Strategies for MSMEs to Simplify Cross-Border Trade

Micro Small and Medium Enterprises (MSMEs) are key drivers of India’s economy. With a contribution of 30% to the country’s GDP, they can help India’s progress towards a developed economy by 2047. 

What’s driving their growth? 

India’s G20 leadership and Foreign Trade Agreements (FTAs) have opened doors for local businesses to global opportunities. Indian MSMEs have been upping their competitiveness quotient globally, with the Indian government supporting them with a suite of policy measures.  The PM Gati Shakti Master Plan, National Logistics Policy, Production Linked Incentive Schemes, and reforms to the Goods and Services Tax regime have helped facilitate export and manufacturing-led growth.  

States such as Rajasthan have seen a steady increase in exports of textiles (including readymade garments), gems and jewellery, engineering goods, chemical and allied products (including tyres), and handicrafts. Countries such as the US, UK, and UAE are the top markets for handicrafts and handprinted textiles. 

However, challenges remain for MSMEs to expand their business beyond borders. Lack of knowledge about export procedures, limited access to buyers, and global markets are some of the key ones. 

Can cross-border trade be made simple?

Here are 5 tips for MSMEs to navigate and move from complexities to convenience and start exporting

1. Taking the right first steps 

• Register with the Ministry of Corporate Affairs as a proprietorship, a one-person company (OPC), a private or LLP company, depending on the ownership structure.  

• Open a current account with a nationalised or an international bank. 

• Obtain an Importer Exporter Code or IEC Number. An application can be filed at www.dgft.gov.in. The application fee is INR 500 and can be paid online via net banking or credit card. 

• Get the product certified if required. Certain product categories can only be exported after acquiring requisite certificates. Confirm if the products can be exported and if they need certifications from the Export Inspection Council. For technical and industry insights, MSMEs should register with their respective Export Promotion Council (EPC).   

• Acquire certifications demanded by the relevant export markets. 

2. Interacting with Overseas Buyers

One of the most effective ways for MSMEs to learn whether there is demand for their products overseas is by participating in trade fairs. Trade fairs and exhibitions can directly connect MSMEs to prospective overseas buyers. EPCs organise buyer-seller matchmaking events and can also provide valuable information on export market size and robustness of demand. 

Listing products on global e-commerce portals is another great way to reach overseas buyers.  A UPS SMB survey revealed that small businesses are prioritizing digital sales and boosting online capabilities to reach new customers. 

3. Pricing for Export

Before agreeing to the order, overseas buyers may require samples. Product samples aren’t restricted and can be shared freely.  Factor the cost of sharing samples such as cost & freight (C&F) and overseas marketing expenses before setting the product price. 

There can be four possible approaches to product pricing:

• Market Driven: Product price is a function of demand, supply, and inflation in overseas markets. 

•  Skimming: A higher price is charged to compensate for the greater initial expenses.  MSMEs initially earn higher profits. Gradually, they may lower the price to gain a greater market share. 

• Penetration: MSMEs set a low price for their products to successfully challenge competitors and gain a larger market share. Once competitors are eliminated, prices may be raised

• Marginal Cost: Price covers the direct expenses that are related to producing and selling the product. Once these expenses are accounted for, a floor-price is set below which a product cannot be sold.  

Deciding the pricing strategy depends on the overall goals, market situation, and product life cycle.

4. Fulfilling Export Orders

Once the order confirmation is received, check and secure supplemental information about the ordered items such as specifications, payment terms, and delivery date. Also, to keep future consignments from being rejected, the MSME may enter into a formal agreement with the buyer. Investing in labelling, packaging, and marking items also helps.  

While it’s not mandatory to hire a Customs House Agent (CHA), when shipments are critical, urgent, or costly, the services of a CHA prove invaluable. CHA’s services are also useful when MSMEs want to ensure their products reach their destination on time. CHAs can help confirm the time taken to reach the destination. After knowing this, plan and package the items for delivery.

5. Picking a Reliable Logistics Partner

This one is important simply because after all the hard work, the products need to reach the overseas customers on time and intact. The best way to ensure this is to partner with a well-established logistics provider having global reach. Choose a logistics partner providing easy connectivity, packaging, and end-to-end shipment trackability for transparency and peace of mind. Logistics partners can also help MSMEs navigate complex customs paperwork and formalities.

Be ready because…

A dynamic marketplace has its own challenges. To be competitive, MSMEs need to be proactive and in a state of readiness. With the right tools, information, and policy framework they can be business ready and play a vital role in shaping India's economic future as a global powerhouse.