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.
Export of goods often requires involvement of customs authorities. An export’s reverse counterpart is an import.
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 a home country to a foreign country.[clarification needed]
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.
This 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.
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:
- Nuclear Suppliers Group limits trade in nuclear weapons and associated goods (45 countries participate).
- The Australia Group limits trade in chemical & biological weapons and associated goods (39 countries).
- Missile Technology Control Regime limits trade in the means of delivering weapons of mass destruction (35 countries)
- The Wassenaar Arrangement limits trade in conventional arms and technological developments (40 countries). And import
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.
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. 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). 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.
Advantages of exporting
- Exporting has two distinct advantages. First, it avoids the often substantial cost of establishing manufacturing operations in the host country.
- Second, exporting may help a company achieve experience curve effects and location economies.
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.
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.
- 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.
- Another drawback, is that high tariff barriers can make exporting uneconomical and very risky.
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.
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).
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).
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Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder TBIL.co STATX Fund.