Be A Global Merchant

Pritam P Hans        Print Edition: June 2012

Being successful as an entrepreneur is challenging. You have to fare through an unpredictable sea on your voyage to the island of victors. If you have a product to sell, why get restricted by the boundaries of a nation? You can sell your wares across the globe, thanks to the rise of the Net and shrinking distances.

WHY EXPORT?

Despite a tumultuous global economic scenario, e-commerce is growing rapidly . Online sales are expected to hit close to $1 trillion in 2012, according to analysts. Global research firm Forrester expects that online sales in the US will grow from 7 per cent of overall retail sales to close to 9 per cent by 2016. According to a report by the Federation of Indian Export Organisations (FIEO), exports through the e-commerce route have grown over 400 per cent to $1.4 billion in the past three years.

"Traditional selling methods, especially to international markets, still remain expensive and prohibitive for small businesses. However, with the rise of e-commerce, you can reduce costs on labour, international phone calls and travel as the information you need to build your customer base can be handled right from your desktop," says Nayan Thakkar, manager, sales and customer support, Alibaba.com, India.

SPECIAL:Tips to set up your business online

IDENTIFYING MARKETS

Like any start-up, you need to begin by analysing the market and figuring out how to reach your customer.

"Businesses need to identify the right market and understand the export opportunity," says Nitin Bawankule, industry director, Google India. "They must answer questions like where are consumers interested in my product?...How competitive is the market?," he adds.

Online exports: Case Study

NAVEEN PAMNANI
New Delhi

Company:
Twenty Four x Seven Mercantile House

Business:
E-tailing of spare parts of vintage motorbikes and scooters

Started:
September 2011

Initial investment:
Rs 1 lakh

Annual turnover:
Rs 69 lakh in (Oct '11- Mar '12)

Pamnani had experience restoring old bikes and cars. He converted his passion into a business by reverse engineering vintage two-wheelers. He gets spare parts manufactured on contract and sells them through marketplaces such as eBay.com and his own websites.

He was a wholesale handicraft exporter but seeing the profit margins he was losing, Pamnani started retailing through online stores. But, his handicraft export business took a hit when wholesalers stopped buying from him when they found out that Pamnani was competing with them. It was then that he shifted his focus to exporting spare parts for vintage motorbikes.


Online exports: Case Study

SANDEEP MEHROTRA
Moradabad, Uttar Pradesh

Company:
Progress Enterprises

Business:
Manufacturer and exporter of metal artefacts and barware

Started:
1995

Initial investment:
Rs 2.5 lakh

Annual turnover:
Rs 2 crore in 2011-12

Mehrotra's business has grown exponentially in the past three years, even though he was conservative in the initial years and focussed on offline deals. He has ramped up the manufacturing capacity at his factory and aims to reach an annual turnover ofRs 15 crore in the next three years.


Online exports: Case Study

DEVEN PATODIA
Kolkata, West Bengal

Company:
Star Silk Exports

Business:
Manufacturer and wholesale supplier of organic cotton bags

Started:
2006

Initial investment:
Rs 30,000 (on machinery)

Annual turnover:
Rs 4 crore in 2011

Patodia did not want to join the family textile export business but used the existing infrastructure to start his online business. He had to wait for one year to get his first order. After clearing the first hurdle, Patodia's business has performed steadily, even during the 2008 economic slowdown.
A resident of Moradabad, Uttar Pradesh, Sandeep Mehrotra identified a business opportunity in export of metal artefacts. He set up Progressive Enterprises with an investment of Rs 2.5 lakh in a manufacturing unit and showroom in Moradabad in 1995.

Though Mehrotra found a market, he was conservative and focused on offline deals. After years of advertising in global media, participating in international trade fairs and creating a website in 2004, he found success through an online business-to-business (B2B) marketplace.

It took Mehrotra years to realise the potential of e-commerce, but Deven Patodia, an entrepreneur from Kolkata, started with a plan based on the online market. When Patodia returned in 2006 from the US after 10 years, he did not want to join his family's business. Equipped with an MBA degree from Yale School of Management, he was aware of the market potential for eco-friendly organic cotton bags and packaging material in the US. So he started Star Silk Exports with a small investment of Rs 30,000 on a few machines. He did not hire employees but relied on contract workers for manufacturing products when he got orders.

"You need to spend time to understand your own products and research the existing market," Patodia says.

RETAIL OR BULK

Once you have identified a market, it is time to decide whether you want to tap the retail market or cater to wholesale buyers.

Naveen Pamnani, who has a successful retail export business in spare parts of vintage bikes and scooters through his firm Twenty Four x Seven Mercantile House, finds selling to end-consumers more lucrative.

"Before starting my retail auto parts business, I was exporting handicraft items in bulk. I would be shipping one container with products worth Rs 20-50 lakh per month. These items would be sold by local retailers at several times the wholesale price," he says.

Considering the profit margins he was losing, Pamnani started retailing through online stores. His handicraft export business took a hit when wholesalers stopped buying from him when they found out that Pamnani was competing with them. Despite this, he did not quit retailing. He just shifted his focus.

Pamnani had experience of restoring vintage motorbikes. When local spare parts manufacturers were supplying to overseas retailers, he decided to cut out the middlemen and retail the parts at relatively lower prices by sourcing them from local contract manufacturers.

Though retail has the advantage of higher profit margins, being a wholesale supplier has its advantages as well, especially a manufacturer. "It is better to find bulk buyers to get economies of scale. When you cater to the wholesale market, it is easier to have a concurrent retail channel," says Mehrotra.

GAINING FOOTHOLD

Once you have decided on your products and your target customers, it is time to set up an online shop. An e-commerce site needs an initial investment of only Rs 5,000. Familiarise yourself with free e-commerce site platforms, such as Magento, PrestaShop and OsCommerce. Your investment will be the cost of domain registration (Rs 500 annually) and web hosting (Rs 5,000 per year).

If you intend to be a wholesale supplier, your website can be a regular one with product listings and no shopping cart as your buyers will be placing orders after discussing details with you offline.

Starting an independent website requires a lot more work in terms of reaching your customers. As most users start their online shopping for a product from search engines such as Google and Yahoo, your site must appear among top search results. This can be a challenge for beginners. You can also use online advertising services such as Google AdWords to reach your target buyers. However, keep track of the results to avoid losing money on wasteful ads.

Though there are consultancy companies that manage websites and online stores, results are not guaranteed.

Mehrotra got a website in 2004 and hired a consultancy to promote the site, but the move failed. Mehrotra started getting a regular flow of enquiries and orders through the Web platform after he joined Alibaba.com, a B2B marketplace. IndiaMart.com and TradeIndia.com are other popular B2B marketplaces. eBay.com, which has several country-specific websites, is a popular retail store.

Established online marketplaces attract a large number of prospective buyers and also continuously promote their websites. So, your products have a higher chance of reaching the target customers.

Given the advantages of going through marketplaces, Mehrotra and Patodia have focused on their storefronts on these sites and do not have independent online stores. Both of them have businesses with an annual turnover of Rs 2-4 crore, primarily through online orders.

However, a dedicated website offers the advantage of avoiding competition in a marketplace. It also helps clients find you easily.

PLAYING BY THE RULES

Like any business, an online one has a gestation period. It may take a few months to a year to have it running. For instance, Patodia of Star Silk Exports got his first order after a long wait of one year.

"Being resilient is very important for a business," Patodia says.

Also, take care of regulatory requirements. The statutory provisions are the same for both online and traditional exports. "You have to establish a firm and get it registered with the Registrar of Companies," says M Rafeeque Ahmed, president, FIEO.

All exporters need an Import Export Code issued by the Directorate General of Foreign Trade. Some products also require an export licence. To determine whether a licence is required to export a product or service, you should refer to the latest Indian Trade Classification (Harmonised System) of Export and Import Items.

Once a customer places an order, try to get paid before shipping to avoid payment fraud. Payment gateways such as PayPal.com allow you to get paid instantly and securely. You can also use escrow services such as Escrow.com to ensure payments are made after you ship products.

Shipping products is fairly easy. You can walk into any post office or a courier company's outlet and dispatch the product. Several couriers not only deliver the goods but also provide necessary support for customs and clearances.

Courier or post is an economically viable shipping method for small-value exports, but does not work for large-value ones. "You cannot ship a commercial product overseas through a courier if it values over Rs 25,000," says Pamnani.

"There are a number of considerations suppliers need to acknowledge when learning to ship overseas. There are country-specific regulations on product code and specifications, which may differ from regional specifications. Also, shipping overseas may require another series of permits with logistics," says Alibaba.com's Thakkar.

If you still believe that you can succeed as an online-based export business for your product, consult a chartered accountant for guidance. You can also call the support teams of marketplaces and payment processors for help.


IMPORT EXPORT CODE

Any individual or company selling and shipping goods outside India has to obtain an Import Export Code (IEC) issued by the Directorate General of Foreign Trade.

You can apply for an IEC online by submitting the necessary documents along with a fee of Rs 250. An IEC number is generally granted in a few days.

Documents required:

> PAN Number
> Current Bank Account
> Bankers Certificate (account and Identity proof)
> Covering letter on your company's letter head
> Two copies of the application in prescribed format
> Two copies of passport size photographs of the applicant duly attested by the bank of the applicant.
> Self-addressed envelope with postal stamp for delivery of IEC certificate by registered post

Youtube
  • Print

  • COMMENT
BT-Story-Page-B.gif
A    A   A
close