GMS723_ Export Implementation Plan Phase 2 (1)

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GMS723 Export Implementation Plan - Phase 2 Table of contents Executive Summary 2 Step 1 - Create Organization 4 Step 2 - Market Research 6 Step 3 - Create Marketing Plan and Access Risk 13 Step 4 - Access Regulations 25 References 30 Appendix A 37 Appendix B 38 Appendix C 40 Appendix D 42 Appendix E 51 1
Executive Summary Felton Brushes Ltd is an industrial brush manufacturing company based in Canada, owned by Tony Panikvar. Presently, the company has been exporting to a limited number of markets such as the United States. This export implementation plan will develop reasons for the company to enter into the Indian market. The export organization’s creation and the duties of the export manager will be discussed. The market research conducted concludes that there should be high demand for industrial brushes because of its intensive use within many industries in India. The export marketing plan will be discussed step-by-step as well as steps to take to mitigate risks. Felton Brush Ltd will use an adequate pricing strategy to capture a large portion of the market. The inflated Indian Rupee also works in the company’s favour because getting the products on Indian soil will be less expensive. There are some risks associated with exporting to India. Interest rate, regulation, contract and competition risks are among those to take into account. This report has also noted both the internal and external risks of the company. Felton Brushes Ltd could consider employing INCOTERMS from Group C or D. This is because the company is a small business attempting to grow and expand into a new market. It is in their best interests not to try to negotiate group E or 2
F INCOTERMS at this time, as this will almost certainly result in the export arrangement being terminated. Although these terms are riskier, they will yield larger returns in the long run. Step 1 - Create Organization 1.1 Mission statement Felton Brushes Ltd ensures that all products are made with the highest quality and safety possible using the finest materials from the United States of America. The company is committed to creating safe and effective products that can be used worldwide and in every industry. Since 1933, the company has been supplying industries with reliable delivery service by working closely with customers and distributors to ensure quick delivery and loyalty recognition with every order. Additionally, continuing to produce safe and high quality products while maintaining customer satisfaction and loyalty will remain as goals to the company. 1.2 Corporate objectives The company’s objective of exporting to India is part of the growth strategy to sell the company’s products to more customers. The company’s goal is to venture into different countries and expand our consumer market, selling Felton’s highest quality products to more customers. By exporting to India, a large industrialized country, the company will be sure to provide many customers with excellent products while also profiting. Exporting to countries such as India will be very beneficial to the 3
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company as they are considered one of the fastest growing economies in the world. Selling the company's products to India could generate more revenue considering the endless industrial industries in India such as their production of pharmaceutical goods, cars, tools, machinery and steel. The company’s competitive advantage lies with being able to produce high-quality products that industries within India require, leading to possible high revenue generation. 1.3 Export Manager Duties The export manager is a person that is crucial to the success of the exporting implementation plan. They handle all responsibilities regarding the whole export process. Here is a list of their responsibilities, and preferred skills and knowledge. The export manager is overall responsible for the creation of the export organization and the export process (Manjuris, 2021). They need to create an export marketing plan and assess the risks of exporting to the host country (Manjuris, 2021). They need to plan and organize, as well as manage inventory resources for export (Manjuris, 2021). They need to choose distribution channels and the routes to take from the manufacturing plant to the point of import or the client’s back door (Manjuris, 2021). They need to choose and negotiate the best INCO term possible as well as other contracts (Manjuris, 2021). They need to assess regulations to determine whether there are barriers to exporting (Manjuris, 2021). They need to determine whether the company has significant advantages or disadvantages to exporting to the host country, such as favourable trade agreement clauses, etc (Manjuris, 2021). They need to determine the method of payment, insurance if needed, and export documentation including specific documents such as consular invoices if necessary (Manjuris, 2021). They need to implement procedures for re-designing 4
products and ensuring compliance with foreign packaging and labelling standards (Manjuris, 2021). Additionally, they need to ensure proper documentation and ensure accuracy through quality checks (Manjuris, 2021). They need to have a good relationship with custom brokers, customs agents, carriers, and the client to ensure proper documentation such that there is delivery with minimal to no delay (Manjuris, 2021). Lastly, they need to implement and complete the export process such that the company can successfully export with minimal to no problems. Additional duties include hiring staff who can speak English, and the host country’s language(s) (Manjuris, 2021). Provide a 24h service for the client as they live in another time zone (Manjuris, 2021). Ensure that the staff hired are able to use the internet and emailing systems (Manjuris, 2021). Set up an automatic reordering software such that the company is able to adjust, change INCO term, etc. to get the product across with the least risk (Manjuris, 2021). The export manager should have good interpersonal and communication skills for better mutual understanding of each agent’s role and duties of the export process . They need to be able to adapt to changes caused by internal and external causes. They need to be able to negotiate the best possible terms and contracts for the company. They need to be able to problem solve should there be any problems during any part of the export process. 1.4 Organizational Chart An organizational chart of the company (see Appendix A) has been created to showcase what it would look like after the creation of the export organization. Each position in the chart is currently occupied within the company, and all information has been taken from an employee directory ( Felton brushes: Employee directory n.d.). Step 2 - Market Research 2.1 Political Environment 5
India has a democratic system, which makes decision-making decentralized wherein all states have differences in regards to political leadership, quality of governance, regulations, taxations, and labour rights ( India - Market Challenges 2021). Based on the EIU, India’s political instability risk is at 35, with 100 being the highest risk ( EIU Viewpoint, n.d.). It is safe to assume that there should be no political institutions or activities that would disrupt the business’s operations, and that political institutions should support the needs of the business. Additionally, the political stability rating of India is at 5.3, with 10 being high political stability ( EIU Viewpoint, n.d.). It is forecasted to decrease by a bit in the next few years, but still stay above 5 ( EIU Viewpoint, n.d.). This further reassures that there should be little interference with business operations within India, with some possibility of unexpected events that could affect operations. The EIU also examines India’s security risk which is an assessment of the physical environment’s stability. India’s score increased from 38 in 2019 to 50 in 2021, therefore, it can be assumed that India may be experiencing an increase in crime and safety risks ( EIU Viewpoint, n.d.). Additionally, the impact of crime assessment of India has a score of 3 with 5 being the lowest, and this is forecasted to remain unchanging ( EIU Viewpoint, n.d.). Hence, further proving that India may be experiencing some crime or security risks that may be a problem for businesses and the government. The risk of armed conflict has been stable with a score of 3, with 5 being the lowest risk ( EIU Viewpoint, n.d.). However, the score is forecasted to decrease, meaning that the risk for conflict will increase ( EIU Viewpoint, n.d.). Local distributors may be affected by these risks, leading to possible problems with the transportation and movement of goods. Therefore, it is suggested that the company choose an INCOterm that allows ownership 6
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and cost responsibilities to transfer at the port of import or earlier to lower risks of further cost incurrence and liability for damaged goods. Presently, due to the Taliban’s takeover of Afghanistan, there is a risk of the country becoming a “failed state” because of a lack of governance ( What a Talibal-led government means for the Asia region 2021). This could lead to instability for neighboring countries, including India. There is the possibility that Afghanistan could become a hub for international terrorist groups, specifically anti-Indian groups ( What a Talibal-led government means for the Asia region 2021). This increases security risks and reduces access to trade from Afghanistan for India. Additionally, as access to Afghan international reserves are reduced, the Taliban in Afghanistan could ensue drug trade in order to generate revenue for the country ( What a Talibal- led government means for the Asia region 2021). This can impact neighboring countries in terms of an increase in gang related activity ( What a Talibal-led government means for the Asia region 2021). Therefore, India can be impacted negatively by neighboring countries due to current political issues that can lead to increased crime, possible terrorist threats, and reduced trade activity. 2.2 Market Trends and Consumer Demographics/Psychographics According to a brief summary from a report regarding the industrial brushes market from 2021-2030, growing urbanisation has resulted in an increase in demand for a variety of industrial items ( Industrial brushes market size, growth, trends, revenue analysis and forecast 2021-2030 2021). The industrial brushes market is expected to profit from globalisation of economies, quick expansion in various emerging countries, and increased international trade ( Industrial brushes market size, growth, trends, revenue analysis and forecast 2021-2030 2021). As a fast growing economy, India’s many industries such as automobiles and manufacturing are expanding. These 7
industries are heavy users of a variety of industrial brushes, which advantages the company as this increases demand for the company’s products ( Industrial brushes market size, growth, trends, revenue analysis and forecast 2021-2030 2021). The only issue is that the Indian market is price-sensitive, and raw materials needed to manufacture the company’s products have volatile prices ( Industrial brushes market size, growth, trends, revenue analysis and forecast 2021-2030 2021). The company needs to consider the price-sensitivity of the Indian consumers, which may lead to problems regarding the company’s pricing strategies and profitability. According to Boston Consulting Group, a price-sensitive consumer has the following definition “a person who buys the lowest-price option, even when comparable products are available for a price difference of less than 5%.” (Witschi et al., 2021) Consumers in India are extremely price-sensitive, yet are also value-conscious, with context being an important factor to their purchasing decisions (see Appendix B) (Witschi et al., 2021). This is an advantage to the company because according to Lindsay Margenau, a senior trade commissioner in Delhi who is a part of Canada’s Trade Commissioner Service (TCS), the Indian market trusts the “Canadian brand” since Canadian products are well-known as reliable and high-quality products (Cameron, 2020). Additionally, Canada and India have strong people-to-people ties which can aid in the trust building process for the company’s brand emerging into India (Cameron, 2020). The company can also consider using the TCS to find trade commissioners in India as they have on- the-ground knowledge and business advice to help with the company’s export and market strategy. Therefore, the main objective of exporting to India should be to build trust in the Indian market as well as having a competitive pricing strategy that is profitable. Based on the EIU’s market opportunities rating, India has a score of 6.5 in 2021 with a slow steady increase within the next few years ( EIU Viewpoint, n.d.). This rating tells us that 8
India may have a few opportunities for market penetration, an average market size, medium growth rates and income levels. Inflation around the world has been increasing due to the global pandemic. Interruptions with supply chains and volatile prices of raw materials may cause issues regarding pricing strategies. It is recommended that the company does not pass costs onto the Indian consumers since they are likely struggling with the pandemic’s effects and are also already highly price- sensitive ( Indian inflation will be a bigger problem in early 2022 2021). The Indian government may implement policies that increase interest rates to prevent inflation from increasing further ( Indian inflation will be a bigger problem in early 2022 2021). An increase in interest rates (see Appendix B) in India means that Indian businesses will take less loans, therefore leading to less imports and reliance on domestic manufacturers if prices of foreign products increase ( India - Summary - Briefing Sheet 2021). Therefore, the company should have a competitive pricing strategy in India to compete with foreign and local businesses without sacrificing profit. The GDP expenditure on the imports of goods and services for India are forecasted to decrease after 2021 (see Appendix B) ( Annual data and forecast 2021). This is likely due to the Indian government’s efforts to promote and encourage domestic production and bolster India’s manufacturing capabilities and exports. Therefore, it may be harder to establish a presence in the Indian market as the Indian government’s agenda is being pushed. 2.3 Infrastructure India’s infrastructure is not developed, and they require improvements especially in their road transportation infrastructure ( India - Market Challenges 2021). Congested roads delay freight movement, which in turn delays cargo reaching the clients. India made ambitious infrastructure development plans such that there is not a heavy reliance on roads and rail, instead 9
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there will be alternative means of transporting freight ( India - Market Challenges 2021). India does not currently have efficient project approval processes and adequate regulatory framework to complete these infrastructure goals in the near future, even though the funding is there ( India - Market Challenges 2021). Based on the EIU, the infrastructure risk is at 53 with 100 being the most risky ( EIU Viewpoint, n.d.). With this score, it is safe to assume that some parts of India may have underdeveloped infrastructure which may lead to some delays in movement of cargo. The EIU’s infrastructure rating for India is at 4.4, with 10 being the best ( EIU Viewpoint, n.d.). There is forecasted to be a steady increase in the next few years, and this tells us that India will be constantly improving its infrastructure which includes its telecoms, transport, and energy infrastructures ( EIU Viewpoint, n.d.). The Indian government has announced plans to develop India’s infrastructure that specifically targets the logistics and transport sectors ( India's PM announces roadmap for infrastructure investment 2021). The plan is mainly to help reduce costs for domestic businesses. Improving domestic supply chains helps improve the reliability of electricity and internet services which leads to lower operating costs ( India's PM announces roadmap for infrastructure investment 2021). Thus, these plans help develop domestic businesses as India’s current government is trying to create prosperity and improve domestic business operations and exports. The Indian government has committed to improving infrastructure through projects such as the construction of the freight railway network connecting industrial bases to ports within the dedicated freight corridor (DFC) ( Things to watch in Indian in 2022 2021). This project is expected to be finished by the end of 2022. This project helps India’s smaller manufacturers and exporters by reducing logistical expenses and increasing efficiency and output ( Things to watch 10
in Indian in 2022 2021). Therefore, this project aims to support India’s exporters and manufacturers meaning that domestic businesses will likely be favoured more since they will experience reduced costs leading to reduced prices. 2.4 Competitors Identifying the competitors within the industry is an important step to considering whether to export to India. This section will specifically look at two companies that could pose a major threat to Felton Brushes, Tanis Brush and Gordon Brush Mfg. Tanis Brush is a well established industrial brush manufacturer and exporter. Tanis Brush has been operating since 1987 providing customers with special custom made products or standard brushes, using the latest technology, materials, manufacturing advancements and engineering expertise. They export their products worldwide generating revenues close to 20 million US dollars with incredible delivery times. Tanis Brush also uses third party distributors such as Amazon to aid them in selling their products; however, their custom made products are still demanded from customers for different jobs. Tanis Brush provides a vast variety of brushes for cleaning, painting, protecting equipment and many more. In addition, Tanis Brush has been able to market their products and brands very well through blogs, interviews and trade shows, which is an advantage they have over the company. Since Tanis Brush has a larger marketing scheme, it likely also has a larger reputation which may lead to more sales, putting the company at a disadvantage. Gordon Brush Mfg is another close competitor in the industrial brush manufacturing industry. Established in 1951, Gordon Brush Mfg has been providing companies and individuals with custom and standard industry brushes worldwide. Their company manufactures over 17,000 standard, special and custom brooms all in their brush manufacturing facility in California. This 11
facility is 183,000 sq. ft, state of art ISO 9001:2015 certified, allowing each product to be made with the highest quality standard each time. In addition, they are able to offer same or one day shipping and like Tanis Brush, they also use third party distribution companies like Amazon to help sell their products. Gordon Brush Mfg has generated profits to 26 million US dollars, nearly 1.5 times more than what the company generates. Gordon Brush Mfg has been in the industrial brush business for much longer than the company and this has allowed them to develop a name for themselves in the market as a fast and reliable company.Ultimately, this could possibly make it difficult for the company to enter India’s market. Gordon Brush Mfg may be preferred over Felton as their reputation has been growing far longer than Felton has as they have been operating for much longer and have a much larger business. It is imperative that Felton Brushes Ltd note the advantages that its competitors have and either improve their weaknesses or develop better strategies to overcome their competitors. 2.4 Government regulations for your products When exporting into another country it is very important to pay close attention to the government’s regulations, ensuring that the products sold and materials used are legal and culturally respectful. For example, in India, the use of cows is forbidden as they are considered sacred animals; using any materials that come from a cow is strictly prohibited and will affect companies that require materials from cows like cow hair. Fortunately, the company does not use any materials or products that the Indian government has banned. Step 3 - Create Marketing Plan and Access Risk 3.1 Export Marketing Implementation plan While implementing a marketing plan the company needs to study the market properly in order to understand its target consumers. The reason for success for a business is proper 12
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knowledge about its market and its demand. As it is all new territory, the first market research study for the business is going to be the most difficult. However, after the business gains knowledge on how a given sort of product would sell in a particular geographic location, you can use it as a guideline for exports of comparable products over and over again (Delaney, 2019). A business will use two different marketing strategies when they are planning for export and when it is for the domestic market. Along with the marketing plan the business will also have to assess the risk: INCOterms. The business also needs to assess the regulations and create proper export operations before implementing them. When doing business internationally the business needs nine P’s to make the 13 P’s of the international market. 1. Paperwork: What is the required paperwork? 2. Policies: What are the policies of the country? 3. Protection: Did we analyze the dangers and do we have the required trademarks and international protection for our product and company? 4. Positioning: How will we represent our product to the foreign market? 5. Payment: What is the guarantee of payment? 6. Planning: What is the plan on how to approach the consumers? 7. Personnel: Does the business have the right people with the right skills for the business? 8. Partnership: Will the business have partners who can help them in the foreign market? 9. Practices: What are the major cultural differences between the exporting business and the foreign market? The business also needs to develop a proper market plan after the 13 P’s of international market. With the proper export plan it allows an international business to do well in their target 13
market. Along with this export we also need to keep it in mind that we can plan it out but the targeted market might change, demand and supply may also be affected. As follows: 1. Goals and Objectives: When doing business on the international market, it is very important to set certain goals and objectives that the business wants to achieve. For instance, it is important for Felton to set certain goals they want to achieve while they are doing business in India such as increasing their target market. Objectives they want they want to achieve such as lower labor cost or more market share. 2. Necessary Budget: This one of the most important export plans I would like to mention. It is very crucial for Felton to have a proper budget planned out, how much they want to invest in return of how much output. 3. Key activities: There should be a proper game plan for Felton, for instance, they should step by step plan out to approach the trade market. 4. Strategies to be used in the foreign market: Strategies help to target the right consumers. Felton needs to decide if they want a direct export to their agents and distributors, director exporting is very similar to domestic consumers. 5. Evaluation: After the proper layout of the export plan it becomes much easier to get a proper vision of the goals, objectives, financial constraints and strategies that will be used. 3.2 Suggested Marketing Plan For India We need to build a marketing plan for Felton to implement when exporting to India, given the data we gathered via our market research and implementing Step 3 of our export process. This export marketing strategy for India will be in line with Felton's overall growth strategy. 14
1. Market Overview When it comes to market overview it is important to understand the market of India for Felton. For instance, the political environment of India, it is one of the critical issues to consider. The effect of government action, the types of legislation it passes, and a government's overall political stability are three factors that influence the political climate (Gitman et al., 2018). A multinational corporation like General Electric, for example, will assess the political climate of a country before deciding to build a factory there (Gitman et al., 2018). Is the government stable, or may the country be thrown into chaos by a coup (Gitman et al., 2018)? What laws, such as foreign ownership of business property and taxation, are in place for foreign businesses? Tariffs on imports, quotas, and export limitations must all be considered (Gitman et al., 2018). The economic environment needs to be considered too. One of the most significant external influences on enterprises is this category (Gitman et al., 2018). Business cycles are caused by fluctuations in the level of economic activity, which have a variety of effects on organisations and individuals. Unemployment rates are low and income levels rise while the economy is rising, for example. Other areas that fluctuate in response to economic activity include inflation and interest rates (Gitman et al., 2018). A government strives to stimulate or stifle economic growth by enacting policies such as taxation and interest rate levels (Gitman et al., 2018). Another thing to consider is the demographic aspect. In the business world, demographic issues are an uncontrollable factor that managers must deal with (Gitman et al., 2018). The study of people's vital data, such as their age, gender, race and ethnicity, and location, is known as demography (Gitman et al., 2018). Demographics assist businesses in defining their product markets as well as determining the size and composition of their workforce (Gitman et al., 2018). 15
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Knowing the market size in India is also very important, and the demand for the kind of products Felton is going to provide. 2. Market Strategy Market-Entry Strategy: Felton is a brand new company exporting in India and their competitors are the ones that are already established in India. Therefore, they need to have a proper marketing-entry strategy to create a positive impact on the market. A market entry plan is where Felton will set out all of the crucial details (Bdc, 2021). It will include the company's objectives, a description of the target market, a description of what Felton will offer there, and projected sales and how it will reach them (Bdc, 2021). One way to start the market-entry strategy is to research the market very carefully, it includes cultural differences too. Distribution Strategy: Felton has to come up with a proper distribution strategy in India, like how do they plan to distribute its products to consumers. Freight forwarders, air express firms, ocean carriers, and overland transportation businesses are among the global logistics choices (Nakra, 2016). Given the current technological environment and e-commerce receptivity, it is entirely possible to come up with a marketing idea today, create a web shop tonight, and be open for business tomorrow ( Nakra, 2016). However, if you overlook the need of efficient communication and promotion, as well as the value of strategically situating warehouses, implementing suitable inventory management, and order processing, your website may produce a large number of orders without generating any profit (Nakra, 2016). Pricing Strategy: Right now $1 CAD is equal to 59.10 Indian Rupees. Given this exchange rate Felton needs to make sure they are researching how much the consumers are actually willing to pay against this exchange rate. Pricing their product correctly, providing thorough and accurate estimates, deciding on the terms of sale, and deciding on the payment method are four essential 16
components in profiting from Felton’s international sales (Pricing Strategy, 2021). Due to varied market pressures and pricing structures around the world, pricing can be the most difficult (Pricing Strategy, 2021). The price at which a product or service is offered directly impacts a company's revenues, just as it does in the domestic market (Pricing Strategy, 2021). Key Points: Many factors influence most firms' decisions when it comes to designing, manufacturing, and selling products or services (Stobierski, 2021). Cost is essential because corporations based in developed markets, such as India, can typically find cheaper labour overseas (Stobierski, 2021). Financial Budget: When doing business with a different country a business should always have a proper financial budget. They should know how much they want to spend and given that fact how much they are expecting back. External considerations, such as labour, materials, overhead, and distribution and administrative charges, can influence a worldwide company's selection on which items to market and the product mix (Rivera, Milani, 2020). R egulatory and logistical issues: When the supplier is unable to meet contractual commitments or when there are disagreements over the contract's parameters and terms, legal risks develop (CDS, 2020). It's worth noting that some of the problems that arise from a lack of safety and security measures can be avoided by following the right procedures (CDS, 2020). Automation, the inclusion of a chain of responsibility, improving the efficiency of the security interface, and so on are only a few of them (CDS, 2020). Evaluation: Marketing plan is something that needs to be updated with time. Felton input all kinds of marketing strategies, however, if the demand changes in India then they would need to start from scratch again. Furthermore, Felton needs to give time to the consumers in India to adapt to the products. One of ways to check if the marketing plans are properly implemented or 17
not is to see if the certain goals and objectives that Felton has set for itself has been achieved or not. They can also see if the profit margins are reached and the profits outweigh the costs. 3.3 What is risk? Assessing Risk External Risks Interest Rate Risk There is a rise in interest rates globally and Canada is no exception. Interest rates are likely to increase in 2022, and with an increase in interest rates comes a decrease in the demand for goods and services (Cattlin, 2021). This may impact the company’s revenues long-term as consumers may spend less, while businesses will borrow less. This helps the country lower its inflation rate but will also lower economic growth (Pettinger, 2019). Regulation Risk The Indian government has constantly changing policies regarding tariffs and imports. In order to prevent non-essential imports, promote domestic businesses and exports, the government raised its import tariffs and raised customs duties on a variety of products ( Trade policy: Tariffs and import taxes 2021). The uncertainty regarding India’s tariff and custom duty rules pose a risk to the company. Contract Risk Developing contracts with overseas markets could potentially increase risks. There are unforeseeable reasons that could affect a contract’s obligations, ultimately leading to a myriad of problems. For example, failing to meet contractual obligations could result in a lawsuit and choosing between overseas courts and home courts will incur large expenses. The costs to engage with lawsuits will likely be more than the money owed to the company. Therefore, there 18
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will be risks to the company doing business overseas as the other party may fail to meet its obligations. Environment Risk Currently, India is experiencing tensions with multiple countries. If India becomes involved with armed conflict, the company may experience difficulties exporting. In addition, the current physical infrastructure is not fully developed which may lead to delays and difficulties in transporting goods. Natural Event Risk India has had many natural disasters such as floods, tsunamis, earthquakes, cyclones and more. These events are unforeseeable and there is constant uncertainty revolving around these events. The company will lose customers and goods that have been caught up in a natural disaster event. Competition Risk Competition poses a huge threat to the company. Industrial brushes are products that many companies manufacture and export. Therefore, the company faces competition from multiple companies such as Gordon Brush and Tanis Brush. Unfortunately because of the vast options consumers have, including India’s domestic manufacturers, the company may be seen as an alternative to other well known companies. Internal Risks Liquidity and Cash Flow Risk The Covid-19 pandemic has affected all businesses worldwide. Highly volatile raw material prices will have an impact on the company’s liquidity due to uncertainty involving the prices. This can have a negative effect on the company’s production as there may be delays or 19
limited access to the proper materials. Cash flow will not necessarily increase from exporting to India due to the strict import policies which lead to Indian consumers importing less and relying more on domestic manufacturers. Supply Chain Risk An immediate supply chain risk the company faces is the lack of supplies and delays due to the current epidemic, Covid-19, along with any other variants that arise. This risk has been mitigated through vaccines and other precautions, but recently there has been an uptrend of cases. If the amount of affected persons is high, there will likely be lockdown measures that will result in more delays and a lack of materials. Issues with shipment of goods such as the Suez Canal incident may happen again through environmental causes. It is integral to the company’s manufacturing process that shipments of materials arrive on time. Due to the current delays in the global supply chain, the company may be unable to manufacture products in a timely manner and export them to India. 3.4 Risks Exporting to India Expropriation is a low to moderate danger in India. The government has made headway in the past few years in improving legislation regarding expropriation and compensation, according to US investment climate declarations. This includes successfully conducting the country's largest spectrum auction in 2016, implementing transfer pricing, implementing a goods and services tax in 2017, and enacting new insolvency and bankruptcy legislation. Furthermore, the political risk in India is also considered low to moderate. The ongoing Kashmir conflict between India and Pakistan poses a continuing military threat, while long-standing border conflicts with China have also lately escalated. Such disagreements, if they worsen, could stifle business confidence and jeopardize the economy's recovery. Presuming, except for political 20
stability and the absence of violence, India outperforms the emerging and developing Asian averages on all governance indicators. (Refer to Appendix C for risk indicators graphs) 3.5 Incoterms Functioning in a foreign nation can be quite dangerous. The bigger risk, on the other hand, usually equals higher profit. That is why we try to minimize risk as much as possible during the export procedure. Choosing the relevant trade terms, often known as INCOTERMS, is one of the simplest ways to reduce risk during an export transaction. There are numerous INCOTERMS in use around the world. INCOTERMS were separated into four categories in the year 2000 version: Group E, C, F, and D, with Group E allowing the exporter to take the lowest risk and the importer to take the highest risk, and Group D allowing the importer to take the lowest risk and the exporter to take the highest risk. INCOTERMS were divided into two groups in the 2010 revision: - Group 1: INCOTERMS that apply to any method of transportation are grouped together - Group: INCOTERMS that specifically apply to sea and inland waterway transportation. During negotiations, the buyer and seller must choose whether they will utilize version 2000 or version 2010 of INCOTERMS for the transaction. Although Group E INCOTERMS are the least expensive for the exporter, they are not always the best negotiable trade terms because they are too risky for the importer. Although, it's crucial to realize that INCOTERMS aren't the only way to reduce risk in international trade. If we negotiate a larger INCOTERM, there are other options to limit our risks, such as distribution, insurance, documentation, and payment. Felton brushes use Incoterm EXW (EX-Works) from the description on their website buyers are responsible for all shipping and handling and the seller has no liabilities at all. According to the slides, basically, Incoterm EXW states that the buyer assumes almost all costs and risks 21
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throughout the shipping process and the seller’s only job is making sure the buyer can access the goods. Considering India being further away from Canada, exporting to India will be very different than exporting to the United States. The INCOTERM(S) that should be used and the justification behind them for exporting Felton brushes into India will be covered in the next section. 1. Cost and Freight (CFR, Port of Mumbai) – This INCOTERM requires Felton Brushes to cover all transportation costs until the items arrive at the named destination specified in the INCOTERM. Once the ship leaves the Port of Toronto, however, all risk is transferred. This might be a good INCOTERM for Felton because the shipment will have to transit through the Atlantic Ocean on its way to the Indian Ocean, which means poor weather could cause cargo damage. As a result, they would not be responsible for any cargo damage or loss if such circumstances occurred. 2. Cost, Insurance, and Freight (CIF, Port of Mumbai) – This INCOTERM is similar to CFR except that the exporter is responsible for the items' insurance. This INCOTERM may appear to Felton Brushes as an additional expense, yet it appears to be negotiable from the buyer's perspective. Having Felton pay for insurance protects the buyer from having to pay for loss or damage if an incident occurs while the consignment is being transported across the Oceans, even if risk and ownership transfer occurs after the ship leaves the Port of Toronto. 3. Delivered Duty Paid (DDP, Mumbai) – Despite the fact that this INCOTERM represents the highest risk and cost for the exporter, we are confident that Felton Brushes have a 22
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bright future in the expanding Indian market. Felton Brushes may choose this INCOTERM to negotiate with the buyer if they recognize the opportunity and believe it may succeed in the Indian market as we do. The buyer will most likely accept this INCOTERM because it assumes the least amount of risk for them. This indicates that the transaction is secure. Felton Brushes must manage risk elsewhere in the export procedure if both sides agree on this INCOTERM. Negotiating a confirmed letter of credit that ensures payment for Felton Brushes is one way to accomplish this. 4. Delivered Duty Unpaid (DDU, Mumbai) – The logic for negotiating this INCOTERM is identical to that of DDP, with the exception that the exporter is not required to include duties in the transaction. If Felton Brushes wants to use this INCOTERM for the transaction, it will still need to use a verified L/C to ensure payment. 5. Delivered Ex Ship (DES, Port of Mumbai) – This INCOTERM specifies that the exporter bears the risk and cost of bringing the products to the port of import, but that risk and cost will be shifted to the importer after the items have arrived at the port of import, the Port of Mumbai. Because each party is liable for the risk and costs that occur in their own jurisdiction, we believe this INCOTERM is quite reasonable for Felton Brushes and the buyer. Felton Brushes will be at a slightly higher danger because they are in charge of the shipment when it is in open water. Negotiate whether a straight bill or an order bill will be used to avoid this risk. Felton Brushes will benefit from a straight bill because the owner will most likely be filled out in the name of the exporter (Manjuris, 2021). The reason we recommended group C and D INCOTERMS for Felton Brushes is that they will ensure that the export transaction is accepted by the buyer. Felton Brushes' best interests are served by securing its business with Indian buyers, given the Indian economy's tremendous 23
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potential for growth. In the end, this implies selecting a riskier INCOTERM. India is a relationship-driven market and persistence is key, Felton Brushes can re-negotiate a less hazardous INCOTERM if better ties have been developed with the customer. Felton Brushes must ensure payment for its goods by arranging a favourable payment structure with the buyers in India by using higher risk INCOTERMS. If the Indian purchasers are unable to meet these criteria, Felton Brushes may attempt to negotiate for less risky INCOTERMS, which have lower expenses and ensure payment and ownership transfer occur early in the delivery phase. Step 4 - Access Regulations India maintains a nontariff regulation on three types of products: prohibited or forbidden commodities (e.g., tallow, fat, and oils of animal origin); restricted items that require an import licence (e.g., cattle products and some chemicals); and "canalized" items (e.g., some pharmaceuticals) that can only be imported by government trading monopolies and are subject to cabinet clearance about import timing and quantity. Felton Brushes has one of the world's most modern brush manufacturing platforms, serving a variety of industries including pharmaceuticals and food. Furthermore, Felton Brushes offers a big selection of stock brushes suitable for practically every work, task, or application, as well as a diverse range of brush designs, all of which are designed to provide our customers with a long-lasting, high-quality, and dependable experience. There are no restrictions on the company's products because they do not fit into such categories. India has a number of export-subsidy programmes in place, including tax concessions for select export-oriented businesses and exporters in Special Economic Zones. Textiles and apparel, paper, rubber, toys, leather goods, and wood products are among the industries that receive subsidies in the form of customs duty and internal tax exemptions connected to export 24
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performance. India has not only continued to provide subsidies to its textile and clothing industries in order to promote exports, but it has also extended or enlarged existing programmes and created new export subsidies. Felton Brushes could get a significant disadvantage through this by receiving domestic subsidy opportunities from the government future competitive business locally could put the company at a disadvantage by competing with international companies in their home country or other markets globally. Step 5 - Export Operations 5.1 Insurance, Documentation & Payment The final step of the export process is documentation, insurance, and payment. Like the others mentioned above, these elements will aid in risk mitigation during the export process. Having the proper documentation filled out accurately can substantially lower any waiting time while the merchandise is transported from the home country. If there were any delays in the transportation process, it would result in additional costs for the company. An Insurance policy can help mitigate risks by protecting the insurance client from any losses or damages that occur while the goods are being transported. Insurance is an essential factor to consider, specifically as the distance between the home country and the country the product is being exported to grows. Some of the risks when shipping merchandise are the possibility of mishandling, theft, and damage. Finally, the payment structure is another crucial factor to consider, especially when an INCOTERM with higher risk is negotiated. 5.2 Insurance Felton Brush LTD currently does use insurance for its shipments. However, the organization believed it would be easier to mitigate any risks during the transportation of the merchandise. With HSBC, they offer coverage for the products being shipped and “Ensure you’ll 25
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be paid for the goods you export, even if your customers can’t make a payment on time” (HSBC, 2021). According to the Canadian Trade Commissioner Service, international carriers are only liable for a limited amount of money. HSBC’s coverage for our products going overseas would help reduce the liabilities that may occur when transporting the goods. This means that Felton Brush LTD will not be fully liable for risks and costs associated with the goods until the point of delivery, and HSBC will help cover some of the costs. 5.3 Export Documents Aside from the essential documents, the required documents for exporting from Canada are based on the exporting country's product, multilateral, bilateral, or unilateral trade agreements, and other trade policies of the exporting country's government. For example, Canada and India have a free trade agreement currently at a negotiation level. "Canada and India completed their ninth round of negotiations towards a Canada-India Comprehensive Free Trade Agreement. Negotiations centred on a broad range of trade in goods and services issues, and since completion, both sides have expressed a commitment to advancing the talks so a final agreement can be reached" (CAFTA, 2021). - Customs Entry Documents - Appendix D, Figure 1 - Customs Bond - Appendix D, Figure 2 - Customs Declarations - Appendix D, Figure 3 - Export Licence - Appendix D, Figure 4 - Purchase Order - Appendix D, Figure 5 - Letter of Credit - Appendix D, Figure 6 - Bill of Lading - Appendix D, Figure 7 - Commercial invoice - Appendix D, Figure 8 26
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- Certificate of Origin - Appendix D, Figure 9 - Insurance Certificate - Appendix D, Figure 10 5.4 Import Documents Typically, the procedure for import activities entails ensuring licencing and compliance prior to shipping goods, arranging for transport and warehousing after goods are unloaded, and obtaining customs clearance as well as paying taxes before the release of goods. There is a Basic Customs Duty (BCD) of 10% and an Integrated Goods & Services Tax (IGST) of 12% collected by the Indian Government. - Customs Entry Form - Appendix E, Figure 1 - Commercial invoice - Appendix E, Figure 2 - Certificate of origin - Appendix D, Figure 9 - Duty payments - Appendix E, Figure 3 5.5 Payment A direct cheque or a letter of credit is the primary payment method used by Felton Brushes LTD with its distributors in India. Collecting payment once the goods are in the exporting country is ideal for the organization. But there are certain circumstances when clients have open accounts, which is when the shipping goods and documentation are transferred to the customer. In this situation, Felton Brushes LTD would have to take responsibility until the payment is made from the customer. The customer could hold on to the funding for 30-90 days, leaving Felton Brushes LTD to finance the transaction until the payment is made. Although this form of collecting payment would benefit the consumer, it would create more risks for Felton Brushes LTD, and they cannot afford to continue collecting payment in this manner. One of the 27
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many ways exporters can mitigate risk and achieve great success in international trade is to guarantee the amount during the export process. Felton Brushes LTD could use a variety of payment methods in international trade. They can be cash, open accounts, time draughts, or letters of credit Given that Felton Brushes LTD will most likely be using a Group C or D INCOTERM, the preferred payment method would be a letter of credit. A confirmed irrevocable letter of credit will enable Felton Brush LTD to use a Canadian bank to confirm the name of the importer's bank. Which would mitigate any risks after the merchandise leaves the home country. The money will then be held in a secure account by the importer's bank until the goods are delivered. When the goods are delivered, the importer's bank will release the funds to the Canadian Bank, such as HSBC, and the Canadian Bank will pay Felton Brushes LTD. 28
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References Bdc. (2021). 5 steps to create a winning market entry strategy . https://www.bdc.ca/en/articles- tools/marketing-sales-export/export/winning-market-entry-strategy Brushes by industry - find your brush by industry: Felton Ltd.. Felton Brushes. (2019, March 12). Retrieved December 6, 2021, from https://www.feltonbrushes.com/brushes- by-industry/. Brushes, F. (2021, July 29). Manufacturing quality brushes in Canada since 1933: Felton Brushes Ltd.. Felton Brushes. Retrieved December 7, 2021, from https://www.feltonbrushes.com/. Cameron, R. (2020, January 31). Doing business in India: What Canadian exporters need to know. EDC. Retrieved December 7, 2021, from https://www.edc.ca/en/blog/doing- business-india-canadian-exporters.html. Canada, G. A. (2021, June 11). Government of Canada. Retrieved November 27, 2021, from https://www.international.gc.ca/trade-commerce/trade-agreements-accords- commerciaux/agr-acc/india-inde/fta-ale/background-contexte.aspx?lang=eng Canada, G. A. (2021, October 25). Trade Commissioner Service - Eligibility and services. Retrieved December 2, 2021, from https://www.tradecommissioner.gc.ca/about- a_propos/services.aspx?lang=eng 29
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Canada, G. A. (2019, November 22). Step-by-Step Guide to Exporting – Step 8 – Identifying your export financing requirements. Retrieved December 2, 2021, from https://www.tradecommissioner.gc.ca/guides/exporter-exportateurs/step8-etape8.aspx? lang=eng&wbdisable=true Canada-India CEPA. (2016, June 27). Retrieved December 3, 2021, from https://cafta.org/trade-agreements/canada-india-cepa/ Cattlin, R. (2021, April 21). A complete guide to the Bank of Canada and Canadian interest rates. Retrieved December 7, 2021, from https://www.forex.com/en-us/market- analysis/latest-research/bank-of-canada-guide/. CDS. (2020, October 13). Risks In International Logistics | Logistics Management . CDS Group of Companies. https://www.cdsltd.ca/what-are-the-risks-in-international-logistics/ Country risk. Country risk | Export Finance Australia. (n.d.). Retrieved December 6, 2021, from https://www.exportfinance.gov.au/resources-news/country-profiles/asia/india/country- risk/. Delaney, L. (2011, December 13). How to Develop an Export Marketing Plan . The Balance Small Business; The Balance Small Business. https://www.thebalancesmb.com/how-to-develop-an-export-marketing-plan-1953410 Documents Required For Exporting. (2019, February 16). Retrieved November 27, 2021, from https://howtoexportimport.com/Documents-required-for-exporting--9255.aspx 30
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Economist Intelligence Unit. EIU Country: India. India's PM announces roadmap for infrastructure investment. (2021, August 17). Retrieved December 5, 2021, from http://country.eiu.com.ezproxy.lib.ryerson.ca/article.aspx?articleid=961318079 Economist Intelligence Unit. EIU Economy: Charts and tables. Annual data and forecast. (2021, November 3). Retrieved December 5, 2021, from http://country.eiu.com.ezproxy.lib.ryerson.ca/article.aspx? articleid=841591267&Country=India&topic=Economy&subtopic=Charts +and+tables&subsubtopic=Annual+data+and+forecast&aid=1&oid=8415 91267 Economist Intelligence Unit. EIU Economy: Forecast. Indian inflation will be a bigger problem in early 2022 . (2021, July 16). Retrieved December 5, 2021, from http://country.eiu.com.ezproxy.lib.ryerson.ca/article.aspx? articleid=521227035&Country=India&topic=Economy&subtopic=Foreca st&subsubtopic=Inflation Economist Intelligence Unit. EIU Economy: Forecast. Things to watch in India in 2022. (2021, October 27). Retrieved December 5, 2021, from http://country.eiu.com.ezproxy.lib.ryerson.ca/article.aspx? articleid=891543472&Country=India&topic=Economy&subtopic=Foreca st&subsubtopic=Policy+trends Economist Intelligence Unit. EIU Politics: Forecast. What a Talibal-led government means for the Asia region. (2021, August 23). Retrieved December 5, 2021, from http://country.eiu.com.ezproxy.lib.ryerson.ca/article.aspx? 31
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articleid=1391338122&Country=India&topic=Politics&subtopic=Forecast &subsubtopic=International+relations Economist Intelligence Unit. EIU Viewpoint (n.d.). Retrieved December 5, 2021, from https://viewpoint-eiu-com.ezproxy.lib.ryerson.ca/data Economist Intelligence Unit. EIU: ViewsWire. India - Summary - Briefing Sheet (2021, November 3). Retrieved December 5, 2021, from https://www-eiu- com.ezproxy.lib.ryerson.ca/viewswire/article/481591231/Briefing-sheet Economist Intelligence Unit. EIU: ViewsWire. Trade Policy: Tariffs and import taxes . (2021, November 1). Retrieved December 5, 2021, from https://www-eiu- com.ezproxy.lib.ryerson.ca/viewswire/article/241639807/Trade-policy-Tariffs-and- import-taxes Felton brushes: Employee directory . ZoomInfo. (n.d.). Retrieved December 7, 2021, from https://www.zoominfo.com/pic/felton-brushes-limited/53333596. Genius, E. (n.d.). Custom duty on Canada in India After GST. Retrieved from https://www.exportgenius.in/india-import-duty/canada#:~:text=23.2% Custom Duty on Canada in India Import After GST Gitman, L. J., McDaniel, C., Shah, A., Reece, M., Koffel, L., Talsma, B., & Hyatt, J. C. (2018, September 18). Understanding the Business Environment – Introduction to Business . BCcampus Open Publishing – Open Textbooks Adapted and Created by BC Faculty; OpenStax. https://opentextbc.ca/businessopenstax/chapter/understanding-the- business-environment/ 32
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Government of Canada, C. B. (2020, October 07). Guide to exporting commercial goods from Canada. Retrieved from https://www.cbsa-asfc.gc.ca/export/guide-eng.html India - Market Challenges. International Trade Administration | Trade.gov. (2021, October 22). Retrieved December 7, 2021, from https://www.trade.gov/country- commercial-guides/india-market-challenges. Industrial brushes market size, growth, trends, revenue analysis and forecast 2021-2030. Mynewsdesk. (2021, August 2). Retrieved December 7, 2021, from https://www.mynewsdesk.com/se/machinery-and-equipment-desk/pressreleases/ industrial-brushes-market-size-growth-trends-revenue-analysis-and-forecast-2021-2030- 3119263. India - Trade Barriers India - trade barriers. India - Trade Barriers | Privacy Shield. (n.d.). Retrieved December 6, 2021, from https://www.privacyshield.gov/article?id=India- Trade-Barriers. Info, Z. (n.d.). Felton brushes - overview, news & competitors . ZoomInfo. Retrieved December 7, 2021, from https://www.zoominfo.com/c/felton-brushes-limited/53333596. Import and Export Procedures in India. (2021, October 20). Retrieved December 3, 2021, from https://www.india-briefing.com/news/import-export-procedures-india-19125.html/ Import finance solutions. (2021). Retrieved December 2, 2021, from https://www.business.hsbc.ca/en-ca/solutions/imports? 33
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cid=HBCA:CW:2715:P1:CMB:L10:GO :XTR:14:XBR:13:0421:113:2021SEM&gclid=C jwKCAiAqIKNBhAIEiwAu_ZLDkWEdvs7Fht2wq_iaj7XSa0qtZD9ERMRACIFEswbJs LJqk2L9pBEQBoCIiUQAvD_BwE&gclsrc=aw.ds Manjuris, M. (2021, December). Preparing for Export . Lecture. Nakra, P. (2016). How to Set Up Your Company’s International Distribution . Shipping Solutions Export Document Software - Home Page. https://www.shippingsolutions.com/blog/how-to-set-up-your-companys-international- distribution Page, V. (2021, November 21). How India makes money . Investopedia. Retrieved December 7, 2021, from https://www.investopedia.com/articles/investing/043015/fundamentals-how-india-makes- its-money.asp. Pettinger, T. (2019, November 25). Effect of raising interest rates. Economics Help. Retrieved December 7, 2021, from https://www.economicshelp.org/macroeconomics/monetary-policy/effect-raising-interest- rates/. Pricing Strategy . (2021). International Trade Administration | Trade.Gov. https://www.trade.gov/pricing-strategy Rivera, J., & Milani, K. (2020). Budgeting for International Operations - Strategic Finance . Strategic Finance. 34
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Robert Cameron Regional manager. (2021, March 08). EDC Celebrates 15 years in India. Retrieved November 28, 2021, from https://www.edc.ca/en/blog/doing-business-india- canadian-exporters.html Shipping From Canada to India. (n.d.). Retrieved from https://secureship.ca/shipping/canada-to- india Singh, H. (2021, September 7). 7 major natural disasters in the history of India . Jagranjosh.com. Retrieved December 7, 2021, from https://www.jagranjosh.com/general-knowledge/list- of-major-natural-disasters-in-the-history-of-india-1590147440-1. Step 3 – Charting your route: developing your export plan . (2019). GAC; Government of Canada. https://www.tradecommissioner.gc.ca/guides/exporter-exportateurs/step3- etape3.aspx?lang=eng Stobierski, T. (2021, June 29). 5 International Business Examples to Learn From . Business Insights - Blog. https://online.hbs.edu/blog/post/international-business- examples Terms and conditions of sale: Felton Brushes Ltd.. Felton Brushes. (2019, February 7). Retrieved December 6, 2021, from https://www.feltonbrushes.com/terms-of-sale/. https://sfmagazine.com/post-entry/december-2020-budgeting-for-international- operations/ Witschi, P., Bharadwaj, A., Izaret, J.-M., & Taylor, L. (2021, August 2). Understanding the global price-sensitive consumer. BCG Global. Retrieved December 7, 2021, from https://www.bcg.com/publications/2021/consumer-price-sensitivity . 35
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Appendix A Figure A - Organizational chart for Felton Brushes Ltd Appendix B Figure A - Indian consumers are highly price-sensitive and value-conscious 36
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Figure B - India’s forecasted short-term interest rate increases Figure C - India’s imports of goods and services is forecasted to decrease Appendix C Figure 1: India’s Expropriation Risk Level 37
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Figure 2: India’s Political Risk Level Figure 3: India’s Governance Indicators 38
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Appendix D Figure 1: Customs Entry Document 40
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Figure 2: Customs Bond 41
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Figure 3: Customs Declaration 43
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Figure 4: Export Licence 44
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Figure 5: Purchase Order 46
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Figure 6: Letter of Credit 47
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Figure 7: Bill Of Lading 48
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Figure 8: Commercial Invoice 49
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Figure 9: Certificate of Origin Figure 10: Insurance Certificate 51
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Appendix E Figure 1: Customs Entry Form 53
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Figure 2: Commercial Invoice 54
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Figure 3: Duty Payment 55
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