Starting an import export business in India can be an exciting and potentially lucrative entrepreneurial venture. However, like any new business, it requires careful planning and a reasonable amount of initial capital investment to get off the ground successfully.
This article will provide an overview of the typical costs and investments involved in launching an import-export company in India. We’ll explore the initial registration and setup costs, operational expenses, product costs, and additional financial considerations one needs to factor in. Read on to get a realistic idea of the capital required and prepare your business plan accordingly.
Understanding Registration and Legal Requirements
The first step to starting an import export company in India is obtaining the necessary registrations and permits. While the exact requirements will vary based on:
- The type of business structure (e.g. sole proprietorship, partnership firm, private limited company etc.)
- The products/services being imported and exported
- The countries you are dealing with
Some of the common legal registrations and licenses include:
- Import Export Code (IEC)
- GST Registration
- Directorate General of Foreign Trade (DGFT) Registration
- Regulation of Imports and Exports Act (FEMA) Compliance
- Relevant industry-specific permits and licenses
The cost for obtaining these registrations can range from ₹3,000 – ₹15,000 depending on the specific requirements. Some registrations like IEC and DGFT can be done online for minimal charges. However, professional legal and consulting fees may be additional.
Key Takeaway: Plan for ₹15,000-₹50,000 towards basic import export registration and compliance costs.
Estimating Initial Investment Requirements
In addition to registration costs, starting an import export company requires initial capital expenditure towards setting up business operations.
1. Office Space and Equipment
Basic infrastructure like office space, furniture, storage facilities, computers/software, and utilities entail significant capital investment depending on:
- Scale of operations (small home office vs large warehouse)
- Type of import/export products being dealt with
- Industry specific infrastructure needs (e.g. cold storage)
Small home-based sole proprietor firms can be started with as little as ₹50,000 towards basic equipment and facilities.
Larger partnership/corporate entities focused on physical goods may require ₹5-10 Lakhs for renting industrial storage spaces in metros and investing in logistics.
2. Initial Inventory/Working Capital
Sourcing and stocking inventory involves significant upfront capital which depends greatly on:
- Unit price and order volumes of goods being imported/exported
- Payment terms negotiated with overseas suppliers/buyers
- Working capital buffer to manage operating expenses
High value products like electronics or bulk orders of commodities entail substantial working capital to pay foreign suppliers and manage inventory stocking costs.
3. Marketing and Other Expenses
- Initial market research
- Product sampling budgets
- Catalogues, brochures and online marketing assets
- Website development and digital marketing costs
- Travel to visit trade fairs, export markets etc.
- Insurance and financing costs
₹2-5 Lakhs should be budgeted towards these startup promotion expenses even for relatively lean home based firms. Larger companies with overseas business targets need ₹15 Lakhs or more allocated towards initial international marketing, travel, content development and insurance costs.
Key Takeaway: ₹5-10 Lakhs for small home based operations. Up to ₹2 Crores for larger corporate entities with physical inventory and overseas business presence.
Operational Costs of Running an Import Export Business
Apart from the initial capital expenditure, adequate provision must be made for regular running costs which include both fixed and variable components:
- Rent and utility expenses
- Employee salaries/benefits
- Digital marketing and advertising budgets to promote business overseas
- Export freight, shipping and customs charges
- Export documentation and trade compliance fees
- Import duties and domestic transportation costs for products
- Multiple business trips and trade show participation fees
- Miscellaneous administrative, accounting and other day to day costs
For streamlined cash flow planning, have at least 6 months worth of operational expenditure capital on hand before commencing full scale business. Be prepared for longer gestation periods of 12-24 months for profits to stabilize.
Key Takeaway: Seed capital equal to 18-36 months of fixed and variable costs. Scale up slowly while reinvesting early profits.
Factoring in Import Export Product Cost Considerations
In an import export business the core raw material costs constitute a large chunk of the overall capital budgeting. For accurate costing, extensive product research across global markets to locate reliable international vendors/buyers at best pricing terms is imperative even before startup formalities.
Some aspects to analyze are:
- Global price trends for shortlisted products
- Optimal sourcing geographies balancing cost, logistics effort and import duties
- Ideal order lot quantities for cost effective sea and air shipments
- Safe yet cost effective packaging methods critical for safe international transit
- Inspection, testing and certification needs to comply with export market regulations
- Specialized storage/transport conditions like cold storage, hazardous cargo clearances etc.
- Realistic profit margins affordable to overseas buyers after accounting for all logistics and selling costs
While basic trading products like garments, leathergoods or agricultural produce may require an outlay of just ₹10-20 Lakhs to commence first shipments, high value electronics or machinery exports/imports need upwards of ₹2 Crores allocated just for the first few batches of cargo.
Key Takeaway: Extensive global value chain analysis of shortlisted products is must before finalizing initial inventory lots for trading. Seed capital is proportional to order values.
“The total capital investment needed for an import-export startup in India can range widely from ₹3 Lakhs to over ₹10 Crores depending primarily on the type of products dealt with and business operating model” – Export Consultant
Additional Financial Planning Considerations
Beyond the operational business costs, some key aspects that must be factored into capital budgeting are:
Financing Costs
- Import procurement costs need to be financed for 30-90 days till receivables from domestic customer sales are recovered
- Inventory carry costs and overseas shipment delays means substantial working capital is blocked
- Complex export order fulfillment involving manufacturing/sourcing at backend means coordinating multi-stage finance across supply chain partners
Regulatory Compliance Costs
- Periodic renewal fee for import export code and other permits
- Need for staying updated on latest customs duty changes, bilateral trade policies
- Penalties for minor procedural lapses
- Maintaining multi-currency forex accounts and managing exchange rate volatility
Expansion Plans
- Leasing larger warehousing spaces
- Expanding product portfolio requiring additional market research
- Participation in overseas trade exhibitions and branding campaigns
- Prospecting new international markets through field visits
- Developing country/product specific regulatory compliance capabilities
Aside from factoring a 10-15% buffer for contingency, having additional capital ready for channel expansion and growth opportunities is prudent.
Key Takeaway: A 15-20% buffer above budgeted business costs. Preparing to scale with adequate growth capital reserves.
What is the Ideal Capital Required to Start an Import Export Business?
While it is difficult to provide definitive figures, the following estimates provide reasonable starting point benchmarks:
| Type of I/E Business | Realistic Startup Investment Range |
|---|---|
| Simple home based consulting/sourcing business | ₹2-5 Lakhs |
| Trading consumer goods with basic online operations | ₹10-25 Lakhs |
| Core import export company dealing in physical goods | ₹25 Lakhs – 5 Crores |
| Large trading house with integrated logistics arm | ₹10 Crores+ |
However, this is still a generalization. The realistic capital needs can only be determined through an exhaustive evaluation of:
- The specific product/service categories
- Scale of initial operations
- Relevant market dynamics
- Logistical complexities involved
- Growth ambitions and overall vision
This is why developing a comprehensive import export business plan incorporating inputs from industry veterans and financial experts is highly recommended before seeking any funding.
Available Funding Options to Meet Import Export Financial Needs
While most first generation entrepreneurs rely on self-funding or loans from friends/family to seed their international trading startup, some options worth evaluating are:
Bank and NBFC Loans
Banks and financial institutions offer convenient financing options for asset buying as well as working capital needs of new and growing I/E firms:
- CC/OD limits against inventory/receivables for urgent fund needs
- Bank guarantee facilities to support overseas order bids
- Special buyer’s credit arrangements to fund imports at lower interest costs
- Bill discounting facilities for export order financing
Loan eligibility, terms and interest rates vary widely based on scale of business, value of collaterals, past credit record as well as overall banking relationship.
International Trade Finance Products
Specialized products offered by banks with dedicated trade teams include:
- Export credit insurance provided at subsidized rates in collaboration with ECGC
- Advance payment guarantees and import LC facilities with correspondent foreign banks
- Currency exchange services and multi-currency accounts critical for I/E
- Digital supply chain finance platforms providing visibility and easing financing
Government Sponsored Schemes
Central and state governments offer beneficial financial assistance programs for aspiring exporters by way of:
- Subsidized project loans via SIDBI and Exim Bank
- Capital investment subsidies on critical infrastructure
- Freight subsidy vouchers for initial overseas shipments
- Market exploration grants for product promotions in new regions
Eligible women entrepreneurs can further avail special incentives over and above these broader facilities.
Equity Funding Sources
Once startups successfully establish initial product-market fit and show capability to scale internationally, VC funding can be explored.
- Angel networks like Indian Angel Network, Mumbai Angels etc.
- VC firms like Accel Partners, Sequoia, Nexus, Blume Ventures etc.
- Crowdfunding platforms
Realistic valuations suitable for such early stage, capital intensive trading startups must be presented to investors.
Key Takeaway: Explore SIDBI/Exim Bank subsidized loans and government incentives before approaching VCs
Summarizing the Import Export Business Capital Requirement
To conclude, the exact capital investment amount varies substantially for import export firms based on:
1. Business model – Services vs product focus; Home based vs larger setup
2. Product mix – High value electronics vs daily consumables; Niche vs mass market
3. Scale and operating complexity – Sourcing locations, export markets, shipment modes
4. Growth ambitions & long term vision – Lean bootstrap vs funded startup approach
While basic trading can start below ₹5 Lakhs, realistic capital requirements can easily run up to ₹10+ Crores for established industrial trading houses.
“Aside from initial budgeting, having buffers and contingency funds ready for unforeseen expenses is key” – Startup Mentor
Careful financial planning and judicious deployment of money is thus critical right from day one!
That concludes the main outline for capital requirements to start an import export company in India. Let us now look at some additional questions commonly asked by aspiring entrepreneurs around this topic:
Frequently Asked Questions
Q1. What are the benefits of starting an import-export business in India?
Some advantages include:
- Globalizing offers huge market expansion from just domestic operations
- Ability to source best quality and cost products internationally
- Chance to bring useful foreign products to Indian consumers
- Learn about new cultures, consumer preferences and global best practices
- Superior profit margins compared to just trading locally
- Great YOY business growth potential
Overall an import export company offers the twin advantages of wider sourcing avenues and selling platforms to maximize profits.
Q2. What are the legal requirements for starting an import-export business in India?
The exact requirements vary but major ones are:
- Importer Exporter Code (IEC)
- GST registration
- Membership in export promotion councils
- Trade license from local authorities
- AD code for outward forex remittances
- Various export/import permits and quotas
- Other industry specific registrations
Hiring an experienced practicing CS or CA firm familiar with latest international trade guidelines is advisable.
Q3. What are the different types of business structures suitable for import-export businesses in India?
Common ones include:
- Sole proprietorship – Simplest structure with minimal regulatory compliance needs. But limted external capital raising options.
- Partnership firm – Shared capital pooling and complimentary partner skills. But higher documentation needs and unlimited partner liability risks.
- OPC – One Person Company format shields personal assets while allowing fundraising like private limited company.
- Private limited company – Commonly preferred for larger I/E firms focused on growth. Higher setup complexity but external shareholder funds possible while limiting personal liability
- LLPs and corporate groups – Once operations stabilize, additional group entity structures can provide operational flexibility and tax efficiency
Q4. What are the typical initial investment costs for starting an import-export business in India?
As explained in article earlier, typical ballpark requirements are:
- ₹15,000 – ₹50,000 for basic registration formalities
- ₹1-5 Lakhs for minimal home office setup costs
- ₹10-25 Lakhs for small scale trading operations
- ₹25 Lakhs – ₹5 Crores for full fledged trading company with warehousing Needs
- ₹10 Crores+ for large business conglomerates
Q5. How important is it to create a financial plan and budget for an import-export business?
Extremely critical! Unlike local trading, cross border operations have:
- Higher risk from shipment delays, forex movements etc
- Much longer working capital cycles of up to 90 days
- Sudden customs regulation changes can affect viability
Only a waterfall budget forecast across 6-12 months incorporating market uncertainties can provide cash flow visibility.
Have at least 18-24 months of operating costs as buffers before launching business.
Q6. Are there any resources or organizations that can provide assistance to aspiring import-export entrepreneurs in India?
Useful bodies include:
- Exim Bank – Handels financing, market research reports
- Export promotion councils – Helps get RCMC certificate, market entry leads
- CII and FICCI trade councils – Trend reports, exporter reviews
- IISS and IIFT – International trade PG education
- Law/CA firms – Export documentation support
- Digital freight forwarders – Assists managing shipments
Networking with those running their own small I/E setups also provides practical advice.