Importing and Exporting in International Trade: Project Description and Scoring Guide

Answer

Executive Summary

The main idea covered in this paper is the import of clean energy sources and pollution control devices from the United States into India. The products being imported include solar panels and wind energy resources as well as pollution control devices, which can be used in the manufacturing industries. The Indian government has reduced taxation on these items being imported and has created a conducive environment for trade in these devices to be profitable. The company discussed in this essay achieves profitability within its second year of operations, which shows that India is a viable market for clean energy sources and pollution control devices. The government has also implemented strict regulations adopted from standards set by the International Energy Agency and these regulations serve to ensure that only quality products are sold within the Indian marketplace. The clean energy resources imported into India are implemented on both a local scale and a national scale given that some of the power generated by the clean energy resources shall be connected to the national grid, while some of the energy generated shall be consumed locally. The pollution control devices shall be sold to local manufacturers in order to reduce the overall pollution in India.

Importing and Exporting in International Trade - US to India Clean Energy and Pollution Control Equipment

Introduction

This final project covers the import of clean energy materials and equipment into India from firms in the United States, which forms the backbone of the import/export business covered within this module. This project will cover a brief introduction of the product being imported, which is clean energy equipment and materials targeted at the manufacturing industries, which are some of the largest polluters in India and the rest of the world. A country summary is also included as a major part of the project, which cover the economic state of the country and the regulations put in place to support the import of clean energy products. The market demand, pricing strategies and supply chain management strategies are also discussed as part of the project and their implementation is thoroughly examined in order to understand their application to the final project module (Jha, 2009). The distribution channels implemented by the importers and exporters are also discussed in order to get a better understanding of how the clean energy materials and equipment are distributed within the target market. Government regulations and other regulatory concerns are also addressed within this project in order to determine the impact of government regulations on the import of clean energy and pollution control materials and equipment.

The imported products

The products to be imported are clean energy materials and pollution control equipment that are being imported by India from the United States. These imported materials are extremely important in the fight against pollution as well as in maintaining a safe environment for both humanity as well as wildlife. Given that most industries pollute the environment and the importance attached to the maintenance of a clean green environment by the Indian government, the clean energy materials and pollution control equipment being imported are of great importance to India. The plan is to import these materials and equipment from well-recognized producers in the United States and to ensure that the equipment imported meet the set international standards for clean energy materials as well as anti-pollution equipment. The equipment and materials imported into India must meet the clean energy requirements and standards set by the International Energy Agency, which works closely with India in its environmental protection programs (Bandyopadhyay, 2014). The products must also be certified as green energy products within the United States in order to meet the high import and export criteria set by both Indi and the US to safeguard the clean energy industry. This allows both countries to be satisfied with the quality of the equipment and materials exported and imported.

A brief summary of India

India is a country that is roughly a third the size of the United States, but it has almost thrice the total population of the United States with its population at over 1.2 billion people. A large percentage of the country’s population is composed of young people who have a desire to protect their environment by exploring clean energy options and alternative fuel resources. India has a large workforce that can support the import and export of clean energy resources as well as the pollution control devices with its employable workforce being around 492.4 million workers. Many Indian workers have the technical know-how to work in the clean energy sector and this means that the industry shall not lack a viable workforce (The World Factbook – India, n.d.). The country has experienced economic growth at a rate of 6% and above since 2013, which is good for the energy industry as it shows that the industry can support sustained growth even with the introduction of clean energy sources that are targeted at filling the large gap in the energy sector. There is a significant potential for renewable sources of energy as there is a large portion of the Indian population that does not have access to electricity or clean energy sources.

The country currently imports most of its electricity from neighboring countries with net imports of electricity being 4.794 billion kWh of electricity. The country also imports 3.812 million bbl/day of crude oil as well as 312,000bbl/day of refined petroleum products. The country also imports 18.9 billion cubic meters of natural gas used for heating, lighting and other purposes. The alternative energy sector is largely underdeveloped with only a few forms of alternative energy sources being exploited such as solar and wind energy, but on a rather small scale. The introduction of new clean energy sources shall be of great benefit to the country given that most of its energy needs are met through non-renewable energy sources that pollute the environment as they are derived from fossil fuels. The country has implemented measures to encourage the uptake of clean renewable energy sources given that they are not charged an excise duty and as such are much cheaper than the taxes on non-renewable energy sources. The government has created significant investment opportunities in clean renewable energies given that the current installed capacity for wind energy is at 23.44GW and the potential for wind energy within the country is at 102.8 GW. 

Market demand study

As part of an increased awareness in environmental conservation, India has set up regulations that support the use of clean energy (Jha, 2009). One of the measures is the reduction in customs duty for renewable energy technologies to facilitate the use of such energies. The customs duty is set at 5% that is favorable as some South Asian countries have double-digit duties. Additionally, the Indian government offers financial incentives to firms dealing with renewable energy with the aim of reducing the price of such technologies to ensure widespread use of clean technologies and lessen the amount of pollution. Consequently, it negatively affects companies that export the same as domestic companies have a substantial advantage.

On the other hand, exportation of environmental technologies is encouraged by the U.S. government that greatly enhances ease of trade (Jha, 2009). For instance, the department of commerce tries to advance international market opportunities for U.S environmental technologies firms by having trade missions and other export promotion activities. Moreover, these companies have also been provided with financial incentives to do business internationally

Although custom duty is fair, cargo can stay in ports up to forty days in Indian ports. Indian ports experience massive congestion as traffic is always higher than installed capacity (Jha, 2009). The charges are 108 rupees per day per ton (The Gazette of India, 2014). Considering the time and tons of cargo, this will have a considerable effect on the expenses.

Although India poses numerous challenges as a destination for clean energy and pollution control equipment, the market opportunity is considerably high especially with the recent emphasis on environmental conservation. Additionally, some of these types of equipment are sophisticated and are not yet manufactured domestically hence the need to import from the U.S.

Pricing structure

Considering the fact that many other companies have already engaged themselves in selling this product to consumers, it means that there is already stiff competition. However, it is clear that most companies would rather spend less, as it is a product that does not bring in any profits whatsoever; they are purchasing them due to the measures put in place to control pollution. Therefore, the pricing strategy used will be the penetration pricing. The price will be set artificially lower than what other companies offer. This will see to it that the product from this specific company gains market share since many people will be interested due to the low price (Dovleac, 2014). However, after the company has gained sufficient market share to sustain it, the price is increased gradually.

Supply chain management

Getting the product to the final consumer is very challenging. This is because they are bulky and transportation may take a very long time. Therefore, the company will rely on suppliers who will purchase them in high numbers, before making them available to the final consumer (Madhani, 2015). My transportation structure will involve both air and road. Air transportation will be used to ensure that the products get to the required region on time, and without much damage. After that, they will be transported by road to the selected suppliers. To make it easier to handle insurance and payments, the company will rely on the suppliers, since it will be complicated for the main company to deal with the customers directly (Madhani, 2015). The company, therefore, will collect payments from the suppliers, as well as offer insurance for the products so that they can offer them to consumers. Therefore, in case of any complaints, the consumer will simply approach the supplier from which the purchase was made. The complaint will then be forwarded to the main company and a response will be received.

Distribution channels

The clean renewable energy sources shall be distributed locally as well as nationally through the national electricity grid. The pollution reduction machines shall be distributed to the final consumers through different suppliers who shall be contracted by the main importing company to distribute the pollution reduction devices locally. The renewable energy sources shall be marketed on a small scale as local solutions to the lack of electricity in most rural areas where the locals can be allowed to buy small solar panels that would provide them with solar power. Local villages can also be chosen to receive wind energy through wind energy power production systems that shall be established at a local level apart from the national electricity grid. Therefore, the clean renewable energy projects shall be conducted on a national as well as a local scale. On the other hand, the pollution reduction devices shall be distributed through local distributors each appointed for a specific regions and serving manufacturing entities within the given region. Each of the pollution reduction devices must be customized locally in order to meet the specific requirements of each manufacturer who purchases the devices. The local customization is also in accordance with government regulations that require all pollution devices sold in India to meet specific criteria asset by the International Energy Association.

Government and regulatory concerns

The government has set strict criteria regarding the sale and use of pollution devices as well as the use of renewable energy resources and as such these regulations must be met by the importing company in order to have access to the local Indian market. The pollution devices sold in the country must meet the regulatory standards of the International Energy Agency as adopted by the India government in order to regulate this industry. The same case applies to the renewable energy sources implemented across the country; these too must adhere to the strict regulations on safety and sustainability in order to meet the government’s regulatory standards. Some of the requirements for the clean energy options being provided by the company include that they must be easy to install and use on small scale such as is the case for the use of solar panels. It is also important to note that the Indian government encourages the use of renewable energy by abolishing the excise duty on renewable energy materials and resources. The government has also gone further to implement programs that offer subsidies to rural areas that implement renewable energy sources such as the use of solar energy and wind energy in their local villages, which has furthered the growth of this industry.

Financials-three year financial projections

Figure 1: Estimated three-year financial for Import Export Company

The three year financial for the import company indicate that the company shall make a loss in its first year of operation given the costs of setting up business as well as the lower sales before the target consumers become familiar with the company’s products. However, the company starts making profits in the second year after sales pick up and the cost of doing business reduces as people become familiar with the company’s products. At this stage, the company has started establishing a market for its products within the country. In the third year, the company still makes a profit because it has established a solid base of customers who buy its products and the cost of doing business has also reduced. The above figure is the three year summary of financial results for the company.

Conclusion

In conclusion, the import of pollution control devices and renewable energy resources into India from the United States is a viable business that can bring profits to companies involved in the trade as seen from the three year financials of the above company. The Indian government seeks to encourage businesses involved in this trade by removing the import taxes on the equipment imported for this trade in order to ensure that there are minimal barriers to this trade. The government has implemented stiff regulations in accordance with standards from the International Energy Agency in order to regulate this industry and ensure that only quality products are sold to consumers in this industry. The government has reduced taxation on renewable energy source in order to enhance access to clean energy sources in the country’s rural areas as well as some urban areas. The taxation on pollution devices have also been reduced in order to enhance environmental protection and reduce the effects of pollution on the environment.

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