Risks and Rewards in Export Entrepreneurship from the · PDF file ·...

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Abstract

This conceptual/technical paper focuses on rewards and risks in ExportEntrepreneurship from the Indian subcontinent. An entrepreneurship modelhas been developed based on years of industry experience of researchers, fornew entrepreneurs with a low capital base of around Ten thousand US dollars.An international B2B export contract has been discussed considering the exportrisks involved. SAARC, member countries trade statistics have been analyzedfor relevance to Michael E. Porter Value chain model. An electrifying real lifecase study of Iron Ore Exporter from India has been included for referencepurpose. Students and faculty of undergraduate and postgraduate managementprograms form the primary target audience for this conceptual/ technical paper.

Keywords: SAARC, Export Entrepreneurship, B2B, Entrepreneurship, ValueChain.

Sri Lankan Journal of ManagementVolume 10 Numbers 3 & 4, July - December, 2005

Volume 11 Numbers 1 & 2, January - June, 2006

Risks and Rewards in Export Entrepreneurship fromthe Indian Sub Continent

S.L.Gupta, Ph.D.Sanjeev Bahadur, Ph.D.

Hitesh Gupta

S.L.Gupta, Ph.D., Professor, Department of Management, Birla Institute of Technology, Mesra,Ranchi, Noida Extension Centre, Noida, India

Sanjeev Bahadur, Professor, Department of Management, Birla Institute of Technology, Mesra,Ranchi, Noida Extension Centre, Noida, India

Hitesh Gupta, Research Scholar, Department of Management, Birla Institute of Technology,Mesra, Ranchi, Noida Extension Centre, Noida, India

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Introduction

The word ‘entrepreneur’ is derived from the French verb ‘entreprendre’.

Peter Drucker observed, ‘Innovation is a specific tool of entrepreneurs, themeans by which they exploit changes as an opportunity for a differentbusiness or a different service’.

According to Drucker, three conditions have to be fulfilled:

a) Innovation at work. It requires knowledge and ingenuity. It makes greatdemand on diligence, persistence and commitment.

b) To succeed, innovation must build on their strengths.

c) Innovation has to be close to the market, focused on the market andindeed market driven.

Entrepreneurship may be defined in various ways, but there are four keyelements involved in it:

a) Innovation b) Risk Taking c) Vision d) Organizing Skills

The four elements are interrelated and form a continuous process in business.The diagram below depicts the relationships.

We can say that Entrepreneurship is the process of creating something newwith value by devoting necessary time and effort assuming the accompanyingfinancial, psyche, social risks and receiving resulting rewards of monetary

Vision

Risk Taking Innovation

Organizing Skills

Operational Excellence

Block diagram 1

Sri Lankan Journal of Management, Vol. 10, Nos. 3 & 4: Vol. 11, Nos. 1 & 2

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and personal satisfaction and independence. This definition given by RobertD. Hisrich and Michael P. Peters stresses four aspects of an entrepreneur. Firstly,entrepreneurship involves a creation process (i.e) creating something new ofvalue. The creation has to mean value to the entrepreneur and value to thecustomer. Secondly, entrepreneurship requires devotion of necessary time andeffort. Assuming necessary risks is the third aspect of entrepreneurship.

The most important of rewards from being an entrepreneur is independencefollowed by personal satisfaction. For some of them, money becomes anindicator of the degree of success.

According to Vasant Desai, “The entrepreneur is a person who brings inoverall change through innovation for maximum social good”. Theentrepreneur is a visionary and / or integrated person with outstanding leadershipqualities.

Different types of skills required in Entrepreneurship

• Organising skills of men, money and information.

• Technology.

• Verbal and written communication skills.

• Network/Contacts building.

• Creating an efficient team.

• Good listening skills.

• Initiative and drive.

• Coaching Skills.

• Maintaining Competitive environment.

• Competitive Benchmarking

Risks and Rewards in Export Entrepreneurship from The Indian Sub Continent

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The crucial business management skills required are:

• Planning the business and Goal Setting

• Strategic Management

• Human Relations Management

• Marketing

• Finance

• Accounting

• Negotiations

• Information Technology

• Launch of the proposed venture

• Planning growth of organization

• Leadership

• Change Management

Export Entrepreneurship

Encouraging entrepreneurship is the cornerstone to successful leadership.Entrepreneurship is first and foremost a mindset. It is the art of finding profitablesolutions to problem. Most leaders exhibit entrepreneurial abilities. There is aclear distinction between a leader and entrepreneurial leaders have the abilityto take responsibility beyond what is stated, usually the entrepreneurial functionwithin boundaries, leaders do not.

Purpose of Venture Creation: The purpose of organization building is to generateprofits through customer satisfaction of organization needs and wants.

The core of marketing is a transaction or exchange process. Marketing,therefore, consists of business activities designed to generate and facilitateexchange processes intended to satisfy human or organizational needs andwants.


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Exchange as Focus : Exchange is one of three methods, by which one cansatisfy one’s needs and desires. One can manufacture goods/services oneself,or offer something of value (some money, one’s service, or other goods) to aperson or organization that possesses the desired goods or service.

Marketing is, therefore, the total system of business activities designed to plan,price, promote and distribute want satisfying products / goods, to targetcustomers or prospective buyer organisation

Exchange Process

In the exchange process, the exporter / seller arrives at a mutual settlementwith the buyer / importer on the terms / conditions of contract, the productspecification, quality and quantity, the amount of money in a specific currencyand mode of payment and penalties for late supply, inadequate supply, poorquality supply which are detailed in the business to business (B2B) exportcontract.

Negotiation and relationship marketing are the key drivers to build up trustbetween the buyer and seller. The seller has to analyze the business risks andfactor them into the detailed contract. Similarly, the purchaser has to analyzethe competitive environment and decide on the proposed price, product, termsand conditions, quality, grounds of rejection of consignment, delayed supplyand dispute settlement mechanism should there arise a difference of opinionon the products quality, time of supply, and the shipping documents when

ExportSeller

QualityGoods

B2BExportCotract

ImporterBuyer

Money / ForeignCurrency in USD

Block diagram 2


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buyer and seller are in different countries. It is in the sellers’ interest to getmoney as quickly as possible for the business transaction. Similarly, the buyerwants to ensure quality and quantity, the delivery time frame, and meeting ofspecifications before payment is fully released to the seller.

SAFTA : (South Asia Free Trade Agreement) was agreed to amongst sevenSouth Asian Countries that form SAARC (South Asian Association for RegionalCooperation) i.e. Bangladesh, India, Maldives, Nepal, Pakistan and Sri Lanka.SAFTA came into effect on Jan. 01, 2006 with the objective of reducing tariffsfor inter-regional trade amongst seven SAARC members. Afghanistan hadmade a formal entry only into SAARC held in New Delhi (at the fourteenthsummit meeting) on 3 and 4 April 2007.

SAARC provides a platform for South Asian countries in a spirit of trust,understanding and mutual friendship. In addition, the purpose is to accelerateeconomic and social development in the Member States.

The current areas of co-operation under the reconstituted Program of Actionwhich is pursued through various Technical Committees are:-

• Agriculture / Rural Development

• Health and Population Activities

• Environment & Forestry

• Science, Technology and Meteorology

• Human Resources Development

• Women, Youth and Children

• Transport

Characteristics of Trade in South Asia. India’s economy (i.e. Gross DomesticProduct (GDP) grew at 7% in 2005, Pakistan’s economy grew by 8.4% andeconomies of Sri Lanka and Bangladesh grew by 5.5%. India reported exportgrowth of 24% in fiscal year 2005, Pakistan’s export’s grew by 17% andBangladesh exports by 13%.


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India continues to have a dominant share of the SAARC region’s, export ofgoods. For India, 12 commodity categories (HS 2 digits) account for 95% ofexport values. In contrast in Bangladesh and the Maldives the five categoriesaccount for 95% of exports combination of textiles, garments, leather products,fruits & vegetables; fish accounts for 96% of Bangladesh exports and morethan 80% for Pakistan and Sri Lanka but only about one third of India’s exportvalue.

The cost trading across South Asian Countries borders is the highest in theworld. Inter regional trade is less than 2% of GDP as compared to 20% forEast Asia.

Tax proposals in Union Budget (Government of India)

The Union Budget also called the General Budget was presented on 28th Feb.2007 in the Lok Sabha. The taxation proposals have become operative beginning1st April 2007 which is the beginning of India’s financial year. The declaredobjective(s) of the Eleventh Five year plan are :

- “Faster and more Inclusive Growth”.

- The Plan aims at putting the Indian Economy on a sustainable growthtrajectory with a growth rate of approx 10% by the end of the Planperiod.

- Growth rate of 4% in the agriculture sector, faster employment creation,reducing disparities across regions ensuring access to basic physicalinfrastructure as well as health and education services to all.

In the Union budget 2007-2008, Government of India, has imposed ExportDuty @ Rs. 300/- per metric ton on Iron ore exports from India. The objectiveis to save scarce iron ore resources. This export duty is expected to makeIndian steel manufacturers globally competitive. Similarly customs duty on


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imported metals (i.e) defectives of iron and steel, has been reduced form 20%to 10%. The impact of this may result in dumping poor quality material intoIndia.

Export Opportunities from SAARC region

• As long as the proposed or actual exported items CIF, (destination) priceis less by 5 to 10% as compared to the local price of that item, there is anincentive for exporters to find a gap in the market and create wealththrough the export trade.

• Also, as we move up the value chain and produce more manufacturedgoods, and then exports, there are more opportunities to make moneyand yet be competitive.

• Further, India has developed a significant educational infrastructure suchas IIT, IIM’s IIFT, NIFT, NIESBUD. It is suggested that about 100candidates from SAARC member countries come to India per year tostudy and go back to become manufactures/exporters, in their respectivecountries. This way, they will create employment opportunities in theirrespective countries in the medium term.

• In the short run, strategic alliances can be formed between exporters /importers of respective SAARC member to identify items with long termcompetitive advantage.

• Depending on the proximity of Bhutan, Nepal, etc. to local consumptioncentres such as Kolkata, Lucknow, Guwahati food products may beexamined to be shipped.

• If Indian Railways / Concor extends meter / broad gauge facilities toBhutan and Nepal borders, a great increase of trade will take place asrail is an inexpensive mode of transport for bulk or low valuecommodities. This will create employment opportunities on the borders.


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Michael Porters’ Value chain adaptation:

Generating Export Enquiries / Leads:

Internet Marketing : Today, budding entrepreneurs can register and link theirwebsites with leading search engines such as Google (82% use this) and Yahoo(7.5%) use these search engines for locating B2B buyers or doing internetsearch of products / companies. There are B2B marketing websites such asTradeIndia.com. Freemarkets.com, Alibaba.com, MadeinChina.com etc., wherepotential exporters can post their business enquiries. This is a cost effectivemethod to generate enquiries. Please refer to flow chart (ExportEntrepreneurship Model)

Trade Shows: In addition to advertising in Print / Electronic media one canreach B2B buyers or importers through catalogs, websites and direct mail.Trade Shows or Industrial Trade Fairs have become a primary vehicle for doingbusiness in many foreign countries. Trade Shows are an important vehicle forselling products, developing sales leads and reaching out to prospective buyersand evaluating potential distributors. More than 2000 major Trade Shows areheld worldwide. The Hanover Fair (Germany), the largest trade fair in theworld, has 6000 exhibitors, who display a wide range of products to nearly 6lakhs of visitors.

Firms’ Infrastructure (Trading Export Firm)

Human Resource Management (Core Team)

Technology Development (Innovation in IT / Search Engine)

Procurement (Supply Chain Management)

In boundLogistics(IndianRaliways)

OperationsBenchmarkingSupply(Supervision byCore Team)

OutboundLogistics(ShippingCompany)

Marketing &Sales(ExportNegotiation)

Service(ShippingDocumentation)Bank Formalities S/LCBillingCustomerSatisfaction

PROFIT TH

ROUGH

Trad

ing

Block diagram 3


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Relationship marketing in Business to Business

The characteristics defined in the inquiries about industrial products and serviceslead to relationship marketing. Long term relationships with prospects andcustomers that define relationship marketing fit requirements inherent inindustrial products and are a suitable and viable strategy for Business to BusinessMarketing (B2B).

The first and foremost characteristic of the industrial goods market is the motiveof the buyer / importer to make a profit. The objective of relationship marketingis to make the buyer-seller relationship an important attribute of the transaction,thus creating differentiation with respect to other competitors.

Focusing on long term relationship building is important in most internationalmarkets where culture dictates stronger ties between people and organizations.In countries with high context cultures such as Asia and Latin America, TRUSTis a crucial aspect of commercial relationships. Continuous closecommunication with prospects and customers is the single most crucial sourceof information about development of new industrial products or services. Today,Internet is facilitating relationship building and maintenance by new approaches.Thus B2B marketing requires close attention and interaction with prospects toidentify organisations’ exact needs and wants.

Marketing and Economic Development

The economic level of a country is the single most important environmentalfactor to which a foreign exporter must adjust the marketing task. This stageof economic growth within a country affects the attitudes towards exportbusiness activity, for goods, distribution systems and, in short, the completemarketing exchange process.


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Stages of Economic Development

The five stage model was presented by Walt Rostow

1. Traditional society : Importer countries lack competence to raise levelsof productivity. There is absence of application of scientific methods insociety.

2. Preconditions for Take-off : he nest stage includes those societies inthe process of transition to the TAKE-OFF state. During this stagedevelopments in modern science are applied to the industrial productionand agricultural stage.

3. Take Off : At this stage, importer countries have a growth pattern thatbecomes a normal condition. Industrial Modernization and agriculturelead to rapid expansion.

4. Drive to Maturity : Post take off, sustainable progress is pursued andthe economy of the importer country seeks to use modern technology inall fronts / dimensions of economic activity. In this phase, the economyis capable of using technological and entrepreneurial skills, in noteverything but rather any product / good it chooses to produce.

5. Age of Mass Communication : The age of mass consumption leads toa shift in leading economic sectors towards durable goods and services.Real income per capita rises continuously.

The United Nations has classified a country’s state of economic developmentbased on levels of industrialization. It categorizes countries into three groups:

1. MDC (More Developed Countries) : This includes industrializedcountries with high per capita incomes such as Canada, England, France,Germany, Japan and USA.


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2. LDC (Less Developed Countries) : This includes industrially developingcountries just entering world trade many of which are present in Asiaand American countries with relatively low per capita incomes.

3. LLDC’s (Least Developed Countries) : Industrially underdevelopedagrarian subsistence societies with rural populations, extremely low percapita income levels and little world trade involvement. LLDC’s are foundin Africa and parts of Asia.

Export Market Entry Modes

Production / MiningIn India

Provision of Offshore Services

Exports

DirectIndirect

Production InSAARC Country

ContractualMode

Licensing Franchising TurnkeyProjects

InvestmentMode

StrategicAlliances

ContractMfg. / mining

JointVenture

Assembly

WhollyOwned

Mergers &Acq.

CompaniesFigure 1


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Main Consideration in Export Contracts

• Define Exporters / Importer Firms : Names, Addresses, Registrationnumbers.

• Define Product Specification.

• Define Quality standards clearly.

• Define Quality per Shipment.

• Define pricing terms (FOB, CIF, C&F) and payment terms clearly.

• Define payment mode clearly.

(i.e) payment through confirmed irrevocable letter of credit with advancepayment through Red clause.

• Define Arbitration / Dispute settlement clause clearly instead of goingto long protracted court battles.

• Reduce requirements of funding / Banking consideration.

• Third party Inspection clause such as SGS.

• Shipping Documentation such as Bill of Lading, Invoice, Packing Lists,Marine Insurance Cover, ECGC Cover, Certificate of Origin, etc.

Inco terms 2000 (International Chambers of Commerce)

1. FOB (FOB) at a named inland point of origin or at a named vessel andport of export Price includes cost of goods and delivery to a named port.

2. CIF (Cost, insurance & freight) to a named overseas port of import. ACIF quote is more meaningful to the importer / overseas buyer becauseprice includes cost of goods, insurance and all transportation andmiscellaneous charges to a named port / or destination.


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3. C & F (Cost & Freight) to a named overseas port. The selling priceincludes cost of goods and transportation to a named destination port.

Getting Paid : Foreign Commercial Payments

Letters of Credit afford the greatest degree of protection for the seller. Theprocedure for a Letter of Credit begins with completion/ signing of a B2BExport contract. Prices and conditions of a letter of Credit are detailed in it andusually require presentation of certain documents along with a draft before thecorrespondent bank who will honour it. The documents usually required are aCommercial Invoice, a clean Bill of Lading. Insurance Policy and a ConsularInvoice (when requested).

Letter of Credit can be Revocable or Irrevocable. An irrevocable letter ofCredit implies, that once the seller has accepted the credit, the buyer cannotalter it in any manner without the permission of the seller. From this seller /exporters’ point of view, this eliminates foreign political risk and replacescommercial risk of buyer’s bank with that of confirming bank. As soon asdocuments are presented to the bank, the seller receives payment. It may benoted, that payment is tendered only if the seller complies exactly with theterms stated in the confirmed irrevocable Letter of Credit.

Reasons that cause delay in honouring Letters of Credit are insurance defectssuch as inadequate coverage and a date later than on the Bill of Lading.

• Bill of Lading defects such as a bill lacking ‘On Board’ endorsement orsignature of carrier.

• Letter of Credit defects such as expired letter or one that exceeds theinvoice figure or one including unauthorized charges.

• Invoice defects such as missing signatures or failure to designate termsof shipment, (CIF, FAS, FOB or C&F) as stipulated in the Letter of Credit.


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Export Documentation : Most frequently required documents are exportdeclarations, consular invoices, certificates of origin, bills of lading, commercialinvoices and insurance certificates. Sometimes additional documents such asimport licences, export licences, packing lists, and third party inspectioncertificates are often required. There are over 125 different documents in regularusage in more than 1000 different forms. Any shipment may require over 50documents involving nearly 28 different organizations or may require as fewas 5 documents.

Challenges and Risks in Export Business

• Commercial Risks : An export firm has to deal with an overseas buyeroperating in a different legal and political environment. The risks increasemanifold.

• Non payment by importer at end of credit period or after some specificperiod.

• Insolvency of purchaser(s). It has been observed that commercial riskshave resulted in more losses in export transactions than political losses.Claims paid by Export Credit Guarantee Corporation (ECGC) in 2003-2004 are shown below :

Figure 2

0

500

1000

1500

2000

2500

30002644.97

842.03

27.18

Commercial Risk Political Risk Others

Figu

re in

Rs.

Qro

res

ECGC Annual Report (1957-2004)


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Foreign Exchange Risk : In an export business transaction, both exportersand importers are vulnerable to foreign exchange risks as the payment of aspecific amount already agreed under the contract has to be received or madein foreign currency at a future date. The amount agreed may be deliveredimmediately (spot) or at a later date (forward). Generally there is a variation inforward price and spot price of currency.

Political Risks : Possibility of political decisions, conditions, and environmentin an overseas market that may adversely affect export business is called politicalrisk.

Major types of Political Risks are :

• Confiscation : Refers to process of foreign government taking overproperty without compensation.

• Expropriation : This refers to an overseas government taking over ofcompany goods, lands offering some kind of compensation.

• Naturalization : Refers to government’s taking over of assets andproperty.

• Domestication : Refers to foreign company’s relinquishing of controlof company to the nationals of the country.

Transit Risks : Basic types of cargo risks are clarified as the following :

• Maritime Risks : Damage or loss to cargo in transit by natural calamityor by act of man or man made negligence.

• Extraneous Risks : Include incidental risks to which export cargo isexposed during transit such as faults in loading, unloading of cargo, lossesdue to breakage, rough handing, breakage, etc.


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War Perils : Risks related to War, Civil War, Civil Strife, etc.

• Capture, arrest, restraint of carrier are related to the above events.

• Strike Perils : Include perils / risks which include damage due to strikers/ locked out workmen.

• Terrorist or any person acting with political motivation.

Minimising Risks through Insurance

Export Credit Guarantee Corporation (ECGC): This agency is under theMinistry of Commerce, Government of India. Major objectives are :

• It provides a range of credit risk insurance covers to exporters againstloans in the export of goods.

• Insurance protection to exporters against payment risks.

• It provides information on credit - worthiness of overseas buyers.

• Assists exporters to recover Bad Debts.

Marine Cargo Insurance : This insurance covers agreed risks of goods shippedby exporters. Marine Cargo insurance policy covers accidental losses in theexport business. It also covers risks of damage or loss of damage during transitfrom seller / exporter to buyer / importer.

A Marine Insurance contract is described as an agreement whereby the insurerindemnifies the assured in the manner prescribed to the extent agreed againstnatural losses incidental to marine shipments.


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Tariff and Non - Tariff Barriers

Tariff Barriers :

These are customs duties / levies or tax on products imported from outside thecountry. Tariffs may be levied on the basis of direction of product movement(i.e.) can be on either imports or exports.

Non - Tariff Barriers :

Government Subsidies : A Government may subsidize the production of certaingoods to protect domestic industries. Direct subsidies being discriminatoryare not permitted under WTO rules and regulations.

Product Requirement : Product specification and standards and product testingare used as barriers to trade. For example, European Countries Union insistson banning AZO dyes, and insists on vegetable dyes instead.

Ranks of Select countries by Business Environment Risk Intelligence(BERI), Index.

(Source: Economic & Intelligence Unit)

1. Canada No. 12. Netherland No. 23. Finland No. 34. UK No. 45. USA No. 56. Switzerland No. 67. Hong Kong No. 88. France No. 149. Germany No. 1510. Chile No. 1711. Spain No. 19


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12. Japan No. 2713. Thailand No. 3014. Mexico No. 3215. China No. 3916. India No. 4117. Columbia No. 4318. Argentina No. 4519. Russia No. 4620. Nigeria No. 60

The criteria included are political stability, economic growth, currencyconvertibility, labour cost / productivity), short term credit, attitudetowards foreign investors, Inflation and Balance of Payments.

Real Life Case study of Indian Exporter(For reference purpose)

Company Name : M/s. Abbas Exports (P) Ltd.,Product : Iron Ore

Abbas Exports Pvt. Ltd. is an entrepreneur registered on Tradeindia.com. (B2B)Website. Based on three trade enquiries for supply of iron ore to China (63%Iron (Fe) Content) from Paradeep Port India. Abbas Exports located iron oresuppliers with mining rights in Jharkhand, Chattisgarh and Orissa. They workedout the price and costing and discovered approx. 10% net profitability after allexpenses and export duty introduced by Ministry of Finance, Govt. of India inthe Union Budget 2007.

Each monthly consignment is 60,000 dry metric tons (DMT) of iron ore 63%.FOB (free on Board) price was negotiated at USD 53 per ton which translatesto Rs, 53 x 42 = Rs. 2250/- per DMT.


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Raw Material (i.e) Iron ore is available @ Rs. 500/- per DMT. The railwaytransportation, insurance, supervision, add to Rs. 1,000/- per ton extra. Addmiscellaneous charges @ Rs. 200/- per ton, Cost price becomes Rs. 1,700/-per ton.After adding Export duty @ Rs. 300/- per ton, the total cost works out to Rs.2,000/- per DMT. Net profit works out to Rs. 250/- per ton to approx. 10% ofselling price.

Net profit per transaction = (Selling Price - Cost Price) + Export Duty x QuantitySold per transaction.

Essentially, this iron ore has to be graded, checked for ferrous content, by aninternational third party inspection agency such as SGS, transported acrossTravels, to Railways, and then Paradeep Railway Station to Paradeep Port(Plots for storage). The material is this accumulated at the Port and againinspected on quality and quantity parameters. Some material gets lost in transitbecause it is light and in powder form. Therefore, for any loss in transit, extramaterial has to be ordered to compensate for wastage.

The payment for the iron ore is received for actual quantity / quality loaded onto the ship. It has to be recertified by SGS. The Bill of lading is conclusiveproof of iron ore shipment as per the B2B Export contact. The payment shallbe made by the Banker for the actual quantity and quality loaded on the ship ascertified by the Bill of Lading / Third party inspection agency certificate.

Thus on every monthly consignment of 60,000 tons, the rupee value of exportconsignment is about Rs 22 crores and 10% net profitability translates to Rs 2crore per consignment.


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Examples of Successful Private Indian Entrepreneurs

S.No. Organizations Product Category1. Gokuldas Export Ltd. Apparel

2. Modelama Exports Ltd. Apparel

3. Orient Craft Ltd. Apparel

4. Mirza Tarners Ltd. Leather

5. Adani Exports Ltd. Ltd. Merchant Exporter

6. Satnam Overseas Ltd., Commodities / Food grains / Rice


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EXPORT ENTREPRENEURIAL MODEL *(MERCHANT EXPORTERS)

Identify Company’s Core competency, Mission,

Vision, Quality Policy, product (s)

Prepare 3-5 yearsBusiness Plan Including Sales,

Profitability Projections

Identify KeyProspects, Suppliers, Value creation

Design yourOrganization chart.

Design a New Pvt. Ltd.,Company’s Memorandumand Articles of Association

Register withDept. of Company Affairs

Apply & getImporter Exporters

Code (IEC) from DGFT, register with FIEO

Rent a company office,Open FE exchange account with SBI,

Get invoice book printed,Buy a Computer, Internet, Phone, Fax facility

Identify Legal procedureIdentify CORE Team of Advisor, CA,

Retired Banker,Register your

website link with Search EngineGOOGLE / YAHOO / REDIFF

Get. ISO, ISI or necessaryquality standards approval, Design

Organizational Processes / Form anddevelop web based software

Identify RiskFactors in Exchange Rate

Plan for Shipment, Quality, Inspection,Payments, Logistics,

Negotiate with Key Buyer (s)After BENCHMARKING and Credit

Worthiness Check thru DUN &BRADSTREET

Negotiate B2BContract with

Confirmed irrevocableLetter of credit with Red clause (for advance

payment)

Talk to bank forLoans, Margin money, etc

Collateral requirementsGet costing / export duty

done in Excel Sheet

Identify 3-4 suppliers andget quotation (s)

Identify ShipperGet ECGC / Marine Insurance

Issue Sub contractwith clear product specifications / quality /

Inspection / time frame for delivery

Prepare Shipping documents as per Letter ofCredit precisely in the number of copies

required.

Get Third Party Inspection

Release payment to sub contractorson FOB basis after Material Boards

Ship

Revenues & Profits through Export Trading


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* Developed by Professor Sanjeev Bahadur, Dr. S.L. Gupta & Mr. Hitesh Gupta, Depart-ment of ManagementBirla Institure of Technology (Deemed University)Noida Extension CentreA-7, Sector-1, NOIDA - 201301 (U.P.)Note : 1. FIEO - Federation of Indian Exporters Organisation

2. DGFT - Directorate General Foreign Trade3. SBI - State Bank of India.

Observation and Findings

Figure 3, indicates AIndia’s Exports to SAARC region in 2005 with majorexports to Sri Lanka, Bangaladesh, Nepal and Pakistan.

Figure 4, shows India’s imports from SAARC region with major imports fromSri Lanka, Nepal, Pakistan and to some extent Bangladesh.

Figure 3

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.0040.00

Afghanistan Bhutan Bangladesh Maldives Nepal Pakistan Sri Lanka

Direction of India’s Exports to SAARC (2005)

Figure 4

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

Afghanistan Bhutan Bangladesh Maldives Nepal Pakistan Sri Lanka

Direction of India’s Imports from SAARC (2005)45.00


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- 168 -


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Exports from India (in USD millions)

Note : Figures highlighted in bold indicate the highest contribution in therespective priduct category.

Figure 15 includes the major categories of products which are exported Indiato various countries of SAARC region.

GOODSArticles of Iron & SteelIron & SteelElectrical Machinery, TVCerealsNuclear Reactor, Boilers, M/cVehicles other than RailwaysMineral Fuels, OilsBeverages, Spirits, VinegarCottonEdible Vegetables, Roots, TubersOrganic ChemicalsMan Made Staple FibresPlastic & ArticlesAluminium & ArticlesEdible Fruits & NutsSalt, Sulphur, CementResidues and waste from foodindustryRubber & ArticlesSugars & ConfectioneryTanning of Dyeing ExtractsPharma ProductsCopper & ArticlesInorganic ChemicalsApparel & ClothingPaper / Paper BoardOthers

BHUTAN9.73

15.9617.74

5.468.758.427.173.94

22

BANGLADESH40.5989.1842.99

269.5157.4479.86

144.77

289.38136.41

50.4340.3732.9931.4329.5628.41

29.73

271.31

NEPAL

29.2615.4

37.2725.7455.36

371.51

1920.77

40.42

45.64

199.6

PAKISTAN

32.63

21.90

58.130.47

205.06

44.89

54.0142.6130.4820.55

148.53

SRI LANKA

119.1134.56

65.85293.14

627.4

97.6255.05

38.9143.01

62.949.9826.8131.5747.02

431.74

Figure 15


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Exports from India (in USD millions)

Note : Figures highlighted in bold indicate the highest contribution in therespective priduct category.

Figure 16 includes the major categories of products which are imported toIndia from various countries of the SAARC region.

GOODSArticles of Iron & SteelIron & SteelElectrical Machinery, TVNuclear Rector, Boilers, M/CBeverages, Spirits, VinegarCottonEdible Vegetables, Roots, TubersOrganic ChemicalsMan Made Staple FibresPlastic & ArticlesAluminium & ArticlesEdible Fruits & NutsRubber & ArticlesSugars & ConfectioneryCopper & ArticlesInorganic ChemicalsMan made FilamentsAnimal & Vegetable FatsWood Articles / CharcoalCoffee, Tea & SpicesEssential Oil, PerfumeryVegetable Textile FibresChemical ProductsArticles of Stone, Plaster, LimePulp of WoodOther Made up textile articlesFish and MolluscsWedding, ropes and cablesLead & ArticlesOthers

BHUTAN

22.86

4.05

27.9211.28

8.114.994.93

4.63

BANGLADESH

2.74

2.91

3.0939.19

2.44

29.82

14.8310.17

3.47

18.37

NEPAL22.8226.57

16.66

10.8224.6741.1414.50

49.40

19.1118.5111.0811.05

113.52

PAKISTAN

28.1267.9524.21

2.70

26.14

7.453.12

2.2717.60

SRI LANKA

10.9826.72

7.40

24.34

7.3447.55

8.93

140.32

168.4811.3434.01

12.099.80

68.70


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Conclusion

The study has identified imports to India’s from other SAARC countries andexports from India to other SAARC countries. It is inferred that differentcounties are dominating like Nepal is leading in steel, Pakistan is dominatingin cotton, with different percentages. Hence, it has become necessary on thepart of the different countries to evolve strategies to improve their exports.The study has further revealed that products from different countries have toimprove their position in NON SAARC countries by using other suitablemethods. The study has assessed the importance of actual quantity and thenconverted it into percentages for comparative purpose. We have highlightedthe ranking method on the basis of country performance among SAARCcountries.

It is important to conclude that this research adds to our understanding ofsecondary sources available for imports and exports.

Some suggestions to export entrepreneurs for increasing exports are :

• Increase in turnover is necessary in this competitive era to survive in thelong seen.

• Import vender selection should be done after careful evaluation.

• Keep update about foreign exchange fluctuations and new trends in importmarket.

• Always be in a receptive mood to determine the preferences and taste ofbuyers.

• Bring in changes in the quality as well as in the product line according tothe changing times.


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