Trade, import and export for MSMEs: Successful entrepreneurs must meet the prerequisites of being successful professionals, that is, the knowledge, the skills, and the ethical code of conduct for doing business abroad.
By Dr Rajendra Prasad Sharma
Trade, import and export for MSMEs: Of late, it is fashionable for small firms to eye global market opportunities. Despite the high failure rate of MSMEs in the foreign terrains, they still contribute approximately half of India’s export volume and value, and the growth potential is enormous. Apart from the product idea, success abroad requires knowledge, skills, and the right mindset.
A good starting point is knowledge of the political, economic, social, and technological environment, the demand-supply gap for the chosen product, and competition in the foreign market. Also crucial is the knowledge about market access, that is, trade barriers, bilateral trade agreements, export regulations, standards and procedures, shipping costs, and incoterms. An MSME exporter accepting and shipping an importer’s order without a proper HS code can make the customs have difficulty classifying the shipment. They will face a commercial risk of delivery delay, demurrage, a higher duty, or a fine It risks the reputation of the exporter and the country.
Exporters require an attitude of curative marketing with a strong ethical commitment to serve foreign needs. Japan’s success in global markets with brands such as Sony, Toyota, Honda, Hitachi, and others, despite nuclear devastation just around our independence and a perennial shortage of natural resources, should inspire Indian exporters. Our reliance on the ‘jugaad’ approach and belief in the ‘chalega’ syndrome validates India’s low score on Hofstede’s Uncertainty Avoidance index.
Successful entrepreneurs must meet the prerequisites of being successful professionals, that is, the knowledge, the skills, and the ethical code of conduct for doing business abroad. Every exporter must introspect on the reasons for failure and answer some pertinent, open-ended questions that have a success recipe to help avoid failures. In the words of English poet Rudyard Kipling:
“I always keep six serving men with me, and they taught me all that I know. Their names are what, why, who, when, where, and how.”
Why internationalize
Following the British-American author and speaker Simon Sinek’s advice, let us start with the why. Answering the motives, aspirations, and goals for internationalization can help address the associated risks of international business. The natural perception of growth potential in foreign markets creates new market opportunities. However, few exporters know the precise reason for internationalization. Some consider exports as an alternative to saturation in domestic markets. Others consider it a matter of prestige. Many MSMEs only like to benefit from the government export promotion schemes. Still, assessing the firm’s export readiness is crucial before international expansion. Although firms can diversify the risks in domestic and foreign markets due to differential cost and profit structures, internationalizing firms eventually benefit from acquiring new skills and technologies.
What products to export
A close look at India’s export basket indicates commodities and not brands. Only the brands command customer respect and price premium. Even small and developing countries have branded their products, for example, tea brands such as Dilmah from Sri Lanka and Kericho Gold from Kenya fetch a higher price than Indian black tea. It would be worthwhile to process the raw materials and move up the value chain for higher unit value realization. Moreover, MSMEs must adapt their products to the buyer’s needs in those countries, that is, branding, packaging, labeling, and adherence to sanitary and phytosanitary standards of the chosen market’s requirements.
Following the rules of segmenting, targeting, and positioning, international marketers must create, communicate, and deliver a unique value to their buyers. Developing a lovemark (a marketing concept) with an emotional connection with customers will even be a step beyond branding. Many of our products and services hold the potential to be converted into lovemarks. Being a service-based economy, India must capitalize on the advantage of its services. Our IT-enabled services brands like Infosys, Tata Consultancy Services (TCS), and Wipro enjoy a high image and reputation globally.
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How to do market selection
There are as many countries as the number of bones in the human body. The MSME exporters that ignore the systematic international marketing research to Screen, Identity, and Select (SIS) the right markets, head for peril. Foreign markets entail country, cultural, currency, and commercial risks. The democracy index from the Economic Intelligence Unit and the corruption perception index released by Transparency International help assess the host country’s governance and the corruption, respectively. Understanding the trading blocs, the trade agreements, the ease of doing business ranking, and intellectual property rights (IPR) issues also save from pitfalls. The Business Environment Risk Intelligence (BERI) and International Country Risk Guide (ICRG) can screen the markets for country risk if any. The Hofstede cross-cultural country comparison, Erin Meyer’s cultural maps, and other tools like World Value Survey (WVS) and the Values and Lifestyles (VALS) surveys can help eliminate the cultural risk.
The national trade statistics from the Directorate General of Commercial Intelligence and Statistics (DGCIS) offers free principal commodity data. Euromonitor Passport provides rich information about the market potential and the dynamics in several product categories and geographies. Trade maps and other ITC tools such as market access maps, market potential maps, and procurement maps help assess the opportunity and identify the demand-supply gaps in the foreign markets. The country economic profiles from websites like statistictimes.com and theglobaleconomy.com prove handy for selecting the right countries by eliminating the riskier ones. The trade bodies and the product-specific export promotion councils also help the MSME exporters with trade inquiries and market information.
How to plan for promotion and distribution
Communicating value requires creating awareness. If a great product goes abroad without promotion, it would be like winking at someone in the dark. In international markets, the choice of promo tools like tradeshows, events, press coverage, e-commerce, digital, and social media marketing platforms, requires adequate attention. Messages need cultural sensitivity and authenticity to resonate with the intended foreign audience. Global sales management and personal selling pose unique challenges in cross-cultural settings.
Indian MSME exporters primarily cater to the buying agents. In the process, they miss out on connecting well with the end-users, sacrificing a larger share of margins and earnings for the foreign intermediaries. The success recipe requires selecting the most appropriate entry mode from various exporting, contracting, and investing options. The choice of a wrong entry mode can be disastrous. International distribution involves setting up the home country and host country channels. Several exporters hardly utilize the Indian embassies’ commercial wings to identify suitable overseas channel partners. Also, promotion and marketing channels need an adaptation for the chosen market.
Channel collaboration and strategic alliances in distribution, logistics, and e-commerce are significant trends for success abroad. Pricing in foreign markets with customer willingness to pay and negotiating around non-price factors is the key to success. With a typical trader mentality, the exporter fraternity from India responds to importer inquiries for quotations without understanding the customer requirements. The inquiries eventually are lost due to commoditization and a lack of competitiveness.
Internationalization requires a systematic approach to finding and developing new markets, customer groups, products, and channels to keep pace with the dynamic requirements. Apart from mapping global marketing opportunities, the MSME exporters should also map the potential sources of competition. Indian exporters can find and design their success formula in foreign markets by avoiding the traps if they answer the why, what, where, and how of internationalization. While the exporters ignoring the critical questions take a beating, those addressing them taste success.
Dr Rajendra Prasad Sharma is Professor of Marketing at Indian Institute of Foreign Trade, Delhi & Kolkata. Views expressed are the author’s own.
