SUBMITTED BY:

SAGAR SANGANI 91

JAIVEER DUGGAL 92

SWATI TIKKU 93

SWAPNALI LIGAM 94

CHANDNI PARMAR 95

RAJDEEP PANDERE 96

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ACKNOWLEDGEMENT

We the group members, take this opportunity to thank Prof. Sameer Virani for
giving us the opportunity to prepare project on the topic INTERNATIONAL
MARKETING AND EXPORTS.

The project gave us the opportunity to understand various concepts related to

international marketing. It enabled us to understand the various challenges
companies face in international marketing, the precautions companies need to
take while entering into a new market and various other considerations.

Analysis of carpet export industry of India helped us to understand the current

opportunities and threats before Indian Carpet exporters. Interview with the
exporter enhanced our knowledge on the same.

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INDEX

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INTRODUCTION
International marketing is simply the application of marketing principles to more
than one country. However, there is a crossover between what is commonly
expressed as international marketing and global marketing, which is a similar
term. International marketing and global marketing are interchangeable.

According to the American Marketing Association (AMA) "international marketing

is the multinational process of planning and executing the conception, pricing,
promotion and distribution of ideas, goods, and services to create exchanges that
satisfy individual and organizational objectives." In contrast to the definition of
marketing only the word multinational has been added. In simple words
international marketing is the application of marketing principles to across
national boundaries. However, there is a crossover between what is commonly
expressed as international marketing and global marketing, which is a similar
term.

"At its simplest level, international marketing involves the firm in making one or
more marketing mix decisions across national boundaries. At its most complex
level, it involves the firm in establishing manufacturing facilities overseas and
coordinating marketing strategies across the globe."

"International Marketing is the performance of business activities that direct the

flow of a company's goods and services to consumers or users in more than one
nation for a profit.”

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FACTORS AFFECTING INTERNATIONAL
MARKETING
a) CULTURAL FACTORS
Cultural differences and especially language differences have a significant
impact on the way a product may be used in a market, its brand name and
the advertising campaign. Operating effectively in different countries
requires recognition that there may be considerable differences in the
different regions. At the stage of early internationalization it is not unusual
for Western firms to experience what appear to be cultural gaps with their
counterparts. On the other hand, some commentators argue there are
visible signs that social and cultural differences are becoming less of a
barrier. The dominance of a number of world brands all competing in
global markets that transcend national and political boundaries, are
testimony to the convergence of consumer needs across the globe.
However, it is important not to confuse globalization of brands with the
homogenization of cultures. There are a large number of global brands but
even these have to manage cultural differences between and within
national country boundaries.

b) SOCIAL FACTORS
Growth and movement in populations around the world are important
factors heralding social changes. Eighty per cent of the world’s population
lives in developing countries by 2025 this is likely to reach 85 per cent. Any
increase in population in high income countries is entirely due to migration.
There are also visible moves in the population within many countries,
leading to the formation of huge urban areas where consumers have a
growing similarity of needs across the globe. By 2010, 50 per cent of the
world’s population will live in urban areas: the world is moving into gigantic
conurbations.

c) LEGAL ENVIRONMENT
Legal systems vary both in content and interpretation. A company is not
just bound by the laws of its home country but also by those of its host
country and by the growing body of international law. Firms operating in
the European Union are facing ever-increasing directives which affect their
markets. This can affect many aspects of a marketing strategy – for

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 instance advertising – in the form of media restrictions and the
acceptability of particular creative appeals. Product acceptability in a
country can be affected by minor regulations on such things as packaging
and by more major changes in legislation. It is important, therefore, for the
firm to know the legal environment in each of its markets. These laws
constitute the ‘rules of the game’ for business activity.  The legal
environment in international marketing is more complicated than in
domestic markets since it has three dimensions:
(1) Local domestic law;
(2) International law;
(3) Domestic laws in the firm’s home base.

d) ECONOMIC ENVIRONMENT
It is important that the international marketer has an understanding of
economic developments and how they impinge on the marketing strategy.
This understanding is important at a world level in terms of the world
trading infrastructure such as world institutions and trade agreements
developed to foster international trade, at a regional level in terms of
regional trade integration and at a country/ market level. Firms need to be
aware of the economic policies of countries and the direction in which a
particular market is developing economically in order to make an
assessment as to whether they can profitably satisfy market demand and
compete with firms already in the market.

Disparities of incomes set particular challenges for companies operating in

international markets in terms of seeking possible market opportunities,
assessing the viability of potential markets as well as identifying sources of
finance in markets where opportunities are identified but where there is
not capacity to pay for goods. Another key challenge facing companies is
the question as to how they can develop an integrated strategy across a
number of international markets when there are divergent levels of
economic development. Such disparities often make it difficult to have a
cohesive strategy, especially in pricing.

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e) POLITICAL ENVIRONMENT
The political environment of international marketing includes any national
or international political factor that can affect the organization’s operations
or its decision making. Politics has come to be recognised as the major
factor in many international business decisions, especially in terms of
whether to invest and how to develop markets. Politics is intrinsically
linked to a government’s attitude to business and the freedom within
which it allows firms to operate. Unstable political regimes expose foreign
businesses to a variety of risks that they would generally not face in the
home market. This often means that the political arena is the most volatile
area of international marketing. The tendencies of governments to change
regulations can have a profound effect on international strategy, providing
both opportunities and threats.

The invasions have brought market development opportunities for some

but market devastation for others and higher political risk in neighboring
markets for all. The instability in the Middle East and the continued threat
of global terrorism have served to heighten firms’ awareness of the
importance of monitoring political risk factors in the international  markets
in which they operate. Lesser developed countries and emerging markets
pose particularly high political risks, even when they are following reforms
to solve the political problems they have. The stringency of such reforms
can itself lead to civil disorder and rising opposition to governments.

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COUNTRY ENTRY: DECISIONS AND
STRATEGIES
Segmentation, Targeting, and Positioning.  Segmentation, in marketing, is usually
done at the customer level.  However, in international marketing, it may
sometimes be useful to see countries as segments.  This allows the decision
maker to focus on common aspects of countries and avoid information
overload.    Country level segmentation may be done on levels such as geography
—a particular type of climate or terrain tend to share similarities, demographics
(e.g., population growth, educational attainment, population age distribution), or
income. 

THE IMPORTANCE OF SEGMENTATION, TARGETING, AND POSITIONING

Segmentation is the cornerstone of marketing—almost all marketing efforts in

some way relate to decisions on who to serve or how to implement positioning
through the different parts of the marketing mix. For example, one’s distribution
strategy should consider where one’s target market is most likely to buy the
product, and a promotional strategy should consider the target’s media habits
and which kinds of messages will be most persuasive. Although it is often
tempting, when observing large markets, to try to be "all things to all people,"
this is a dangerous strategy because the firm may lose its distinctive appeal to its
chosen segments.

Approaches to global segmentation. There are two main approaches to global

segmentation. At the macro level, countries are seen as segments, given that
country aggregate characteristics and statistics tend to differ significantly. For
example, there will only be a large market for expensive pharmaceuticals in
countries with certain income levels, and entry opportunities into infant clothing
will be significantly greater in countries with large and growing birth-rates (in
countries with smaller birth-rates or stable to declining birth-rates, entrenched
competitors will fight hard to keep the market share).

Positioning across markets. Firms often have to make a trade-off between

adapting their products to the unique demands of a country market or gaining

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benefits of standardization such as cost savings and the maintenance of a
consistent global brand image. There are no easy answers here. On the one hand,
McDonald’s has spent a great deal of resources to promote its global image; on
the other hand, significant accommodations are made to local tastes and
preferences—for example, while serving alcohol in U.S. restaurants would go
against the family image of the restaurant carefully nurtured over several
decades, McDonald’s has accommodated this demand of European patrons.

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ENTRY STRATEGIES
Methods of entry. With rare exceptions, products just don’t emerge in foreign
markets overnight—a firm has to build up a market over time. Several strategies,
which differ in aggressiveness, risk, and the amount of control that the firm is
able to maintain, are available:

1. Exporting is a relatively low risk strategy in which few investments are

made in the new country. A drawback is that, because the firm makes few
if any marketing investments in the new country, market share may be
below potential. Further, the firm, by not operating in the country, learns
less about the market (What do consumers really want? Which kinds of
advertising campaigns are most successful? What are the most effective
methods of distribution?) If an importer is willing to do a good job of
marketing, this arrangement may represent a "win-win" situation, but it
may be more difficult for the firm to enter on its own later if it decides that
larger profits can be made within the country.

2. Licensing and franchising are also low exposure methods of entry—you

allow someone else to use your trademarks and accumulated expertise.
Your partner puts up the money and assumes the risk. Problems here
involve the fact that you are training a potential competitor and that you
have little control over how the business is operated. For example,
American fast food restaurants have found that foreign franchisers often
fail to maintain American standards of cleanliness. Similarly, a foreign
manufacturer may use lower quality ingredients in manufacturing a brand
based on premium contents in the home country.

3. Turnkey Projects.  A firm uses knowledge and expertise it has gained in one
or more markets to provide a working project—e.g.,  a factory, building,
bridge, or other structure—to a buyer in a new country.  The firm can take
advantage of investments already made in technology and/or development
and may be able to receive greater profits since these investments do not
have to be started from scratch again.  However, getting the technology to
work in a new country may be challenging for a firm that does not have
experience with the infrastructure, culture, and legal environment.

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4. Management Contracts.  A firm agrees to manage a facility—e.g., a factory,
port, or airport—in a foreign country, using knowledge gained in other
markets.  Again, one thing is to be able to transfer technology—another is
to be able to work in a new country with a different infrastructure, culture,
and political/legal environment.

5. Contract manufacturing involves having someone else manufacture

products while you take on some of the marketing efforts yourself. This
saves investment, but again you may be training a competitor.

6. Direct entry strategies, where the firm either acquires a firm or builds
operations "from scratch" involve the highest exposure, but also the
greatest opportunities for profits. The firm gains more knowledge about
the local market and maintains greater control, but now has a huge
investment. In some countries, the government may expropriate assets
without compensation, so direct investment entails an additional risk. A
variation involves a joint venture, where a local firm puts up some of the
money and knowledge about the local market.

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PRODUCT ISSUES IN INTERNATIONAL
MARKETING
Some marketing scholars and professionals tend to draw a strong distinction
between conventional products and services, emphasizing service characteristics
such as heterogeneity (variation in standards among providers, frequently even
among different locations of the same firm), inseperability from consumption,
intangibility, and, in some cases, perishability—the idea that a service cannot
generally be created during times of slack and be “stored” for use later.  
However, almost all products have at least some service component—e.g., a
warranty, documentation, and distribution—and this service component is an
integral part of the product and its positioning.  Thus, it may be more useful to
look at the product-service continuum as one between very low and very high
levels of tangibility of the service.  Income tax preparation, for example, is almost
entirely intangible—the client may receive a few printouts, but most of the value
is in the service.  On the other hand, a customer who picks up rocks for
construction from a landowner gets a tangible product with very little value
added for service.  Firms that offer highly tangible products often seek to add an
intangible component to improve perception.  Conversely, adding a tangible
element to a service—e.g., a binder with information—may address many
consumers’ psychological need to get something to show for their money.

On the topic of services, cultural issues may be even more prominent than they
are for tangible goods. There are large variations in willingness to pay for quality,
and often very large differences in expectations.  In some countries, it may be
more difficult to entice employees to embrace a firm’s customer service
philosophy.  Labour regulations in some countries make it difficult to terminate
employees whose treatment of customers is substandard.  Speed of service is
typically important in the U.S. and western countries but personal interaction
may seem more important in other countries.

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Product Need Satisfaction
We often take for granted the “obvious” need that products seem to fill in our
own culture; however, functions served may be very different in others—for
example, while cars have a large transportation role in the U.S., they are
impractical to drive in Japan, and thus cars there serve more of a role of being a
status symbol or providing for individual indulgence

Branding
While Americans seem to be comfortable with category specific brands, this is not
the case for Asian consumers.  American firms observed that their products
would be closely examined by Japanese consumers who could not find a major
brand name on the packages, which was required as a sign of quality.  Note that
Japanese use their brand name across multiple industries—e.g., Mitsubishi,
among other things, sells food, automobiles, electronics, and heavy construction
equipment.

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THE INTERNATIONAL PRODUCT LIFE
CYCLE (PLC)
Consumers in different countries differ in the speed with which they adopt new
products, in part for economic reasons (fewer Malaysian than American
consumers can afford to buy VCRs) and in part because of attitudes toward new
products (pharmaceuticals upset the power afforded to traditional faith healers,
for example).  Thus, it may be possible, when one market has been saturated, to
continue growth in another market—e.g., while somewhere between one third
and one half of American homes now contain a computer, the corresponding
figures for even Europe and Japan are much lower and thus, many computer
manufacturers see greater growth potential there.  Note that expensive capital
equipment may also cycle between countries—e.g., airlines in economically
developed countries will often buy the newest and most desired aircraft and sell
off older ones to their counterparts in developing countries.  While in developed
countries, “three part” canning machines that solder on the bottom with lead are
unacceptable for health reasons, they have found a market in developing
countries.

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INTERNATIONAL PROMOTION
A. Promotional Tools
Numerous tools can be used to influence consumer purchases:

 Advertising—in or on newspapers, radio, television, billboards, busses,

taxis, or the Internet.
 Price promotions—products are being made available temporarily as at a
lower price, or some premium (e.g., toothbrush with a package of
toothpaste) is being offered for free.
 Sponsorships
 Point-of-purchase—the manufacturer pays for extra display space in the
store or puts a coupon right by the product
 Other method of getting the consumer’s attention—all the Gap stores in
France may benefit from the prominence of the new store located on the
Champs-Elysees

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 B. Promotional Objectives
Promotional objectives involve the question of what the firm hopes to achieve
with a campaign—“increasing profits” is too vague an objective, since this has to
be achieved through some intermediate outcome (such as increasing market
share, which in turn is achieved by some change in consumers which cause them
to buy more).  Some common objectives that firms may hold:

 Awareness: - Many French consumers do not know that the Gap even
exists, so they cannot decide to go shopping there.  This objective is often
achieved through advertising, but could also be achieved through favorable
point-of-purchase displays.  Note that since advertising and promotional
stimuli are often afforded very little attention by consumers, potential
buyers may have to be exposed to the promotional stimulus numerous
times before it “registers.”

 Trial: - Even when consumers know that a product exists and could possibly
satisfy some of their desires, it may take a while before they get around to
trying the product—especially when there are so many other products that
compete for their attention and wallets.  Thus, the next step is often to try
get consumer to try the product at least once, with the hope that they will
make repeat purchases.   Although Coca Cola is widely known in China, a
large part of the population has not yet tried the product.

 Attitude toward the product: - A high percentage of people in the U.S. and
Europe have tried Coca Cola, so a more reasonable objective is to get
people to believe positive things about the product—e.g., that it has a
superior taste and is better than generics or store brands.  This is often
achieved through advertising.

 Temporary sales increase: - For mature products and categories, attitudes

may be fairly well established and not subject to cost-effective change. 
Thus, it may be more useful to work on getting temporary increases in sales
(which are likely to go away the incentives are removed). 

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 C. Constraints on Global Communications Strategies
Although firms that seek standardized positions may seek globally unified
campaigns, there are several constraints:

 Language barriers: - The advertising will have to be translated, not just into
the generic language category (e.g., Portuguese) but also into the specific
version spoken in the region (e.g., Brazilian Portuguese).  (Occasionally,
foreign language ads are deliberately run to add mystique to a product, but
this is the exception rather than the rule).

 Cultural barriers: - Subtle cultural differences may make an ad that tested

well in one country unsuitable in another—e.g., an ad that featured a man
walking in to join his wife in the bathroom was considered an inappropriate
invasion in Japan.  Symbolism often differs between cultures, and humour,
which is based on the contrast to people’s experiences, tends not to travel
well.  Values also tend to differ between cultures—in the U.S. and Australia,
excelling above the group is often desirable, while in Japan, “The nail that
sticks out gets hammered down.”  In the U.S., “The early bird gets the
worm” while in China “The first bird in the flock gets shot down.”

 Local attitudes toward advertising: - People in some countries are more

receptive to advertising than others.  While advertising is accepted as a fact
of life in the U.S., some Europeans find it too crass and commercial.

 Media infrastructure: - Cable TV is not well developed in some countries

and regions, and not all media in all countries accept advertising. 
Consumer media habits also differ dramatically; newspapers appear to
have a higher reach than television and radio in parts of Latin America.

 Advertising regulations: - Countries often have arbitrary rules on what can

be advertised and what can be claimed.  Comparative advertising is banned
almost everywhere outside the U.S.  Holland requires that a toothbrush be
displayed in advertisements for sweets, and some countries require that
advertising to be shown there be produced in the country.

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D. Some cultural dimensions:

 Directness vs. indirectness:  U.S. advertising tends to emphasize directly

why someone would benefit from buying the product.   This, however,  is
considered too pushy for Japanese consumers, where it is felt to be
arrogant of the seller to presume to know what the consumer would like.

 Comparison:  Comparative advertising is banned in most countries and

would probably be very counterproductive, as an insulting instance of
confrontation and bragging, in Asia even if it were allowed.  In the U.S.,
comparison advertising has proven somewhat effective (although its
implementation is tricky) as a way to persuade consumers what to buy.

 Humour: Although humour is a relatively universal phenomenon, what is

considered funny between countries differs greatly, so pre-testing is
essential.

 Gender roles: A study found that women in U.S. advertising tended to be

shown in more traditional roles in the U.S. than in Europe or Australia.  On
the other hand, some countries are even more traditional—e.g., a Japanese
ad that claimed a camera to be “so simple that even a woman can use it”
was not found to be unusually insulting.

 Explicitness: Europeans tend to allow for considerably more explicit

advertisements, often with sexual overtones, than Americans.

 Sophistication: Europeans, particularly the French, demand considerably

more sophistication than Americans who may react more favourably to

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 emotional appeals—e.g., an ad showing a mentally retarded young man
succeeding in a job at McDonald’s was very favourably received in the U.S.
but was booed at the Cannes film festival in France.

 Popular vs. traditional culture: U.S. ads tend to employ contemporary,

popular culture, often including current music while those in more
traditional cultures tend to refer more to classical culture.

 Information content vs. fluff: American ads contain a great deal of

“puffery,” which was found to be very ineffective in Eastern European
countries because it resembled communist propaganda too much.  The
Eastern European consumers instead wanted hard, cold facts.

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PRICING ISSUES IN INTERNATIONAL
MARKETING
Price can best be defined in ratio terms, giving the equation

Resources given up
Price =     ———————————————               
Goods received

This implies that there are several ways that the price can be changed:

 Change quantity: Often, consumers respond unfavourably to an increased

price, and changes in quantity are sometimes noticed less—e.g., when
wholesale cost of chocolate increased dramatically, and candy
manufacturers responded by making smaller candy bars. Note that, for
cash flow reasons, consumers in less affluent countries may need to buy
smaller packages at any one time (e.g., forking out the money for a large
tube of toothpaste is no big deal for most American families, but it
introduces a greater strain on the budget of a family closer to the
subsistence level).

 Change quality: Another way candy manufacturers have effectively

increased prices is through a reduction in quality. In a candy bar, the
"gooey" stuff is much cheaper than chocolate. It is frequently tempting for
foreign licensees of a major brand name to use inferior ingredients.

 Change terms: In the old days, most software manufacturers provided free
support for their programs—it used to be possible to call the WordPerfect
Corporation on an 800 number to get free help. Nowadays, you either have
to call a 900 number or have a credit card handy to get help from many
software makers. Another way to change terms is to do away with
favourable financing terms.

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INDIAN CARPET INDUSTRY
Carpet Industry is one among the industries prevailing in India since centuries.
Indian Carpet Industry has always been a crucial part of Indian export industry.
Moguls brought and introduced carpet weaving in India which survived and
flourished greatly. Over the period, ancient weavers has transformed into
modern artist who imbibe the magical colours to the Indian carpets. These artists
bring aesthetic touch to the carpets by doing magic with colours and provide
carpets an unusual beauty and elegance. The study revealed that the total carpet
exported last year was worth Rs 2600 crores whereas the size of the domestic
market was condensed to about Rs 200 crores. Carpet holds a grace and
recognition from over centuries. Earlier, only a few centres in India were involved
in carpet weaving but slowly, various clusters have risen in northern part of India
for the same purpose. Each centre has its own competitive advantage. These
centres employ nearly millions of people all across the country. Mojor belts of
carpets include Bhadohi, Mirzapur and Agra belt in Uttar Pradesh, Jaipur, Bikaner
in Rajasthan, Panipat belt in Haryana and Kashmir belt.

Carpets are broadly classified into two categories, traditional and modern.
Otherwise, Indian manufacturers make carpets in various types, these are;

 Chainstich Rugs
 Tufted Woolen Carpets
 Hand-knotted Woolen Carpets
 GABBE Woolen Carpets
 Pure Silk Carpets
 Handmade Woolen Dhurries
 Staple or Synthetic Carpets

Each type has its own individuality in terms of design, look and the wool used in
its manufacturing. The variety in carpets caters to various needs of customers.

The distinct variety added to the carpets is inclusion of silk and cotton which are
innovatively mixing with the wool to give an attractive look to the carpets. Silk
carpets are considered high quality pieces and are comparatively high in price.

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Indian carpets are fundamentally following the old popular patterns such as floral,
rhomboids, animal patterns and arabesques in its designs. These traditional
Oriental styles are preferred even today. However, Indian carpet industry seems
to be highly influenced by western patterns and designs which are giving a
competitive edge to Indian traditional carpets, such as Chinese patterns and
Persian designs.

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SWOT ANALYSIS OF CARPET INDUSTRY
Indian Carpet Industry is a unique industry which is highly unorganized but lacks
proper channels. Somehow, it has managed to perform impressively in the past
years. The industry has made significant contribution in Indian exports till 1990s.
What was there behind the industry that drives the export? SWOT analysis brings
forth the value drivers and tentative blocks this industry has experienced and
experiencing even today;

STRENGTHS- Over the years, carpet industry has flourished in India due to
availability of artistic skills, cheap labour and low cost raw material, innovations in
selling carpets and flexibility in manufacturing all kinds of carpets.

WEAKNESSES- The industry’s greatest weakness is its highly being unorganized.

The carpet exporters and manufacturers lack marketing channels. Indian
suppliers suffer due to poor infrastructure and internal competition, and lack
professional approach and Intellectual Property Rights.

OPPORTUNITIES- Home furnishing market is moving towards Carpet industry,

which results in evolution of new carpet designs. It is used as a marketing tool,
and gives opportunity to provide stocking and warehousing services to various
players in the market.

THREATS- Industry is suffering a lot due to unhealthy competition exiting within

it. If not handled properly, current rebound in the industry may not be
sustainable. Social evil such as Child labour has strong bonding with the industry.
Hence, the industry invites risk of possible backlash on itself.

Carpet Industry in India has experienced a major change in recent years. The
industry is moving towards the emergence of new market and old existing market
is saturated and lost its identity. Low-end carpets manufactured in modern
designs like hand-tufted carpets are highly preferred by new customer base.
Chinese industry is emerging as the biggest threat to Indian carpet industry, in
terms of pricing and volumes. However, innovative products range with lower
volume could be a success mantra for Indian Carpet Industry. Inefficient
coordination and ill management are what exist predominantly in the industry.
Apart from it, industry needs to consolidate on the activities such as quality
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standards, cost reduction, better development of products and their on-time
delivery to drive its growth.

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EXPORT CREDIT GUARANTEE
CORPORATION OF INDIA
The Export Credit Guarantee Corporation of India Limited (ECGC in short) is a
company wholly owned by the Government of India based in Mumbai,
Maharashtra. It provides export credit insurance support to Indian exporters and
is controlled by the Ministry of Commerce. Government of India had initially set
up Export Risks Insurance Corporation (ERIC) in July 1957. It was transformed into
Export Credit and Guarantee Corporation Limited (ECGC) in 1964 and to Export
Credit Guarantee of India in 1983

ECGC of India Ltd was established in July, 1957 to strengthen the export
promotion by covering the risk of exporting on credit. It functions under the
administrative control of the Ministry of Commerce & Industry, Department of
Commerce, Government of India. It is managed by a Board of Directors
comprising representatives of the Government, Reserve Bank of India, banking,
insurance and exporting community.

ECGC is the fifth largest credit insurer of the world in terms of coverage of
national exports. The present paid-up capital of the company is Rs.900 crores and
authorized capital Rs.1000 crores.

What does ECGC do?

 Provides a range of credit risk insurance covers to exporters against loss in
export of goods and services
 Offers guarantees to banks and financial institutions to enable exporters to
obtain better facilities from them
 Provides Overseas Investment Insurance to Indian companies investing in
joint ventures abroad in the form of equity or loan

How does ECGC help exporters?

 Offers insurance protection to exporters against payment risks
 Provides guidance in export-related activities

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  Makes available information on different countries with its own credit
ratings
 Makes it easy to obtain export finance from banks/financial institutions
 Assists exporters in recovering bad debts
 Provides information on credit-worthiness of overseas buyers

Need for export credit insurance

Payments for exports are open to risks even at the best of times. The risks have
assumed large proportions today due to the far-reaching political and economic
changes that are sweeping the world. An outbreak of war or civil war may block
or delay payment for goods exported. A coup or an insurrection may also bring
about the same result. Economic difficulties or balance of payment problems may
lead a country to impose restrictions on either import of certain goods or on
transfer of payments for goods imported. In addition, the exporters have to face
commercial risks of insolvency or protracted default of buyers. The commercial
risks of a foreign buyer going bankrupt or losing his capacity to pay are
aggravated due to the political and economic uncertainties. Export credit
insurance is designed to protect exporters from the consequences of the
payment risks, both political and commercial, and to enable them to expand their
overseas business without fear of loss.
Cooperation agreement with MIGA (Multilateral Investment Guarantee Agency)
an arm of World Bank. MIGA provides
1. Political insurance for foreign investment in developing countries.
2. Technical assistance to improve investment climate.
3. Dispute mediation service.

Under this agreement protection is available against political and economic risks
such as transfer restriction, expropriation, war, terrorism and civil disturbances.
Notable Records
 Largest Policy – short term Rs.250 crores
 Largest database on buyers 3 Lakhs
 Largest credit limit Rs.80 Crores
 Largest claim paid Rs.120 crores
 Quickest claim paid 2 days
 Highest compensation-Rs 788 Crores

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ECGC now offers various products for the exporters and bankers. If readymade
products are NOT suited to an exporter/banker then ECGC designs tailor made
products.

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CARPET EXPORT PROMOTION COUNCIL
Founded in 1982, the CEPC was established by the Ministry of Textiles of the
government of India to promote the export of hand-knotted rugs and all other
types and styles of floor coverings from India.

The CEPC’s membership is comprised of senior trade representatives and

government officials, who provide invaluable service and expertise to the
organization. The CEPC’s primary responsibility is to advise the Indian
government on export promotion measures and help the exporter community
bring their problems and needs to the attention of the government. The
organization also provides assistance to Indian exporters by identifying key
markets and trends, offering financial support, sponsoring, participating in trade
fairs and exhibitions, and conducting promotional activities abroad.

For overseas buyers/importers, the CEPC acts as a bridge to help create

meaningful business relationships with Indian exporters. The council helps
identify suppliers of high repute and good standing in the industry, provides
credit reports on exporters, arranges buyer-seller meetings, and assists in trade
disputes. There are over twenty carpet production regions in India, each
specializing in a different type of floor covering. The CEPC is well versed in the
specialties of each production region, and can, therefore, be of assistance to both
exporters and overseas importers.

The CEPC also advises the government about the proper strategies for carpet
promotion, and its officials regularly visit the Council’s overseas members to
explore possibilities for new markets and joint marketing opportunities.

Focusing on growth and development, the CEPC has seen sharp increases in rug
exports, worldwide. Last year, CEPC’s exporter members had a total of $875.71
million in sales of all types of carpets, an increase of 8.39 percent from the
previous year. The U.S. market accounted for nearly half of the total sales.

To eradicate the incidence of child labour from the carpet industry CEPC has
adopted a label "KALEEN"

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The Hallmark of Commitment:
This label on carpets ensures that no child labour has been used for the
production of the carpet. The exporters are required to fulfill certain
prerequisites to obtain this label. They have to contribute % of the FOB value of
their exports to the child welfare fund.

The main objectives of adopting this label are:

 Total eradication of child labour.

 Welfare of the weaver community
 Education of the children with mid-day meal
 Medicare of the weaver families
 Vocational training of the children with assured stipend.

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M/S. INDIA IMPORTS AND EXPORTS

India Imports and Exports is an export house, it is in to the business of exporting

handmade carpets to U.S.A. Atlas Rug Corporation, New York is their major
buyer. The company is owned by Mr. Navin Kant Chaddha and Mrs. Indu
Chaddha. The head office in Delhi and their production unit is in Mirzapur, Uttar
Pradesh. We interviewed them to gather information about the challenges and
risks they face in exports of carpets.

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INTERVIEW
a) What are the major risks associated with the exports of
handicrafts/carpets?

The major risk we face is regarding the payments from customers. We have
to be very careful in selecting our buyers as we both are situated in
different countries, so we need to keep a track of their financial records
and transactions. We even check the credit rating and the financial position
of the buyer before finalising the deal. These precautions are essential
because if we do not follow this, it would affect the entire functioning and
operations of the company. If by any chance there is a problem in
payments there is EXPORT CREDIT AND GUARANTEE CORPORATION (ECGC)
to our rescue. ECGC gives us the assurance of receiving payment from
buyers. In case there is a default or delay in payment ECGC makes the
payment on behalf of the buyer. ECGC helps to do a background check of
the customer, their latest financial transactions and provides information
on their financial position. All of these are emphasised and taken into
consideration before entering into the agreement.

Another risk is of order cancellation. Many times the buyers cancel the
orders and we do not have any advances from them and it is just a matter
of faith that we believe them. Risk factor is always there, this has happened
with us, we take orders, purchase raw materials and start production and
then they tell us that market is weak and cancel the order. The entire loss is
on us. The production itself takes 6-9 months and after 6 months they
cancel the order and then we need to look for new buyer for the produced
merchandise which again is difficult. There is no prior agreement signed or
the buyer is not bound to purchase the merchandise, so there is nothing
much we can do, we can’t go and sue them.

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b) How do you manage to stay in touch with the buyers located abroad?

We are in regular touch with them through telephones, e-mails; we visit

them annually or vice-versa. Communication is necessary and regular as
well because they give us the designs, colour and pattern of the carpets
they want. The delivery schedules are decided by them which needs to be
discussed, all these makes communication important.

c) How do you locate your buyers, is it not difficult to find customers in a

foreign land?

We have customers who are dealing with us for the past 20-25 years, so
there is no urgent need for us to locate new buyers. If at all we need
customers our process is that we collect data from carpet export
promotion council and then visit U.S.A as that is our major market.
Previously we used to collect information on buyers from Yellow Pages and
American Embassy. We show them our samples and negotiate the prices
and if things work well we move to the next step. Sometimes buyers come
to India to attend trade fairs so we find them there. But we feel more
secure when we visit them because in that case we can see their
showrooms and can judge them

d) What deal of competition do you face? What is your strategy to tackle

that?

Yes, there is plenty of competition both from, Indian companies and

various Asian countries. Internationally the competition is from China, Iran,
and Pakistan. China has the cost advantage, their carpets are relatively
cheaper than ours may be the reason is their cheap labour and the support
of Chinese government to their exporters. Pakistan usually comes up with
new designs and they have skilled labour for weaving carpets and same is
the case with Iran. Indian firms too are big competitors like Lotus Rug
Corporation is our major Indian competitor. Companies are always stealing
each other’s designs and patterns.

To win over the competition we always try to provide good quality and
most importantly on schedule delivery, which is the only way we can
survive. Apart from this we come up with new designs and patterns and

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 colours. If we don’t take these aspects into account then definitely other
exporters would come in and give us a hard time. The scope of new
entrants is very high if you are dealing in an international market.

e) How do you keep a check on the activities of your competitors and the
developments in the market?

We keep visiting the handloom fairs and exhibitions, we gather information

through internet and most importantly our buyers keep us telling about the
recent happenings and developments.

f) Do you face problems because of currency rate fluctuations?

We deal in U.S.A and the rate of Dollar does not fluctuate much but there
are times when there are sudden fluctuations which create huge problems
for us. Last year this happened quite a few times, somehow we managed to
survive that. However we follow the practice of hedging whenever we
sense that rates would fluctuate. We pre-decide the price and time as to
when and on what rate we will take the payment. This helps to mitigate
risk considerably.

g) Did recession in U.S.A affect your business?

Yes, the recessionary period created troubles for us and it is still reviving,
our payments got delayed, we had to stop are shipments so our exports
came down drastically. We are coping up but it will take time. The carpet
weavers got severely affected, they were not getting work and
subsequently wages so they migrated to places like Surat, Mumbai for new
jobs and now we are short of skilled labour. Threat is always there because
carpet is a luxury item and it is the last thing one needs to buy. If economic
conditions are not favourable there it can affect our business.

h) Who is your major buyer? You have any plans to enter into a new
market?

Our buyers are in U.S.A and we are dealing with them for several years. At
present we do not want to diversify because we cannot cater to the huge
demand. The new customers would require new designs, colours etc. and

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 for that we would have to make number of changes in the production
which is not possible as of now.

i) Are there any government restrictions on carpet exports or do they

provide subsidies?

No there are no government restrictions on hand made carpets.

Government gives us the duty drawbacks; we get drawbacks on custom
duty, taxes up to 15%. The role of government is not much.

j) From where do you procure the raw material?

We take it from Bikaner. The Bikaner people get wool from New Zealand
and make threads from it which we buy from them.

k) How you manage to stay profitable?

Carpet weaving is a labour intensive industry. More than half of the cost
goes into weaving, finishing and wages. We earn unexpected profit in cases
when our product is significantly different from that of others but
otherwise our profit margin is quite predictable every year.

l) Have you ever thought of selling these carpets in India?

No, India is not an appropriate market, people do not demand carpets here
and would never be willing to pay so much for carpets, and infact the
climate here is not suitable for the use of carpets.

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BIBLIOGRAPHY

 www.consumerpsychologist.com
 www.wikipedia.com
 www.indiancarpets.com
 www.ezinearticles.com
 www.scribd.com
 India Imports and Exports

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