreover, economic development leads to changes in the tastes and preferences of customers.

economic development

Understanding the economic environment of other nations and their markets will prove beneficial for the management, to anticipate the impact of the latest trends and happenings on the future performance of the organization. The fact that a country will prove good as a host for global business projects depends upon its size, rate of economic growth, and its per capita income. Countries having lower per capita income are not profitable for the heavy machinery market but are better for agricultural equipment. Such countries cannot bear the price of technical machines. Countries with good growth rates are prospective markets for the latest industry items and consumer goods/services.

However, few industrially backward nations are developing at a faster pace. For example, the USA will face competition from China and India in the near future. Even though the per capita income of the USA is seven times and twelve times than China and India respectively, these two countries are rich in human resources as their population is very high.

Infrastructure and marketing practices like public services, banking, utilities, communication, and transportation facilities are also considered while making plans to enter an international market. Inadequacy on account of infrastructure can hinder the plan related to manufacturing, promoting, and distributing products and services in certain countries.

Determinants of Economic Development

The economic development of a country is mainly affected by two main factors which are as below:

1) Economic Factors in Economic Development:

The various factors which can be analyzed for determining their role in economic development are as below:

i) Capital Formation:

Conventionally, the strategic role of capital has been identified in economics to increase the production level. In the entire world, it has been identified that a country that is looking to increase the economic development has the only option of saving a high ratio of its income so that it can increase the investment level. Over-dependence on foreign aids is not safe and thus it is advisable to avoid them.

ii) Natural Resources:

Natural resources are the main factors that affect the development of any country. This consists of the quality of the soil, forest wealth, good river system, minerals and oil-resources, good and bracing climate, land area, and so on. In order to have economic development, it is quite important to have natural resources in greater quantities. The country which has limited natural resource can struggle in order to acquire higher development.

iii) Marketable Surplus of Agriculture:

From the viewpoint of national development, it is important to have an increase in the agricultural yield along with increased productivity. But the most important thing is to have an increased marketable surplus of agriculture. The term ‘marketable surplus’ can be defined as the additional output in the agricultural sector, more than the required quantity by the rural population to survive. The main significance of the marketable surplus in the developing economy is mainly related to the fact that the survival of the urban industrial population depends upon it.

iv) Conditions in Foreign Trade:

Economists used the classical theory of trade quite commonly for a fairly long time in order to discuss that there are some advantages to the countries by trading with each other. From the current perspective, this theory advises lesser countries to focus on having the specialisation in the production of primary goods due to comparative cost advantage in the production of these goods. The countries which are able to develop the industries in a shorter time period can be benefited from the foreign trade. For their industrial products, these countries will be able to find out the international market somehow.

v) Economic System:

The economic development prospect is also greatly affected by the economic system and the historical setting of the nation. In the recent past, a country could have a fair economy and yet having economic development. But at present, the situation is completely changed; it will be very difficult for a country to have economic development by following the path of England’s development.

2) Non-Economic Factors in Economic Development:

It is quite evident from the historical evidence that for the development both the economic as well as non-economic factors are important. Now we will try to explain how these factors affect the economic development process:

i) Human Resources:

One of the most important factors for economic development is the hum.. resource. For the production, the labor-power is facilitated by the man, if the labor of a country is efficient and skilled labor, it will have a higher contribution towards the development of the court.,• There will be low productivity for illiterate, unskilled, disease-ridden, and superstitious people and thus the chances of economic development are quite rare in any country.

ii) Technical Know-How and General Education:

There was a lot of doubt about the direct influence of technical know-how on developmental growth. With the advent of scientific and technological knowledge, more sophisticated technologies were discovered by the human being which ultimately resulted in the continuous increase in productivity levels. The current level of technology is quite sophisticated, yet there is a requirement to give a lot of significance to the Research and Development activities in order to boost development. ,

iii) Political Freedom:

If we observe the present modem history, it will be found that the activities of development and under-development are inter-connected and treating them in isolation is not the correct approach. It is a common fact that the development of England was inter-connected with the under-development of many countries such as India, Pakistan, Bangladesh, Sri Lanka, Malaysia, Kenya, etc., which were the British colonies. These countries were exploited by England uncontrollably and utilized the major part of these countries’ economic surplus.

iv) Social Organisation:

In order to have a fast growth process, it is important to have the mass participation in the development programs. When the individuals feel that the outcomes of the development will be distributed fairly then only the common persons take part in the development activities. With the help of the insight gained from the experiences of various nations, it is found that when the major benefits of the growth are being utilized by the elite groups of the society due to defective social organization, then the common public will not show any interest towards the development programs of the State. In these cases, it is not useful to consider the active participation of common people in the development projects which are run by the State.

v) Corruption:

The developing nations experience uncontrolled corruption in different levels and it proves to be the negative factor for the development process. Unless the phenomenon of corruption is eradicated from the administrative set-up, it will be quite common to obverse the exploitation of natural resources by the capitalists, traders, and other powerful economic classes for their own benefits. Even the misuse of the regulatory systems is also seen and merit does not become the prime factor to issue the license.

vi) Desire to Develop:

The development process is not mechanical in nature. The desire of the common citizens of a country to have the development decides the economic growth pace in any country. If a country has a low level of consciousness and poverty is accepted as fate by the common public, then the chances of development are quite bleak.

Socio-Cultural Factors and Factors Constituting Cultural Differences

The social and cultural influences on international marketing are immense. Differences in social condition religion and material culture all affect consumers’ perceptions and patterns of buying behaviour. It is this 4, area that determines the extent to which consumers across the globe are either similar or different and sod detennie, the potential for global branding and standardization. This category encompasses a wide range of considerations, many of which can — if misunderstood or unanticipated — significantly undermine a business marketing efforts. These include: 1) Language, 2) Literacy rates, 3) Religion, 4) General education levels, 5) Social values, and 6) Ethics, 7) Social organisation.

A failure to understand the social/cultural dimensions of a market are complex to manage, as McDonald’s found in India. It has to deal with a market that is 40 per cent vegetarian, had an aversion to either beef or pork among meat-eaters and hostility to frozen meat and fish, but with the general Indian fondness for spice with everything. To satisfy such tastes, McDonald’s discovered it needed to do more than provide the right burgers. Customers buying vegetarian burgers wanted to be sure that these were cooked in a separate area in the kitchen using separate utensils and sauces like McMasala and Mcimli were developed to satisfy the Indian taste for spice. Interestingly, however, these are now innovations they have introduced into other markets.

Socio cultural factors

Socio-Cultural Factor

When a firm operates in an international business environment, as an individual is bound by the society in which people live, it needs to understand the importance of society. Social class is an important part of society. In most Western societies, these classes are classified as upper, middle, and lower. The level of perception of each class and their frequency of buying goods differ from one country to another.

In countries like India perception and trends of the consumers have been changing owing to the liberalisation and the changes in lifestyles. Another important aspect of society is the group. The performance of groups differs in individualistic and collectivist societies. The family is an important part of the social environment. The social and cultural environment is one of the critical components of the international business environment and one of the most difficult to understand.

This is because the social and cultural environment is essentially unseen; it has been described as a shared, commonly held body of general beliefs and values that determine what is right for one group. National culture is described as the body of general beliefs and values that are shared by a nation. Beliefs and values are generally seen as formed by factors such as history, language, religion, geographic location, government, and education; thus firms begin a cultural analysis by seeking to understand these factors.

Before entering a foreign market, marketers should study all aspects of that nation’s culture, including language, education, religious attitudes, and social values. The French love to debate and are comfortable with frequent eye-contact. In China, humility is a prized virtue, colours have special significance, and it is insulting to be late. Swedes value consensus and do not use humor in negotiations. The “etiquette tips for marketing professionals” feature offers some examples that will help you deal with cultural differences that arise in business dealings with foreign guests.

Factors Constituting Cultural Differences

The basic premise of cross-cultural differences lies in values and priorities. Factors that constitute cross-cultural differences are as follows:

1) Time:

Different countries assign different values .to time dimension. For example, the Americans, the Germs, and the Japanese assign very high priority time. They value time in terms of money; hence, they are very efficient in time management. But in many other countries, such time value is absent. Beal Americans, their strong sense on time value, the Amencs, most Europeans like U.K., France, the Russian as we

2) Patterns of Thought:

Patterns of thought could be another strong issue for cross-cultural differences. Typically, Indians believe that their present, and future are the reflection of their past. Americans, on the other hand. believe that their future is ahead of them, which they can foresee. It is for this reason; Americans always take advantage of impending opportunities with an attacking strategy.

3) Personal Space:

Cross-cultural influences even determine the nature and type of interactions. While interacting with others, some may believe in maintaining distance, while others prefer face-to-face interaction. Personal spacing styles are more evident in negotiation meetings. Those who believe in maintaining distance may feel unhappy when their personal space is invaded. Let us take the example of business interactions between the Americans and the Arabs. Americans may feel uneasy with the closer interaction style of Arabs, while the Arabs may feel disturbed when Americans may keep a distance from them during the interaction.

4) Family Roles and Relationships:

Family roles and relationships influence the pattern of culture. In many societies, family roles and relationships are very traditional, personal, and predictable. The husband is the provider, the wife supervises the household, and males in the household are more valued than females. Each member of the family has a designated role and the responsibility for maintaining the status quo for such a role. Peer pressure preserves the roles, and work situations and business interactions are less influential than familial responsibilities.

5) Language:

Verbal and non-verbal systems of communication systems or languages of every culture primarily reflect the values and composition of languages. In Hindu mythology, Lord Krishna is an icon, for his multiple roles such as a warrior, as a good family person, as a strategist, etc. He is invoked with many names, and each name indicates a different meaning. Similarly, for a Hindu, a cow is a sacred animal; hence Hindus use several words for cows. Eskimos describe snow using many words and expressions. Similarly, Arabs use numerous words to describe a camel. Some of these words may not carry any meaning, but people attach meaning to them. It is for the managers to understand and observe the composition of languages to infer certain cultural cues.

6) Religion:

Religion is the most dominant force that influences one’s culture except perhaps in communist countries like China and Cuba. Not only the cultural pattern, but religion also influences the business, socio-economic, and political situation, the lifestyle of people, certain beliefs endorsed by specific religion, etc. Understanding religion-biased cross-cultural issues, therefore, becomes most important for international business.

7) Personal Achievement:

Achievement is another value espoused by the traditional American business Person. The success and reputation of Indian business leaders are measured by the size of their organisation, the amount of their compensation, and their position in the hierarchy. The larger the organisation and the compensation, and higher /he stature, the greater the respect they earn. In other cultures, especially where family time is meaningful, the quality of relationships and the time spent with family are the symbols of success and prestige. When American (perhaps subconsciously) communicates this acquisitive attitude to a culture that does not share their achievement motivation, communication channels can be damaged or severed.

8) Competitiveness and Individuality:

Competitiveness and individuality are the most crucial cross-cultural issues, since, from these emanate the individual ambition, aggressive behaviour, etc. In countries like the U.S.A., competitiveness is encouraged, while in Japan it is discouraged as the Japanese belief in team spirit and consensual decision-making. In India and China also, collectivity, team spirit and patience are valued more than individuality and competitiveness. Individuality and competitiveness also influence status symbols, body language, aggressiveness, and self-advertisement. These are in conflict with other cultures that value modesty, team spirit, collectivity, and patience.

9) Social Behaviour:

Social behavioural pattern varies among different cultures. The Chinese people believe in taking a bite of every food item served, as this demonstrates their sense of politeness. Now, imagine money-conscious American business hospitality meet for a Chinese delegation. The food budget would far exceed than envisaged. Similarly, the sense of punctuality is another cross-cultural cue. Punctuality is revered in American culture. It is said that such value is attached to punctuality by the Americans because of their obvious nature of impatience.  There are many other aspects of social behaviours that exert influence in cross-cultural relations. For Indians, touching the feet of the boss (especially by the lower staff) is showing respect to elders as well as gratitude. For Americans, it is something unimaginable even a low-level employee will not touch the feet of the U.S. President or a company President/Chairman.

10) Ethnocentric Attitudes:

Ethnocentric attitudes indicate nurturing of feelings by a culture group that their cultural values, habits, and religion are superior to others. This superiority complex is harmful to cross-cultural relations, as it often culminates in disrespect and inflexibility, and ensuing conflict. Ethnocentricity also develops the syndrome of stereotyping, i.e., a typical assumption that the behaviour of people from another culture group will match with their perceived superior culture. Stereotyping at times negatively affects cross-cultural relations, and can even impair a business deal.

11) Flexibility and Sincerity:

The degree of flexibility in cross-cultural relationships has to be cautiously dealt with. With a flexible approach, the superior need to analyse the responses and reactions of culturally different subordinates to interpret their reactions to the communications. It requires sincerity, and patience, empathetic listening, etc.

12) Intercultural Socialisation:

Intercultural socialisation helps in awareness of each other’s cultural constructs and thereby develops informed understanding of cross-cultural behaviour, habits, actions, and the reasons. Such intercultural socialisation is important, particularly for the reasons that actions and behaviour of one cultural group or the other are so different; at times it may create confusion. For example, while bowing is a form of welcome greeting for most of the South-East Asian countries like Japan, for Westerners shaking of hands is the normal custom of welcoming. Similarly, leaving some portion of food after dining is considered as customary in some cultural groups, but a sign of impoliteness for others.

Meaning and Definition of Globalisation

The term ‘globalization’ was evolved in the 1980s, but it is an older concept and is understood differently by different people all over the world. These varied conceptions gave an unclear view of `globalization’. Different scholars, policymakers, and activists regarded it as a stimulus for worldwide economic growth. While the same people simultaneously also assumed it as a crucial threat to the world economic system.

Globalization is an international integration that involves the exchange of products, services, ideas, business practices, and cultures. It has emerged as one of the most dominant factors responsible for shaping the future patterns of the world market. In other words, globalization is a process that integrates regional economies and their culture, by developing a network of world trade, transportation, immigration, and communication.

According to International Monetary Fund (IMF), “Globalisation is the growing economic interdependence of countries worldwide through increasing volume and variety of cross border transactions in goods and services and of international capital flows and also through the more rapid and widespread diffusion of technology”.

meaning of globalisation

According to Charles Hill, “Globalisation is the shift towards a more integrated and interdependent world economy. Globalization has two main components – the globalization of markets and the globalization of production”.

Globalization has also played a significant role in the development of the Indian economy. Since 1991, globalization has contributed considerably to the economic growth of India by eliminating restrictions on MNCs to enter India, permitting Indian firms to trade outside national borders, liberalizing imports, encouraging international investment, etc. All these initiatives have been implemented under the policy reforms of 1991 in India.

Factors Causing Globalisation of Business

Increase and Expansion of Technology:

Conducting business on an international level usually involves greater distances than does conduct domestic business, and greater distances increase operating costs and take control of a company’s foreign operation more difficult. But improved communications and transportation speed up interactions and improve a manager’s ability to control foreign operation. Recall in our opening case that satellite television permits sports organizers to reach worldwide consumers immediately and at very little additional cost. Improved transportation allows players and teams to compete all over the world.

Liberalisation of Cross-Border Trade and Resource Movements:

To protect its own industries, every country restricts the movement across its borders of goods and services and the resources, such as workers and capital, to produce both. Such restrictions make international business more expensive to undertake. Because the regulations may change at any time, international business is also riskier. However, over time most governments have lowered some restrictions on trade for the following reasons:

  •  Their citizens have expressed the desire for easier access to a greater variety of goods and services at lower prices.
  • The reason that their domestic producers will become more efficient as a result of foreign competition.
  • They hope to induce other countries to lower their barriers in turn.

Fewer restrictions enable companies and individuals to take better advantage of international opportunities. However, with more competition, people have to work harder.

Development of Services that Support International Business:

Companies and governments have developed services that ease the conduct of international business. For example, banks have developed efficient means for companies to receive payment in their home-country currencies. Although companies do barter internationally, it can be cumbersome, time-consuming, risky, and expensive. Today most producers can be paid relatively easily for goods and services sold abroad because of bank credit agreements, clearing arrangements that convert one country’s currency into another’s, and insurance that covers risks like damage en route and non-payment by the buyer.

Growing Consumer Pressures:

Because of innovations in transportation and communications, consumers know about products and services available in other countries. Further, global discretionary income has risen to the point that there is now widespread demand for products and services that would have been considered luxuries in the past. Thus, consumers want more, new, better, and differentiated products. However, this greater affluence has not been evenly spread, either among or within countries, thus companies have recently responded more to those markets, such as China, where incomes and consumption are growing most rapidly. This greater demand has also spurred companies to spend heavily on research and development and to search worldwide — via the internet, industry journals, trade fairs, and trips to foreign countries — for innovations and differentiated products that they can sell to ever-more-demanding consumers.

Increased Global Competition:

Consumers have had more discretionary income, which means that dissimilar products and services compete for the same consumer expenditure. This expansion of I competition, forces most companies to seek any means to gain competitive advantages, including a global search for quality improvement or cost reduction advantages.

Changing Political Situations:

A major reason for growth in international business has been the end of the breach (break) between most communist and non-communist countries. Even within the communist bloc, countries strove to be as self-sufficient as possible, with the transformation of political and economic policies in the former Soviet Union, most of Eastern Europe, China, and Vietnam, trade now flourishes between those countries and the rest of the world. A further political factor relates to governments abilities to respond to pressures to enhance world trade. As incomes have grown, so has tax revenue. Much of the revenue has gone to programs and projects that enhance the potential of international business. Further, governments now provide an array of services that help their companies sell more abroad, such as information about foreign markets, contacts with potential buyers abroad, and insurance against non-payment in the home country currency.

Expanded Cross-National Cooperation:

The government increasingly realise that their own countries’ interest can be enhanced by cooperating with other countries through treaties, agreements, and consultation. They do so primarily for the following reasons: i) To gain reciprocal advantages, ii) To attack problems jointly that one country acting alone cannot solve, and iii) To deal with areas of concern that lie outside the territory of all countries.

Import Procedure: How to Apply for Assistance

The concept of bringing goods and services into a nation from abroad usually for the purpose of the sale is known as an import. The term “importers” represents those individuals who buy such goods and services and belong to the country where imports are done. Similarly, the term “exporter” represents a person situated in the other country who is responsible for selling those goods and services. Therefore, if a product/service is imported, it means that it has been brought into a nation from another nation in a legal manner usually for trading purposes. Foreign producers provide imported goods and services to domestic consumers.

An import for the receiving nation is the export for the sending nation. The basis of international trade is formed by the activities of imports and exports. In cases of imports, there is the involvement of customs authorities in both exporting and importing countries. Imports are also subjected to various restrictions such as tariffs, trade agreements, import quotas, etc., which need to be paid by the involved countries. There are two logical meanings of “Imports” that can be understood; first, it is referred to as the set of commodities and services imported, and second, it is also the fiscal (economic) value of all the products and services imported. The transaction of goods and services (sales, barter, gifts or grants) between the residents and non-residents are included under imports.

how to apply for assistance

Import Procedure: How to Apply for Assistance

Stage 1: Making Trade Enquiry and Receiving Pro-Forma Invoice/Quotation Offer:

Making trade inquiries from the prospect exporters or their agents is the first step in importing the goods. The intended importer enquires about the following data:

  • Description of the goods to be imported such as quality, size, design, etc.,
  • Price per unit,
  • Availability of goods as per the quantity,
  • Terms of payment (D/P, D/A, Letter of credit),
  • Terms of shipment (FOB, C&F, CIF),
  • Delivery schedule, and
  • Date till the offer is valid.

The importer takes a decision based on Pro-forma invoices/quotation offers received from different suppliers in response to the inquiry. Once all the offers are evaluated carefully, the importer selects the supplier with whom they want to execute the import order/indent.

Stage 2: Obtaining Import License:

It is important for the importers to have the import license for those products which cannot be imported without proper licensing.

In order to get the license, the importer should forward an application in the prescribed format and submit it to the licensing authority with the below mentioned documents:

  • Capital receipts regarding tees of import license;
  • Certificates regarding the quality of goods imported by the applicant in the last year; and
  • Certificate approved by Income tax authorities verifying the Income-tax.

The import license is issued in duplicate by the licensing authority once they analyze the documents to their satisfaction level regarding the claims of the applicant.

Stage 3: Obtaining Foreign Exchange:

Once the license is obtained, the application has to be submitted by the intending importer in the prescribed format to the Exchange Control Department of RBI under the Foreign Exchange Management Act (FEMA), when it is forwarded by the exchange bank.

Once the complete scrutiny of the application is done, the amount of foreign exchange is released by the RBI The release of exchange is specifically for a one-time transaction, regarding the order positioned by the importer.’

Stage 4: Placing the Indent or Order:

Once both the import license and the required amount of foreign exchange are obtained, the order can be placed by the importer either directly or with the help of ‘Indent Houses’.

The order which is sent to another country for the import of goods is called indent; whereas, the import agent or firm which imports the goods for the importer is known as an indenting house.

Stage 5: Arranging Letter of Credit:

The bank is instructed for issuing a letter of credit by the importer if he is required to arrange a letter of credit as per the terms of the payment. This letter of credit can be issued by the bank of the importer on the basis of his solvency.

The document which is being issued by the bank for providing authorization to the negotiating bank for paying the amount mentioned to the named party in his order is known as the Letter of Credit.

Stage 6: Obtaining Shipping Documents:

Once the bill is accepted, the shipping documents are received by the importers in case of D/A (Document against Acceptance), whereas, in case of D/P (Document against Payment) the shipping documents are received by the importers as soon as he pays the bill.

Further, in case of a credit arrangement letter, the shipping documents are received by the importer from his bank.

Stage 7: Appointing Clearing Agent:

Once the shipping documents are received, the importer appoints a clearing agent for the fulfillment of other formalities, if he does not wish to complete them by himself.

Stage 8: Functions Performed by the Clearing Agent:

It includes the following functions:

  • Filling-up bill of entry,
  • Payment of dock charges,
  • Getting custom clearance,
  • Getting a bill of lading enclosed for delivery,
  • Taking delivery from the dock,
  • Dispatching goods to the importer by rail/road, and
  • Sending advice to the importer.

Stage 9: Taking Delivery of Goods from Railway/Carrier:

When the advice from the clearing agent is received, the importer carries the goods to his warehouse after taking delivery from the railway/lorry receipt

Stage 10: Making Payment:

Payment mode is decided on the basis of the agreement between the importer and the “P.m1. The aspects of payments depend upon the following cases:

  • Shipping documents are received by the importers when they provide and full payment is made on the date of maturity, in cases of D/A Bills
  • The importer is required to pay the bill of exchange for obtaining the shipping documents, in cases of D/P Bills.
  • shipping documents Ate received by the importer once the payments are made, in cases of letter of credit.

Modern Tools and Recent Trends in Operations Management

The management of an organization continuously endeavors to find ways and means to bring about further improvements in its manufacturing processes, so that the productivity may be increased. Enhancement in productivity can be ensured either by producing more with the same level of available resources or maintaining the same production level with the lesser resources. The objective is to bring down the level of resource utilization, and reduction in the wastages. A number of tools and techniques are applied to achieve this objective, e.g. Total Quality Management (TQM), Total Preventive Maintenance (TPM), Economic Order Quantity (EOQ), MRP II, supplier integration, team-working, empowerment, behavior, delivery techniques, product innovation, system design, Just-in-Time, etc. The appropriate tools and techniques facilitate overall progress in the area of productivity, service, quality, etc., which ultimately leads to higher customer satisfaction.

operation management

Modern Tools and Recent Trends in Operations Management

In our country, the tendencies in the manufacturing sector may be described in the following points:

1) Global Focus:

Today’s world is termed as a global village due to the lowering of communication and transportation costs which has facilitated the free movement of goods and services across the national boundaries. The evolvement of the global market has simultaneously resulted in resources such as capital, material, talent, labor, etc., and also becoming global. Countries of this new global order aspire for their economic growth coupled with industrial development. All these phenomena pose a major challenge before the operation managers who are expected to meet the challenge through innovative ideas and out-of-the-box thinking which facilitate the processes pertaining to production, marketing, research & development, etc.

2) Lean Manufacturing:

Lean manufacturing techniques remove the difficulties encountered during the management of the supply chain. It is inclusive of manufacturing processes (push scheduling in particular) as well, and use out-dated planning and execution practices resulting in wrong outcomes. It acknowledges the fact that priorities under the manufacturing operations keep on changing frequently, the demands for the product not being in simultaneous with forecasts, delays in deliveries from suppliers, issues pertaining to product specification, capacity disparities, disruptions in material flow, unrealistic practices in relation to the introduction of a new product, long cycle times and the support systems, not in tune with the changing times. However, one of the striking features of the lean philosophy is that it lays emphasis on correcting the manufacturing processes, whether external or internal to the manufacturing process.

3) Just-In-Time (JIT):

It is a management concept, which was originated in Japan and applied in production processes. It involves the following elements: i) Right items. ii) Right quality and quantity. iii) Right place. iv) Right time. From the above, ‘Just In Time’ may be defined as the “philosophy that focuses attention on eliminating waste by purchasing or manufacturing just enough of the right items just in time”. It is also referred to as JIT — hand to mouth approach to production. It ensures that during the assembly process of a product, its quality components arrive at the appropriate quantity at an appropriate time (without any delay or early arrival). The objective of JIT is to focus on small quantity, repetitive process with only one unit of work-in-process (WIP) at a time, and almost no inventories of finished goods.

4) Group Technology or Cellular Manufacturing:

The underlying principle of Group Technology (GT) is that most of the problems faced during the manufacturing exercise have a lot of similarities, and if they are assembled together, a common or single solution which is time and effort saver and is possible to find out. Under this concept, there is a grouping of various parts having similar geometry, manufacturing processes, and functions, with a view to having better assimilation between the designs and manufacturing functions of an organization. A group comprising of similar components is termed as ‘Machine Cell’.

In this connection, it is possible, although not necessary, for every component of a part family to undergo a process by each machine of a corresponding machine cell. The manufacturing, which involves the production of a part family by a machine cell is known as Cellular Manufacturing. Group Technology facilitates the enhancement of manufacturing efficiency, which is due to the fact that the requisite operations take place only in a small cell, and as such transportation of in-process parts is eliminated.

5) World Class Manufacturing:

The essential of the new pattern of production is world-class manufacturing lies in the fact that logistics are framed in a manner so as to make things adaptable. There is a lot of difference from the traditional system of mass-production. In order to fulfill the demand of the versatile and ever-changing market, production is carried out in small batches. Management of inventories is done on the principles of JIT, and the flow of production through the entire plant takes place as a single unit (and not in the form of large batches). The pace of machine changeover is normally very fast, and the machines used are characterized by their simplicity and flexibility.

6) Mass Customization:

The term and concept of mass-customization were first used by the author Alvin Taller in his famous book ‘Future Shock’. It was subsequently described in detail by Davis in his book `Future Perfect’, according to which the concept of mass customization is different from mass-production. However, the implications of mass-customization vary according to the varying products and sectors. The methodology used and procedural aspects pertaining to mass-customization also differ for different products and sectors. While some products may be customized at the level of retail outlet or dealer (post-production customization), others may be customized at the end-users’ level. For example, the r’ system available in some new models of cars, which enable the vehicle to adapt to the driving pattern of the vehicle owners.

Mass customization may further be characterized by the low-cost production of goods and services promptly which is capable of meeting the customers’ expectations in a speedy manner. It is the thing in vogue almost replacing mass-production, which has lost its relevance in the present-day content characterized by volatility, growing product variety, and expanding opportunities for e-commerce. Mass: customization is capable of meeting all the challenges posed by the present-day market may be its product variety, the volatility of the market, or selling various products either over the counter or through the internet.

7) Re-Engineering:

The concept of ‘Division of Labour’ propagated by Adam Smith, which was relevant during those times, is no longer relevant in today’s business world and market. The business processes are undergoing lots of changes in the form of their re-engineering. By the operation managers, we have substantial improvements in various measures of performance, viz. costs, quality, speed, seniors, etc. Re-engineering essentially predicts reorganizing various business processes de-novo in a systematic manner. Once the fragmented processes after reorganization reappear as integrated processes, the role of bureaucracy starts declining. Fragmented processes and bureaucracy go hand in hand and if one is eliminated, the other cannot exist.

8) Supply Chain Initiatives:

Information Technology plays a crucial role in simplifying the various business processes. Today the manufacturers arc in a position to keep a track of orders on a mal-time basis which enables them to match production level with the market demand. Inventory management has become more efficient with better coordination between inventory replenishment with upstream and downstream supply chain partners. Electronic Data Interchange (ED1), Efficient Consumer Response (ECR), and Vendor Managed Inventory (VMI) are some of the common tools used in this regard. EDI: It allows direct transmission of orders, invoices, and payments through computers; ECR: It envisages logistic planning for linking suppliers and distributors, which facilitates product innovation, their promotion, and replenishment by using information pertaining to Point of Sale (PoS); VMI: It enables the suppliers (and also make them responsible) to manage the inventories of customers. There are some sub-categories of VMI, viz. Retail Managed Inventories (RMI), Jointly Managed Inventories (JMI), and consignment selling.

9) Kanban System:

It is a production control system that is related to lean manufacturing and Just-in-Time (JIT) production. It ensures production with smaller inventories. The term Kanban is a Japanese term, which means “virtual record” (Kan means “virtual” and Ban means “card or board”). It is a common word in Japan, meaning “signboard, or billboard”. Kanban, over a period of time, has become a powerful tool to facilitate the operations of the production system in a holistic manner. Further, it has also been used efficiently to promote improvements as problem areas are underlined by the reduction in the number of Kanbans.

10) Toyota System:

This system, also referred to as the Toyota Production System (TPS), was developed by Toyota. It is an integrated socio-technical system consisting of management philosophy and practices of Toyota. This system is used by automobile manufacturers for various purposes pertaining to manufacturing and logistic aspects, especially interaction with suppliers and customers. The TPS is characterized by the following objectives: i) Design out overburden (muri); ii) Design out inconsistency (mum); and iii) Eradication of waste (muda).

Meaning, Definition and Procedure of Stores Management

 Material management is only possible if proper records of the stores are maintained. Stores are very important in carrying out day to day operations.

The objective behind stores is the continuous supply and production of the goods and the services. Managing the stores enables that every undertaking irrespective of its size is managed properly.

Store keeping’s basic function is to receive the materials, recognizing, placing the same, and issuing the raw materials on the requisition made by the respective department.

Stores management denotes to efficiently managing the materials. It ensures that all the various activities involved during the process of storekeeping are carried out in an economical and efficient manner.

procedure of store management

Procedure of Stores Management

The various operations related to stores procedure are:

1) Materials Planning:

By adopting the techniques of codification, standardization, and nomenclature the materials that are required in the manufacturing process should be identified in advance.

2) Receipt of Materials:

The purchase order is directly made by the purchasing department and upon receipt of the material, the same is sent to the store’s department. The storekeeper is responsible for taking the delivery of the materials and keeping the same in safe custody. Following aspects of the material are verified and inspected in the stores: i) The material is physically tallied with the one ordered in the purchase order and the invoice. ii) Such verification is conducted without any delay. After it is made sure that the right quantum of the material is received, the process of inspection is carried out. Any delay in the process of receiving will cause further delay in the process of inspection. So, the onus is on the receiving section to do the necessary receiving on a timely basis.

3) Receipt Procedure:

Once the items are received in the stores, whether from the vendors, railways, port, or road transport, they will be taken into the store only after the physical verification is done and cross-checked with the challan, supplier’s invoice, purchase order, and packing list. Following is the detailed procedure adopted:

4) Storage of Materials:

The store department is basically responsible for storing and preserving the materials, supplies, and tools, etc. till issued to production and other recipients. The material is required, be stored in a suitable place. Containers like pallets, drums, boxes, shelves, flexible racks, bins, etc. used for the purpose of storing the materials. Depending on the nature of the material, some may be kept on the floor in the form of heaps like in the case of coal, molding sand, iron ore, etc.

5) Inventory Records/Record-Keeping of Stock:

The records of the purchases are retained for several years, This is done for legal compliance and tax compliance matters. The requisition forms are to meet the intern; audit requirement. It is advisable to keep the purchase orders and the related correspondence in one file Handwritten notes and minutes of the meetings should also be attached alongside. This file may ais contain the certification report of the tests on materials being conducted.

The samples of the materials received should be stored along with the name of the vendor, submission dot and purchase order number. Afterward, caution should be taken to ensure the safety of the goods and the same should be stored in a protected area. It should be further ensured that the samples and the day-to-do goods are not mixed. The inventory records either prepared manually or in a computerized form show; have the details for inventory: i) In hand, ii) Committed (allocated) to firm-order or to work-in-process, and iii) On order. The record of the previously entered transactions for each of the inventory is also maintained. Such rem is also referred to as the stock record. All the required data should be first available for the efficient formulation of inventory control model. This includes all the data regarding the stock in hand, stock on order, various associated costs, backorder, lea, time, etc. If the data itself is erroneous, it will not execute the desired results. The internal control is also required to be updated thoroughly to reap the benefits of the inventory control model. Each and every stored inventory should have its own code and record from which it can be separately identified. It should contain the information regarding:

i) On Hand: What is the current level of the inventory that can be used?

ii) On Order: What is the quantum of the material that is ordered and what is the current status and Ito expected date of arrival?

iii) Lead-Time: What is the lead time of the order or how much it is going to be taken for replenishment Error of including the time involved in placing the order should be avoided. In the case of certain companies, it is the policy to ask the vendor for the quotations and the least one is selected. However, the lowest bidder may take significant time in delivery. So, all these factors must be taken into consideration. The time involved in receiving and inspecting is also very crucial.

iv) Planning Data: They define the timing and the size of the order. In most of the ERP systems nowadays, the rules regarding the lot sizes are pre-defined. Apart from this, an indication regarding EOQ, maximum, minimum, and re-order level is also shown.

Record-keeping provides all the information related to the actual position of the inventory, the rate of consumption of the material, the current position of the demand and supply, evaluating the usage, and the balance inventory. These stock records facilitate the information while designing the control system into manual, mechanized, or a combination of both. The records kept by stores department are characterized as follows: i) The records depict only quantities, ii) The materials are periodically balanced.

6) Valuation of Stock and Materials:

The inventory in the stores possesses some monetary value. They constitute the current assets and thus are part of the working capital of the company. All items have a different purchase price and thus appear at different values. However, alternate methods may be adopted so that all the inventory comes at the same price. Any change in the valuation is bound to affect the profit and loss of the company. If the value increases, there will be a case of profit and vice versa. Certain costs are also added in the cost of the inventory like holding cost, transportation cost, primary packing cost, etc. The board approves the method for carrying c411 the valuation of the inventory and such method is fora tenure of 3 years.

7) Stock Verification:

This includes counting the stock physically, weighing, measuring the total lot of the inventory that is present in the stores in a pre-defined manner and technique. It assists in the following manner: i) The stock documents are reconciled with the physical inventory, ii) The areas lacking efficiency are identified and more disciplined approach is initiated, iii) Back up of the stock figures in the balance sheet is taken, and iv) Pilferage and theft are substantially reduced.

Normally, the department of the material audit is assigned the task of stock verification. The reports of the same are submitted to the internal auditors of the material manager. Usually, one person is assigned the complete authority and responsibility related to it.

8) Stores Preservation and Arrangement:

The inventory requires adequate storage space and facilities. This will facilitate proper storing and timely issues of the material to the respective department. Proper shelves, racks, bins, space for the movement of the carrying vehicles are required for efficiently storing and retrieval.

Concept and Type of Inventories

Concept Of Inventories

Inventory denotes “stock of goods”. Various authors have defined this word in their own way. In terms of accounting, the word may be used to refer to the stock of finished goods only, while in a manufacturing concern this may include work in process, stores, raw materials, etc. International Accounting Standard Committee (I.A.S.C) defines inventories as “Tangible property

1) Held for sale in the ordinary course of business,

2) In the process of production for such sale, or

3) To be consumed in the process of production of goods or services for sale”.

concept and type of inventories

Reasons/Need of Holding Inventory

There are three main purposes for the need of holding inventories:

1) Transaction Motive: Every firm needs to maintain a certain level of inventories to meet its daily requirements related to production and sales. In order to meet these requirements, a firm maintains an inventory of raw materials and finished goods. Maintaining of transaction motive makes the production process smoother.

2) Precautionary Motive: A company may face raw material shortage on account of natural causes, strikes, or other unforeseen circumstances. Such a shortage of raw material may interrupt the production process. In order to avoid such circumstances, a company needs to maintain a proper inventory level.

3) Speculative Motive: A company may maintain inventory to grab various opportunities for making profits such as a sudden increase in prices. Such motives are speculative in nature and may help the firm in earning extra profit

Types of Inventories

The various kinds of inventory are as follow:

Seasonal Inventories

Seasonal inventory is made to meet the anticipated instability in demand. The company usually makes use of seasonal inventory at the time of low demand and keep the stock for the period of high demand as they will not be able to manufacture at the time of high demand. The manager takes decision of whether to produce the seasonal inventory or not, the amount to be produced, etc. In case, the company is able to quickly change the rate of production system at a very low cost then the company will not require seasonal inventory as the production system can change to a high demand period without incurring a high cost. But if the changing production rate is costly (e.g., when workers must be hired or fired), then the company should be knowledgeable enough to ensure the continuous flow of production and store its inventory at the time of low demand. Hence, the primary problem faced by the supply chain manager while defining the quantity of seasonal inventory is to compare the carrying cost of additional inventory against the cost of having a more flexible production rate.

Decoupling Inventories

The decoupling of inventories refers to separating or disengaging the different parts of production system. It can be easily seen that each and every machinery and person have their own working capacity. For example, a portion of the final product is manufactured from a machine and the remaining portion of the product will be made next. The inventories in between the machine are held for separating the work on the machines. If these types of inventories are not present then the different machines and men cannot work together on an ongoing basis. The reason for holding these inventories is that if any machine stops then the production on others does not stop.

Cycle Inventories

The cycle inventories are stored because the purchases are made in lots on a regular basis instead of buying the exact number at a particular time. Naturally, when all the purchases are done at the time when the product is demanded then there will be no cycle inventories. Although the company does the purchases in lots because if the purchases are done regularly and in small numbers, the cost incurred will be too large.

Pipeline Inventories

Pipeline inventories come into picture when transportation time is required in moving a substantial amount of resources. Pipeline inventories are also known as transit or movement inventories. For example, when petrol is moved from the oilfield to the city by train, then the petrol which is in shipment will not provide any kind of service to the customers for any purpose.

Safety Inventories

These stocks are maintained to provide safety if there is any type of uncertainties in demand and supply. The organization usually knows the average demand for various items that they may require. But, the actual demand may be more than the average demand. To overcome such type of situation, the inventories can be stored if there is an increase in the average anticipated demand. In the same way, the average delivery time must be known. The delivery time or lead time refers to the time in-between placing the order and having the goods in stock ready for use. Although there may be some uncertain events that may lead to an increase in average delivery time. So extra stocks should be stored for encountering the demand at the time when delivery is delayed. These inventories are stored for meeting the average demand and also for safeguarding at the time of variation in demand and lead-time.

What is Advertisement And Importance of Advertising

A promotional tool, which stimulates the prospective customers to take or continue a particular decision, with the help of a commercial offering, is called Advertising. The title ‘advertising’ is taken from a Latin word advertere’ meaning ‘to turn toward’. The advertisements are capable of diverting the attention of the viewers, listeners, readers, or the onlookers towards a particular brand, product, service, or idea. Thus, any piece of information that diverts the attention of the target customers towards a brand/product/service/idea, can be called ‘advertising’.

According to the American Marketing Association, “Advertising is any paid form of non-personal presentation of ideas, goods or services by an identified sponsor”.

According to Wheeler, “Advertising is any form of paid non-personal presentation of ideas, goods or services for the purpose of inducing people to buy”.

Advertisements, being the vital element of promotion, are public notices, introduced by organizations, to make the target customers informed and stimulated towards their offerings. Altering the buying behavior or the thought process of the target customers and making them convinced to take a certain course of action (desired by the organizations), is the main purpose of advertising. When advertisements are circulated through radio or television, they are called ‘commercials’. With the advent of television, different types of products, services, or ideas, have been promoted through different commercials.

Importance of Advertising

Following points describe the importance of advertising:

1) Importance for Manufacturers:

“It pays to advertise”, is quite a rational statement as advertising is beneficial for manufacturers in many ways:

i) Increased Sales:

The primary purpose of every producer engaged in advertisement of the products manufactured is to stimulate and increase sales of the product. Goods manufactured on a large scale are marketed by advertising, which is a common influential method. Advertising assists in increasing the sales figures. Frequent and persistent broadcasting of an advertisement will help the producer, to grab attention of more customers and increase its market coverage apart from the current markets. It helps in indicating additional benefits of the product to potential customers.

ii) Steady Demand:

Seasonal fluctuations cause decrease in demand of the product. But advertising regularises these variations in demand for various products. Producers are always searching for new benefits and features of a seasonal product, to advertise and attract new customers. For example, new and innovative products like cold coffee and ice-tea have become popular beverages in the month of summer. These beverages are preferred by customers thus increasing the demand. Refrigerator can be considered as another example which has similar demand patterns.

iii) Lower Costs:

Advertising acts as a motivator for sales and an enormous increase in the turnover ratio is observed. This is beneficial in two ways, i.e., firstly, advertising expenses (included in the total selling costs) get evenly distributed over huge sales volume, which ultimately reduces per unit selling cost. And secondly, the per-unit production cost is reduced due to increase in production levels initiated by increase in turnover ratio.

iv) Greater Dealer Interest:

Retailers receive a considerable amount of help, while performing their task of selling goods (which are being advertised by the manufacturers). Retailers are always interested in selling advertised goods, because advertising creates demand for such goods in the market and hence, they are never concerned about increasing sales of such goods.

v) Quick Turnover and Smaller Inventories:

A well-regulated and efficient advertising campaign enables expeditious turnover of products due to creation of a highly reactive market. It also decreases the inventory cost due to constant demand.

vi) Supplementing Salesmanship:

The most essential premise for selling a product is done by advertising. Advertising simplifies the job of a salesman. It supplements the work of the salesman as he has to only suggest the product which the prospective buyer is already acquainted with (by way of advertisements).

vii) Encouragement to Better Performance:

Advertising of the products manufactured by the organization gives a proud feeling and sense of self-esteem to the employees of that organization as they are part of the whole process. It increases efficiency levels of employees and workers and also motivates them to increase their efforts. This raises the team spirit and confidence of the employees of the organization.

viii) Creation of Goodwill:

The advertising benefits the manufacturer by establishing a good reputation for it. It makes the organization a producer who has developed a positive image of delivering quality products to the society.

2) Importance for Consumers:

Following points highlight the importance of advertising for consumers:

i) The facility of Purchasing:

The shopping experience of customers is simplified due to advertising, because the re-sale value of products sold by retailers is predetermined, which is mentioned in the ads. An explicit and absolute commitment is given by an advertisement to target the audience that the product offered is not excessively priced, thus, making the customer comfortable while finalizing their choice.

ii) Improvement in Quality:

Usually, organizations promote their products under their respective brand names. Thus, when a customer decides to buy a product after watching the advertisement, it is the brand assurance which helps him to prefer the product over other similar options available under different brand names. The organization can expect regular orders from the customer if he gets the anticipated benefit from the product. If not, the organization may experience a steep fall in the sales, once the anticipated quality is not received by the customer.

iii) Elimination of Unnecessary Intermediaries:

Advertising builds up a direct link between the producer and the consumer. This association can help to reduce the price of the product which has been increased due to middlemen margins and subsequently increase the profit margin of the producer. It implies that consumers are being offered products at low rates and huge earnings are generated by the producer.

iv) Consumer’s Surplus:

Many people discover the value of products through advertisements, as it results in the increased utilization of available products. In the case of products with higher utility rates, advertising adds more points to their popularity. It will lead to consumer’s surplus with reference to the additional satisfaction obtained from the products if these products are made available at cheaper rates.

v) Education of Consumers:

Advertising is a powerful and informative concept. It is a medium to inform and educate the consumers about various innovative products being launched in the market and their uses and benefits. Thus, it induces them to shun their old behavioral pattern and embrace the modern lifestyle. Hence, it leads the customers to a superior standard of living.

Process of Planning Sales Promotion Programme: Sales Promotion Plan

Sales promotion helps in increasing sales for potential short term period; however, it is not helpful enough to generate long-term customer loyalty. It is designed for distribution channels and also for sales force of the organization.

According to William J. Stanton, “Sales promotion is an exercise in information, persuasion, and influence”.

According to Philip Kotler, “Promotion encompasses all the tools in the marketing mix whose major role is persuasive communication”.

There are different types of sales promotion and each is given importance, depending on the circumstances or situations, like:

1) ‘Consumer-based sales promotion’ is used to enhance the sale of seasonal products during off-seasons.

2) ‘Middlemen or channel-based sales promotion’ is used in the case when the middlemen or channel intermediaries are more close to customers than original manufacturers.

3) ‘Salesmen-based sales promotion’ is used to motivate salespeople when the focus of sales is to remove old inventory.

Process of Planning Sales Promotion Programme: Sales Promotion Plan

Different types of media are used by marketers in any sales promotion plan. A typical sales promotion plan includes the following steps:

1) Establishing Objectives:

The very first step of a sales promotion plan is to establish a sales promotion objective(s). Product-related marketing, as well as promotion objectives, help in designing the sales promotion objectives. Different sales promotion objectives are established for different target markets. For example, sales promotion objectives established for consumers may include prompting bulk purchases (or purchasing large units), getting switchers back, and encouraging nonusers to purchase organizational products and services.

2) Select the Tools:

In the second step, as per the sales promotion objective(s), promotion tools are selected, Different promotion tools are as follows:

  1. Consumer-Promotion Tools: Here, tools targeted at consumer-promotion are selected by the promotion planner. Factors like expense, target market, competitive conditions, and sales promotion objectives are considered for suitable tool selection.
  2. Trade-Promotion Tools: According to the objective, most of the times trade promotion tools are selected by promotion planners. In a particular sales promotion pie chart, the largest section is covered with trade-promotion tools, whereas consumer-promotion tools and media advertising cover the rest.
  3. Business and SalesForce Promotion Tools: In order to fulfill certain business and sales force related promotion objectives like collecting leads, motivating sales force to improve its performance, and impressing and rewarding customers, organizations generally use business and sales force promotion tools. An annual budget for different business promotion tools is designed by the organization. Thus, billions of rupees are spent on designing and utilizing such tools.

3) Developing the Plan:

The next step is devoted to the development of a sales promotion plan. Following factors should be considered while developing the sales promotion plan:

  • Size: Determining the size of the promotion tool is very crucial for effective sales promotion. An appropriate size of the promotion is required for successful sales promotion as using a huge promotion tool may lead to improved sales but with a fading rate.
  • Conditions: It is also essential to draw the conditions for consumers to avail of such promotion tools. Either it may be targeted at every individual or some specific person or group. A person or group of persons having UPC codes (or proof-of-purchase seals) may avail premiums of the promotion.
  • Duration: The appropriate duration of the sales promotion tool(s) should also be decided by the promotion planner. It should not be too short (so that majority of prospects remain unserved) or too long (so that it diminishes its value).
  • Distribution Vehicle: A distribution vehicle is also necessary for serving sales promotion tools to consumers. The promotion planner is required to select a suitable distribution vehicle (according to cost, the extent of reach and effect) for each promotion tool. For example, simple mail, advertisement, package of the product, or even the store may be used as a distribution vehicle for offering fifteen percent off coupon.
  • Timing: The timing of offering a particular sales promotion is also considered before finalizing the sales promotion plan. For example, different calendar dates are selected by brand managers to offer sales promotion tools and production, sales, and distribution departments of the organization manage their operations as per these dates.
  • Sales-Promotion Budget: The last factor considered while developing the sales promotion plan is the budget of the sales promotion. This budget may be developed by estimating the cost individually or collectively. Sum of promotion tool cost (like cost incurred on discounts or premiums) and administrative cost (like the cost of mailing, printing and communicating) is multiplied with the possible number of units to be sold, to determine the total cost of the promotion.

4) Pre-testing the Program:

After developing a sales promotion plan, it is essential to pre-test it. Although a list of factors is considered while developing the plan, the pre-test highlights its merits and demerits. Several aspects of the promotion tool like its size, distribution method, suitability, etc., are analyzed with the help of the pre-test.

5) Implementing and Controlling the Program:

The next step includes the formulation of implementation and control plan so as to manage every sales promotion tool. Two important aspects, i.e., lead time and sell-in too are covered under the implementation plan. The time elapsed in developing the sales promotion plan prior to its launch is called Lead time. It starts from initial planning and lasts up to final distribution to the dealer, involving several important happenings (like designing and selection of package materials, finalizing promotion and sale materials, informing and preparing salespersons, allocating distributors, and producing inventories).

The time elapsed from the launch of the sales promotion tool to the sale of approximately ninety-five percent of the promoted product to the consumer is known as Sell-in time.