How to venture into electronics export business

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By Richa Chakravarty

India’s trade has grown significantly. According to Electronics and Computer Software Export Promotion Council (ESC), India’s ICT exports is expected to grow by 15 per cent to US$ 75 billion in FY 2012, while software and services exports are projected to grow to US$ 64 billion. Electronics hardware exports are also expected to reach over US$ 10 billion during the current fiscal.

There are various advantages of exporting electronic products and components, apart from earning foreign currency. More exports help in improving the production process. Since domestic demand for electronics is still limited, it is a must to find good export markets. The other benefit is that since most of the raw materials are imported, more exports can reduce the effect of the strengthening dollar. Says Varun Manwani, director, Sahasra Electronics Pvt Ltd, “Exports not only offer us the opportunity to serve a larger market but also to educate customers. They provide us the opportunity to know the latest global trends, and hence, expose us to various technological developments.”

Potential markets to explore and products to be exported

In 2009-10, India exported electronics products to 220 countries, with USA, UK and the Netherlands being the top three destinations, in that order. Hungary, Singapore, Hong Kong, Germany, Australia, France and Canada were other top destinations for Indian electronics in 2009-10. Electronics exports to EU countries have also increased significantly.

With the debt crisis in Europe and the downturn of the US economy, India is now looking at newer export markets in Southeast Asia, Latin America, Africa and West Asia. In countries like China, the Phillipines, the Middle East and South Korea, there is a good demand for Indian products. The emerging signs indicate that Africa is becoming a prominent trade partner where exports have totalled more than US$ 2 billion.

Major electronics products that are being exported are bare and populated PCBs, PCB assemblies, cable assemblies, LED lighting products, solar cells, medical instruments, rectifiers, transformers, capacitors, etc. According to Anup Sachdev, managing director and chairman, Alcon Electronics, “The export market for capacitors is very large. According to our estimates, even if we grow 10 times, our total production would be considered negligible with respect to the demand in the world market for capacitors. Countries where the demand is now large and will grow are China, Germany, Finland, France and South Korea.”

Criteria for entering into exports

Exports cover a very vast number of functions and a lot of preparations are required before

Anil Bali, vice president, Deki Electronics Ltd
Anup Sachdev, managing director and chairman, Alcon Electronics

starting an export business. A key success factor in starting any export company is a clear understanding, along with indepth knowledge of the products to be exported. In order to be successful in exporting, one must also thoroughly research the foreign markets.

QCD approach: The thumb rule for any business is to understand consumer requirements. However, while entering into exports, this factor becomes even more critical as one not only needs to understand the market and the changing trends, but also has to take care of the quality, cost and delivery (QCD) time. QCD becomes very important while entering into trade with any other country. One not only needs to follow the export guidelines of a particular region but also offer the best quality, optimum cost and prompt delivery, which forms the basis of any business.

Complying with standards: To enter into successful trade with another country, one must also meet the quality standards of a particular region and of individual countries. Apart from export/import requirements, the statutory policies of every country have to be kept in mind. While most companies in India are ISO 9000 certified, if one is planning to enter the US and Canadian markets, all electronics products entering these regions need to be UL approved as well.

Dr KR Suresh Nair, chief technology officer, SFO Technologies

The European market offers immense opportunities for Indian electronics. If one wants to export electronic or electrical products

Varun Manwani, director, Sahasra Electronics Pvt Ltd

to the EU, one has to make sure that the products do not contain substances that are banned by EU legislation. The EU has adopted the Restriction of Hazardous Substances (RoHS) directive and the Waste Electronics and Electrical Equipment (WEE) directive. Complying with these is of vital importance, so manufacturers have to ensure that their products have been suitably certified.

The Registration, Evaluation and Authorisation of Chemicals (REACH) is yet another significant directive that the EU has initiated. It requires manufacturers and importers to generate data on the substances they manufacture, and this data is used to assess the risks related to these substances and to develop and recommend appropriate risk management measures. Shares Dr KR Suresh Nair, chief technology officer, SFO Technologies, “Companies that wish to export have to be ISO 9000 certified and many other quality certifications become a must to generate interest in customers. India is always compared with China, and only through the demonstration of our quality as well as guaranteeing importers the safe custody of their intellectual property can we do well in export markets.”

Legislation: There are various legal requirements that one has to follow in order to enter into trading terms with other countries. Functions that fall under the ambit of legislation are safety standards, social, labour and environmental requirements. These requirements are necessary as they guarantee product safety, consumer protection, minimise environmental pollution and waste, and provide proof of the exporters’ social responsibility.

A Bali, vice president, Deki Electronics Ltd, advises, “Commitment is the key and communication is a must in order to enter into trade with firms from overseas. Once you understand your customers’ requirements and ensure that your products meet all the standards of that region, get your samples approved. If possible, try and be at the customer’s place when samples are being processed. Never compromise on quality and ensure your manufacturing process is stable before accepting bulk orders. Also, ensure that all three parameters of QCD are met.”

Adds Suresh Nair, “Those who plan to take the plunge into exports should check the bona fides of the customer while making deals. Payment terms for any new customer should be an advance telegraphic transfer (TT) or letter of credit (LC).”

Apart from the above mentioned criteria, Varun Manwani suggests the companies to have a local presence. “In our experience it is best to work, in export market through a local office, contact or JV partner. We have two offices in US, one each in Canada and Belgium serving all of Europe. This has given us an edge over our competitors as the local offices with local talent is able to understand the cultural and social issues and deal with clients in the local language.”

Regulations, surcharges or other restrictions

As the Government of India places great importance in the country’s exports, most items to be exported must meet certain minimal requirements and criteria. However, the items that do come under strict scrutiny, and which are subject to significant regulations, are under government control only to prevent shortages in the domestic market, safeguard natural resources and protect the environment. Thus, the export of some specified goods may be restricted or prohibited under laws such as the Environment Protection Act, Wildlife Act, Indian Trade and Merchandise Marks Act, Arms Act, etc.

There are some goods that come under the category of ‘prohibited goods’ and trading in such goods comes under the purview of penal provisions. Thus, it is advisable for traders to be conversant with the provisions of the EXIM policy, the Customs Act and also other allied acts. Exporters must make sure that before the export of any product is planned, they are well aware of any prohibitions or restrictions and requirements that are applicable to a particular product.

Bodies that can assist you

Risk is a part of business and there is no way of escaping it; however, one can mitigate the risk factor. If entering into trade relations for the first time, it is advisable to associate your company with organisations or bodies that help in establishing trade relations. The Ministry of Commerce, in order to increase international trade, helps in setting up trade promotion programmes and schemes. There are various programmes that help in enhancing India’s trade with other countries, and various tariff- and duty free schemes that can be availed.

Another body that helps in facilitating trade is the National Small Industries Corporation (NSIC). Its marketing intelligence cell collects and disseminates both domestic and international marketing information in coordination with other relevant departments/agencies. This cell provides a single point of contact to collect databases relating to bulk buyers in government, in the public and private sectors, apart from the details of exporters, international buyers and technology suppliers.

ESC is yet another electronics and IT trade promotion organisation, which helps foreign companies interested in establishing business linkages in India. It offers a varied set of services to its members related to growth in exports, the implementation of foreign assisted development programmes, as well as facilitating joint ventures, technical/financial collaborations and strategic alliances. ESC’s Market Access Initiative (MAl) scheme acts as a catalyst to promote exports.

Also, associations like ELCINA, an apex body for electronics manufacturers, have been networking with national and international technical institutions and business promotion bodies to help facilitate trade. They help various global agencies in organising training programmes or workshops, thus offering industry a platform for building trade relations.

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A Checklist

  • The various government incentive schemes and tax exemption programmes, like duty drawback and DEPB
  • Import regulation in overseas markets, especially tariff and non-tariff barriers. Though major non-tariff barriers have been abolished, there are still other tariff and non-tariff barriers
  • If your product attracts higher duty in the target country, demand obviously falls
  • Know the government policies and procedures of the country you are exporting to
  • Keep in mind special packaging and labeling requirements
  • Special measures are required for the transportation of certain products, which may be bulky, fragile or hazardous
  • The foreign customer may ask for product samples before placing a confirmed order. So, it is essential that the samples are made from good quality raw materials and after getting an order, the subsequent goods match the same quality standard
  • Determine export pricing and costing; evaluate credit risk

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Export segments under electronics and computer software/services sector

  • Computer software and services
  • ITES / BPO
  • Computer hardware
  • Electronics components
  • Electronics instruments which include:
    • Industrial equipment
    • Medical equipment
    • Office equipment
    • Strategic electronics equipment
  • Consumer electronics
  • Telecommunication hardware and related services

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