Business Daily from THE HINDU group of publications
Wednesday, Sep 20, 2006
Exports & Imports
Indian Export Scene The challenge of exporting
Anil K. Kanungo
In today's globalised and competitive world, the external sector of a country's economy assumes critical importance. In an effort to garner a fair share of world trade, countries are adopting newer policies and strategies to promote exports. For such emerging markets as India exports are recognised as the prime mover of economic growth.
Need to export?
The first reason for India to export is to earn revenues. Second, is the notion of prestige attached to it. India is fast emerging as a global economic power and its established export credibility would significantly heighten its status in the global market.
Third, as the country intensifies the export effort, business and trade opportunities are bound to open up, which the country can leverage to its advantage.
Fourth, as firms satisfy the varying domestic demands for products, they must see if the various versions are attractive to consumers elsewhere. That is, with the same product range, a domestic vendor may succeed in foreign markets. Such opportunities in the wake of globalisation are becoming incentives for many firms to export.
Despite the process of reform and liberalisation, conducting business in India still remains cumbersome and time consuming. And as the global market is vast, sourcing resources, a key to exporting, is becoming easier and affordable. All these factors today generate interest or propel local or domestic producers to go global.
As global trade expands, time is opportune for Indian exporters to invest in foreign markets and generate dollars. This can be used to pay for the country's crude oil imports.
India is recognised as a robust service-based economy; services contribute around 55 per cent to GDP and account for a significant share of world service exports. India has outpaced China in this area. However, in the non-traditional sector, especially in the field of technology-intensive manufacturing, the country has not been able to replicate that success. So, for new and young entrepreneurs, the challenges are many and formidable.
India and China are seen as the key drivers of the world economy. At one level, they are in competition and at another they are cooperating with each other through joint ventures to maximise trade opportunities. India's economy could be said to be in a comfortable position today as it has accumulated $160 billion in foreign exchange reserves, clocked industrial production growth of 8 per cent, and generated GDP of $800 billion.
In comparison, China has foreign exchange reserves of $850 billion, and GDP of $1.9 trillion, and an economic growth rate of 8-8.5 per cent. But the advantage for India is that it is a low-cost destination for foreign investors and, more important, has a large, English-speaking talent pool; here, again, India has a lead over China.
Today, China is perceived as the factory of the world. Its manufacturing sector contributes almost 55 per cent of GDP. India's manufacturing sector is not as vibrant, but it is showing signs of great vitality and rapid progress. Inflow of foreign direct investment and advent of MNCs in large numbers are helping the economy grow bigger.
India already has a strong base in traditional exports such as textiles, handicrafts, gems and jewellery, and the global demand in these sectors is significant.
With the right kind of technology and capital coupled with rich cultural traditions and ethnicity, India can exploit these opportunities. Young entrepreneurs or start-up firms have to develop technology, capital and skill base to be able to export in a big way in these sectors.
India's manufacturing sector has a great future even if China is much ahead of India. The total manufacturing export share of India today stands at $70 billion whereas China's is at $700 billion.
One of the biggest challenges of exporting is the issue of transparency. China does not score very high on this parameter. The rules and regulations relating to China's exports are not transparent and this acts as a big impediment for the global exporters to transact and operate in China.
On the issue of transparency, India has an edge over China, and significantly the world recognises this. It is for the Government to sustain this openness and score over China on this count.
Strategies for export
Further, the developed world is also intimidated to a certain extent by the economic might of China and is, therefore, looking at India, well recognised in the international market as a vibrant parliamentary democracy, as an alternative for importing a wide range of technology-intensive manufacturing products.
This tag of reliability and transparency can help Indian exporters in a big way. Promotion and substantial use of the "Made in India" brand must be pursued vigorously to capture markets. However, companies need to be alert in this area as the overseas markets are often not quite satisfied with Indian standards in matters of health, safety and environment (HSE).
HSE is recognised as a significant non-tariff barrier (NTB) in the multilateral global trading regime. For developing countries this is a significant hindrance to exporting. Maintaining HSE standards on a par with international markets or satisfying the foreign buyer is a challenge for Indian vendors.
The manufacturing exports sector needs to adopt diligence, reliability, transparency vis-a-vis HSE norms. Indian companies also need to play up their tag of transparency and develop a system of continuous feedback to their foreign customers.
Small and promising Indian companies with a vision to export technology products need to make considerable effort and formulate concerted strategies in planning their entry into the world market.
This is a well spread out market that may look daunting but with the right strategies, small vendors can go places too and create a niche for themselves.
(The author is with the Indian Institute of Foreign Trade, New Delhi. The views are personal.)
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