Trading with India - challenges offset by growth potential

Claire Hogarth14/Oct/2014Currency Updates

India is one of the fastest growing emerging markets in the world, and with a population in excess of a billion, it is set to become one of the world’s economic superpowers. However, it still remains a largely untapped opportunity for UK businesses. Despite recent large trade deals by brands including Lush and United Biscuits Group, India is still not as substantial a trading partner for the UK as it has the potential to be. Considering the UK’s strong ties with Indian sub-continent and its 1.2bn population, India is only c. 1.5% of the UK’s total traded volume.

The total UK trade volume with India has reached US $18bn, which constitutes a growth at c.10% p.a. between 2002 and 2013. This is almost in line with the growth rate of trade volume with other Emerging Economies primarily fuelled by the rapidly increasing purchasing power of the middle-class.

Britain is at a significant advantage compared with other developed economies in that it already has solid connections with India, for cultural and historic reasons. It is encouraging that several high-profile brands have recently signed trade deals. In addition to Lush and United Biscuits, brands including Fever Tree, Chaucer Foods and Pavers, a York-based shoe maker, have all committed to deals with Indian partners. Chaucer’s investment is particularly notable; it has signed a deal to export over £100,000 worth of goods to India, increasing its trade with India by over 50%. Despite this, more still needs to be done to take advantage of India’s strong growth rate.

Doing business in India is widely considered a challenging prospect with a number of common pitfalls, which is potentially one of the main reasons why trade is yet to reach its potential. Despite the use of common language and similarities in the institutional system, many companies fail to recognise the need to tailor their products and services to local preferences. Consumer preferences, price elasticity and sensitivity, supply chain, local competition, bureaucracy and culture vary widely from the UK and other European countries. Navigating this notoriously difficult market, especially for SMEs with limited resources, requires local connections and knowledge including how to access currency and the right financing.

To unleash the growth potential for trade between India and the UK, SMEs should be supported in establishing trading relationships. The UK Government could also play a pivotal role through advising SMEs how to do business in India. Upon becoming Prime Minister, David Cameron stated he wanted Britain to become India’s ‘partner of choice’ but, despite his multiple trade visits to India, his efforts have only been modestly rewarded. There has been some positive news recently though, as on Friday, Andrea Leadsom, the new Economic Secretary to the Treasury, announced that a new financial partnership will be created between Britain and India. It is hoped the partnership will “deepen economic ties” between London and Mumbai. The Government needs to use this opportunity and take advantage of the UK’s existing relationship with India, if internationally minded SME leaders are to thrive.

Businesses need more support, but this can come from a variety of sources. An important consideration for businesses trading with India is access to the local currency, the Indian rupee. SMEs should take advantage of alternative financiers, such as Ebury, that are specialised in emerging market currencies and can provide international payment services, local market knowledge, and the mitigation of currency risk. Financing of imports is also available through Ebury’s Trade Finance which facilitates the trading cycle with up to £1 million for up to 120 days. This is achieved quickly and easily through a managed service, enabling SMEs to focus on growing their businesses.

To find out how Ebury’s services can benefit your business, apply online now.

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Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.