One reason behind the limited participation of the Indian project exporters has been the cost associated with such participation. On a conservative estimate it costs about rupees two lakhs for a tender of about Rs 10 crores. To take care of this problem, the government announced a new system of assistance in September 1986 to subsidize the cost of participation in global tenders. Particulars of the assistance measures are summarized below:
MDA assistance for reimbursement of cost or preparation and submission of bids for such projects will be given to the following rates:
50 per cent of the cost subject to the following standard cost ceilings related to the Turnkey/Construction Projects? Operation and Maintenance Services Contracts
(i) Bids of value up to Rs crores – Rs 1 lakh
(ii) Bids of value above Rs 5 crores – Rs 2 lakhs
(iii) Bids of value above Rs 25 crores and up to Rs 100 crores – Rs 4 lakhs
(iv) Bids of value above Rs 100 crores – Rs 6 lakhs
Reimbursement of finance cost of bid bond.
(i) MDA assistance will be given for 50 per cent of the financing cost of bid bonds. For the purpose of MDA grant, the maximum period of life for a bid bond would be assumed to be one year and any financing cost beyond the period of one year would be borne by the companies and no reimbursement for this would be made from MDA funds.
(ii) The subsidy towards financing cost will not be reimbursed in the event of bid being successful.
(iii) A certificate from ECGC/Commercial Bank/ EXIM bank regarding net financing cost incurred by the Company will have to be furnished.
Further, in addition to Supplier’s Credit and buyer’s credit, EXIM Bank has also been extending lines of credit to various developing countries with a view the encourage projects exports.
Exemption of income tax up to 50% on earnings from exports of projects under Section 80-HHB of the income Tax Act:
Import of used machinery and equipment by the project exporters has been allowed on concessional customs duty basis at 15% ad valorem.
EXIM Bank has also been extending lines of credit to various developing countries with a view to encouraging India’s projects exports.
EXIM Bank has recently introduced a Strategic Market Support Scheme to reimburse the cot of tendering in respect of successful bids submitted to Multilaterally Funded Overseas Projects.
Marketing of projects:
Price is not necessarily the primary factor in sales. Product characteristics, reputation of the seller, the location of production and credit terms are other important factors.
In many of the developing countries bidders have found that buyers frequently do not develop detailed plans and specifications on their own. Some bidders have put together planning studies to aid departments hoping that they would be able to introduce specifications to their own advantage or will obtain preferential treatment in the contract award if the plan is accepted.
In spite of the talks on unbundling of the technology package, the trend is towards more comprehensive deals including training, maintenance and infrastructure development. This has resulted in bids being submitted by consortia of companies even from different countries.
In high technology sector the product characteristics are the primary basis of competitive advantage.
Governments are also reluctant to buy a product from a foreign firm which has not been successful to sell to its own Government. When the US defense Department bought aircraft from General Dynamics instead of Northrop, it was effectively out of the competition for sales to Belgium, Denmark and the Netherlands.
Although sales of high technology items depend heavily on personal selling during the bidding process, many firms undertake image advertising. It is doubtful however, whether this advertising can easily overcome negative reputation. Westinghouse found it more difficult to sell Government agencies abroad after it failed to meet specifications for a Swedish contract.
One selling method is reference selling which involves bringing prospective Government purchase into contact with satisfied customers. Sperry Univac has brought prospective customers of its Airport Control Systems to the United States see first hand the operation of the system and talk to the existing users.
A popular way of promotion is through trade shows and fairs. Sperry Univac credits the participation in a trade show in USSR which prepared the ground for a $ 10 million computer deal with the Aeroflot.
Financial arrangements are extremely important for sales to developing and the centrally planned economies. Most industrial countries offer financial arrangements to promote exports of their firms.
For sales to Eastern Europe many companies have taken resort to a number of barter type arrangements such as direct barter, offset trade, switch trading and co-production schemes.