Should you or Should you not!
Congratulations! You are researching about Export, it means you have decided to understand the pros and cons of foreign trade. If you have not already started to export and are willing to venture into it, the decision to research the pros and cons is a smart beginning.
When an aspiring exporter discusses the willingness to export with friends and family one is bombarded with opinions and suggestions, most of which originate from people who have no first-hand experience. It is funny how so many people claim to know so much about foreign trade when less than 1% of 64 million MSMEs actually engage in import-export.
This article intends to give clarity to the first-time exporters and articulate facts about the pros & cons of exporting and to enable them to evaluate their readiness.
Only Large Firms can Export
Until the liberalisation of 1991, India was largely and intentionally isolated from world markets to protect its economy in order to achieve self-reliance. Foreign trade was subject to import tariffs, export taxes and quantitative restrictions, while FDI was restricted by upper-limit equity participation, restrictions on technology transfer, export obligations, and government approvals. Approvals were needed for nearly 60% of new FDI in the industrial sector; FDI averaged only around US$ 200 million annually between 1985 and 1991. A large percentage of the capital inflows consisted of foreign aid, commercial borrowing, and deposits of non-resident Indians.
India's exports were stagnant for the first 15 years after independence due to the general neglect of trade policy by the government of that period. Imports in the same period, with stress on industrialisation, consisted predominantly of machinery, raw materials, and consumer goods.
This period created a psychological complex amongst the Indian Industrialists. While a handful of entrepreneurs used this opportunity to create a niche, others simply drifted away from exploring the world of Foreign Trade. Most of them eschewed foreign trade, especially exports. Giving birth to this misconception that only large firms can export and others shall settle with selling within Indian geography.
It is true that less than 1% of 65 Million MSMEs actually engage in Foreign Trade and others have never explored the markets beyond their state, let alone the country.
Exporting is a separate Industry in itself
Well it is, but not the way we perceive. It is an industry for the vendors and parties that only deal in international trade; for example: Export Houses, Shipping companies, Freight Forwarders, etc. but when manufacturers decide to start exporting it is just expanding their market geographically.
"I have had this manufacturing business for 3 generations and now my son wants to start exporting", says the manufacturer from the garment industry, as if his son was completely changing the business model.
One need not necessarily change the whole business model in order to start exporting. It is merely an attempt to venture into markets that are beyond country. Most of them are so accustomed to keeping themselves limited to selling in India that they are not aware of the challenges that may confront them during the process. They merely turn a blind eye to it by alienating themselves away from it, by terming it as a separate industry.
How can I export I don’t even know English
Language has forever been perceived as a handicap especially if one does not speak English. It creates in an inferiority complex of being unpolished or down-scale.
Well, English is not the worlds most popular language, it is 3rd, after Mandarin and Spanish! Most of the importers don't speak English.
Though language can be a barrier at times, there are multiple ways to tackle that barrier as well. XIMPEX helps you connect with translators along with other services. Similarly, there are several other portals that exclusively provide translation services. Smart phones can help in translating some basics of most popular languages, literally at no cost.
Margins are much higher in Global Market
The global trade market is flush with competitors who are ready to offer competitive pricing; the margins in the global market are probably slightly higher, but certainly not life-altering. For most products the margins are normal. Businesses that are involved in Foreign Trade have become cash rich in a relatively shorter span of time which created this fallacy.
Though it is true that trading internationally does make businesses cash-rich but the primary reason for that is not the margin but a much larger market. The increase in sales volume eventually reduces the fixed cost component, thereby ensuring increase in cash flow. Most of the cross border trading is generally in bulk quantities, establishing goodwill with such buyers results in recurring bulk orders enhancing the cash flows further.
Only superior product quality can be exported
The free toy from McDonald's was the first for many to appreciate how a good quality plastic toy feels; and it was being given free! Even bigger of a surprise was the engraving under the toy - MADE IN CHINA (中国制造). For the first time, it was realised that चाइना माल (Chinese goods) need not necessarily be made of cheap plastic with no warranty. It probably originated the myth that these are ‘export quality’ goods, which are supposedly far more superior. Today export quality has become synonymous with superior quality.
Developed nations demand superior quality goods when they import and for these countries quality standards have to be maintained. However there are many markets which are more concerned of the cost rather than the quality. Most of our neighbouring countries, several countries in Africa some in Eastern Europe and Russia make decision on the basis of cost rather than quality.
Exporting is very risky
There is no denying, the fact that there are risks involved while selling into the global markets, though these risks are no greater than risks involved in selling in India. The biggest and the most common perceived risk is the quality rejection which may result in non-payment even after delivery of the goods.
The foreign trade process has evolved to such a great degree today that it almost eliminates possibilities of such rejections. If the seller has signed off on a safe trade agreement it is impossible for a buyer to reject the material after being delivered.
There are multiple tools available to check the credit rating of the buyer, their banks and other facilitators. Multiple Insurance policies cover the seller for several foreseen and unforeseen risks. portals like XIMPEX that help exports to understand clearly the terms of negotiation and how to mitigate other risks and make trading internationally probably much safer than trading with a buyer in India.
In short, today’s foreign trade ecosystem has developed into a much safer place to trade. The biggest risk today is probably the ill-preparedness and self doubt of the exporter at every step of the process. Management commitment must be firm and only the resolute who give it their best should enter the arena.