Abstract
The promotion of Small and Medium enterprises (SMEs) has continued to remain an important and integral part of Indian development strategy and is known to play a vital role in the global economic landscape. Despite the fact that Government of India has formulated many policies to promote export expansion of SMEs, they have traditionally focused more on domestic markets and the export performance of this sector in the global market has been unimpressive. Although SMEs want to exploit the international opportunities and want to become more export oriented, many barriers impede the growth performance of Indian SMEs to meet the challenges of emerging trends in globalization. This paper specifically aims at finding the perception of the SMEs in determining their hedging strategies to mitigate the foreign exchange risk. The study is performed by considering primary and secondary data. The primary data were collected from 71 selected export traders through structured questionnaire and analyzed using suitable statistical tools. From the study, it is concluded that the SMEs with high turnover prefer to adopt currency derivatives, especially forward contracts whereas the SMEs with lower turnover prefer natural or non-hedging strategy. It is also recommended that the banking sector can also step forward to give information on currency price movements to their clients as an additional service.
Highlights
As India moves forward in an era of globalization, small and medium enterprises (SMEs) became more and more integrated with the world economy
small- and medium-sized enterprises (SMEs) are becoming important players in international business, the progress of Indian SMEs continues to be hindered by many barriers such as dearth of reliable data on overseas markets, lack of ability to interact with potential overseas customers, unfamiliarity with export rules, procedures and documentation, lack of familiarity on hedging strategies, difficulty in identifying foreign business opportunities, and inadequate access to export finance etc., which impede the growth performance of Indian SMEs to meet the challenges of emerging trends in globalization
The business firms with higher turnover are familiar with currency derivative products like currency futures, forward contracts and firms with lesser and medium volume of business turnover adopts no hedging and internal hedging strategies like pricing in INR etc
Summary
As India moves forward in an era of globalization, small and medium enterprises (SMEs) became more and more integrated with the world economy. Progressive globalization for the past two decades has created an opportunity for the SMEs to enter into the international market through global strategy beyond national borders. Recognizing the need for larger access of SMEs to capital, the Indian government has taken various initiatives. It has started a comprehensive policy package for SMEs comprising fiscal, credit, infrastructure and technology. SMEs are becoming important players in international business, the progress of Indian SMEs continues to be hindered by many barriers such as dearth of reliable data on overseas markets, lack of ability to interact with potential overseas customers, unfamiliarity with export rules, procedures and documentation, lack of familiarity on hedging strategies, difficulty in identifying foreign business opportunities, and inadequate access to export finance etc., which impede the growth performance of Indian SMEs to meet the challenges of emerging trends in globalization
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