If you are a novice exporter excited to enter global trade, one of the first overwhelming steps would be to find the right buyer. It doesn’t matter if you are an established player in your domestic market, selling abroad is a different ballgame.
There are 195 countries to choose from and finding the best market among them needs some serious consideration. For starters, look at countries with which India has a multilateral or bilateral trade agreement. These agreements are aimed at reducing or removing any barriers in trade relationships between countries. They also help foster reciprocal concessions, allowance of non-tariff restrictions, and favoured treatment for exporters.
According to the Ministry of Commerce and Industry, India has trade agreements with over 70 countries or groups of countries. This gives a more defined pool of countries for exporters to pick from.
While looking at the countries you may export to, factors that have to be kept in mind include demand, geopolitical climate, the economy, profitability and trade barriers.
According to Siddharth Maloo, Director, Jay Market Creators, Maloo India Group, which exports copper mould tubes, all industries must focus on the statistics from countries where the exported material would be used. “For instance, for an entity that exports raw material for steel, it is important that the entity focuses on the statistics of the countries that are developing new steel plants or have mega operational steel plants and the need for raw materials. Industries offering raw material, consumables, industrial pairs, machinery and all the other necessities for steel plants must study the market statistics and capture the market well before other global entities leverage the situation. Here, the biggest example is Africa and the Persian Gulf countries,” he says.
The right market to export is one that offers higher margins and seamless connectivity. Additionally, it is important that the export destinations have enough foreign exchange reserves.
Amitabh Shankar, CEO, Cogoport, says it is not enough to zero in on a country with the highest requirement for your product.
“Exporters have to make sure demand is consistent and the market is growing. It is important to think long term. Instead of focusing on the top importing country, you might want to consider a country with a comparatively smaller market but with the potential for more growth,” he says.
It is important that exporters monitor demand in their desired destination country throughout the year. They need to see whether the country manufactures the product concerned or if it is planning to start manufacturing. Other demand trends to note are whether it is cyclical or seasonal, has the demand grown in recent years and do other countries have an advantage in supplying the product easily to the destination market.
Shankar says exporters should make it a point to go to trade fairs in the target country; many countries host several trade fairs a year and these attract hundreds of thousands of buyers and sellers.
“If you’re thinking of exporting to China, for example, you could check out the Canton Fair, the country’s largest trade fair, which is held twice a year. At a trade fair, you can show prospective buyers product samples, answer their questions and even strike deals. Because you deal with buyers in person, trade fairs are great for forming long-term relationships,” he says.
India also hosts many trade fairs and expos that attract international buyers. The information regarding these events is easily available on the websites of the Federation of Indian Export Organisations and the Export Promotion Council.
Another important factor while deciding the country or countries to export to is to find the right price for the product in the country. It needs to be reasonable, yet competitive. Exporters need to consider the demand for the product and the price consumers are willing to pay. They have to also keep in mind that many other parameters will make up the product price and profitability apart from the per-unit selling price. These include the volume of sales, distance, logistics, tariffs, loading & unloading and other incidental expenses. The price offered by a rival exporter can also affect the profitability.
The pricing will help exporters get a clear understanding of the amount of product they can export and its earnings from the market.
“A high price can be competitive if it comes with a high product quality, prompt delivery, specialised packaging and added benefits,” says Shankar.
Factors that can help reduce the price of your export product are customs and excise duty refunds, export assistance schemes and export credit facilities, he says.
Adding more to this, Maloo says that profit margins must be a minimum of 2-3% and additionally, exporters must also focus on the cost recovery factor. “For any deal, it is important that there are high profit margins. Therefore, it is important that the country that you choose for export has seamless connectivity and a robust supply chain network,” Maloo adds.
Another important factor to note while choosing a country is the trade barrier. Exporters need to thoroughly study the legal practices, environment and safety regulations and commercial laws of the target country in order to ensure that the trade does not harm your business interests. In the long run, unprecedented political scenarios and complex ideologies can easily affect your business in a particular country.
“Sometimes, exporters might run into trade barriers when exporting to some countries. These might be in the form of tariff restrictions (such as high taxes) imposed by the importing nation or non-tariff barriers, such as a ban on the entry of certain goods and services, imposing import quality regulations, requirements for special licensing, standards, labelling, testing and certification and so on,” says Shankar. He cites the example of the European Union banning the import of Indian mangoes in 2015 after finding fruit flies in consignments. The ban was later lifted as India was able fulfil the standards.
Another way to avoid trade barriers, he says, is to export only to countries with which India has bilateral or multilateral trade agreements that offer regulatory relaxations and other conditions for mutual benefit. Some of these countries also offer incentives on certain imports to meet domestic scarcity.
Entering the global market is a very big step that can be daunting as well as exciting. Make informed decisions and the world can be your oyster.
Source : economictimes