In this blogpost, Aditya  Jain, Advocate, writes about how to proceed with regional economic co-operation, SAARC Preferential Trading Agreement and gives market advice to entrepreneurs.

Brief overview

Regional Co-operation amongst SAARC Countries has been a vastly debated topic in the past. The main purpose behind SAARC countries coming together was to establish a never-ending trade and investment link between these countries, which would eventually help all these countries to come together on this common platform for better economic development.

The best part in SAARC Countries namely, India, Bhutan, Nepal, Maldives, Sri Lanka, Bangladesh and Pakistan is that they are not averse to the goods being manufactured in any country, resultant of which these goods are readily sold amongst these countries owing to a mutual relationship of trust and goodwill.[1]

How to proceed with regional economic co-operation

The two aspects which are instrumental in setting up ties are Trade Liberalisation and Industrial Restructuring. Trade liberalization means putting in place such norms, which encourages an entrepreneur to freely switch between different countries, be it by way toning down regulatory compliances or by putting in his the idea and it is dealing on home turf only.[2]

SAARC Preferential Trading Agreement

This agreement was signed between SAARC Nations first in 1991 for better exchange of business and regional co-operation for better economic development. The basic principles underlying SAPTA are:

• Overall reciprocity and mutuality of advantages so as to benefit equitably all contracting states, taking into account their respective level of economic and industrial development, the pattern of their external trade, and trade and tariff policies and systems.
• Negotiation of tariff reform on the country wise basis.
• Recognition of the Special needs of the Least Developed Member Nations and to cater and give them preferential in order to boost their overall confidence.[3]

Market advice to entrepreneurs

SAARC Nations are mostly regarded as Developing Countries across the world. Thus, opening up globally will have both its pros and cons. Let’s discuss some of them below:

Pros

• One pro-globalization argument involves how, based on per capita GDP growth rates, developing countries become wealthier. A relationship between globalization and GDP was seen in the 1990s when developing countries had 5.0% annual growth compared to only 2.2% annual growth in economies that had been globalized for longer.
• This correlation between globalization and annual growth demonstrates benefits to international trade, economic development.
• Better Quality of life: Some of the different areas where advocates claim globalization benefits individuals include better access to external financings such as car and home loans
• More opportunities for international travel and tourism.
• More opportunities to work abroad due to liberal immigrant laws and foreign worker programmes.

Cons

• Infant Industry Argument : If developing countries wish to diversify and start new industries, they may find it very difficult to compete against developed countries. This is because they don’t have economies of scale or experience.
• Globalisation can reinforce a state of development. A developing country may have a comparative advantage in the production of pineapples; globalisation will encourage them to specialise in their production. However, this has drawbacks. Limits potential growth (low-income elasticity of demand for pineapples)
• Economy unbalanced – fall in the price of pineapples could cause serious problems for the economy.
• Free Movement of Labour- Free movement of labor may cause the highest skilled workers to leave the economy and get better jobs in developed countries.
• Often globalisation has led to the exploitation of natural resources, such as cutting down the Amazon rainforest to increase grazing
• With globalization, there is huge pressure on the working individuals of developed nations who are at the risk of their tasks being outsourced.

Structuring advice 

Once the decision has been made to do business abroad, the form of your overseas operation will be determined by your business objectives, available resources and other tax and legal considerations.[4] Keep in mind, however, that no single form may satisfy all of your company’s needs. To select the arrangement that is most compatible with your objectives, become familiar with the advantages and disadvantages of the principal forms of doing business overseas and the major legal issues arising from each one.[5]

Once the arrangement is identified as per your needs such as subsidiary, wholly owned or partially owned subsidiary, joint venture, partnership, etc., it is important to determine you’re ready to climb the mountain of paperwork involved in setting up contractual obligations. In drawing up the actual documents, carefully consider the structure of the relationship, the terms of the agreement and the scope and length of non-disclosure and non-compete clauses. These provisions and their enforceability will take on increased importance when complicated by distance and differences in legal systems.

Labor agreements should be reviewed for acceptability in both cultures. A traditional practice in one country may be discriminatory in another. Make sure you won’t get into trouble overseas by imposing international standards on local employees.

Establish and communicate your standards for international business activities. One way to do that is to establish a code of conduct based on the company’s values and objectives. This code should be distributed to all company employees, agents, and business partners. You can also print a pamphlet or an employee handbook, which provides more details and identifies instances when employees should seek further guidance from company lawyers, compliance officials or supervisory personnel. Compliance materials should be carefully written to take into account the company’s specific operations, practices, personnel, corporate, culture and history.

Conclusion

Thus, in order to expand your business in SAARC Countries, it is important for an entrepreneur to keep the above-mentioned points in his mind. Much focus should be laid on the aspect that an entrepreneur is still as his/her nascent stage of business, thus, cost effectiveness is an important aspect that he should keep in mind before expanding its operations abroad.

It is also important to reiterate here that SAARC Countries are mostly developing countries where customers are not averse to each other goods, and there is a general environment of trust of reliability.

[1] http://www.jns.ac.in/aws/SAARC%20Finance%20pdf.pdf

[2]https://books.google.co.in/books?id=KRxsrCVH_mUC&pg=PR18&lpg=PR18&dq=advice+for+entrepreneurs+in+saarc+countries&source=bl&ots=bc4ByXQ8tw&sig=LY2rLJLt2o4KtpSR3p7okle3iGI&hl=en&sa=X&ved=0ahUKEwjyr4-Cg9LKAhVVCI4KHaSkDYEQ6AEIITAA#v=onepage&q=advice%20for%20entrepreneurs%20in%20saarc%20countries&f=false.

[3] http://www.franchiseindia.com/entrepreneur/news/Women-entrepreneurs-of-SAARC-region-to-meet-in-Jaipur-2309

[4] http://sloanreview.mit.edu/article/the-entrepreneurs-path-to-global-expansion/

[5] http://www.kenaninstitute.unc.edu/bornglobal/files/kuemmerleW_2005.pdf