The Financial Express

The challenges

Export under business-to-business-to-consumer model

The challenges

Changes are taking place on a daily basis. FinTech is placed in the driving seat of banks, home-sharing is taking the places of hotels, ride-sharing is destroying jobs of taxi drivers. This is, indeed, a system. Joseph Schumpeter called the change 'creative destruction'. Once upon a time chain shops/super shops/departmental stores would eat groceries. Now e-commerce traders are engulfing super shops and the like. This is the reality, nothing can stop it.
Internet helps develop virtual shops through e-commerce websites accessible by customers -- simple interactive web portals. People visit the sites, place orders and receive home delivery of the goods. Online payment ecosystem facilitates settlement of the purchases. The debut of e-commerce started with shop owners themselves selling their products under the business to consumer (B2C) model. Later technology companies took their places. Now they are operators of e-commerce trades by creating virtual market places/platforms. There are two types of models found operational in e-commerce world: one is inventory-based virtual market place and another one is non-inventory-based. Under the non-inventory-based model, virtual market platforms work as facilitators to execute the transactions between sellers and buyers. Our neighbouring country officially restricts technology companies to operate as inventory-based e-commerce traders. This policy helps traders sell goods direct to buyers through the orders executed on virtual market platforms provided by technology companies. On the other hand, sellers supply goods to market places which make payments after the goods are bought by customers under inventory-based e-commerce. Global giants are found operating within both frameworks, depending on the regulations of the countries concerned.
The B2C e-commerce business model is in operation for local transactions. But e-commerce for export trade? This model is not workable since global people place orders on leading virtual market places. In this market places, models -- inventory and non-inventory -- are operational. In the later case, transactions are executed under the B2C model. But under the inventory-based system, cross border e-commerce is executed in accordance with the business to business to consumer (B2B2C) model, under which exporters ship goods to market places abroad. This is B2B. When the goods are sold, it becomes B2C. In an aggregate way, this is known as B2B2C.
Regarding export trade under the foreign exchange regulatory regime, exporters need to make a declaration to the effect that they will arrange repatriation of export payments within the stipulated time from the date of shipment. Transport documents need to be issued to the order of exporters' banks unless advance payment is received. In this context, exporters need to make declaration by exporters on a regulatory form known as EXP Form as per foreign exchange regulations of the country. Exporters can give online declaration without physical visit to banks.
It is reported that the central bank has a policy regarding e-commerce export under the B2C model which requires goods to be hosted on an e-commerce website accessible through internet by foreign buyers. Banks can provide acquiring services to eligible exporters for repatriation of export proceeds against sales orders of exportable goods received on e-commerce websites for small value export up to USD 5,000 per transaction under Cost and Freight (CFR) term. It is known that the central bank makes regulatory waiver to issue transport documents for carrier companies in the name of foreign buyers for shipments of the goods having EXP Form. Reporting formalities are simplified. Exporters are allowed to retain a portion of export proceeds in retention quota account in foreign currency, commonly known as ERQ accounts. The fund held in the accounts can be used by exporters for meeting legitimate current expenses abroad. This may work as a facility to promote exports abroad.
The B2B2C model is not available in foreign exchange regulatory regime of the country. Central bank can easily incorporate the model by issuing policy guidelines to exporters and banks regarding the process to repatriate export proceeds, expenses to be allowed to market places and so on. But there are some challenges for export trade under the B2B2C model. It is like consignment-type export -- exporters will be paid after the goods are sold to customers by consignees (importers). The model warrants longer tenure to realise export proceeds. Statutory period of four months from the date of shipments for realisation of export proceeds may not be workable. Export bills on consignment sales are not possible to be discounted before actual sales by market places. Situation may need to be addressed for unsold goods which can be sold to different buyers at discounted rates or shipped back to Bangladesh.
In case of ship-back, no regulatory problems will arise. But exporters will face problems, if shipments need to be abandoned at destinations due to non-sales. Non-repatriation of export proceeds is subject to punitive action as per foreign exchange regulations unless exporters prove themselves to the effect that they have no option except abandonment of export proceeds. This may be considered by central bank. But there is another issue to arise in case of shipments manufactured with imported inputs with bond facilities. Whether input contents need to be imposed with duty and taxes for proportionate unsold quantities -- is a question.
In this model, exporters will face working capital problems at both stages -- pre-shipment and post-shipment. Banks may not be comfortable to extend pre-shipment finance. They will not finance against export bills before realisation of export payments as well. However, banks may finance working capital based on adequate collaterals but this way of financing at regular costs is not supportive to execute the transactions as needed.
The business model B2B2C needs to be accommodated for remaining in export trade. In this situation, regulatory framework should be win-win between exporters and market places. The model needs to be allowed a longer period, at least 180 days, for realisation of export proceeds. Usance period of input imports should be at least 270 days. Low-cost working capital financing facilities need to be arranged either in foreign currency or in local currency for utilities and wage payments. The shipment to virtual market places should be treated as like as normal exports other than consignment sales for the safety of exporters.
But without consignment-type shipments, the model will not be workable. And if it is not adopted, export trade may face the situation as faced by shopkeepers, taxi, hotels, movies and many more. Then what to be the solution to tackle the situation is an important issue. In a word, no solution can focus on it. It needs stakeholder consultation, in addition to traditional research works. However, alternative windows may be explored. One of the alternatives is that exporters should be allowed to warehouse goods abroad at their disposal and make delivery of goods at orders received from market places. Shipments from Bangladesh to warehouses abroad under the model will be treated as consignment sales, not exports. Delivery from warehouses to ultimate buyers will be treated as exports. Accordingly, repatriation of export proceeds will be based on the deliveries from warehouses. This is a proposition which needs detailed examination of its cost-benefits. Stakeholders are not expected to raise the issues. Authorities concerned should work on it so as to find out a way to keep export trade afloat in forthcoming changing situation. Otherwise opportunities may leave us unattended.

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