Import and Export Licensing Procedures in India

Posted on November 16, 2016 by India Briefing

Editors Note: The article has been updated as per the latest import, export regulations.

Indias import and export system is governed by the Foreign Trade (Development & Regulation)
Act of 1992 and Indias Export Import (EXIM) Policy. Imports and exports of all goods are free,
except for the items regulated by the EXIM policy or any other law currently in force. Registration
with regional licensing authority is a prerequisite for the import and export of goods. The customs
will not allow for clearance of goods unless the importer has obtained an Import Export Code
(IEC) from the regional authority.

Import Policy
The Indian Trade Classification (ITC)-Harmonized System (HS) classifies goods into three
categories:

Restricted
Canalized
Prohibited
Goods not specified in the above mentioned categories can be freely imported without any
restriction, if the importer has obtained a valid IEC. There is no need to obtain any import license
or permission to import such goods. Most of the goods can be freely imported in India.

Licensed (Restricted) Items

Restricted items can be imported only after obtaining an import license from the relevant regional
licensing authority. The goods covered by the license shall be disposed of in the manner specified
by the license authority, which should be clearly indicated in the license itself. The list of
restricted goods is provided in ITC (HS). An import license is valid for 24 months for capital
goods, and 18 months for all other goods.

Canalized Items
Canalized goods are items which may only be imported using specific procedures or methods of
transport. The list of canalized goods can be found in the ITC (HS). Goods in this category can be
imported only through canalizing agencies. The main canalized items are currently petroleum
products, bulk agricultural products, such as grains and vegetable oils, and some pharmaceutical
products.

Prohibited Items
These are the goods listed in ITC (HS) which are strictly prohibited on all import channels in
India. These include wild animals, tallow fat and oils of animal origin, animal rennet, and
unprocessed ivory.

Export Policy
Just like imports, goods can be exported freely if they are not mentioned in the classification of
ITC (HS). Below follows the classification of goods for export:

Restricted
Prohibited
State Trading Enterprise
Restricted Goods
Before exporting any restricted goods, the exporter must first obtain a license explicitly permitting
the exporter to do so. The restricted goods must be exported through a set of
procedures/conditions, which are detailed in the license.

Prohibited Goods
These are the items which cannot be exported at all. The vast majority of these include wild
animals, and animal articles that may carry a risk of infection.

State Trading Enterprise (STE)

Certain items can be exported only through designated STEs. The export of such items is subject
to the conditions specified in the EXIM policy.

Types of Duties
There are many types of duties that are levied in India on imports and exports. A list of these
duties follows below:

Basic Duty
Basic duty is the typical tax rate that is applied to goods. The rates of custom duties are specified
in the First and Second Schedules of the Customs Tariff Act of 1975. The First Schedule contains
rates of import duty, and the second schedule contains rates of export duties. Most of the items in
India are exempt from custom duty, which is generally levied on imports.

The first schedule contains two rates: Standard rate and preferential rate. The preferential rate is
lower than the standard rate. When goods are imported from a place specified by the central
government (CG) for lower rates, the preferential rate is applicable. In any other case, the standard
rate will be applicable. If the CG has signed a trade agreement with the country of origin, then the
CG may opt to charge a lower basic duty than indicated in the first schedule.

Countervailing Duty
In addition to the basic duty on imported goods, a countervailing duty (CVD) is also applicable to
imported goods. The rate of duty is equal to the rate of excise applied to goods manufactured in
India. If the article is not manufactured in India, then goods of a similar nature are used to
determine the correct duty amount. If there are different rates of duty on similar goods, then the
highest rates of the known products will be applied to the article in question. All products
imported by Special Economic Zones (SEZ) enjoy zero percent CVD.

Special Additional Countervailing Duty (known as Special CVD)

Special CVD tax is application on all items. It is levied at the rate of 4 percent of the basic and the
excise duty on all imports in order to countervail the VAT or sales tax on local goods in India. This
duty can be refunded to traders who sell imported goods in India after charging VAT/Sales tax.

Anti-Dumping Duty

This is levied on specific goods imported from specified countries including the US to
protect Indian industries. India can impose duties up to, but not exceeding, the margin of dumping,
or the difference between the normal value and the export price.

Safeguard Duty

A safeguard duty is a tariff designed to provide protection to domestic goods, favoring them over
imported items. If the government determines that increased imports of certain items are having a
significantly detrimental effect on domestic competitors, it may opt to levy this duty on those
imports to discourage their proliferation. However, the duty does not apply to articles imported
from developing countries. The government may exempt imports of any article from this duty. The
notification issued by the government in this regard is valid for four years, subject to further
extension. However, the total period cannot exceed 10 years from the date of first imposition.

Education and Higher Education Cess

The education cess, simply put, is a tax designed to fund education and healthcare initiatives. An
education cess at the rate of 2 percent and higher education cess of 1 percent are levied on the
aggregate of duties of customs. However, the aggregate of customs duties does not include the
safeguard duties, countervailing duty on subsidized articles, anti-dumping duty, or countervailing
duty equivalent to VAT.

Valuation
Customs duty is payable as a percentage of Value which is known as Assessable Value
or Customs Value. The Value may be either:

Value as defined in Section 14 (1) of the Customs Act; or

Tariff Value described under Section 14 (2) of the Customs Act.
Tariff Value the Tariff Value is fixed by the Central Board of Excise & Customs (CBEC) for
any class of imported goods or export goods. Authorities will consider the trend of value of the
goods in question while fixing tariff value. Once fixed, the duty is payable as a percentage of this
value.

The value of imported goods for the assessment of duty is determined in accordance with the
provisions of Section 14 of 1962 and the Customs Valuation (Determination of Value of Imported
Goods) Rules, 2007. According to the rules, the assessable value equal the transaction value of
goods as adjusted for freight and cost of insurance, loading, unloading and handling charges.
In the assessable value, the following criteria are included:

Commission and brokerage;

Cost of container, which are treated as being one with the goods for customs purposes;
Cost of packing labour or materials;
Materials, components, tools, etc. supplied by buyer;
Royalties and license fees;
Value of proceeds of subsequent sales;
Other payment as condition of sale of goods being valued;
Cost of transport up to place of importation;
Landing charges; and
Cost of insurance

The following costs are excluded from the assessable value:

Charges for construction, erection, assembly, maintenance or technical assistance

undertaken after importation of plant, machinery or equipment;
Cost of transport after importation;
Duties and taxes in India; and
Types of duties on exports and imports in India are covered in the Customs Tariff Act
1975. The Act provides all the laws and regulations related to customs in India.
Customs Handling Fee

The Indian government assesses a one percent customs handling fee on all imports in addition to
the applied customs duty.

Documents required for import customs clearance in India

This is one of the important articles in export and import trade What are the documents required
for Import clearance? One of frequently asked questions is documents required for import
clearance

Unlike other articles, I can not provide a capsule solution on this article about documents
required for import customs clearance. I will explain reason behind it. First of all, let me clarify:
the documents required for import clearance under all products are not same. However, we can
discuss about the common documents required for import customs clearance in importing
countries. I will provide you a some general information on documentation of import customs
clearance from which you can have a common idea on the subject. I hope, this information helps
you a lot to know about documents required for import clearance generally.

Since various types of commodities are imported from different countries, a complete list of
documents for import customs clearance procedures can not be provided. More over, different
countries have their own policies in turn different procedures and formalities for import clearance.
Each product under import and export is classified under a code number accepted globally which
is called ITC number.

There may have bilateral import export agreements between governments of different countries.
Imports and exports from such countries may have exemptions on documentation for export and
import clearance.

However there are legal documents, common documents and specific documents on commodity
basis required to complete import customs procedures.

Let us discuss some of the common documents required for import customs clearance procedures
and formalities in some of the importing countries.

Bill of Entry:

Bill of entry is one of the major import document for import customs clearance. As explained
previously, Bill of Entry is the legal document to be filed by CHA or Importer duly signed. Bill of
Entry is one of the indicators of total outward remittance of country regulated by Reserve
Bank and Customs department. Bill of entry must be filed within thirty days of arrival of goods at
a customs location.

Once after filing bill of entry along with necessary import customs clearance documents,
assessment and examination of goods are carried out by concerned customs official. After
completion of import customs formalities, a pass out order is issued under such bill of entry.
Once an importer or his authorized customs house agent obtains pass out order from
concerned customs official, the imported goods can be moved out of customs. After paying
necessary import charges if any to carrier of goods and custodian of cargo, the goods can be taken
out of customs area to importers place. For further read: How to file Bill of Entry online? How
to file Bill of Entry manually? Can Bill of Entry be filed before arrival of goods at destination?

Commercial Invoice.

Invoice is the prime document in any business transactions. Invoice is one of the documents
required for import customs clearance for value appraisal by concerned customs official.
Assessable value is calculated on the basis of terms of delivery of goods mentioned in commercial
invoice produced by importer at customs location. I have explained about the method of
calculation of assessable value in another article in same web blog. The concerned appraising
officer verifies the value mentioned in commercial invoice matches with the actual market value
of same goods. This method of inspection by appraising officer of customs prevents fraudulent
activities of importer or exporter by over invoicing or under invoicing. So Invoice plays a pivotal
role in value assessment in import customs clearance procedures.
Bill of Lading / Airway bill :

BL/AWB is one of the documents required for import customs clearance.

Bill of lading under sea shipment or Airway bill under air shipment is carriers document
required to be submitted with customs for import customs clearance purpose. Bill of lading or
Airway bill issued by carrier provides the details of cargo with terms of delivery. I have discussed
in detail about Bill of Lading and Airway bill separately in this website. You can go through those
articles to have a deep knowledge about documents required for import customs clearance.

Import License

As I have mentioned above, import license may be required as one of the documents for import
customs clearance procedures and formalities under specific products. This license may be
mandatory for importing specific goods as per guide lines provided by government. Import of
such specific products may have been being regulated by government time to time. So government
insist an import license as one of the documents required for import customs clearance to bring
those materials from foreign countries.

Insurance certificate

Insurance certificate is one of the documents required for import customs clearance procedures.
Insurance certificate is a supporting document against importers declaration on terms of
delivery. Insurance certificate under import shipment helps customs authorities to verify, whether
selling price includes insurance or not. This is required to find assessable value which determines
import duty amount.

Purchase order/Letter of Credit

Purchase order is one of the documents required for import customs clearance. A purchase order
reflects almost all terms and conditions of sale contract which enables the customs official to
confirm on value assessment. If an import consignment is under letter of credit basis, the importer
can submit a copy of Letter of Credit along with the documents for import clearance.

Technical write up, literature etc. for specific goods if any

Technical write up, literature of imported goods or any other similar documents may be required
as one of the documents for import clearance under some specific goods. For example, if a
machinery is imported, a technical write up or literature explaining its function can be attached
along with importing documents. This document helps customs official to derive exact market
value of such imported machinery in turn helps for value assessment.

Industrial License if any

An industrial license copy may be required under specific goods importing. If Importer claims any
import benefit as per guidelines of government, such Industrial License can be produced to avail
the benefit. In such case, Industrial license copy can be submitted with customs authorities as one
of the import clearance documents.

RCMC. Registration cum Membership Certificate if any

For the purpose of availing import duty exemption from government agencies under specific
goods, production of RCMC with customs authorities is one of the requirements for import
clearance. In such cases importer needs to submit Registration Cum Membership Certificate along
with import customs clearance documents.

Test report if any

The customs officials may not be able to identify the quality of goods imported. In order to assess
the value of such goods, customs official may draw sample of such imported goods and arranges
to send for testing to government authorized laboratories. The concerned customs officer can
complete appraisement of such goods only after obtaining such test report. So test report is one of
the documents under import customs clearance and formalities under some of specific goods.

DEEC/DEPB /ECGC or any other documents for duty benefits

If importer avails any duty exemptions against imported goods under different schemes like
DEEC/DEPB/ECGC etc., such license is produced along with other import clearance documents.

Central excise document if any

If importer avails any central excise benefit under imported goods, the documents pertaining to the
same need to be produced along with other import customs clearance documents.

GATT/DGFT declaration.

As per the guidelines of Government of India, every importer needs to file GATT declaration and
DGFT declaration along with other import customs clearance documents with customs. GATT
declaration has to be filed by Importer as per the terms of General Agreement on Tariff and Trade.
MODES OF ENTRY IN TO FOREIGN MARKET
Exporting
Exporting is the process of selling of goods and services produced in one
country to other countries.[4]
There are two types of exporting: direct and indirect.
Direct Exports
Direct exports represent the most basic mode of exporting made by a (holding)
company, capitalizing on economies of scale in production concentrated in the
home country and affording better control over distribution. Direct export
works the best if the volumes are small. Large volumes of export may trigger
protectionism. The main characteristic of direct exports entry model is that
there are no intermediaries.
Passive exports represent the treating and filling overseas orders like domestic
orders.[5]
Types
Sales representatives
Sales representatives represent foreign suppliers/manufacturers in their local
markets for an established commission on sales. Provide support services to a
manufacturer regarding local advertising, local sales presentations, customs
clearance formalities, legal requirements. Manufacturers of highly technical
services or products such as production machinery, benefit the most from
sales representation.
Importing distributors
Importing distributors purchase product in their own right and resell it in their
local markets to wholesalers, retailers, or both. Importing distributors are a
good market entry strategy for products that are carried in inventory, such as
toys, appliances, prepared food.[6]
Advantages
Control over selection of foreign markets and choice of foreign representative
companies
Good information feedback from target market, developing better relationships
with the buyers
Better protection of trademarks, patents, goodwill, and other intangible property
Potentially greater sales, and therefore greater profit, than with indirect
exporting.
Disadvantages:-
Higher start-up costs and higher risks as opposed to indirect exporting
 Requires higher investments of time, resources and personnel and also
organizational changes
Greater information requirements
Longer time-to-market as opposed to indirect exporting.
Indirect exports:-
Indirect export is the process of exporting through domestically based export
intermediaries. The exporter has no control over its products in the foreign
market.
Types
Export trading companies (ETCs)
These provide support services of the entire export process for one or more suppliers.
Attractive to suppliers that are not familiar with exporting as ETCs usually perform
all the necessary work: locate overseas trading partners, present the product, quote on
specific enquiries, etc.
Export management companies (EMCs)
These are similar to ETCs in the way that they usually export for producers. Unlike
ETCs, they rarely take on export credit risks and carry one type of product, not
representing competing ones. Usually, EMCs trade on behalf of their suppliers as their
export departments.[9]
Export merchants
Export merchants are wholesale companies that buy unpackaged products from
suppliers/manufacturers for resale overseas under their own brand names. The
advantage of export merchants is promotion. One of the disadvantages for using
export merchants result in presence of identical products under different brand names
and pricing on the market, meaning that export merchants activities may hinder
manufacturers exporting efforts.
Confirming houses
These are intermediate sellers that work for foreign buyers. They receive the product
requirements from their clients, negotiate purchases, make delivery, and pay the
suppliers/manufacturers. An opportunity here arises in the fact that if the client likes
the product it may become a trade representative. A potential disadvantage includes
suppliers unawareness and lack of control over what a confirming house does with
their product.
Nonconforming purchasing agents
These are similar to confirming houses with the exception that they do not pay the
suppliers directly payments take place between a supplier/manufacturer and a
foreign buyer.[10]
Advantages:-
 Fast market access
Concentration of resources towards production
Little or no financial commitment as the clients' exports usually covers most
expenses associated with international sales.
Low risk exists for companies who consider their domestic market to be more
important and for companies that are still developing their R&D, marketing, and
sales strategies.
Export management is outsourced, alleviating pressure from management team
No direct handle of export processes.[11]
Disadvantages:-
Little or no control over distribution, sales, marketing, etc. as opposed to direct
exporting
Wrong choice of distributor, and by effect, market, may lead to inadequate
market feedback affecting the international success of the company
Potentially lower sales as compared to direct exporting (although low volume
can be a key aspect of successfully exporting directly). Export partners that
incorrectly select a specific distributor/market may hinder a firm's functional
ability.[12]

Those companies that seriously consider international markets as a crucial part of

their success would likely consider direct exporting as the market entry tool. Indirect
exporting is preferred by companies who would want to avoid financial risk as a
threat to their other goals.

Licensing:-
An international licensing agreement allows foreign firms, either exclusively or non-
exclusively to manufacture a proprietors product for a fixed term in a specific
market.

Summarizing, in this foreign market entry mode, a licensor in the home country
makes limited rights or resources available to the licensee in the host country. The
rights or resources may include patents, trademarks, managerial skills, technology,
and others that can make it possible for the licensee to manufacture and sell in the
host country a similar product to the one the licensor has already been producing and
selling in the home country without requiring the licensor to open a new operation
overseas. The licensor earnings usually take forms of one time payments, technical
fees and royalty payments usually calculated as a percentage of sales.

As in this mode of entry the transference of knowledge between the parental company
and the licensee is strongly present, the decision of making an international license
agreement depend on the respect the host government show for intellectual property
and on the ability of the licensor to choose the right partners and avoid them to
compete in each other market. Licensing is a relatively flexible work agreement that
can be customized to fit the needs and interests of both, licensor and licensee.
Following are the main advantages and reasons to use an international licensing for
expanding internationally:

Obtain extra income for technical know-how and services

Reach new markets not accessible by export from existing facilities
Quickly expand without much risk and large capital investment
Pave the way for future investments in the market
Retain established markets closed by trade restrictions
Political risk is minimized as the licensee is usually 100% locally owned
Is highly attractive for companies that are new in international business.
On the other hand, international licensing is a foreign market entry mode that
presents some disadvantages and reasons why companies should not use it as:
Lower income than in other entry modes
Loss of control of the licensee manufacture and marketing operations and
practices leading to loss of quality
Risk of having the trademark and reputation ruined by an incompetent partner
The foreign partner can also become a competitor by selling its production in
places where the parental company is already in.
Franchising:-
The franchising system can be defined as: "A system in which semi-independent
business owners (franchisees) pay fees and royalties to a parent company (franchiser)
in return for the right to become identified with its trademark, to sell its products or
services, and often to use its business format and system." [13]

Compared to licensing, franchising agreements tends to be longer and the franchisor

offers a broader package of rights and resources which usually includes: equipment,
managerial systems, operation manual, initial trainings, site approval and all the
support necessary for the franchisee to run its business in the same way it is done by
the franchisor. In addition to that, while a licensing agreement involves things such as
intellectual property, trade secrets and others while in franchising it is limited to
trademarks and operating know-how of the business.[14]

Advantages of the international franchising mode:

Low political risk
Low cost
Allows simultaneous expansion into different regions of the world
Well selected partners bringFINANCIAL INVESTMENT as well as managerial
capabilities to the operation.
Disadvantages of franchising to the franchisor:[15]
Maintaining control over franchisee may be difficult
Conflicts with franchisee are likely, including legal disputes
Preserving franchisor's image in the foreign market may be challenging
Requires monitoring and evaluating performance of franchisees, and providing
 ongoing assistance
Franchisees may take advantage of acquired knowledge and become competitors
in the future
Turnkey projects:-
A turnkey project refers to a project when clients pay contractors to design and
construct new facilities and train personnel. A turnkey project is a way for a foreign
company to export its process and technology to other countries by building a plant in
that country. Industrial companies that specialize in complex production technologies
normally use turnkey projects as an entry strategy.[16]

One of the major advantages of turnkey projects is the possibility for a company to
establish a plant and earn profits in a foreign country especially in which foreign
direct investment opportunities are limited and lack of expertise in a specific area
exists.
Potential disadvantages of a turnkey project for a company include risk of revealing
companies secrets to rivals, and takeover of their plant by the host country. Entering a
market with a turnkey project CAN prove that a company has no long-term interest in
the country which can become a disadvantage if the country proves to be the main
market for the output of the exported process.[17]

Wholly owned subsidiaries (WOS):-

A wholly owned subsidiary includes two types of strategies: Greenfield investment
and Acquisitions. Greenfield investment and acquisition include both advantages and
disadvantages. To decide which entry modes to use is depending on situations.

Greenfield investment is the establishment of a new wholly owned subsidiary. It is

often complex and potentially costly, but it is able to provide full control to the firm
and has the most potential to provide above average return.[18] "Wholly owned
subsidiaries and expatriate staff are preferred in service industries where close contact
with end customers and high levels of professional skills, specialized know how, and
customization are required."[19] Greenfield investment is more likely preferred where
physical capital intensive plants are planned.[20] This strategy is attractive if there are
no competitors to buy or the transfer competitive advantages that consists of
embedded competencies, skills, routines, and culture.[21]

Greenfield investment is high risk due to the costs of establishing a new business in a
new country.[22] A firm may need to acquire knowledge and expertise of the existing
market by third parties, such consultant, competitors, or business partners. This entry
strategy takes much time due to the need of establishing new operations, distribution
networks, and the necessity to learn and implement appropriate marketing strategies
to compete with rivals in a new market.[23]

Acquisition has become a popular mode of entering foreign markets mainly due to its
quick access[24] Acquisition strategy offers the fastest, and the largest, initial
international expansion of any of the alternative.

Acquisition has been increasing because it is a way to achieve greater market power.
The market share usually is affected by market power. Therefore, many multinational
corporations apply acquisitions to achieve their greater market power, which require
buying a competitor, a supplier, a distributor, or a business in highly related industry
to allow exercise of a core competency and capture competitive advantage in the
market.[25]
Acquisition is lower risk than Greenfield investment because of the outcomes of an
acquisition can be estimated more easily and accurately.[26] In overall, acquisition is
attractive if there are well established firms already in operations or competitors want
to enter the region.

On the other hand, there are many disadvantages and problems in achieving
acquisition success.
Integrating two organizations can be quite difficult due to different organization
cultures, control system, and relationships.[27] Integration is a complex issue, but it is
one of the most important things for organizations.
By applying acquisitions, some companies significantly increased their levels of
debt which can have negative effects on the firms because high debt may cause
bankruptcy.[28]
Too much diversification may cause problems.[29] Even when a firm is not too
over diversified, a high level of diversification can have a negative effect on the firm
in the long-term performance due to a lack of management of diversification.
Difference between international strategy and global strategy:-

However, some industries benefit more from globalization than do others, and some
nations have a comparative advantage over other nations in certain industries. To
create a successful global strategy, managers first must understand the nature of
global industries and the dynamics of global competition, international strategy (i.e.
internationally scattered subsidiaries act independently and operate as if they were
local companies, with minimum coordination from the parent company) and global
strategy (leads to a wide variety of business strategies, and a high level of adaptation
to the local business environment). Basically there are three key differences between
them. Firstly, it relates to the degree of involvement and coordination from the Centre.
Moreover, the difference relates to the degree of product standardization and
responsiveness to local business environment. The last is that difference has to do
with strategy integration and competitive moves.

Joint venture:-
There are five common objectives in a joint venture: market entry, risk/reward
sharing, technology sharing and joint product development, and conforming to the
government regulations. Other benefits include political connections and distribution
channel access that may depend on relationships.[30] Such alliances often are
favourable when:
The partners' strategic goals converge while their competitive goals diverge
The partners' size, market power, and resources are small compared to the
Industry leaders
Partners are able to learn from one another while limiting access to their own
proprietary skills
The key issues to consider in a joint venture are ownership, control, length of
agreement, pricing, technology transfer, local firm capabilities and resources, and
government intentions. Potential problems include:[31]
Conflict over asymmetric new investments
Mistrust over proprietary knowledge
Performance ambiguity - how to split the pie
Lack of parent firm support
Cultural clashes
If, how, and when to terminate the relationship
Joint ventures have conflicting pressures to cooperate and compete:[32]
Strategic imperative: the partners want to maximize the advantage gained for the
joint venture, but they also want to maximize their own competitive position.
The joint venture attempts to develop shared resources, but each firm wants to
develop and protect its own proprietary resources.
The joint venture is controlled through negotiations and coordination processes,
while each firm would like to have hierarchical control.
Strategic alliance:-
strategic alliance/ this is a type of cooperative agreements between different firms,
such as shared research, formal joint ventures, or minority equity participation.[33]
The modern form of strategic alliances is becoming increasingly popular and has three
distinguishing characteristics:[34]
1.They are frequently between firms in industrialized nations.
2.The focus is often on creating new products and/or technologies rather than
distributing existing ones.
3.They are often only created for short term durations.
Advantages:-
Some advantages of a strategic alliance include:[35]
Technology exchange
This is a major objective for many strategic alliances. The reason for this is that many
breakthroughs and major technological innovations are based on interdisciplinary
and/or inter-industrial advances. Because of this, it is increasingly difficult for a single
firm to possess the necessary resources or capabilities to conduct their own effective
R&D efforts. This is also perpetuated by shorter product life cycles and the need for
many companies to stay competitive through innovation. Some industries that have
become centers for extensive cooperative agreements are:
Telecommunications
Electronics
Pharmaceuticals
 Information technology
Specialty chemicals
Global competition
There is a growing perception that global battles between corporations be fought
between teams of players aligned in strategic partnerships.[36] Strategic alliances will
become key tools for companies if they want to remain competitive in this globalized
environment, particularly in industries that have dominant leaders, such as cell phone
manufactures, where smaller companies need to ally in order to remain competitive.
Industry convergence
As industries converge and the traditional lines between different industrial sectors
blur, strategic alliances are sometimes the only way to develop the complex skills
necessary in the time frame required. Alliances become a way of shaping competition
by decreasing competitive intensity, excluding potential entrants, and isolating
players, and building complex value chains that can act as barriers.[37]
Economies of scale and reduction of risk
Pooling resources can contribute greatly to economies of scale, and smaller
companies especially can benefit greatly from strategic alliances in terms of cost
reduction because of increased economies of scale.
In terms on risk reduction, in strategic alliances no one firm bears the full risk, and
cost of, a joint activity. This is extremely advantageous to businesses involved in high
risk / cost activities such as R&D. This is also advantageous to smaller organizations
which are more affected by risky activities.
Alliance as an alternative to merger
Some industry sectors have constraints to cross-border mergers and acquisitions,
strategic alliances prove to be an excellent alternative to bypass these constraints.
Alliances often lead to full-scale integration if restrictions are lifted by one or both
countries.
Risks of competitive collaboration:-
Some strategic alliances involve firms that are in fierce competition outside the
specific scope of the alliance. This creates the risk that one or both partners will try to
use the alliance to create an advantage over the other. The benefits of this alliance
may cause unbalance between the parties, there are several factors that may cause this
asymmetry:[38]
The partnership may be forged to exchange resources and capabilities such as
technology. This may cause one partner to obtain the desired technology and abandon
the other partner, effectively appropriating all the benefits of the alliance.
Using investment initiative to erode the other partners competitive position. This is a
situation where one partner makes and keeps control of critical resources. This creates
the threat that the stronger partner may strip the other of the necessary infrastructure.
Strengths gained by learning from one company can be used against the other. As
companies learn from the other, usually by task sharing, their capabilities become
strengthened, sometimes this strength exceeds the scope of the venture and a company
can use it to gain a competitive advantage against the company they may be working
with.
Firms may use alliances to acquire its partner. One firm may target a firm and ally
with them to use the knowledge gained and trust built in the alliance to take over the
other.
Disadvantages:-
1.Difficult to find a good partner
2.Risk of unequal partnership
3.Loss of control
4.Relationship management across borders
Choosing a Partner for International Strategic Alliances:-
1.Strategic compatibility
The partners need to have same general goal and understanding in forming a joint
venture. The differences in strategy produces more conflicts of interest in the later
partnership (Lilley and Willianms, 1991).
2.Complementary skills and resources
Another important criterion is that the partners need to contribute more than just
money to the venture (Geringer and Michael, 1988). Each partner must contribute
some skills and resources that complement for another.
3.Relative company size
Different size of companies may cause domination of one firm or unequal agreement,
which is not favourable for long-term running (Lilley and Willianms, 1991)
4.Financial capability
The partners can generate sufficient financial resources to maintain the ventures
efforts, which is also important for long-term partnership (Lilley and Willianms,
1991)
Some more like compatibility between operating policies (Lilley and Willianms,
1991), trust and commitment (Lilley and Willianms, 1991), compatible management
styles (Geringer and Michael, 1988), mutual dependency(Lilley and Willianms,
1991), communications barriers (Lilley and Willianms, 1991) and avoid anchor
partners (Geringer and Michael, 1988) are also important for partner selection but less
important than the first four.
Political Issues:-
Political issues will be faced mostly by the companies who want to enter a country
that with unsustainable political environment (Parboteeah and Cullen, 2011). A
political decisions will affect the business environment in a country and affect the
profitability of the business in the country (Click, 2005). Organizations with
investments in such opaque countries as Zimbabwe, Myanmar, and Vietnam have
long-term experiences about how the political risk affects their business behaviors
(Harvard Business Review, 2014).
The following are the examples of political issues:
1. The politically jailing of Mikhail Khodorkovsky, the business giant, in Russia
(Wade, 2005);
2. The "Open-door" policy of China(Deng,2001);
3. The Ukraine disputed elections resulting in the uncertain president recent years
(Harvard Business Review, 2014);
4. The corrupt legal system in many countries, such as Russia (Samara, 2008)
Three different rules of entry mode selection:-
The following introductions were based on the statement of Hollensen:[39]
1.Nave rule. The decision maker uses the same entry mode for all foreign markets.
The companies use this rule as the entry mode selection ignore the differences of
individual foreign markets. The performance of this selection could not be calculated,
because it highly depends on the luck of the manager.
2.Pragmatic rule. The decision maker uses a workable entry mode for each foreign
market, which means that the manager use different entry modes depend on the time
stage or the business stage. For example, as the first step to international business,
companies tend to use exporting.
3.Strategy rules. This approach means that the company systematically compared all
of the entry modes and evaluated the value before any choice is made. This approach
is common in large firms, because the research requires resources, capital and time. It
is rarely to see a small or medium-sized company use this approach.
Besides these three rules, managers have their own ways to select entry modes. If the
company could not generate a mature market research, the manager tend to choose the
entry modes most suitable for the industry or make decisions by intuition

Packaging and labelling regulation in India

Packaging
All pre-packaged commodities imported into India must carry the following
declarations on the label:
- name and address of the importer,
- generic or common name of the commodity packed,
- net quantity in terms of standard unit of weights and measurement,
 - month and year of packing in which the commodity is manufactured, packed
or imported,
- the maximum retail sales price (MRP) at which the commodity in packaged
form may be sold to the end consumer.
Languages Permitted on Packaging and Labeling
English and/or Hindi.
Unit of Measurement
All imported goods as well as transport documents must show standard units
of measurement and weight.
Mark of Origin "Made In"
Not mandatory, except in the case of foodstuffs and drinks and also where
preferential import duties are claimed.
Labeling Requirements
The packaging and Labeling requirements for packaged food products is laid
down in the Part VII of the Prevention of Food Adulteration (PFA) Rules,
1955, and the Standards of Weights and Measures (Packaged Commodities)
Rules of 1977.
Specific Regulations
In specific cases, the product label also has to contain:
The purpose of irradiation and license number in case of irradiated food
Extraneous addition of coloring material
Non-vegetarian food must have a symbol of a brown color-filled circle
inside a brown square outline prominently displayed on the package
Vegetarian food must have a similar symbol of green color-filled circle
inside a square with a green outline prominently displayed