Preliminary Knowledge about Exporting

Preliminary Knowledge about Exporting ( What , Where and How to Export )

Understanding Export :

International Marketing is complex and challenging activity in today’s dynamic world environment. International marketing involves the performance of operations that determine existing and potential demand in a market. In order to determine the market opportunity it is necessary to study the customers market needs and characteristics through the performance of activities like Market Research, Demand Analysis, and Forecasting. It also includes those operations that influence existing and potential demand. In order to influence the demand pattern of customers, the marketing operations include activities like Product development, Branding and Packing, Pricing, Advertising, Sales promotion, Public Relations.

Advantages of Exporting :

1- Opportunity to expand Market Share.
2- Increase production if capacity is underutilized in the Domestic Market.
3- Decrease dependence on domestic sales or compensate foreign market.
4- Diffuse domestic competition by expanding in to less competitive foreign market.

What to Export :

It is necessary to select very carefully the products to be sold in any particular market. The selected products must be in demand in the country where the product is to be sold. Exporter should select the product that can be manufactured and sourced with consistent standard quality at least equal to that of competitors.
The products selected should be possible to be manufactured at most economic cost so that it can be competitively priced and it is possible to sell. The product should be available in sufficient quantity and it should be possible to supply timely and regularly.

The exporter should take care of the following points while choosing the commodity which he wants to export :

Government of India policy and regulations in respect of the commodities.
Matching of product features with market including technical specification if possible as per ISO standard should be accepted.
Import regulations in respect of such commodities by the importing countries.
Availability and profitability of such commodities.
Rates of Duty Drawback and import replenishment in respect of such commodities.
Demand in the foreign market and desirable variations in quality and design that the market demands.
Quota fixation in respect of such commodities in both countries.
Knowledge about competitive position, market penetration level and experience in respect of such commodities of other exporters of different countries.
Whether such commodities enjoy tariff preferences or not, in the importing country?
Suitable Packaging and Labeling.
Mode of transport and suitability of Logistics.

Where to Export :

The exporter should collect adequate market information before selecting one or more target markets. The target market should be selected after consideration of various factors like past performance, Market size political embargo, scope of export of selected product, demand stability, preferential treatment to products from developing countries, market penetration of competitive countries and products, distance of potential market, transport problems, language problems, tariff and non- tariff barriers applicable, distribution infrastructure, size of demand in market, expected life span of market and product requirements, sales and distribution channel.

Factors for Assessing Market :

1 - Demographic and Physical Environment :

Total population and growth density trends.
Distribution of the population by targeted age groups.
Distribution of population by urban, suburban and rural areas.
Climate and Weather variations. How will these effect the product offered?
Shipping distances from the point of export.
Age and Quality of the transportation and telecommunication infrastructure.
Adequacy of shipping, packaging unloading and other local distribution networks.

2 - Political Environment :

Whether the system of Government is conducive to conducting business?
To what extent the government is involved in private business transactions.
Government’s attitude to importing.
Whether the political system is stable.
Government’s attitude towards the dismantling of quotas, tariffs and other trade barriers.

3 - Economic Environment :

Whether the country is committed to fostering higher levels of imports and exports?
Predicted economic growth levels.
Gross National Product and balance of payments situation.
Percentage share of imports and exports in the overall economy.
The country import to export ratio.
Rate of inflation and foreign currency or exchange regulations.
Per capita income of the target country.

4 - Technological Environment :

High Expectation of consumers.
System Complexity.
Increased productivity.
Need to spend on R & D.
Demand for Capital.

5 - Social and Cultural Environment :

Percentage of discretionary income spent on consumer goods.
Percentage of people who are literate. What is the average educational level achieved.
Percentage of the population identified as a middle class.

6 - Market Access :

To what extent the target market similar to home market.
Whether the product need translation or adaptation.
Summarize the legal aspects of distributorships for each country.
Documentary requirements and the technical or environmental import regulations covering the product.
What intellectual property protections Laws would effect the product.
Where a commercial dispute arises, does the judicial system offer a fair and unbiased review ?
Are tax Laws to foreign investors. What is the rate of tax on repatriated profits?

How to Assess a Country :

Any exporter venturing into an overseas market is exposed to a number of risks which may or may not be prevalent in the domestic trade. Amongst the various risks which an exporter is exposed to, two major risks viz. Buyer risks and Country risks stand out. Buyer or commercial risks in their genesis, relate to those risks which emanate from leading to a business entity. Commercial risks reflects the profitability or otherwise of a firm or individual to repay its obligations and is the result of mismanagement of the firm or individual. Country risks encompasses both sovereign risks which is the risk of lending to the government of a sovereign nation as well as political risk involving primarily the likelihood of political instability as well as economic disruption, both leading to non – payment. Thus country risks refers to a spectrum of risks arising from the economic, social, political environment of a given foreign country, which endangers the payment to be made to overseas suppliers, commercial banks or multilateral financial institutions.

There are variety of factors that can be examined to determine whether a country is fairly good risk to deal with. They are described as below :

Political stability / Instability : The political situation in a particular country does directly impact on the payment ability of the country and also indirectly through their impact on countrys economic health. It is imperative to examine

Countrys political, economic and social structure.
The legislative, institutional and regulatory framework.
The individual and collective character of those who govern.
Fact and figures about past and current political current political trends.

Gross Domestic Product : The GDP which indicates the size of the economy does help us to gauge the degree of wealth of a country and the per capita GDP figure further supplements this assessment. The GDP growth is also reliable measure of the economic health of the economy.

Inflation : Past data has indicated that countries with high debt servicing problems had experienced rates of inflation substantially higher than those experience by countries without debt servicing problems. For developing countries inflation rates less than 10% may be considered good.

Exchange Rates : They are the key to maintaining the balance of payment position of a country as well as bringing about domestic and external adjustments. The willingness of a country to make needed changes in the exchange rate is a positive indicator of the country’s resolve to maintaining a viable balance of payment position, and by maintaining the parity of its currency with the other currencies a country will be in a position to improve its current account as well as growth rates.

Import Cover : The import coverage ratio measures a country ability to pay for its import with current liquid assets. It shows the extent to which a country can keep financing its import if export suddenly falls.

Balance of Payment ( BOP) : The BOP reveal a lot about the health of foreign trade sector. Large current account deficits can jeopardize a country’s ability to honors its commitment and hence its credit worthiness.

International Reserves : Large declines in International resources indicate economic deterioration on account of falling exports, falling domestic production /or increasing imports.

IMF Credit/ Quota : The use of IMF credit trenches indicate the degree to which the country’s financial situation has forced it to use credit/quota. The higher rate of IMF credit by accounting as a percentage of its quota is an indication that the country is experiencing difficulties in its BOP situation and will be forced to follow austere economic policies to adhere to the funds conditionally, which in turn may have some adverse effects on the medium / long term growth prospects of the economy.

ECGC Ratings : ECGC has graded various countries in a 7 fold classification (A1,A2,B1,B2,C1,C2,D) and these grades reflect its overall assessment of the political risks prevailing in a particular country. It has been observed that the economic fundamentals play a very important role along with political factors in determining the ability of countries to honors its external obligations. An exporter must assess these country risks also while finalizing his choice of country to do business. ECGC provides cover for these risks and help exporter to shield themselves from loses due to number of political risks.

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Agricultural and Processed Food Products Export Development Authority (APEDA)
(Ministry of Commerce & Industry, Govt. of India)

NCUI Building 3, Siri Institutional Area, August Kranti Marg, New Delhi - 110 016
Phone : 91-11-41486013, 20863919, 20867008, 20867007

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