An Examination of Indian Trade Policies - Essay Example

Introduction For the purpose of this study I will deal with an Australian dairy company known as Bulla dairy foods it deals with production for both the domestic market and the export market .This is a company dealing with a wide variety of dairy products which include ice cream, table cream yoghurt, sour cream and cottage cheese. It has an employee base of around 400 and was started in 1910 it runs two manufacturing plants one in Colac and the other in Victoria its head offices though are situated in Derrimut Melbourne . As per the requirement of this project an Australian company which in this case is the Bulla dairy company will wish to extend its export market to European & Asian markets, I wish to explore Indian and the Danish market, this will involve explanation of my choice, examination trade policies and a deeper look at the regulation of dairy products in the same markets and at the same time look at the best way of successfully joining the markets. (Raven hill 2008) Why the market India is one of the most populated countries in the world and thus provides one of the largest markets for various products produced by different companies around the world among these is the dairy products market, despite the fact that India is one of the highest producers of dairy products the domestic market being worth around 10 billion US$ it still does not exhaust wholly the requirement of the market this provides room for an extra player in the industry which is the reason why I have singled out India as a viable market. When we look at Denmark though it has a reasonably small market compared to that of India it provides one of the best Import markets in Europe and the market for the daily products is still not that much concentrated a reason for the market choice.(Buffie 2002) Another factor is the continued peace and political stability enjoyed both countries, no cases of political instability, this creates a calm business environment and provides a chance for economic growth, thus peace and stability is another factor that makes the two markets very attractive. An examination of Indian trade policies Trade regulations in India are carried out by the Ministry of commerce and industry of which it announces its Export Import policy after every five years. The government of India looks at trade as not an end itself but as a means to an end the end being economic growth. Thus the main motivation for the government is to encourage foreign trade to stimulate greater economic activity as it seeks to become a major player in the world trade. Therefore their acceptance of imports is based on the imports ability to stimulate growth of their economy. Their foreign trade policy is built around two objectives that is (Indian policy handbook 2004-2009) Acting as an effective instrument of economic growth by giving a thrust to employment generation. The government has further come up with strategies to meet those objectives but for the purpose of this study I will just highlight those strategies that touch on the subject issue. -It wishes to simplify procedures and bring down transaction costs -Facilitate the state to be the global hub for manufacturing trading and services. -Identifying special areas of focus which have the potential to create employment opportunities particularly in the semi urban and rural areas. -Import of capital goods this will increase it economic value and productivity while at the same time attaining internationally accepted standards of quality -Use of their embassies as their key players in their export and import strategies and to help link them to their commercial wings abroad. (India policy handbook 2004-2009) Examination of Denmark's trade policy Denmark applies no unilateral trade barriers to the products entering its market from Australia and America and being a member of European Union all the external duty tariffs entering its market from non EU markets apply. -Once the goods have cleared the customs within any of the EU members then they can circulate freely within any of the EU members including the Danish market. -A value added tax of 25% is applied on non-discriminatory basis to all goods and services sold in the Danish market, this applies to goods produced locally or imported. -Milk products from other countries such as maybe the case with Bulla products are governed by the Common Agriculture Policy, duties on thee items are supplemented with a system of variable levies or other charges, this being done to equalise prices of imported commodities from EU and those from other regions. Denmark's regulation on dairy products Dairy products in Denmark are considered as foods and the regulations of the same are restricted to health subscription and labelling. -The Danish government requires that all consumable products be marked and properly labelled in Danish language. This should include the manufacturing date, durability, weight, and product designation. -The other required compliance is that each of the products must have a batch identifying code. (Michael 2008) India's regulation on Dairy products The state requires a sanitary certification of the entire dairy products that are sold in its markets this has been a measure taken since the incident of exposure of cattle to estrogenic substances since 2003. It required that milk be held for a period of ninety days for the cattle that had been treated with estrogenic compounds. It should be noted that this regulation had greatly affected the Australian dairy product exports when the compounds were traced in their products around the year 2003. Other regulations that may affect an entrant into the dairy market include -A requirement by the Bureau Indian Standards (BIS) which covers the entire parameters of health and requires that manufactures comply with other standards. -These involve obtaining an ISI mark that is exhibited on product packages that meet its standards, the BIS standard are compulsory for all milk compounds and condensed or evaporated milk. -In the Danish market besides the state regulations on e has to comply with the advise given by the Danish Standards Association which is a non profit making organisation but which has been licensed as a technological service institute, to provide services within standardization, certification and the communication of knowledge. Level of expected competition The level of dairy products competition still remains high within the Indian market with an average of 300 dairy companies' in the country but which have different capacities. Their ability to compete is dependent on the operators of the companies, who range from government to private operators to cooperative with the private ran companies being the best. Among these companies 90 are in the public sector, 105 in the cooperative sector and 45 of them in the private sector this high number of companies necessitates a well developed marketing strategy and research to offer a distinct product, which would give people a reason to shift their loyalty. Competition in the Danish market is equally big with a free market for other EU milk producing countries the main one being Germany and the local production which is equally high. Australian regulation on exports Another major issue to examine is the Australian regulation on exports as this will definitely affect the export of Bulla dairy products. The Australian government has found the need to subsides costs for the manufacturing companies that export goods ,this has seen the companies production cost go down which has been a major motivation for the local industries to join the export markets thus Bulla by participating in the export market will be a direct beneficially of the governments scheme. Another factor is the increased trade ties between India and Australia this is bound to act In Bullas advantage as the trade regulations ease and economic ties strengthen between the two countries. The last factor is the acceptances of the Australian government dairy products into the Indian market something they had not done since 2003. (Raven hill 2008) Available or eminent risks The risks involved are brought about by various factors either emanating from the two countries or from other global trade participants, these risks may either be political or economical Political risks Ever changing trade regulations, most countries are now changing their trade policies randomly or continually, this requires traders in these countries to keep changing their modes of trade continually which maybe expensive in the long run. Also the new policies may not favour some traders or industries and may require the traders to change the markets. Then there is the risk of the currency exchange rates these keeps on fluctuating and destabilizes the expected earnings from certain ventures. Finally there is the risk of non acceptance of country s products which would result to huge economic losses by the producing companies. (Shutts and Kenneth 2001) Political risks These are the major risks and are very random and cannot be easily predicted they include:- Non renewal of export or import licenses, a country may fail to renew export or import licenses of a company due to restrained relations with the mother country this may lead to loss of major investments that may have been done by the traders. Fluctuating tax rates this has a direct effect on the costs an exporter incurs in running trade in the other country and obviously has a negative bearing on the returns of the company. War risks as may be the case in most developing countries which are engrossed in unending civil wars and coup de tats this has a negative bearing on the business environments and may require a trader to vacate the market. Risks of confiscation of Importer Company's though this may not be so rampant but obviously confiscation of a company may lead to a collapse in its trade dealings. (Raven hill 2008) Possible methods of entrance in to the market A company entering the Indian market may have several options available to it of which I wish to examine some of them that may be applicable in the case of Bulla dairy products. Amalgamation / consolidation This may be referred to as the joining together of businesses to form a unitary block of business. This would involve Bulla to form a committee of brokers whom would study the Indian dairy companies as they examine the existing weaknesses on some of them if they find some that are willing to be acquired then Bulla can acquire them and either change the name or operate under the same name depending on the good will of the company. The other option under amalgamation would be buying partially the shares of another daily company by doing this Bulla will be able to introduce their products by selling their production capabilities to the acquired company. . However this would only succeed if the production capabilities of Bulla are much better than those of the acquired company. The advantages of this entry method are that:- The company will have a direct entry of the market and will enjoy the goodwill of the initial company. The other apparent advantage is that the costs of extensive research are not incurred as the same may have been carried out by the initial company. The company achieves economies of scale that may not have been realized if it joined single handedly. The disadvantages of this would include:- Continued struggle in management this may be due to the feeling that one company has more control than the other or because of diverse ideas (Roberson 2004) Franchising This involves using a company in India to market the products of Bulla. This would help Bulla in introducing its products to the market without the need for direct participation. This has the following advantages:- Bulla can examine how other businesses that have used the concept have faired in the same market. One can benefit directly by using a given outstanding franchisor, as some have brand names that sell very quickly thus Bulla can use them to gain fast and successful entrance into the market. The franchisor having vast knowledge of the market provides the new entrant with information that may be vital in improving the products they may also help in setting up the industry in the new country. It eases financing as some strong franchises have strong financial backgrounds or have institutions willing to lead to them. Despite the numerous advantages franchising has disadvantages which include:- The initial costs incurred in buying out a franchise may be very high and sometimes override the benefits realized from operating in a given market. The franchise may sometimes offer dictations or restrictions on how a company is supposed to operate which has a toll on the company's freedom to engage in free trade. (Spaddaccini 2004) Establishment of production firm The other option available to Bulla is setting up of a production firm in India though this would involve high research costs as well us high investment costs. This way has the advantage that the company will have a complete understanding of the market due to the initial research conducted. The company is likely to benefit from government subsides on capital investments this is so because most countries encourage capital investments in their land. The other last advantage is that the company will have a more centralized location and will directly deal with the consumers; this will help in conducting market research and carrying out vigorous marketing for its products. There is one great disadvantage with this method of market entrance though, this is that the initial expectations of the market may not be met which may translate to great losses by the company. Also the company becomes subject to any instability that may arise in the host country as it tends to operate from the same country. (Roberson 2004) Conclusion The entrance of a company into a new country or market would involve vast research and study of the subject market as this directly determines the benefits it leaps from the market. In this project Bulla dairy products company has adequate information on the two markets and all the available market entry methods, the best of the entry method would be franchising as this will ensure immediate participation of its products in the market and with a choice of a sound franchisor its bound to realize immediate benefits due to the vast market knowledge and financial soundness of the franchisor. 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