Foreign trade policy and the growing complexities of International marketing

Dr B K Mukhopadhyay *

So, the annual foreign trade policy meant for the year 2013-14 is here - carrying a new bag of incentives that included, among others, extension of zero duty Export Promotion Capital Goods (EPCG) scheme allowing duty-free import of capital goods to all sectors.

Textile exporters benefiting from the technology up gradation funds scheme will also be allowed to avail themselves of the EPCG scheme. The interest subvention scheme has been widened for the engineering and textiles sectors - allowing use of duty credit scrip beyond duty-free imports, and at the same time permitting the transferability of status holder incentive scheme. Greater operational flexibility has also given to Special Economic Zones (SEZs) with the government reducing the area requirement by half for all SEZs and doing away with the minimum area requirement for IT SEZs.

This has actually come at the time when India has been facing a tendency of falling exports - exports declined 1.76 per cent to $300.57 billion in 2012-13 fiscal compared with $304 billion in the previous year.

In fact, the Foreign Trade Policy (FTP), 2009-14 was announced on 27th August, 2009 in the backdrop of a fall in India’s exports due to global slowdown - the immediate and the short term objective of the policy being to arrest and reverse the declining trend of exports as well as to provide additional support especially to those sectors which were hit badly by recession in the developed world.

The Policy envisaged an annual export growth of 15 per cent with an annual export target of US $ 200 billion by March 2011 and to come back on the high export growth path of around 25 per cent per annum in the remaining three years of this Foreign Trade Policy i.e. up to 2014. The long term policy objective for the Government is to double India’s share in global trade by 2020.

Some positive thinking is definitely there. Extension of zero duty EPCG scheme to all sectors will promote the technology intensity of exports.

It has been rightly recognized that there are acute difficulties in aggregating large tracts of uncultivable land which are vacant and contiguous and accordingly the decision has been taken to reduce the minimum land area requirement by half for different categories of SEZs - there would be no minimum land requirement for setting up IT/ITeS SEZs and only minimum built-up area criteria would be needed to be met by SEZ developer.

It is also pertinent to note that as regards exit policy for the SEZs, it has been decided to allow transfer of ownership and sale of SEZs units.

The extension of interest subvention of two per cent to engineering and textiles and the promise to cut the transactions costs are also reflections of positive thinking.

As the things stand now: international marketing has emerged as targeted area of highest priority among the progressive nations globally. The fact is that for both of the developed as well as the developing world marketing is not only considered from the point of view of being an integral component in the context of economic development, but as a rich gold mine - foreign exchange - if one knows the technique to explore then the resource is meant for one, of course in a transparent way. Reaping adequately from modernised, highly fluid and fast changing global business / commercial environment does depend on its abundant natural / human / technological / financial resources as well as crucially on the very ability to undertake expanded task of adapting to befitting marketing strategies.

Naturally, the challenge is to create exportable surplus and at the same time producing goods / rendering services at least comparative cost so as to get a strong foothold on the market in the face if intense competition.

At this very juncture the size and complexity of international business is required to be comprehensively weighed. It is to be borne in mind that international business, in the true sense of the term, is different from domestic business. While the latter is confined to national boundaries, the former spreads wings abroad. The former involves more complexities that are related to intra-firm-transactions and to unfamiliar host-country-environment – regulatory, economic and financial, political and legal, socio-cultural and many others.

As international business is normally carried on in an unfamiliar environment it is rather imperative to get acquainted with the various types of environment in which such businesses are transacted – regulatory environment dealing the type of trade, FDI [ Foreign Direct Investment ] regulations at the national and international level as well as the economic integration schemes in different parts of the globe.. Political, economic, legal as well as socio-cultural environment that differ from one country to the other influence such a business to a significant extent.

To achieve success is, therefore, a time bound process and depends on competitive skill, among others. Especially, the international financial environment is another crucial factor since the trade as well as investment involve different currencies as well as funds that are borrowed / lent in different currencies and in different segments of the international financial markets.

In fact the very process of international business took centuries to grow – trade, followed by international production, the elements of integration being the latest one. Today the business firms are managed in fundamentally different ways if the same is compared to even three to four decades back. Firms inclusive of family-run businesses pay adequate attention to the ongoing changes as well as latest available management techniques and concepts while aiming at quick growth and as such it can safely be taken for granted that the very interest on this score have spread beyond business communities.

No doubt, international business expanded at a jet speed in the current decade especially – reasons mainly being rapid growth in technology, coming up of supportive institutions, openness of the different economies as well as increase in competition. Even minnows like Myanmar are now making foray into the energy sector in particular. Not only this, even a late comer country like Bangladesh has emerged to be our tough competitor in the field of ready-made-garments – making full use of its competitive advantage in the arena of cheap labour.

That is why international business essentially covers international transaction of economic resources as well as international production of goods and services and as such the broad forms of business internationalization cover trade, technical collaboration and investment. Clearly, the heterogeneous environment influencing international trade is required to be scanned simultaneously with framing and implementing of strategies so as to fulfil the basic objective of maximizing country’s wealth – both on the part of domestic and international enterprises.

For the latter this is more crucial because of the existence of far greater complexities – situations being totally different between an industrialized country and a less developing country [viz. they are, in general, different in the EU compared to those in other industrialized countries].

Obviously, a lot depends on not only the financial strategies / the strategies that an international player adopts or should adopt, but also on the technological and production aspects, marketing aspects as well as human resources management aspects.

In the light of the above analysis it is clear that the steps are not enough to turn exports completely around as it is tough out there in the world market - most of the import export destinations [Europe in particular and the USA where the revival signals are still tentative despite the stock markets reaching new highs driven by artificial infusion of liquidity] are battling .

Still, the new trade policy could hopefully give a boost to domestic sourcing for spurring manufacturing growth by providing relaxation in export obligation on domestic procurement of capital goods and uses of promotional scrip for domestic procurement. True, other supporting measures have to be there if a grand success is expected. One of such steps definitely could be making foreign currency loan available to the MSME sector through the RBI earmarking 50 per cent of the swap facility to be utilised by banks for financing MSME exporters. Fiscal incentives on export income could yield better result - entrepreneurs finding the export markets more attractive than the domestic market.

To what extent it could push merchandise exports in a global market marked by recession, slowdown and tentative revival is a point to observe.