Export Marketing: A Case Study of Handicraft Exporters

The Government of Kenya has been keen on reducing the country's dependence on coffee, tea and petroleum as the main sources of foreign exchange. Kenya's petroleum exports contain little value added as the crude oil is imported whereas the growth in coffee and tea exports is often very minimal due to the low income elasticity of demand for coffee and tea. Since 1976, the Kenya Government has through its Kenya External Trade Authority (KETA) been playing an active part in the promotion of handicraft exports in Kenya. However, very little is known about the exporters, their problems and factors explaining for the varying levels of export sales amongst the handicraft exporters. The reason for this is that there has been very limited research on handicrafts in Kenya. Lack of adequate time series data does not allow an empirical analysis be made into the factors affecting handicraft exports from Kenya. This study is an exploratory one, it makes a diagnosis of the problems facing Kenya's, handicraft exports and attempts at solutions based on the theoretical concepts of the product life cycle and the export cycle. It is concerned with the efforts that should be undertaken to avoid future fluctuations in Kenya's handicraft exports. It also suggests measures to cope with the stiff competition now prevailing in the international market. V Using Ordinary Least Squares, the study analyses the variation in export sales amongst the handicraft exporting firms in Kenya. As a result, the differences in levels of marketing efforts, experience in exporting handicrafts and institutional support from the KETA, were found to be explaining for a significant proportion of the variation in export sales amongst the firms. The main finding of the study is that export sales are positively correlated with the proxy variables used in the study for levels of marketing effort, experience and institutional support from the KETA. The proxy for experience in exporting handicrafts, was found to have the greatest impact on export sales. However, the impact of the proxy for institutional support from the KETA was found to be statistically insignificant. This study however, underscores the importance of enhancing the exporters' ability to undertake successful promotional ventures aimed at the foreign markets

1.1 Concept and features of export marketing

Export marketing means exporting goods to other countries of the world. It involves lengthy procedure and formalities. In export marketing, goods are sent abroad as per the procedures framed by the exporting country as well as by the importing country. Export marketing is more complicated to domestic marketing due to international restrictions, global competition, lengthy procedures and formalities and so on. Moreover, when a business crossed the borders of a nation, it becomes infinitely more complex. Along with this, export marketing offers ample opportunities for earning huge profits and valuable foreign exchange.

1) According to B. S. Rathor, “Export marketing includes the management of marketing activities for products which cross the national boundaries of a country”.

2) “Export marketing means marketing of goods and services beyond the national boundaries”.

The main features of export marketing are as follows:

Figure: Features of export marketing

1. Systematic Process:

Export marketing is a systematic process of developing and distributing goods and services in overseas markets. The export marketing manager needs to undertake various marketing activities such as marketing research, product design, branding, packaging, pricing, promotion, etc. To undertake the various marketing activities, the export marketing manager should collect the right information from the right source, analyze it properly and then take systematic export marketing decisions.

2. Customer Focus:

The focus of export marketing is on the customer. The exporter needs to identify customer needs and wants, and accordingly design and develop products to generate and enhance customer satisfaction. The focus on customer will not only bring in higher sales in the overseas markets, but it will also improve and enhance goodwill of the firm.

3. Trade Barriers:

Export trade is subject to trade barriers – tariff and non-tariff barriers. The trade barriers are the restrictions on free movement of goods between countries. Normally, countries impose trade barriers on imports, in order to restrict imports. The export marketing manager must have a good knowledge of trade barriers imposed by importing countries.

4. Trading Blocs:

Export trade is also affected by trading blocs. Certain nations form trading bloc for their mutual benefit and economic development. The non-members face problems in trading with the members of a trading bloc due to common external barriers. Indian exporters should have a good knowledge of important trading blocs which would enable them to negotiate effectively with the companies located in such blocs. Some of the important trading blocs include NAFTA, European Union, and ASEAN.

5. Three-faced Competition:

In export markets, suppliers have to face three-faced competition, i.e., competition from three angles:

(a)    From the other suppliers of the exporter’s country.

(b)   From the local producers of importing country, and

(c)    From the exporters of competing nations.

6. Documentation:

Export marketing is subject to various documentation formalities. Exporters require various documents to submit them to various authorities including customs, port trust, etc. The documents include:

•   Shipping Bill.

•   Consular Invoice.

•    Certificate of Origin, etc.

7. Dominance of Multinational Corporations:

Export marketing is dominated by MNCs or large corporations. At present MNCs from USA, Europe and Japan play a dominant role in foreign trade. They are in a position to develop world-wide contacts through their network of branches/offices/ subsidiaries.

8. Diverse Customs and Traditions:

The export markets differ in languages, customs, and traditions. The exporter may not be able to cope up with these diversities. Therefore, he has to be selective. He should deal in only such markets where he can easily handle or overcome such differences or diversities.

9. Large Scale Operations:

Normally, export marketing is undertaken on a large scale. Emphasis is placed on large orders in order to obtain economies in large scale production and distribution of goods. The economies of large scale help the exporter to quote competitive prices in the overseas markets.

10.  Subject to Regulations:

Export marketing is subject to various regulations — health and safety regulations, environmental regulations, and foreign exchange regulations. For instance, in India, exporters should realize their export proceeds within a period of 180 days (in respect of consumer goods) from the date of shipment. The SEZ units and status holders can realize within 360 days. Such restrictions are not applicable for domestic marketing.

11. Marketing-Mix:

Export marketing requires the right marketing-mix for the target markets, i.e., exporting the right product,. At the right price, at the right place and with the right promotion. The exporter can adopt different marketing-mixes for different export markets, so as to maximise exports and earn higher returns.

12.  International Marketing Research:

Knowing more about customers, dealers and competitors is a must not only in the domestic markets, but also in the export markets. Marketing research is a must in export business due to various factors, such as diversities in social, cultural, economic, and political environments of distant markets.

1.2 Importance of exports for a nation and a firm

The importance of export marketing can be explained from the viewpoint of a country and that of business organization.

a)  Importance of Export Marketing for the National:

Figure: Importance Export marketing for national

1) Earning foreign exchange –

Exports bring valuable foreign exchange to the exporting country, which is mainly required to pay for import of capital goods, raw materials, spares and components as well as importing advance technical knowledge.

2) International Relations –

Almost all countries of the world want to prosper in a peaceful environment. One way to maintain political and cultural ties with other countries is through international trade.

3) Balance of payment –

Large – scale exports solve balance of payments problem and enable countries to have favourable balance of payment position. The deficit in the balance of trade and balance of payments can be removed through large-scale exports.

4) Reputation in the world –

A country which is foremost in the field of exports, commands a lot of respect, goodwill and reputation from other countries. For example, Japan commands international reputation due to its high quality products in the export markets.

5) Employment Opportunities –

Export trade calls for more production. More production opens the doors for more employment. Opportunities, not only in export sector but also in allied sector like banking, insurance etc.

6) Promoting economic development –

Exports are needed for promoting economic and industrial development. The business grows rapidly if it has access to international markets. Large-sole exports bring rapid economic development of a nation.

7) Optimum Utilization of Resources –

There can be optimum use of resources. For example, the supply of oil and petroleum products in Gulf countries is in excess of home demand. So the excess production is exported, thereby making optimum use of available resources.

8) Spread Effect –

Because of the export industry, other sectors also expand such as banking, transport, insurance etc. and at the same time number of ancillary industries comes into existence to suppo0rt the export sector.

9) Higher standard of Living –

Export trade calls for more productions, which in turn increase employment opportunities. More employment means more purchasing power, as a result of which people can enjoy new and better goods, which in turn improves standard of living of the people.

b) Importance of export marketing for Business / Firm / Enterprise.

Figure: Importance of marketing for business/firm

1) Reputation – An organization which undertakes exports can bring fame to its name not only in the export markets, but also in the home market. For example, firms like Phillips, HLL, Sony, coca cola, Pepsi, enjoy international reputation.

2) Optimum Production – A company can export its excess production after meeting domestic demand. Thus, the production can be carried on up to the optimum production capacity. This will result in economies of large scale production.

3) Spreading of Risk – A firm engaged in domestic as well as export marketing can spread its marketing risk in two parts. The loss is one part (i.e. in one area of marketing) can be compensated by the profit earned in the other part / area.

4) Export obligation – Some export organization are given certain concessions and facilities only when they accept certain export obligations Large-scale exports are needed to honour such export obligations in India, units operating in the SEZs / FTZs are expected to honour such export obligations against special concessions offered to them.

5) Improvement in organizational efficiency- Research, training and the experience in dealing with foreign markets, enable the exporters to improve the overall organizational efficiency.

6) Improvement in product standards- An export firm has to maintain and improve standards in quality in order to meet international standards. As a result, the consumers in the home market as well as in the international market can enjoy better quality of goods.

7) Liberal Imports- Organizations exporting on a large-scale collect more foreign exchange which can be utilized for liberal import of new technology, machinery and components. This raises the competitive capacity of export organizations.

8) Financial and non-Financial benefits- In India, exporters can avail of a number of facilities from the government. For example, exporters can get DBK, tax exemption etc. They also can get assistance from export promotion organizations such as EPCs IIP, etc.

9) Higher profits – Exports enable a business enterprise to earn higher prices for goods. If the exporters offer quality products, they can charge higher prices than those charged in the home market and thereby raise the profit margin.

1.3 Domestic marketing v/s export marketing

Key takeaways-

1.4 Factors influencing export marketing

Companies have to take several decisions to participate in export marketing. There are same basic economic reasons which influence a company decision regarding participation in export business. Such reasons can be treated as motivators for export marketing. These motivational factors for export marketing are as follows-

The rate of profit in export business is normally higher as compare to rate of profit in domestic marketing. The unit value realization of export products normally increases. Such progressive improvement in the unit value of realization is one reason which acts as a motivator for exporting.

2. Sales and production stability – Export marketing may enable a firm to maintain sales and production stability. For example, in the case of seasonal products, exporting may help to achieve sales stability, because the seasons may be opposite in certain export markets. For example, woolen clothing.

3. Inadequate domestic demand – The level of domestic demand may be insufficient for utilizing the available production capacity fall, i.e. at the optimum level. Here, the company enters in export marketing so that the available production capacity will be utilized fully for meeting domestic demand and demand from abroad. This is one motivational factor for export marketing.

4.   Economic growth – Growth is another major reason for internationalization. The growth potential of many foreign markets is a very strong attraction for foreign companies. Several developing countries, like China, and India, have been growing at a much faster rate than the developed countries. Many multinational companies are eager to establish their foothold in such countries, considering future potential.

5.  Reducing business risks – Geographical diversification facilitates distribution of business risks among different export markets. Even the risks in internal marketing can be reduced by undertaking export marketing. A diversified business spreads business risks among different markets.

6.  Information and media Revolution – There has been tremendous growth in the field of information and media. For example, internet facility has given a big boost to a global trade. Now, business firms can conduct global operations with much investment in setting up elaborate offices. Business activities in other countries can be conducted through information network.

7.  Strategic vision – Some firms have a strategic vision to enter in export markets. The business strategy of such firms includes systematic international growth. Therefore, the stimulus for export marketing comes from desire to grow and expand, need to become more competitive.

8.  Accepting social responsibility – Export promotion is a collective responsibility of all social groups including business enterprises. Some large enterprises accept this social obligation and participate in export marketing. Here, social responsibility acts as a motivation for export marketing.

9.  Government policies – Government policies and Regulations may also encourage the companies for international marketing. Some companies export and invest in foreign countries to avail economic incentives, and benefits provided by the government. Also some companies internationalize due to governments emphasis on import development and foreign investment. In India, certain companies export in order to fulfill their export obligation.

10. W. T. O.- Due to WTO, member nations have reduced a number of restrictions on foreign investment, and trade in goods and services. For example, the custom duties have been reduced worldwide. This has motivated business firms to enter in the global markets to a greater extent.

11. Benefit of bulk selling – Export business is normally in bulk quantity. Export orders are much larger as compared to orders in domestic marketing. Export business is undertaken in order to take the benefits of selling in bulk i.e. in large quantities. It helps to earn foreign exchange in large.

1.5 Risks involved in export marketing

Different types of risk involved in export marketing are discussed below-

Figure: Export marketing risk

Sometimes because of large distance, it becomes difficult for an exporter to verify the creditworthiness and reputation of an importer or buyer. Any false buyer can increase the risk of non-payment, late payment or even straightforward fraud. So, it is necessary for an exporter to determine the creditworthiness of the foreign buyer. An exporter can seek the help of commercial firms that can provide assistance in credit-checking of foreign companies.

2.  Poor Quality Risk

Exported goods can be rejected by an importer on the basis of poor quality. So it is always recommended to properly check the goods to be exported. Sometimes buyer or importer raises the quality issue just to put pressure on an exporter in order to try and negotiate a lower price. So, it is better to allow an inspection procedure by an independent inspection company before shipment. Such an inspection protects both the importer and the exporter. Inspection is normally done at the request of importer and the costs for the inspection are borne by the importer or it may be negotiated that they be included in the contract price.

3.  Transportation Risks

With the movement of goods from one continent to another, or even within the same continent, goods face many hazards. There is the risk of theft, damage and possibly the goods not even arriving at all.

4.  Logistic Risk

The exporter must understand all aspects of international logistics, in particular the contract of carriage. This contract is drawn up between a shipper and a carrier (transport operator).

5.  Legal Risks

International laws and regulations change frequently. Therefore, it is important for an exporter to drafts a contract in conjunction with a legal firm, thereby ensuring that the exporter's interests are taken care of.

6.  Political Risk

Political risk arises due to the changes in the government policies or instability in the government sector. So it is important for an exporter to be constantly aware of the policies of foreign governments so that they can change their marketing tactics accordingly and take the necessary steps to prevent loss of business and investment.

7.  Unforeseen Risks

Unforeseen risk such as terrorist attack or a natural disaster like an earthquake may cause damage to exported products. It is therefore important that an exporter ensures a force majeure clause in the export contract.

8.  Exchange Rate Risks

Exchange rate risk is occurs due to the uncertainty in the future value of a currency. Exchange risk can be avoided by adopting Hedging scheme.

1.6 Problems of India’s export sector

At present, Indian exporters face a number of problems / difficulties. The problem demotivates the business firms to enter into foreign markets. These problem / difficulties are as follows-

1)  Recession in world market

The world market, faced recession in 2008 and in the first half of 2009. The recession was triggered due to sub-prime crisis of USA in September 2007. Due to recession, the demand for several Indian items such as Gems and Jewellery, Textiles and Clothing and other items were badly hit. During recession, exporters get low orders from overseas markets, and they have to quote lower prices. Therefore, exporter gets law profits or suffers from losses.

2)  Technological differences

The developed countries are equipped with sophisticated technologies capable of transforming raw materials into finished goods on a large scale. Less developed countries, on the other hand, lack technical knowledge and latest equipments. And therefore they have to use their old and out dated technologies. It leads to the lopsided development in the international market.

3)  Reduction in export Incentives –

Over the years, the Govt. Of India has reduced export incentives such as reduction in DBK rates, withdrawal of income tax benefits for majority of exporters, etc. The reduction in export incentives demotivates exporters to export in the overseas markets.

4)  Several competitions in global marketing –

Export marketing is highly competitive. This competition relates to price, quality, production cost and sales promotion techniques used. Indian exporters face three-faced competition while exporting. This includes competition from domestic exporters, local producers where the goods are being exported and finally from producers of competing countries at global level. Such competition is one special problem to the exporters.

5)  Problem of product standards –

Developed countries insist on high product standards from developing countries like India. The products from developing countries like India are subject to product tests in the importing countries. At times, the importing countries do not allow imports of certain items like fruits, textiles and other items on the grounds of excessive toxic content. Therefore Indian exporters lose markets especially in developed countries.

6)  Fluctuations in Exchange Rate –

Every country has its own currency which is different from international currencies. The dominant international currencies are US dollar or Sterling Pound. From the point of view of Indian exporters we are interested to realize the payment in international currency. Foreign exchange earned by the operators is converted into Indian rupees and paid to the exporters in Indian currency; this exposes the exporters to the dangers of fluctuation in foreign exchange rates.

7)  Problems of Sea Pirates Attacks –

A major risk faced by international trade is attack by pirates in the Gulf of Aden. More than half of India’s merchandise trade passes through the piracy infested Gulf of Aden. New exporters and importers are facing problem, because of increased pirate attacks as they find it difficult to get insurance cover.

8)  Problem of subsidies by Developed countries –

The developed countries like USA provide huge subsidies to their exporters. For example, in case of agriculture exporters, USA, UK and other provide huge subsidies to their exporters. Therefore, the exporters of developing countries like India find it difficult to face competition in the world markets.

9) Problem in preparing Documents –

Export involves a large number of documents. The exporter will have to arrange export documents required in his country and also all the documents as mentioned in the documentary letter of credit. In India, there are as many as 25 documents (16 commercial and a regulatory documents) to be filled in.

10) Government restrictions and foreign exchange regulations –

The Government restrictions compel the exporters to follow certain rules and regulations in the form of licenses, quotas, and customs formalities. Due to such restrictions, new problems develop before the exporters. Even trade restrictions in foreign countries create problems before exporters. Indian exporters face this difficulty of government restrictions and foreign exchange regulations even when trade policy is now made substantially liberal.

11) High risk and Uncertainties –

Export marketing is subject to high risks and uncertainties. The risks may be both political and commercial. Political risks involve government instability, war, civil disturbances, etc. The commercial risks involve insolvency of the buyer, protracted default on the part of the buyer dispute on quality and so on.

12) Competition from China -

India is facing stiff competition from China in the world markets, especially in the OECD markets. As a result, India‟s share of export of OECD markets has declined from 53% of total exports in 2000-01 to about 38% in 2007-08. Some of the Indian exporters have lost their overseas contracts due to cheap Chinese goods and supplies. This is the major problem of exporters.

Key takeaways-

1.7 Major merchandise/commodities export of India (since 2015)

The value of merchandise exports from India totalled $ 275 billion in 2020. Overall commodity exports from India decreased by 14.7% compared to 2019. Merchandise exports decreased by $ 47 billion (the value of merchandise exports from India amounted to $323 billion in 2019). India’s export basket has included diverse products and is gaining competitiveness in many new categories over time. The following ten products have sustained in the basket:

The main export markets are USA, UAE, China, Hong Kong, Singapore, Netherlands, Germany, Mexico and Bangladesh. The major merchandise/commodities export of India since 2015 is highlighted in the following table-

Source: PIB

1.8 Services exports of India (since 2015)

India’s services trade has been a major driver of its exports over the past two decades. The country has emerged among the fastest growing nations in global services trade. This sector has not only attracted significant foreign investment flows but also contributed significantly to exports as well as provided large-scale employment.  India’s services sector covers a wide variety of activities such as trade, hotels and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction. The services sector is the key driver of India’s economic growth. It contributed 54.17% of India’s gross value added (GVA) at current prices in 2018-19.

India’s trade in services (2014-18)

Source: ITC Trade Map, value in US$ billion

India’s export of services has shown an increasing trend from 2014-18, except for a small dip in 2015 whereas imports have also shown an increase from US$ 128.36 billion in 2014 to US$ 176.58 billion in 2018 with a trade surplus in the above period. The trade surplus has shown fluctuations in the past five years. India’s services exports are majorly destined to USA, UK and Japan.

India’s services exports have increased from US$ 157.20 billion in 2014 to US$ 205.11 billion in 2018, with the growth in commercial services from US$ 156.61 billion in 2014 to US$ 204.48 billion in 2018. The other business services segment has shown a remarkable increase from US$ 48.46 billion in 2014 to US$ 64.93 billion in 2018 followed by another major category of telecommunications, computer and information services from US$ 54.53 billion in 2014 to US$ 58.25 billion in 2018. The travel services has also shown an increase, while transport services have hovered around US$ 18.5-19 billion in 2014 and 2018. All the other services have shown an increase except financial service which has shown a slight decline.

India’s exports of services (2014-18)

Source: ITC Trade Map; values in US$ billion

1.9 Region-wise India’s export trade (since 2015)

As India progressively integrated with the global economy in the post-liberalisation era, its foreign trade has also expanded at a strong pace. While India has intensified its trade engagements with a number of countries over the years, the actual trade remains fairly limited to a few markets. To ensure greater diversification, the Government of India introduced Focus Market Scheme, Market Linked Focus Product Scheme and Focus Product Scheme. Greater attention was given to penetration in new markets, particularly Asia and Latin America. Major regions for India’s export are European Union, South Africa, America and East Asia. The following table highlights the region wise figures of India’s trade from 2015-16 to 2019-20-

Source: Export-Import data bank, Ministry of Commerce

Key takeaways-

References-