International Business – Detail discussion on a case

International Business

Introduction

In the current scenario, world economy evolves around some of the developed & developing countries. Developed countries such as America or UK has the huge money but they don’t have much internal demand. Developing countries such as India or Brazil has huge internal demand but they don’t have sufficient resources to fulfill the demand. Companies from Developed countries are coming forward to invest their resources into developing countries. Earlier companies used to only export their products to other countries, but now a day’s companies also prefer to set up the manufacturing plant in every country. Majority of big brands manufacture their products in countries like China or India & then they sell these products worldwide.

World economy is dependent on many factors. Fuel is one of the most important factor. Now a day most of the countries are going for non-conventional energy resources. So, their dependence on fuel producers will not be a case in future.

Two types of trade flow are import & export. Import means a country buy goods from a seller company from other company. Imports can be of goods or service. E.g. India Imports mobile phones from china. Generally, many countries charge taxes on imports to safeguard interest of local manufacturers. Most countries try to import specific products which they don’t manufacture locally. Import is generally considered as not favorable for country, because it causes the country to spend its foreign exchange. Export means a company sells its products in other countries. Exports can be goods or service. E.g. Brazil export sugar to USA, India export software to UK. Export is considered as favorable for a country, because it will get foreign exchange. Generally, most countries export the surplus number of products after internal consumption. The difference between export & import is balance of trade.

Content & Discussion

India is a second highest populated country after China. It has more than 1.2 Billion population. The country has approx. $ 40,000 million imports per year & approx. $ 30,000 million exports. It has balance of Trade approx. $ 10,000 million. It has on 19th number in terms of exports all over the world. It exports its goods to United States, United Arab Emirates, China, United Kingdom, Singapore, Germany etc.

India is an agriculture driven country, were its more than 60% of population live in villages. Most of these people are farmers. It exports Cereals worth $10.1 Billion to all over world every year. Since many decades, India has a decent setup in manufacturing sector. It manufactures machinery & automobiles. Due to low cost, it exports large number of automobiles to other developing countries. Textile is one of the top export sector of India. India has 63% share in world market of Textiles. Due to large availability of highly qualified & trained technical professionals, India has jumped high in terms of software sales. It has captured the world markets for software.

As India is second highest populated country it needs huge amount of energy resources to run its operations. Unfortunately, India has not plenty of fuel energy resources. That’s how it has crude oil imports of approx. $ 90 Billion every year, which is 25% of its total imports. Every social class of India has an attraction for Gold, here also India has not many of Gold ores. So, every year India import Gold of approx. $ 50 Billion worth. It also imports electrical machinery, organic chemicals, computers, Iron, Steel etc.

Following table shows five year’s figure of exports from India

Year

Export (in $ Billion)

2014

322

2013

312

2012

297

2011

303

2010

226

In 2010 India had export of $ 226 Billion per year which has increased to $ 322 Billion per year in the year 2014. It has grown 96 units in last 5 years. This means it has grown by approx. 20% every year since last five years. India has increased petroleum, diamonds, jewelry, medicines etc. As India is implementing new technology in petrochemicals sector, it has started exploring new oil wells in India. This has increased oil production in India in five years. Also, it has installed huge petrochemical refineries with government sector & private sectors. These refineries take cheap crude oil from all over the world & refine it. It sells the refined petrochemical products to all over the world. This strategy increased India’s petrochemical export in these 5 years. India has started exporting medicines to developing countries. It has faced restrictions from many developed countries but it has doing well with developing countries. India also kept its pace with Cereals. Due to crunching agricultural land, India was going into downturn of cereals productions. But with the help of new technology it has started producing huge amounts in small lands. Because of this it has sustained the exports of cereals.

Following table shows Indian GDP from 2010 to 2014.

Year

GDP (in $ Billion)

2014

2033

2013

1857

2012

1828

2011

1822

2010

1656

In 2008 worldwide market crash, India had a GDP of $ 1020 Billion. But due to positive signs in economy, increasing income levels of population, huge local internal demand, continuously flowing Foreign directs investments, level of trust in economy the GDP started growing. Within two years it reached to $ 1656 Billion. From 2010 to 2014 it has increased from $ 1656 Billion to $ 2033 Billion. Which means it has increased by average of 25% in these five years.

The below mentioned table shows exports of India as a percentage of GDP, from the year 2010- 2014

Year

Percentage

2014

15.83

2013

16.80

2012

16.24

2011

16.63

2010

13.64

This data shows that in the year 2010, 13.64% part of GDP was made up by export. In the year 2011, 16.63% part of GDP was made up by export. In the year 2012, 16.24% part of GDP was made up by export. In the year 2013, 16.80% part of GDP was made up by export. In the year 2014, 15.83% part of GDP was made up by export.

Following table shows comparison of GDP to export of India from year 2010 to 2014.

2010

2011

2012

2013

2014

GDP in billion $

1656

1822

1828

1857

2033

Exports in billion $

226

303

297

312

322

Exports to GDP ratio was highest in the year 2013, it was 16.80%. In the year 2010 export was $ 226 Billion & GDP was $ 1656 Billion, export to GDP ratio was 13.64%. In the year 2011 export was $ 303 & GDP was $ 1822 Billion, export to GDP ratio was 16.63%. In the year 2012 export was $ 297 Billion & GDP was $ 1828 Billion, export to GDP ratio was 16.24%. In the year 2013 export was $ 312 Billion & GDP was $ 1857 Billion, export to GDP ratio was 16.80%. In the year 2014 export was $ 322 Billion & GDP was $ 2033 Billion, export to GDP ratio was 15.83%.

Over these five-year export is increased from $ 226 Billion to $ 322 Billion & GDP was increased from $ 1656 Billion to $ 2033 Billion. This means, export has increased by average $ 25 Billion in five years where GDO increased by $ 75 Billion in five years. The growth of GDP is always exceeding the growth of Export in India. Because India has huge internal demand within the country.

The continuous growth in GDP shows the positive sign for Indian economy & Indian markets. The growth in exports shows the positive sign for its foreign reserves. As it will increase its foreign reserves then it will become strong economy.

CONCLUSION AND RECOMMENDATIONS

Export & Import are two kinds of trade every country deals with. Export is sell of goods of services to other countries & Imports means accepting (allowing) outsider organizations to sell in our country. The difference between Import & export is called as Trade Balance. If export is higher than import then trade balance is positive but when import is higher than export then trade balance is called as negative. Positive trade balance is favorable for the country’s economy but negative trade balance is not favorable for countries economy. If the trade balance is in negative then the country spends valuable foreign currency & it is dependent on other countries for its needs. When trade balance is positive then country earns foreign exchange & it is not depending much on other country for its needs. Generally, countries export the surplus amount of production after its internal consumption.

This study was done with special reference of India & its two types of trades. India has second highest population in world. The population is considered as huge demand center. It is a country of agriculture. It produces huge cereals from agriculture. After satisfying internal demands it is exported all over world. India is one of the top exporter of Software in all over world. Due to cheap labor cost, India is continuously increasing its Software sell in world. This is most important sector for future.

India has negative trade balance which is not a good sign for its economy. It must try to make trade balance positive. But it is not a simple task. It has to changes its basics for it.

Following are my recommendations,

India has to do huge investment in Oil exploration. It has to find crude oil in the country. If it became self-sufficient in terms of oil then it will achieve its positive trade balance. It has to think about other types of clean energy resources like solar energy, wind energy etc. If these kind of clean energy sources produce large amount of energy then that will reduces import of crude oil. Ultimately imports will go down. India has to reduce its gold imports as it is second highest imported product in India. India don’t have much Gol ores in India, so it is totally dependent on outside countries. This import is hurting the economy. India can increase its import duty on gold which demotivate the people to buy gold. India can focus on medicine sector which has a great future. The country has infrastructure, if it focusses on new development then it can capture new export markets. India has to focus on tourism which is one of the top foreign currency attracting business in world. With huge diversity, environment & new developed cities it can attract more & more tourists. This will help earning foreign currency for the country & reduces negative trade balance. India must focus on its software business. If we analyze, we will find that its software business is mainly based on the service part. Where companies make software as per customer requirement but if it focus on making software product making then it can increase its software exports.

REFERENCES-

Books

Paul Krugman , Maurice Obstfeld , Marc Melitz (2015) International Trade: Theory and Policy: Global Edition. 10th edition pages 89-93

Jesse Richman (Author), Howard Richman (Author), Raymond Richman (2014) Balanced Trade: Ending the Unbearable Costs of America’s Trade Deficits. 3rd edition. Pages 34-39

Journals

Tarlok Sing (2004). Testing J-curve hypothesis and analyzing the effect of exchange rate volatility on the balance of trade in India. Empirical Economics, volume 29 issue 2.

Nalini Ranjan Kumar and Mathura Rai (2007). Performance, Competitiveness and Determinants of Tomato Export from India. Agricultural Economics Research Review Vol. 20 (Conference Issue) 2007

Websites

  1. http://www.worldstopexports.com/indias-top-10-imports/ Accessed on 8th May 2017

  2. http://www.tradingeconomics.com/india/exports Accessed on 8th May 2017

  3. http://indiatoday.intoday.in/education/story/export-products/1/480878.html Accessed on 8th May 2017

  4. http://www.worldatlas.com/articles/exports-by-country-20-largest-exporting-countries.html Accessed on 8th May 2017

  5. https://data.gov.in/catalog/export-growth-and-share-world-exports-india-and-other-countries Accessed on 8th May 2017

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