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The Financial Express

Export: Challenges under business-to-business-to-consumer model

| Updated: September 02, 2021 22:38:41


Export: Challenges under business-to-business-to-consumer model

Changes are taking place on almost a daily basis, especially in the business arena. FinTech is placed at 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'.

Internet helps to develop virtual shops through e-commerce website accessible by customers - a simple interactive web portal. 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 starts with shop owners themselves who sell their products under business-to-consumer (B2C) model. Later, technology companies take their places. Now they are operators of e-commerce trade by creating virtual marketplaces/platforms. There are two types of models found operational in e-commerce world: one is inventory-based virtual marketplace and another is non-inventory-based. Under 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 from operating as inventory-based e-commerce traders. This policy facilitates traders to sell goods direct to buyers through 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.

B2C e-commerce business model is in operation for local transactions. But e-commerce for export trade under this model is not workable since global consumers place orders on leading virtual marketplaces. In this marketplace model, inventory and non-inventory are operational. In the later case, transactions are executed under B2C model. In inventory-based system, cross-border e-commerce is executed in accordance with business-to-business-to-consumer (B2B2C) model under which exporters ship goods to marketplaces 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 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 exporters' banks unless advance payment is received. In this context, exporters need to make declaration 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 B2C model which requires goods to be hosted on 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 website for small-value export up to USD 5,000 per transaction under Cost and Freight (CFR) term. It is known that the central bank has given regulatory waiver to issue transport document by carrier companies in the name of foreign buyers for shipments of the goods having EXP Form. Reporting formalities have been simplified. Exporters are allowed to retain a portion of export proceeds in retention-quota account in foreign currency, commonly known as ERQ accounts. The funds 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.

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 marketplaces and so on. But there are some challenges for export trade under 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. The 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 in case shipments need to be abandoned at destinations due to non-sale. 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, on establishment of bonfides, be considered by the central bank. But there is another issue in case of shipments manufactured by 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 in export trade. In this situation, regulatory framework should be win-win between exporters and marketplaces. 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 allowed for 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 marketplaces should be treated 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 would be the solution to tackle the situation is a dire 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. Authorities concerned should work on it so as to find out a device to keep export trade afloat in the wake of the changing situation.

 

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