This action might not be possible to undo. Are you sure you want to continue?
to reach US $ 103 billion during 200506. During the current year 2006-07 exports are expected to reach the target of US $ 125 billion if the present rate of growth of exports is maintained during the last quarter of the year. The sustained growth of merchandise exports at more than 20 per cent during the last few years is more than twice the growth of Gross Domestic Product (GDP). If this trend continues the export target of US $ 150 billion set in the Foreign Trade Policy for 2009 is likely to be achieved quite comfortably. The growth performance of exports has been an outcome of a conscious and concerted effort on the part of the Government to bring down transaction costs and facilitate trade. The vision and the roadmap provided by the Foreign Trade Policy (2004-09) for a five year period with clearly enunciated objectives, strategies and policy initiatives has been instrumental in putting exports on a higher growth trajectory. The export target during 2004-05 at around US $ 75 billion was sought to be doubled to US $ 150 billion by the terminal year of the Foreign Trade Policy, i.e. 2008-09. For the first time in the history of planning doubling of exports in less than five years is being seen as an achievable target. What is even more significant is that exports have been conceived of as an engine for generating additional economic activity for employment generation with special focus on rural and semi-urban areas. Exports are projected to touch the target of US $ 125 billion by the end of the current financial year 2006-07 if the present rate of growth is maintained during the last quarter of the year. The export growth in India is partly on account of a favorable international environment resulting from a sustained world GDP growth at around 5 per cent since 2003. This has led to booming trade volumes and rising commodity prices in the world market. However, this alone does not entirely explain the 250 Unprecedented growth performance. Exports from India also responded to numerous reform measures and policy initiatives. The Government made a conscious and concerted effort to reduce trade barriers, bring down transaction costs and facilitate trade. For the first time in the history of planning doubling of export activity within five years was set as a concrete target of the Foreign Trade Policy of the Government. During the first nine months of the current financial year (April - December 2006-07) exports stood at US $ 89 billion while imports were valued at US $ 131 billion. Trade deficit was estimated at US $ 42 billion. The aggregate foreign trade data in US Dollar and Rupee terms for the period April- December 2005-06 and AprilDecember 2006-07 are given below in Table 2.1.
Exports by Principal Commodities According to disaggregated data of exports by Principal Commodities available for the period April - October 2006-07, the export growth was mainly driven by petroleum products, engineering Plantation Crops Export of plantation crops grew by 26.74 per cent in rupee terms compared with the corresponding period of the previous year. Export of coffee registered a growth of 33.86 per cent from Rs. 893.06 crore to Rs. 1,195.44 crore and export of tea registered a growth of 20.53 per cent from Rs. 1,023.72 crore to Rs. 1233.91 crore. Agriculture and Allied Products Agriculture and Allied Products include Cereals, Pulses, Tobacco, Spices, Nuts and Seeds, Oil Meals, Guargum Meals, Castor Oil, Shellac, Sugar & Molasses, Processed Food, Meat & Meat Products, etc. During April-October, 2006, exports of commodities under this group registered an average growth of 25.29 per cent with the value of exports rising from Rs. 16,547.74 crore in the previous year to Rs. 20,733.06 crore during the current year. Ores and Minerals Exports of Ores and Minerals were estimated at Rs. 15,415,05 crore during April-October, 2006 registering a growth of 13.20 per cent over the same period of the previous year. All sub groups viz. Processed Minerals, other Ores and Minerals, and Coal have recorded positive growth of 34.91 per cent, 47.76 per cent and 35.22 per cent respectively except Iron ore. Leather and Leather Manufactures Export of Leather and Leather Manufactures recorded during April-October, 2006 a growth of 9.06 per cent. The value of export increased to Rs. 7,451.72 crore from Rs. 6,832.80 crore during the same period of the previous year. Exports of Leather Manufactures and Leather Footwear registered a growth of 3.43 per cent and 18.40 per cent respectively.
Gems and Jewellery The export of Gems and Jewellery during April-October, 2006 increased to Rs. 41,877.01 crore from Rs. 41,834.12 crore during the corresponding period of last year showing a growth of 0.1 per cent.
Chemicals and related Products The value of exports of Chemicals and Allied Products increased to Rs. 44,621.64 crore from Rs. 36,907.79 crore during the same period of the previous year registering a growth rate of 20.90 per cent. Basic Chemicals, Pharmaceuticals & Cosmetics, Rubber, Glass & Other Products and Residual Chemicals and Allied Products and Plastic & Linoleum registered positive growth. Engineering Goods Exports of items under this group consist of Machinery, Iron & Steel, and Other Engineering items. Export from this sector during the period April-October, 2006 stood at Rs. 66,267.62 crore compared with Rs. 45,912.18 crore during the same period of the previous year, registering an overall growth of 44.34 per cent. Electronic goods & Computer Software in physical form Exports of Electronic Goods were estimated at Rs. 7,138.46 crore compared with Rs. 5,285.41 crore during the corresponding period of last year, registering a growth of 35.06 per cent. Computer Software in Physical form has shown a negative growth of 62.72 per cent Textiles and Handicrafts The value of Textiles exports was estimated at Rs. 41,373.98 crore compared with Rs. 37,543.63 crore in the corresponding period of the previous year, recording a growth of 10.20 per cent. The export of Readymade Garments, Cotton, Yarn, Fabrics, Made Ups, etc., Manmade Textiles & Made Ups and Coir & Coir Mfrs recorded a growth of 8.08 per cent, 12.69 per cent, 18.81 per cent and 7.74 per cent respectively. Export items of Handicrafts include Metal Artware, Textiles (hand printed), Woodwares and Zari goods. Exports of Handicrafts declined to Rs. 874.37 crore from Rs. 1,265.81 crore during the corresponding period of the previous year registering a negative growth of 30.92 per cent. Export of carpets increased to Rs. 2,331.38 crore from Rs. 2,046.39 crore during the same period last year registering a growth of 13.93 per cent. Project Goods The export of Project Goods recorded a decline of Rs. 169.87 crore from Rs. 335.90 crore during the period April-October, 2006 registering a negative growth of 49.43 per cent.. Petroleum Products Export of Petroleum Products increased by Rs.51,856 crores during the current year 2006-07 (April-October) compared with Rs.26,811 crores during the same period last year recording a growth of 93.4 per cent. As a a result of this the share of Petroleum Products in total exports increased to almost 16 per cent. Cotton Raw including Waste
There was a very significant growth of Cotton Raw including Waste from Rs.664 crores during April-October 2005-06 to Rs.1,681 crores during 2006-07 April-Oct. The rate of growth of exports of this item at 153.4 per cent was the highest recorded by any group of Principal Commodities during the current year. Trends in India's Imports The trends in India's imports for the year2006-07 (April-October), compared with the corresponding period of 2005-06 are shown in Table-III. Oil Imports recorded a higher growth than non-oil imports whereas there was a decline in import of Pearls, Precious and SemiPrecious Stones Imports by Principal Commodities According to disaggregated data of imports by Principal Commodities available for the period April - October 2006-07, the import growth was mainly driven by Petroleum Crude. Imports of items under bulk category comprising inter-alia Fertilizers, Wheat, News Print, Non-Ferrous Metals, Metalliferrous Ores and Products recorded a substantial increase. The growth of import of Machinery and Project Goods was also significant. The growth performance of imports by Principal Commodities can be seen at Table 2.3 and Graph 2.2 below: Fertilizers During April - October, 2006-07, import of Fertilizers increased to Rs.8698.47 crore from Rs. 5,321.24 crore recording a growth of 63.47 per cent. Petroleum Crude & Products The import of Petroleum Crude & Products stood at Rs. 161,049.52 crore during April- October, 2006-07 against Rs. 106,874.99 crore during the same period of the previous year showing a growth of 50.69 per cent.
Pearls, Precious and Semi-Precious Stones Import of Pearls and Precious and Semi-precious Stones during April- October, 2006-07 decreased to Rs. 19,509.57 crore from Rs. 27,152.29 crore during the corresponding period of the previous year registering a negative growth of 28.15 per cent. Capital Goods Import of capital goods, largely comprising Machinery, including Transport Equipment and Project Goods recorded a notable increase during April- October, 2006-07 over the same period of last year. Import of Machine Tools, Project Goods, Non-Electrical Machinery, Electrical
Machinery and Transport Equipment registered a growth of 47.15 per cent, 127.20 per cent, 45.24 per cent, 43.89 per cent, and 56.01 per cent respectively. Chemicals and Chemical Materials During April- October, 2006-07, import of Organic and Inorganic Chemicals increased to Rs. 20,840.13 crore from Rs. 18.051.71 crore during the same period of last year, registering a growth of 15.45 per cent. Import of Medicinal and Pharmaceutical Products also increased toRs. 3,037.09 crore from Rs.2,471.30 crore during the corresponding period of last year registering a growth of 22.89 per cent.
Trends in Indian Foreign Business (foreign partners) The details of India’s international trade and investments I had given in class, I had also asked you to get it photocopied please consult that as well.
India-China Free Trade Agreement China is an important trading partner for India. It is the third largest destination of Indian goods and the biggest source for imports. Whether India should have a FTA with China has undergone much "wringing of hands". Now India’s Commerce Ministry has recommended against signing a free trade agreement (FTA) with China until it becomes a market economy (according to WTO commitments, it may not happen until 2015) that follows transparent pricing of manufactured goods and services. Japan and India to announce partnerships and new business initiatives NEW DELHI: India and Japan, scrambling to build closer economic ties as China's might grows, are expected to announce a spate of partnerships and new business initiatives as Prime Minister Shinzo Abe of Japan is taking keen interest in it. Latin America attracting investors from India Indian companies are starting to invest in Latin America, though still relatively small, but are growing quickly. Indian firms have invested about $7 billion in the region over the past decade. That number is expected to double over the next 5 years, says the head of Latin American division of India's External Affairs Ministry. IT Outsourcing The Bottom Line of Offshore Development. The political debate of whether to outsource software development to offshore firms will likely continue for some time.
Small and medium and large US companies often don't have a clear strategy for doing business in India. The multi-national US based companies and the US government organizations understand the opportunities the India market offers. Not surprisingly The State of Illinois, for instance is taking proactive steps to persuade companies to export to India. The export potential is huge as noted by position papers that come out of Washington. So great is the awareness that the State of Illinois is now regularly sponsoring two trade missions to India each year. US based Fortune 500 and 1000 companies and multi-nationals the world over are already deep in the Indian market taking advantage of the deregulated FDI (Foreign Direct Investment) climate and are thriving in the Specialized Economic Zones (which offer special incentives and tax breaks). Unfortunately the next tier of US companies are barely aware that India is a huge and lucrative marketplace for partnering and collaborating. NINE REASONS FOR SELECTING INDIA India has been in the news now for many months as the destination for overseas outsourcing of services. India is not the only destination for IT and BPO) and now bio-tech services, but it is the most desirable. How so? Not too many countries can provide equally low cost and high quality. One of the countries that has become attractive for both high quality and low cost is India. While India enthusiastically subscribes to its current outsourcing opportunity, America is slowly waking up to the possibility of India as a huge export market for American companies. Instead of viewing India with hostility for appearing to be taking jobs away from the white collar American, India’s recent economic growth has created a huge export market for telecommunications gear and computer equipment used by the sector engaged in providing IT and BPO services. A noted economist points out that every dollar of corporate spending shifted offshore by an American firm, generates $1.13 in new wealth for the US economy. Aside from the spending by the services sector, India’s economic growth has created a small but significant population with a disposable income - the figures jumped from 14% to 30% in the 1990s with expectations of a rise to 40% by 2006-2007. Some savvy Fortune 500 companies - Coke, Pepsi, GE, GM and Whirlpool – are already benefiting from the Indian retail marketplace which is flooded with foreign (mostly US) consumer goods. It makes good business sense to view India not only as a supplier destination for outsourcing but also as an export destination – the more India grows, the fatter becomes its middle class with cash to spend. India is powered by small and mid-sized business, not the conglomerates that we see in the US. The possibility of partnering with a like-sized Indian firm to enter the Indian market is an area more US businesses should explore. In this small write up I have offered a short overview evaluating India in nine key areas as to why someone should do business with India. Demographic and Economic Information:
Population Political Structure Political Parties
Legal System Independence from British GDP GDP growth rate GNP per Capita (Purchasing Power Parity) Language of Business Literacy Exports Imports
USA 290 million Constitution based federal republic 6 “national” and numerous2 “national” parties regional Based on English common law Based on English common law the 1947 (August 15) 1776 (July 4) $501.8 billion 6-8% (in past decade only) $2,600 English Varies by state 55-90% $61 billion (FY2004) $75 billion (FY2004) $10.45 trillion 2.45% $36,000 English 97% $687 billion $1.165 trillion
India 1.1 billion Parliamentary Democracy
Education: Despite economic gains in the 1990s, the enduring picture of India is that of a very poor country indeed. With poverty as the backdrop it is hard to imagine how India can possibly be such an attractive outsourcing destination. Nevertheless, India, since partition and independence from the British has pursued a socio-economic policy that has emphasized literacy, basic education for all, removal of poverty, and the development of science and technology.
Let’s evaluate India.
1. Language: English is one of 18 languages recognized by the Indian constitution.
English is the most important language for science and technology education and national, political, and commercial communication.
2. Character of labor pool: The middle class is estimated at 275-300 million people.
54% of Indians are under the age of 25. India is presently producing on average of 1 million college graduates and 200,000 engineers per year. With numbers such as this one begins to understand why India provides a seemingly never-ending pool of English speaking, computer literate manpower.
3. Labor cost: In general Indian salaries in the service sector tend to be one-fifth of US
salaries. A fresh call-center worker or programmer might earn $2500 – $3000 a year.
4. Time difference: The time difference between India and the US is almost 12 hours.
Many US based companies see this as a huge bonus for 24/7 customer support.
5. Subsidy, Government support: In the last 15 years more and more trade and industry
controls and restrictions on foreign companies entering India have been removed, gradual privatization of the public sector is occurring and foreign investment is encouraged. The IT services industry has been largely free of government intervention.
6. Intellectual Property: Indian firms are extremely cognizant of IP security for their
BPO clients and for high-end software development projects.
7. Communication infrastructure: The communication infrastructure available in India in
general and the business and software development parks that house the outsourcing firms are worlds apart. This is because the infrastructure available to the public in general is so inadequate for the conduct of business, that Indian software and BPO vendors have created self contained business campuses with new and gleaming buildings with immaculate grounds with water purification systems, power backup, satellite communications and transportation.
8. Political stability: India is a stable democracy and has been since 1947. See our Trends
Update link for a special report on the recent elections in India and its impact on business. The Economist in its May 29, 2004 edition provides a nice chart on country risk for emerging markets.
9. Process maturity and quality initiative: When US companies, in the late 1990s, faced
a shortage of programmers, software developers from Indian bailed out the US software industry. Later during the millennium scare, software companies in India contributed heavily to the software conversion needs. One might say that Indian IT companies have
been paying their dues by contributing extensively at the bottom of the value chain for a while. During this time the seasoned Indian companies have become ISO certified and later CMM/SEI certified. Recognizing the value of quality, the smart Indian companies and multinationals have been plowing through the levels of CMM certification, such that many of the CMM level 5 certification holders are in India. All of these factors contribute to India being an attractive outsourcing destination. The outgrowth of the recent economic growth is attracting US firms seeking new export destinations. Compared to the US and indeed other G7 countries and even China, India’s economy is in the infancy stage of growth – just compare the GDP and export numbers of India with the US. India presents an opportunity that small and midsized US companies can grasp rather than feel threatened by.
A Quick look at Automobile industry Some very quick observations: 1) Distinct slowdown in 2007-08 (FY2008).
2) Maruti’s share has remained the most consistent across 2003-08: 46-47%. Over the same period, Hyundai down marginally, and so is Tata.
3) Pt.2 needs to be combined with the fact that growth during last 5 years has been higher in
bigger segment (cars and MUVs). That means +for Honda and Toyota; and growth limitation on Maruti, Hyundai, and Tata.
4) That still leaves a lot of room for these 3: the Indian market will still retain a small car
one (with a gradual shift upwards). The small, compact, and Omni share of total domestic sales has remained at around 65% for last few years.
5) The bigger segment is growing fast but still very low % of total. That should change in the next decade.
6) Hyundai has dominated exports. That is a +for the country. On the other hand, no one has found success in exporting bigger cars. They may export to fellow LDCs (Bangladesh, etc) but not to competitive markets of US, Europe, and Japan. Could that change soon? Not soon, though people are trying. As of now, only M&M and Tata have some plans, but those involve a radical quality improvement, which will not happen tomorrow (liability laws have made them very cautious). Toyota and Honda have the products, but then they also have factories worldwide. Possibly India could be used as a regional hub. Suzuki exports small cars, and its big cars do not sell much anywhere.
7) High growth for One month or quarter or even a year do not make a successful company,
as Fiat and GM have found it (have data prior to 2002 also). Even the 3-year growth can be misleading (when read in isolation). Refer only Skoda. It was anyway growing at a good rate but selling around 1000 prior to Fabia. Now it sells 1900-2000. That means a 100% growth. Similarly for Logan/M&M; Spark/GM.
8) Most important for survival (as any business would be aware) is profits. No profits and
selling at a loss soon leads to extinction. The really good profitable years were till FY2007. From 2003-07, although steel, aluminium, plastics prices all increased; higher volumes enabled healthy growth in profits and returns. That has changed in 2007-08 with higher costs continuing, but volume growth slowing down. For comparison, I am posting the operating margin and return on net worth for major companies which have publicly available financial results for FY2007 (first figure is margin and second is return): Maruti: 13.5%, 25.4%; margins increasing FY2004-07 Tata: 10.5%, 30.9%; stable margins HM: operating losses from 2003-04 onwards Hyundai: 8.3%, 20.4%; declining margins from 2001-02 onwards, though margins have been stable during 2005-07. Honda: 11.2%, 30.8%, stable margins M&M: 8%, 33.3%; stable margins.
Q. Five factors affecting the success & failure of trade or business in a foreign country? Ans. 1) Cannot adapt to customs, language barrier, tax/trade barrier, lack of research prior to opening up shop, failure to adapt.