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UCA law brings both opportunities & threats to Indian manufacturing exports in US

Declining export share of manufactured goods from 89.1% to 74.2% during last two years has become the cause of concern both for the exporters as well as the Indian Government considering US as one of the prime export market. This decline in share, specifically visible in sectors like textiles, leather and leather manufactures, plastics, glass and glassware etc, may be due to the fact that other competing suppliers have recently taken over India in terms of the acceptance of their goods by the US buyers. These changing preferences may be due to the prevalence of RTA's and PTA's (Preferential Trading Agreements). The prevalence of these free trade agreements leads to high import duties for Indian exporters as compared to the other competing countries with relaxed duty rates making Indian exports relatively costlier.

Apart from the defeat faced by India due to the agreements, in case of other competing suppliers like China, we have been losing this share due to high CIF prices of our manufactured goods as compared to that of China. Adding to this list are countries like Bangladesh which enjoys preferential access in developed markets like US, by virtue of its LDC status, while others are preferred due to better quality. Sector specific analysis indicates this competition is felt with Pakistan, Bangladesh and Thailand for textiles; Thailand, Argentina and Vietnam for iron and steel products; Argentina, Vietnam, Indonesia and Nicaragua for most of the processed food items etc. Apart from these, there are emerging suppliers from countries like Venezuela, Nigeria, South East Asia, Peru, Algeria etc.

How far can Indian exporters sustain in the US market in such a scenario?

While, going ahead with similar arrangement with the US seems to be a farfetched idea; an immediate measure which can be exploited to promote and grab share in the US is by ensuring compliance throughout the value chain. Having overcome with various kinds of compliance issues right from environment, quality, labour, social, financial etc, what has recently become important for the US buyers is the technology compliance.

This growing concern across the US buyers comes in light of the new Unfair Competition Act recently passed in the US. The whole idea of United States entering in the RTA or FTAs was because of its belief that the free trade policies created a level of competition in today's open market that engenders continual innovation and leads to better products, better-paying jobs, new markets, and increased savings and investment. A very recent initiative towards this belief is the strict enforcement against the usage of pirated software and hardware in the manufacturing processes. As per the law, the US buyers/importers are prevented from buying any product manufactured out of pirated versions of software or hardware used anywhere in its systems.

UCA clearly states that the law would sue US companies if they are found undertaking any business transaction with the overseas companies which are found using pirated version of the software. This has resulted into an obvious shift in preferences of the US buyers from giving weight age to quality, pricing, duties etc to buying ONLY from countries where companies are IT compliant. Therefore the extent of genuine usage of the IT will decide our acceptance in the US in times to come. Sector wise piracy rates estimated through an in depth survey at pan India level highlights an emergency warning for certain sectors including gems and jewelry, textiles, chemicals, auto components and general engineering. IT compliance needs to be priotised in these sectors considering the fact that US is one of the most important traditional market for these segments.

Priotising IT compliance in the mentioned sectors makes all the more sense considering the fact that in most of the competing countries supplying to the US, the piracy rates are much higher as compared to India. India's software piracy rates are at 61% compared to China which has piracy rate of whooping 79%, accounting for a dollar value of more than 7.5 billion. Comparatively, the annual commercial value of unlicensed software in India stands at a whopping $2.03 billion.

Software Piracy rates (%)

in % 2007 2008 2009 2010 2011
India 69 68 65 64 63
China 82 80 79 78 77
Indonesia 84 85 86 87 86
Pakistan 84 86 84 84 86
Philippines 69 69 69 69 70
Sri Lanka 90 90 89 86 84
Thailand 78 76 75 73 72
Vietnam 85 85 85 83 81
Russia 73 68 67 65 63
Argentina 74 73 71 70 69
Venezuela 87 86 87 88 88

(Source: www.bsa.org)


Understanding that the US Companies increasingly will prefer to engage suppliers who use legitimate IT, it follows that they will also choose to trade with countries where usage of pirated software is minimum. This indicates emerging business opportunity for Indian manufacturing exports in the sectors where these countries have traditionally been the competing suppliers in the US market.

At the same time India needs to enhance its IT usage on one hand and ensuring usage of genuine IT specifically in those sectors/products which are currently been supplied to the US from countries including Australia, Korea, Brazil, Chile, Columbia, Mexico, and other EU countries including France, Germany, Sweden, Switzerland, UK, Spain, Korea with much lesser piracy rates.


India's Competitors in US IT Piracy Rates Sectors in competition with India with higher piracy of 63%
Western Europe 35.00% Chemicals, Pharmaceuticals, Textiles, Clothing, Automobiles
China 82.00% Leather, Chemicals. Pharmaceuticals, Textiles, Clothing, Automobiles
Japan 23.00% Chemicals, Pharmaceuticals, Automobiles
South Korea 43.00% Chemicals, Pharmaceuticals, Automobiles
Singapore 37.00% Chemicals, Leather, Pharmaceuticals, Automobiles
Taiwan 40.00% Chemicals, Automobiles
Thailand 78.00% Chemicals, Automobiles, Clothing
Switzerland 25.00% Leather, Chemicals, Pharmaceuticals, Clothing, Automobiles
Mexico 61.00% Pharmaceuticals, Automobiles
Canada 33.00% Pharmaceuticals, Chemicals
Malaysia 59.00% Leather, Automobiles, Clothing

(Source: www.bsa.org & ITC, 2013)

This opportunity exists for the exporters ONLY if the exporting companies including the suppliers throughout the value chain are IT complaint. Therefore you may or may not be an exporter but your IT compliance will decide the stake of the final Indian exporter supplying to the US market and therefore any loss in the business at any stage in the value chain will impact all the concerned players. Hence exporters/traders are cautioned against using or supplying any pirated versions themselves and also against procuring without confirming the IT compliance.

Also Indian SMEs have been found operating in certain product lines where exports are not directly addressed to the US market and efforts have been made to diversify to the newer countries. Being IT compliant comes as a handy tool towards this diversification since these countries may be importing from India only to re-export it to the US. Considering the IT compliance needs to be ensured throughout the global value chain, India may be a preferred supplier to all those intermediate markets finally targeting the US.

There are various ways of going about it one of these is registering your legal software at Verafirm. This is a unique platform which provides a brand identity by self declaration of your softwares. You get digital certificate confirming you are verafirm verified or verafirm certified company using genuine hardware and software. One can go at www.verafirm.org to get the benefits of a self-guided tool, to manage and monitor software inventory for multiple publishers in one place and help in devising a scalable IT policy for the company for better efficiency and productivity and last but not the least is digital certificate to become UCA compliant. SMEs may take the following steps:

  1. Undertake an inventory of the computers/laptops that they have and identify the types and numbers of software programs which are in use.

  2. Post the final inventory taking, kindly match the installations with the number of legal licenses that you posses, which allow you to identify the license shortfall

Kindly work with software publishers or partner contacts to make the appropriate procurement to fully legalise the usage of the software within your organisation. Indian exporters and manufacturers therefore need to increasingly implement more modern and value added technology in the process of manufacturing and evolving innovative products along with the usage of genuine IT. This will help in meeting the growing competition in the international market on one hand and reap UCA benefit in the US on the other.