The Export Market

Arguments, as above cannot, unfortunately, apply when it comes to exports. The same factors which are an advantage for small and medium enterprises in the domestic market become a disadvantage when it comes to exports. Larger facilities capable of reasonable quantity of output would be necessary for exports. Whereas, low volumes and a little compromised quality are acceptable in the domestic sector, for exports the need is to have a low margin, high volume, and high quality output facility.

This does not necessarily mean that western style factories will have to be transplanted to India. All the ground realities that have been discussed before are still applicable. Therefore, here probably more than anywhere else comes the need to mix technology and native strength. For example, the low cost of labour would be a tremendous advantage in hand finishing solid wood articles.

The world over, finishing of solid wood is labour intensive and this would automatically be a great plus in our favour. And yet, the facilities have to be large enough to produce adequate quantities. Therefore, for the export market probably the right model would be large processing facilities but still incorporating the special advantages of India.

Why?

•   In a highly competitive global market not protected by barriers of import duties as in India, the overall margins available are quite low; exporting competitively is a low margin, high volume operation. Not restricted by distribution channels or the problems of logistics of transportation, etc., large facilities can quite well be established.
  
•   It is only with real large volume productions that the competitive edge can be reached in purchase of materials. The inputs cost that forms a very important component in the ultimate competitiveness is in turn dependent on the quantity of purchase. Therefore unless a large enough facility exists, this advantage would be lost.
  
•   The global market demands quality on par with the developed market. In many instances consistent god quality is not possible in mass production unless appropriate equipments are used. Many of these equipments have large throughput volumes and operating them for low volumes would not be economical. Therefore it is necessary both from the point of view of quality as well as an assured quantity output to have large facilities installed for exports.
  
•   For export oriented companies the cost of capital is more or less on par with internationally prevailing costs. Hence cost of capital does not become a major disadvantage.
  
•   In the export market, the quantities traded have to be very large. Otherwise, even in distribution, economy of scale cannot be realised. Therefore to be a significant player there is no option, but to have significant outputs.

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