Trade, import and export for MSMEs: Choosing the right market out of around 195 countries India trades with could be daunting for at least new exporters looking to expand their business internationally. Before jumping to pricing and sampling, understanding payment risks, knowing about labelling and packaging, export insurance, and finally shipping and invoicing, figuring out countries you would want to sell your goods in may make the entire export process look less complex.
There could be multiple factors for an exporter important to understand before shortlisting the right market for cross-border trade such as tradition – which countries are, traditionally, big buyers of products or service you offer; demand – which countries or regions are likely to seek your products; geopolitical climate – how favourable is the political environment of your selected market, etc. Moreover, it is important for the exporter to understand what different strategies are available to test the markets, how can products be adapted to meet the requirements of the new market, the risks involved and more.
“Since there is a lot of statistical information available today to see the trade flow, one can check where the product, which he makes, originates and where are that product’s supply chain and where it is getting exported. You can see the trend of what has been happening with that product in the last four-five years and figure out areas difficult for you to go in for various reasons,” said Vinod Sharma, Managing Director, Deki Electronics in a panel discussion at the SMExports Summit organised by Financial Express Digital recently. The company manufactures and exports film capacitors used in electrical or electronic equipment.
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Sharma believed filtering this out will help an exporter understand his potential markets. The next step for an exporter, he said, should be building a network in such markets through agencies, consultants, and trade experts available there. “So, technology, network of experts, and statistics help us in finding the right market for exports.”
According to Ajay Sahai, Director General and CEO, Federation of Indian Export Organizations (FIEO), a small exporter should look at top importing markets, top emerging importing markets, top markets for India’s exports and top emerging markets for India’s exports.
Moreover, “small exporters should look into the market-access issues such as whether the technical standards, packaging and labelling requirements, certification requirements are met by you. Also, look into the competitor’s strength in the market. There the role of free trade agreements would come into play. India trades with around 195 countries and with 70 countries India has a free trade or a comprehensive economic partnership agreement. Focus on these countries.”
Post Covid, India signed a free trade agreement with Mauritius followed by two ambitious deals – a Comprehensive Economic Partnership Agreement (CEPA) with one of its top export destinations the UAE and recently an Economic Cooperation and Trade Agreement (ECTA) with Australia in order to reduce or strike out trade barriers particularly import tariffs for MSMEs and other businesses.
Similar pacts are under discussion with the UK, the European Union, Canada, Israel and the Gulf Cooperation Council (GCC) – a political and economic alliance of six Middle Eastern countries viz., Saudi Arabia, Kuwait, Bahrain, Oman, Qatar, and the UAE.
India’s overall exports including merchandise and services stood at $641 billion during the April-February period in the current financial year, growing from $546 billion during the year-ago period. In comparison, imports stood at $753 billion during April-February FY23 vis-a-vis $612 billion during the corresponding period last fiscal, according to the latest data from the commerce ministry. The government is now expecting to cross $750 billion in goods and services exports this fiscal.
According to the government, the growth has come on the back of measures undertaken to boost exports such as extending the Foreign Trade Policy
However, before exporting, it is critical to explore the potential markets and create market linkages, said Sunil Tyagi, Sr. General Manager (International Cooperation), The National Small Industries Corporation Ltd (NSIC). “Once the competency is built for MSMEs to explore the markets, the MSME ministry offers the International Cooperation scheme to assist MSMEs in participating in international exhibitions. It gives you a chance to explore the market in a particular country. MSMEs get full reimbursement of the airfare and stall charges up to Rs 3 lakh along with freight charges and registration cost,” said Tyagi.
NSIC also organise MSMEs’ business-to-business (B2B) meetings based on their area of interest which create linkages, he added. NSIC also operates the B2B marketplace msmemart.com portal that gives information on trade leads from India and other countries to buy products while the fee is reimbursed up to 75 per cent.
While subsidies offered through such schemes help MSMEs scale up and export more with enhanced competitiveness and strength in order to achieve a level playing field in competing with exporters from other countries, they shouldn’t be at their disposal forever, according to Sahai.
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“I believe subsidies should be for a limited period for a definite purpose otherwise they bring inefficiency into the system. Hence, whenever any subsidy is announced, I would like to have a sunset clause in it so that MSMEs know in advance they have that much time available to either scale up their production or achieve competitiveness else the scheme will not be there. So we will have to be on our own in times to come,” Sahai said during the panel discussion on identifying new markets for exports.
“Subsidy to an extent is good but it is not sustainable if an SME is not able to grow on its own. International markets are less of price and more of quality and India needs to move into the quality zone,” echoed Shekhar Bhandari, President, Global Transaction Banking, Kotak Mahindra Bank
Apart from the traditional window of exports, digital exports or exports via online e-commerce marketplaces has caught exporters’ attention due to much lower friction in the entire process. Through e-commerce, exporters are able to sell their produce directly to customers abroad without investing in a physical setup to reach the customers. Unlike in traditional exports, e-commerce enables even a micro or small exporter to showcase their products to customers, enhancing their visibility alongside large exporters and hence, providing a level playing field.
For instance, “the way we are encouraged to serve MSMEs at Amazon
Through its Fullfilment by Amazon (FBA) programme, Amazon allows sellers to ship their products. The goods are stored in the Amazon fulfillment center and available for quick delivery through the Prime shipping option. The programme also takes care of the returns. “In logistics, taking a shipment out takes 60-100 emails on average in the offline world. E-commerce from a B2C perspective is a lot more agile and efficient. You know exactly what the end consumer wants. Amazon currently has exporters out of 200 cities in India which are beyond metros and tier I cities,” said Wakankar.