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Foreign Trade Promotion
Hi everyone. So, welcome to the class of International Business. Today, we will betalking about a very important aspect of international business; the foreign tradepromotion measures right. So, as we all know how important trade promotion is when itcomes to international business right, we all understand the importance of it. So, todaywe will try to understand more about trade promotion and what features or aspects are apart of it, which are very important. So, we will cover those.(Refer Slide Time: 01:01)So, let us start with the definition of trade promotion. So, as we can understand it saysthe trade promotion is an umbrella term for economic policies, developmentinterventions and private initiatives aimed at improving the trade performance of acountry right. So, as you have we have discussed so many times now that trade, ininternational business, when we talk about international business we generally talk aboutthe trade between nations right.So, how does the trade happen and how to improve the trade performance? So, this iswhat we are going to discuss. So, the trade performance of the country or region so, itcould be within a region also or among a group of countries involved in an economictrade area. So, any when we are thinking of improving the trade performance within acountry or among countries or in an economic trade area that is what is trade promotionall about.So, some of the economic trade areas for example, as you have as you know NAFTAright, North-American Free Trade Association SAFTA, ASEAN, then European Union,etcetera right. So, although these things we will cover in the regional economicintegration, so later on. So, trade promotion is also known as export promotionsometimes right, because export constitutes a very large part of the trade promotion. So,the export promotion is basically promoting, supporting, and assisting firms in enteringinternational markets and achieving optimum opportunities from their business activitiesand thereby encouraging exports for example, in the case of India.So, what we are trying to say here is that in, during export promotion or trade promotionfor that right the government and the companies they try to enter into new markets andexpand their business right. Some major Indian export companies are; for example,Reliance which is into oil and gas, then Tata Motors for example, cars, trucks BHEL,Bharath Heavy Electrical Equipments Limited, which is into electrical equipment’s, thenJSW steel right so, which is into iron and steel, etcetera. Recently, if you have followedthe newspaper, there was a India Kenya Joint Trade Committee, the 9th session was heldin New Delhi in order to promote India Africa trade and economic, relationship right.So, now we understand that trade promotion is basically an attempt to improve theeconomic policy and you know which is aimed at improving the trade performancewithin a country or among countries right. And how important trade promotion isbasically? That you can understand that export trade promotion impacts almost 50percent of the country’s GDP right.(Refer Slide Time: 03:51)So, you can understand from that how important it is this subject is, what is foreign traderegulations. The trade policies are formulated and announced by the commerce ministry.So, who announces the policies? The commerce ministry in India, right. So, we arelargely we are focusing on the Indian aspect right and it is governed by the foreign tradedevelopment and regulation act 1992.So, it is announced by the commerce, all the policies announced by the commerceministry in India and it is governed by the foreign trade development regulation act of1992. So, the main government departments which deal with a foreign trade in India are;the ministry of commerce and industry, office of directorate general of foreign trade,ministry of finance, drawback directorate, export inspection council, etcetera ok.The export import policy; which when you talk about trade we generally say there is anexport and import. So, the export import policy are also known as the EXIM policywhich is more discussed as the foreign trade policy right, instead of the EXIM policy ismanaged and implemented by a specific government body known as the DGFTDirectorate General Of Foreign Trade ok.The Indian policy on foreign trade whether they pertain to imports or exports in and fromIndia; that means, has a very specific objective. So, what is the objective? First is toregulate the foreign trade, second to promote and augment; that means, improve theexports volume and manage the imports into the nation right, third to create a favorableimpact on the state of the balance of payment.So, any country generally we would like to be in a surplus rather in a deficit; that means,we would like our exports to be more than the imports right; that means, we areproducing more adding more value and selling it to the other markets. So, in that case wewill have a surplus. So, countries would like to have a favorable balance of payment.Now, how do you how does one start the import export business? what are theconditions?(Refer Slide Time: 05:50)For example in India suppose, tomorrow you are interested to start a business in thissector. So, for that there are few steps which I will be explaining first and foremost onemust have a business you must have some business right. So, it is recommended to opena sole proprietorship in the initial stage by taking a service tax registration or a VATregistration with an attractive name and logo.So; that means, you are a company which has a name good name and a logo and you areregistered right. You have to have a PAN card right and then you have to have theregistration. So, the PAN card is which is issued by the income tax department right. So,what it says? Obtain a PAN card for the business, not your own PAN card; it is for thebusiness. Once, it has received they required registration, it is mandatory to have a PANcard issued by the income tax department.Opening a current account, the next step is to have a current account with anycommercial bank right, after you received the business registration and the PAN card.Next step is to get the Import Export Code or IEC issued right. What is this? It is one ofthe most important requirements to get the import export business started. IEC isrequired in all cases except, in case of restricted or prohibited goods or services. In caseof prohibited goods or services this is not enough so, but in all other cases the IEC isrequired, a permission is required.The import export code registration can be obtained from the DGFT website you canapply online also or anybody for that can apply online. Next is the membership of theExport Promotion Council, EPC or commodity board should be obtained by the exporter.Suppose, somebody is thinking of exporting, he need to be a member of the EPC right orthe commodity board.(Refer Slide Time: 07:48).Finally, after doing all these right one needs to obtain a Registration cum MembershipCertificate, RCMC granted by the concerned export promotion council to getauthorization to import and export right or for any other benefits so; that means, there arefive basically steps.So, what it says? There are 26 around export promotion councils from where one can geta RCMC right and once this is all done one can set up its import and export businessfrom India so you are free to do a business concerning export and import right. So, theseare some other steps for anybody who is interested tomorrow to start up any business inthis sector.(Refer Slide Time: 08:31)Now, when we are talking about export and import, we will talk about the majordestinations where India exports right. So, India’s top six export destinations as per therecent data, it is a very recent data. So, you can see. So, there are the top six exportdestinations from India are first is USA, second is UAE, third is China, fourth is HongKong, fifth is Singapore, and sixth is the United Kingdom.Now, interestingly if you see, the entire trade with US is 51.6 US you know billion USdollars which is almost 16 percent of the India’s total export right. Total in fact trade infact, right that India does both export and import and with UAE it is 29 billion which isalmost 9 percent of the total trade, with China it is 16.4 billion which is 5.1 percent,Hong Kong 13.2 billion which is 4.1 percent. Singapore it is 10.4 billion again which is3.2 percent, and lastly United Kingdom which is 9.8 billion, which is 3 percent. So, ifyou count by the just percentage 16 9 25 5 30 34 37 40, almost 40 percent of the businessis being done with these six countries right.(Refer Slide Time: 09:53)Now, let us look at some of the export you know major commodities being exportedfrom India in the last twelve months. So, it starts with November 18 and ends up here atOctober 19. So, the value of the exports is in US million. So, 0 1000 up to 10000 andthese are the different you know products. For example, this blue line indicates right, theengineering goods right. This green line for example, indicates gems and jewellery.So, it gives you an idea it gives us all an idea this red is petroleum products some ofthem are super impose they are not very clear, but still you can see them right. So, itgives an idea that the major, ten major commodities for the last twelve months in Indiahave been in the field of engineering goods, gems and jewellery, drugs andpharmaceuticals, cotton, yarn, handloom products, rice, petroleum products, organic andinorganic chemicals right, textiles, electronic goods, plastic goods right. So, these aremajor you know commodities in which India has been trading right with the othercountries.(Refer Slide Time: 11:04)Now, in terms of import if you, because total trade is export plus import right, we cannotignore the import side. So, India’s top six import destinations or sources have been firstis China, now second is USA, third is UAE, fourth is Saudi Arab, fifth is Iraq and sixth isSwitzerland and now if you remember if you can see these first three were also there inthe export destination also right, UAE, USA and China right. So, all the three, but onlythe position has changed. China was third in terms of export, but in terms of importingChina is at the number one right. We are importing the maximum number of items orproducts from valued items from China right. So, this gives you an idea right.(Refer Slide Time: 11:53)Now, let us look at the import value of ten major commodities. Now, what are the majorcommodities which we are being importing from the other countries right. Again this is atwelve months data. So, if you look at here there are some changes. So, for example, theproducts are like petroleum, crude and products. So, this is one thing which India importsa lot and the value you can see is very-very high.So, it is significantly high. So, that is that is has a lot of impact on our you know are onour GDP, then machinery, electrical, non electrical, transport equipment, artificial resins,plastics, electronic goods, pearls, chemicals again some form of chemicals which maybewe are we needed in India we do not do it so, we are importing from outside gold, coal,coke and briquettes, iron and steel.So, if you look at the value, the significant, most significant has been the that thepetrochemical right petroleum crude and the products and then maybe the red one iselectronic goods which we are importing in India. If you would to look at again look atthe you know export, in terms of export, the highest value that gives us is the engineeringgoods.(Refer Slide Time: 13:07)Now, this is a table which I have prepared. So, that it gives you a good idea. So, what itsays? Total business that India does with other countries and the particular countriespercentage of the total Indian exports. For example, India does about 51.6 billion whichis 16 percent of the total of India’s exports right, with UAE with second is UAE in rankwhich is 29 billion which I was just showing in the first slide right.So, these are there I had shown you about 6 countries, the first six up to UnitedKingdom, but here there are up to 10 the top 10 countries with which India exports doesexporting right. Now, if you can look at, it this gives a better idea. Now, country specifictrade deficit in 2018 what does trade when does trade deficit happen? Trade deficithappens when our imports or we pay more than what we get that means our exports areless than our imports.So, imports are dominating the exports. So, countries with which we have a larger tradedeficit is China for example, with which we have a 57.3 billion trade deficit. SaudiArabia 22.9 billion, Iraq 21.2, Switzerland 16.8, Iran and largely if you see some of theseitems mostly are into the petrochemical sector right.So, these are some of the countries with which we are doing business and we have atrade deficit. So, are there some countries with which we are doing trade and we have atrade surplus? Yes, there are; for example, our relationship with the United States is onein which we have a trade surplus a case of trade surplus; that means, we are exportingmore and earning more through that and there is no deficit right.There is the imports are less and exports are more; Bangladesh 7.9 billion right, Nepal6.9, Netherlands 5 billion. So, this list again goes as a trade surplus, but if we count if wecount in terms of the surplus and the deficit from a face value we have a very high deficitwith for example, China right which we can see and; obviously, that is because I thinkone significant reason being the cost of the products that we get, because Chinese marketthe products are very cheaper in comparison to the other markets.(Refer Slide Time: 15:23)So, that becomes one significant reason right. India’s overall trade performance, fromthis figure if you see what it says that after the period April to September 2019 right, itshows the total value of exports for April to September 2019 was US 266,635 millionright dollars as compared to 262,141 billion dollars right.So, you can see this right 266,635 a 266,635 and this is 262,141 so our exports right andin terms of imports it is this right. So, there is a negative growth of 3.39 percent in termsof imports and a positive growth of 1.71 percent in terms of exports right. As a result theoverall trade deficit has decreased in 2018. So, that is a very-very marginal very not avery substantial, but still it is a positive sign.(Refer Slide Time: 16:17)Now, how does the export develop right the next part; so, firms tend to move throughthree phases of export development right. So, the first stage pre engagement; what does itsay? So, this is the stage where the company’s selling the goods and services or basicallyexporting. They are solely prevalent in the domestic market right companies considering,but not currently exporting. So, what it is saying? Company selling goods and servicessolely in the domestic market and they are considering, but not currently exporting.So, that is the first stage where there is a pre engagement; that means, these companiesare now thinking of exporting. Second step comes up is the initial exporting. So, thecompanies that do some kind of you know some basic exporting may not be in a regularway, but in sporadic cases so, there is a marginal exporting.Companies that see lots of potential in the export markets; now, these companies aretrying to are finding some very good potential in the export market. So, becauseexporting is not that easy, because we have understood from our so many classes that toexport you need to have local knowledge, you need to have that host countries you knowtraditions, technology develop you know, you use to need to have enough goodtechnology.So, there are several things that resists it is not that easy. So, and their final thing is whenwe talk at the third phase in export development is the advanced stage where we say thecompanies now become regular exporters. So, here there was none, then sporadicsometimes they were doing exporting so, in in piece meals, third cases is a regularexporter the companies gain extensive overseas experience and they use other strategiesfor entering the market.So, large companies basically here you find very large companies and companies whohave an expertise and knowledge about various economies various countries and thus itbecomes easy for them to enter into these markets and they have deep capital with themright, but what are the difficulties? What are the problems associated with exporting? So,let us talk about that, because had exporting been so easy? Everybody would havethought of exporting and earning revenue, but it is not that easy right.(Refer Slide Time: 18:37)So, what are the problems associated? First problem is to obtain a qualified exportcounseling right, in developing a plan to guide export expansion. Suppose, you want toexpand or get into export you need some counseling right; so, a qualified expert orsomebody who can help you out. So, this is the first problem, people do not have a idea,they do not know and they do not have a guidance. So, that is the first problem.Second is insufficient commitment of the top management to overcome the initialdifficulties. So, many a times companies which are doing good in the domestic marketand they do not see a logic as they do not want to get into the you know otherinternational markets, because they feel it is very tough and it needs lot of understanding,lot of pain and lot of difficulties which has to be overcome. So, they tend to ignore andavoided it right.Third is misestimating the export transaction cost. Many a times it is very difficult tocalculate the transaction costs. Now, transaction cost could be for example, like suppose,How do you handle such disputes? So, that is also important that companies who aregetting into export they need to, but it does not come overnight. It happens in a slowprocess, but one has to need to needs to have the patience and the you know willingnessto stay with it right.Failure to service, print service sales and warranty messages in the local language.Sometimes this also labeling becomes an issue, because some countries that they arevery stringent on this. They need that everything should be properly mentioned over thepackage right, packaging.The last is failure to consider use of an export management company or other marketingintermediary when the company lacks the personnel to direct export. So, this issomething like you know poor selection, you can say close to that, but when the exportmanagement company does not have the expertise it needs to depend on somebody. So,how it selects or how; what does, how does it consider using an export managementEMC, Export Management Company or a marketing intermediary is also very important.So, all these points together and then there can be many more also, but these are some ofthe major points which I thought one would one faces you know as a difficulty, whengets when somebody tries to get into the export market right. How do you design anexport strategy then? Ok once, you have overcome with this pitfalls these problems.(Refer Slide Time: 23:36)The thing is to design an effective strategy the management should assess the company’sexport potential by examining its marketing opportunities and firm resources.So, what is the opportunity? Suppose, I want to get into as I said in the Mexican marketright. Now, what is the opportunity? What kind of products I can sell there right? Whatvalued products I should sell? What is the kind of designs they would demand? And tomake such products do I have the resources? If a company succeeds at selling in thedomestic market there is a good chance that will also be successful in the foreign marketsat least, those where similar needs and conditions exist. So, suppose we get into a marketwhich is very similar you know that is how when you are exporting, you need to identifythe right clusters. Clusters are basically homogeneous markets.So, if the market is very homogeneous is like your own domestic market, it has somesimilarity, then you need not do much of changes and you can sell the product, but if youwant to expand and get into a market where there are lot of design changes are required,then in this case it might be slightly different. For example, let us see amid rising youknow trade tension, American importers of sports goods, toys, stationery, cables andelectronic parts now have reached out to Indian sellers.Now, we know that there has been a US China tension for some time right. Now, theAmerican buyers they are reaching out to the Indian sellers to make these goods and tobuy these goods from them as Chinese products are becoming expensive due to the USChina trade war.The US is looking to replace Chinese exports with Indian products maybe there arecertain several issues, several reasons for that one could be the economic perspective,one could be a political perspective, right. Indian product lines including vulcanizedrubber, footwear, and kitchen accessories. India exported these items worth 1.5 billion indollars, in US in 19 to the US and the industry is keen to ramp up capacity to meet thepotential demand.So, this is a great opportunity for the Indian sellers to reach out to the American buyers.(Refer Slide Time: 25:55)The second thing is obtain expert counseling exporting from the on exporting from thegovernment programs. For example, the US commercial service a program of the USdepartment of commerce international trade administration, helps the companiesparticularly small and medium sized businesses to increase the international market shareand sales.So, they educate these people and try to teach them how to get into and do their businesswell. Through its global network of more than 1700 trade specialists located in 180domestic offices and 150 posts in 80 countries the commercial service works on one toone with companies through every step of the export processing process helping themleverage world class market research, promote their products and services, in the targetmarkets meet qualified international buyers and distributors and overcome challengesand barriers, they may encounter while doing business in the international market.So, what happens is government programs assist such you know small and medium sizedcompanies to understand, because some many companies would not have the potential,would not have the capital, the resources, the knowledge to understand about theinternational markets.So, in such condition the government programs are come very handy, they are veryhelpful to educate them about the new markets, to help them in the marketing research,to understand the climate condition and culture of these places and try to overcome thechallenges right. Select event target markets and opportunities, formulate an effectiveexports strategy right.So, this is all done the government assisted programs are there which can help right. So,these are to be more developed in case like India for example, the Indian government hasto put fourth more energy into such kind of building strategies like in its US counterpartright. So, how does the international transaction chain happen?(Refer Slide Time: 27:59)Let us look at this. So, what happens? Suppose, there is a request for goods. Now, youcan see the red one stands for the importer country, the blue stands for the exportercountry ok. So, there is an importing country let us say in this case the US which wantssome of the products from India as we discussed in the last slide. So, these are requestfor goods right.So, what happens after there is a request for goods now the exporting country the receiptof order and commodity production starts right. So, there is a credit check of the buyer,the buyer who is buying right. So, there is an who is wanting our products. Now, we willcredit check whether it can pay us or not it is a credit check, then export intermediaries,custom brokers, freight forwarders come in place and then inland shipping is done right.So, once the order comes, then what happens the fourth step is through the seaport orexport we do some warehousing, insurance, port authority. So, these all come into playand finally, after the product is done through these we ship the products right. So, oncethe product is shipped by the exporter. Now, it goes to the importer again.So, through the you know the importer now unloads and there is a port authority whowill check the products, then there is a financial transaction and the you know the importintermediary custom broker comes into place and then the customs release happens; thatmeans, the customs checks, checking and all is done and it is released, then it again goesto the in land shipping; that means, through it will be transported to the buyer who haspurchased the good right. So, through truck rail whatever process and finally, there is areceipt of goods by the buyer. So, the buyer receives this products and the then he getsfor warehousing or selling or further incorporation to in to the other goods right.So, this is how you know and basically a transaction happens between the importingcountry and exporting country are basically an importer and an exporter. So, he startswith the request for goods and then there is a production, then there is shipping, thenthere is again it goes to the importing place the country and the importing country getsthen makes its custom check and everything and then it releases to the buyer right.And then the buyer does what it; wants to either sell it or add value and use it in itsproduction line, maybe as a you know working process good or something. So, this iswhat is happens in this right. So, today we will wind up here and we will continue fromhere in the next lecture.So, thank you very much.