Export

Last updated

An export in international trade is a good or service produced in one country that is bought by someone in another country. The seller of such goods and services is an exporter; the foreign buyer is an importer. [1]

Contents

Export of goods often requires involvement of customs authorities. An export's reverse counterpart is an import.

Exporting

Many manufacturing firms began their global expansion as exporters and only later switched to another mode for serving a foreign market. Exporting refers to sending of goods and services from the home country to foreign country. [2] [ clarification needed ]

Process

Methods of exporting a product or good or information include mail, hand delivery, air shipping, shipping by vessel, uploading to an internet site, or downloading from an internet site. Exports also include distribution of information sent as email, an email attachment, fax or in a telephone conversation.[ citation needed ]

Barriers

Trade barriers are government laws, regulations, policy, or practices that either protect domestic products from foreign competition or artificially stimulate exports of particular domestic products. While restrictive business practices sometimes have a similar effect, they are not usually regarded as trade barriers. The most common foreign trade barriers are government-imposed measures and policies that restrict, prevent, or impede the international exchange of goods and services. [3]

Strategic

International agreements limit trade in and the transfer of, certain types of goods and information e.g. goods associated with weapons of mass destruction, advanced telecommunications, arms and torture, and also some art and archaeological artefacts. For example:

Tariffs

A tariff is a tax placed on a specific good or set of goods exported from or imported to a countryside, creating an economic barrier to trade. [4]
Usually the tactic is used when a country's domestic output of the good is falling and imports from foreign competitors are rising, particularly if the country has strategic reasons to retain a domestic production capability.
Some failing industries receive a protection with an effect similar to subsidies; tariffs reduce the industry's incentives to produce goods quicker, cheaper, and more efficiently. The third reason for a tariff involves addressing the issue of dumping. Dumping involves a country producing highly excessive amounts of goods and dumping the goods on another country at prices that are "too low", for example, pricing the good lower in the export market than in the domestic market of the country of origin. In dumping the producer sells the product at a price that returns no profit, or even amounts to a loss. [5] The purpose and expected outcome of a tariff is to encourage spending on domestic goods and services rather than imports.

Tariffs can create tension between countries. Examples include the United States steel tariff of 2002 and when China placed a 14% tariff on imported auto parts. Such tariffs usually lead to a complaint with the World Trade Organization (WTO). [6] If that fails, the country may put a tariff of its own against the other nation in retaliation, and to increase pressure to remove the tariff.

Vessel at Altenwerder Container Terminal (Hamburg) Hamburg.CTA.Altenwerder.BungaRaya.wmt.jpg
Vessel at Altenwerder Container Terminal (Hamburg)

Overview

Advantages of exporting

  • Exporting has two distinct advantages. First, it avoids the often substantial cost of establishing manufacturing operations in the host country. [7]
  • Second, exporting may help a company achieve experience curve effects and location economies. [7]

Ownership advantages are the firm's specific assets, international experience, and the ability to develop either low-cost or differentiated products within the contacts of its value chain. The locational advantages of a particular market are a combination of market potential and investment risk. Internationalization advantages are the benefits of retaining a core competence within the company and threading it though the value chain rather than to license, outsource, or sell it.

In relation to the eclectic paradigm, companies that have low levels of ownership advantages do not enter foreign markets. If the company and its products are equipped with ownership advantage and internalization advantage, they enter through low-risk modes such as exporting. Exporting requires significantly lower level of investment than other modes of international expansion, such as FDI. The lower risk of export typically results in a lower rate of return on sales than possible though other modes of international business. In other words, the usual return on export sales may not be tremendous, but neither is the risk. Exporting allows managers to exercise operation control but does not provide them the option to exercise as much marketing control. An exporter usually resides far from the end consumer and often enlists various intermediaries to manage marketing activities. After two straight months of contraction, exports from India rose by 11.64% at $25.83 billion in July 2013 against $23.14 billion in the same month of the previous year. [8]

Disadvantages of exporting

Exporting has a number of drawbacks:

  • Exporting from the firm's home base may not be appropriate if lower-cost locations for manufacturing the product can be found abroad. It may be preferable to manufacture where conditions are most favorable to value creation, and to export to the rest of the world from that location. [2]
  • A second drawback to exporting, is that high transport cost can make exporting uneconomical, particularly for bulk products. One way to fix this, is to manufacture bulk products regionally. [2]
  • Another drawback, is that high tariff barriers can make exporting uneconomical and very risky. [2]

For small and medium enterprises (SMEs) with fewer than 250 employees, selling goods and services to foreign markets can be more difficult than serving the domestic market. The lack of knowledge of trade regulations, cultural differences, different languages and foreign-exchange situations, as well as the strain of resources and staff, interact like a block for exporting. Indeed, there are some SMEs which are exporting, but nearly two-thirds of them sell to only one foreign market. [9]

Export motivations and perceptions

Motivational factors are "all those factors triggering the decision of the firm to initiate and develop export activities". In the literature, export barriers are divided into four large categories: motivational, informational, operational/resource-based, and knowledge.Export motivators can be separated into specific dimensions leading to potential selection bias. In addition, the importance of size, knowledge of foreign markets, and unsolicited orders show an association with the perceptions of motivator stimuli toward specific dimensions (research, external, reactive). [10] [11]

In macroeconomics

In macroeconomics, exports demanded by a country's foreign customers are one of the components of the demand for the country's gross domestic product, the other components being domestic consumption, physical investment, and government spending. Foreign demand for a country's exports depends positively on income in foreign countries and negatively on the strength of the producing country's currency (i.e., on how expensive it is for foreign customers to buy the producing country's currency in the foreign exchange market).

See also

Related Research Articles

International trade Exchanges across international borders

International trade is the exchange of capital, goods, and services across international borders or territories.

A tariff is a tax on imports or exports between sovereign states. It is a form of regulation of foreign trade and a policy that taxes foreign products to encourage or safeguard domestic industry. Traditionally, states have used them as a source of income. Now, they are among the most widely used instruments of protectionism, along with import and export quotas.

Free trade Absence of government restriction on international trade

Free trade is a trade policy that does not restrict imports or exports; it can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold liberal economic positions while economically left-wing and nationalist political parties generally support protectionism, the opposite of free trade.

Import substitution industrialization trade and economic policy

Import substitution industrialization (ISI) is a trade and economic policy which advocates replacing foreign imports with domestic production. ISI is based on the premise that a country should attempt to reduce its foreign dependency through the local production of industrialized products. The term primarily refers to 20th-century development economics policies, although it has been advocated since the 18th century by economists such as Friedrich List and Alexander Hamilton.

Protectionism Economic policy of restraining trade between states through government regulations

Protectionism is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations. Proponents claim that protectionist policies shield the producers, businesses, and workers of the import-competing sector in the country from foreign competitors. However, they also reduce trade and adversely affect consumers in general, and harm the producers and workers in export sectors, both in the country implementing protectionist policies and in the countries protected against.

Dumping, in economics, is a kind of injuring pricing, especially in the context of international trade. It occurs when manufacturers export a product to another country at a price below the normal price with an injuring effect. The objective of dumping is to increase market share in a foreign market by driving out competition and thereby create a monopoly situation where the exporter will be able to unilaterally dictate price and quality of the product.

Trade barrier Restrictions limiting international trade

Trade barriers are government-induced restrictions on international trade.

Non-tariff barriers to trade Type of trade barriers

Non-tariff barriers to trade (NTBs) or sometimes called "Non-Tariff Measures (NTMs)" are trade barriers that restrict imports or exports of goods or services through mechanisms other than the simple imposition of tariffs.

Trade can be a key factor in economic development. The prudent use of trade can boost a country's development and create absolute gains for the trading partners involved. Trade has been touted as an important tool in the path to development by prominent economists. However trade may not be a panacea for development as important questions surrounding how free trade really is and the harm trade can cause domestic infant industries to come into play.

Export subsidy

Export subsidy is a government policy to encourage export of goods and discourage sale of goods on the domestic market through direct payments, low-cost loans, tax relief for exporters, or government-financed international advertising. An export subsidy reduces the price paid by foreign importers, which means domestic consumers pay more than foreign consumers. The World Trade Organization (WTO) prohibits most subsidies directly linked to the volume of exports, except for LDCs. Incentives are given by the government of a country to exporters to encourage export of goods.

Trade policy of Japan

The trade policy of Japan relates to Japan's approach to import and export with other countries.

International business refers to the trade of goods, services, technology, capital and/or knowledge across national borders and at a global or transnational level.

Market access

Market access describes the possibility of an enterprise or a country to sell their goods and services across borders and enter a foreign market. According to the World Trade Organization (WTO), "market access for goods in the WTO means the conditions, tariff and non-tariff measures, agreed by members for the entry of specific goods into their markets." Gaining market access is an indispensable step towards deepening trade relations. However, market access is not synonymous with free trade because the possibility to enter a foreign market is in most cases conditioned by certain requirements, whereas free trade implies a perfect state in which goods and services can be circulated across borders without such barriers. Indeed, tackling market access restrictions proves to be a more achievable goal for trade negotiations as compared to free trade.

Rules of origin

Rules of origin are the rules to attribute a country of origin to a product in order to determine its "economic nationality". The need to establish rules of origin stems from the fact that the implementation of trade policy measures, such as tariffs, quotas, trade remedies, in various cases, depends on the country of origin of the product at hand.

Success in export markets for developed and developing country firms is increasingly affected by the ability of countries to support an environment which promotes efficient and low cost trade services and logistics. Policies related to trade facilitation and economic development reflect the idea that trade can be a powerful engine for accelerating economic growth, job creation, and poverty reduction.

Foreign-trade zones of the United States

In the United States, a foreign-trade zone (FTZ) is a geographical area, in a United States Port of Entry, where commercial merchandise, both domestic and foreign receives the same Customs treatment it would if it were outside the commerce of the United States. The purpose of such zones is to help American businesses to be competitive in the global economy by reducing tariff burdens on the importation of foreign inputs and on exported finished products. Another definition of an FTZ states that it is an isolated, enclosed and policed area operated as a public utility, furnished with facilities for loading, unloading, handling, storing, manipulating, manufacturing and exhibiting goods and for reshipping them by land, water or air. Merchandise of every description may be held in the zone without being subject to tariffs and other ad valorem taxes. This tariff and tax relief is designed to lower the costs of U.S.-based operations engaged in international trade and thereby create and retain the employment and capital investment opportunities that result from those operations. These special geographic areas – foreign-trade zones – are established "in or adjacent to" U.S. Ports of Entry and are under the supervision of the U.S. Customs and Border Protection under the United States Homeland Security Council. Since 1986, U.S. Customs' oversight of FTZ operations has been conducted on an audit-inspection basis known as Compliance Reviews, whereby compliance is assured through audits and spot checks under a surety bond, rather than through on-site supervision by Customs personnel.

An Eco-tariff, also known as an environmental tariff, is a trade barrier erected for the purpose of reducing pollution and improving the environment. These trade barriers may take the form of import or export taxes on products that have a large carbon footprint or are imported from countries with lax environmental regulations.

The Catfish Dispute started in 2001, as a trade war between Vietnam and the United States' catfish producers. The main argument concerns the import volume of catfish from Vietnam which results in lower profits for U.S. catfish producers. In dealing with major losses in profit, the Catfish Farmers of America (CFA), presented a series of lawsuits to the U.S. Department of Commerce against frozen catfish from Vietnam.

Protective tariffs are tariffs that are enacted with the aim of protecting a domestic industry. They aim to make imported goods cost more than equivalent goods produced domestically, thereby causing sales of domestically produced goods to rise; supporting local industry. Tariffs are also imposed in order to raise government revenue, or to reduce an undesirable activity. Although a tariff can simultaneously protect domestic industry and earn government revenue, the goals of protection and revenue maximization suggest different tariff rates, entailing a tradeoff between the two aims.

The textile industry in China is the largest in the world in both overall production and exports. China exported $274 billion in textiles in 2013, a volume that was nearly seven times that of India, the second largest exporter with $40 billion in exports. This accounted for 43.1% of global clothing exports.

References

  1. Joshi, Rakesh Mohan, (2005) International Marketing, Oxford University Press, New Delhi and New York. ISBN   0-19-567123-6
  2. 1 2 3 4 Washington, Charles W. L. Hill, University of (2015). International business : competing in the global marketplace (Tenth edition. ed.). p. 454. ISBN   978-0-07-811277-5.
  3. "Targeted Trade Barriers". cftech.com. Archived from the original on 29 April 2013. Retrieved 27 July 2015.
  4. Staff, Investopedia (24 November 2003). "Tariff". Investopedia. Archived from the original on 5 December 2017. Retrieved 7 May 2017.
  5. Mike Mofatt. "The Economic Effect of Tariffs". Archived from the original on 6 September 2015. Retrieved 27 July 2015.
  6. US/China Trade Tensions Archived 16 May 2011 at the Wayback Machine , Darren Gersh. Retrieved 21 May 2006.
  7. 1 2 Hill, Charles W.L. (2015). International Business: competing in the global marketplace (15th ed.). New York: McGraw Hill. p. 454. ISBN   978-0078112775.
  8. "Exports surge to 21-month high". Business Standard India. 13 August 2013. Archived from the original on 15 August 2013.
  9. Daniels, J., Radebaugh, L., Sullivan, D. (2007). International Business: environment and operations, 11th edition. Prentice Hall. ISBN   0-13-186942-6
  10. Seringhaus, F. R (1990). Government export promotion: A global perspective. Routledge. p. 1. ISBN   0415000645.
  11. Stouraitis, Vassilios; Boonchoo, Pattana; Mior Harris, Mior Harun; Kyritsis, Markos (2017). "Entrepreneurial perceptions and bias of SME exporting opportunities for manufacturing exporters: A UK study". Journal of Small Business and Enterprise Development. 24 (4): 906–927.