Reason of Export and Import in Countries

Question: Discuss about the Senario for Reason of Export and Import in Countries. Answer: Introduction International trade can be defined as the exchange of products and services across the countries for the economic growth and development of the nations. International trade facilitates in the development of global economy and obtaining a control over the supply and demand of products and services. Trading activities are essential for uniform distribution of natural resources, climatic conditions and technologies across the world. International trade includes importing and exporting of products and services across national territories (Introduction to International Trade, 2010). In this context, the present essay is about gaining an in-depth understanding of the reason for countries involved in import and export activities. Reason for Import and Export in Countries Countries around the world mainly import the products and services that are not domestically produced and are necessary for the development of another commodity. Importing can be described as purchase of foreign goods and services in the domestic market of buyers The main benefit realised by the countries through importing is achieving economies of scale. Economies of scale is achieved through gaining cost advantage by importing products and services that are available at a relatively lower cost in other country as compared to its domestic price. For example, labour cost is comparatively less in Australia as compared to other developed countries (The benefits, challenges and opportunities of importing, 2013). The procurement of lower priced products and services increases the profitability of the industries in a nation thus enhancing its economic growth and development. Importing also facilitates nations to achieve competitive advantage through gaining access to unique products and s ervices that were not available within their territory (Cavusgil et al., 2014). Import activities of a nation also lead to the increase in quality of domestic products as they have to compete with the imported goods. Thus, domestic producers of a nation have their efficiency in order to compete with the quality of products and services imported from overseas. Import of goods and services relatively unavailable domestically becomes compulsory for the nations that may be required for the production of another commodity. There are specific advantages available in a particular country such as presence of skilled workers and advanced technologies that may be in deficit within other countries (Seyoum, 2009). There is wide availability of natural resources such as fossil fuels, timber, fertile soil and minerals in some countries that may be required by foreign nations in production of certain goods and services. Similarly, some countries have highly developed infrastructures that enable them in the production of complex goods and services (Cavusgil et al., 2014). On the other hand, exporting involves sale of goods and services by a nation to a foreign nation for income generation. The goods and services that have high demand in the foreign nations are generally exported by the domestic country to earn profits (Cavusgil et al., 2014). The main advantage achieved by nations through exporting activities is inflow of foreign currency helping them to achieve economic stability. Export helps the nations to get rid of the excess production of certain goods and services that may not be available in other countries and thus achieving profitability. High exports by a country results in creation of more employment opportunities for the domestic economy. For example, it is estimated that about 4.926 million people are employed in the United States on account of exporting activities (Langenfeld and Nieberding, 2005). Countries are involved in exporting and importing activities mainly to gain access to the global market. It helps the nations to trade globally and gain an exposure of the various opportunities present in the foreign locations that may help them to grow economically. Imports and exports carried out by a country are accounted in its current account in the balance of payments (Dridi and Zieschang, 2002). The international trading facilitates nations to gain access to the best possible products and services worldwide at the best possible cost (Shenkar and Luo, 2008). Global trading has ensured the availability of every type of product or service in the international market such as food, cloth, oil, jewellery and many others. The main services that are traded globally include transportation, skilled manpower, banking and many others. International trade is also very beneficial to maintain price stability of products and services by exporting surplus products and importing them in case of deficiency. Thus, exporting and importing activities lead to reduction in operational risk for business entities as they gain easily gain access to product and service from the international market required by them (Trent et al., 2009). Export and import activities also provide encouragement to global economies for gain access to the opportunity of Foreign Direct Investment (FDI). Foreign Direct Investment can be stated as the amount of money invested by a country in the business procedures of another country through acquiring stake or complete ownership. FDI can be regarded as the way through which foreign expertise and currencies can gain entry in the domestic market of a country sustaining its economic growth and development (Buthe and Milner, 2008). FDI provides competitive advantage to a country by enhancing its gross domestic product through raising employment level. FDI encourages growth and expansion of companies enhancing their profitability and thus increased revenue generation for the domestic country (OECD, 2009). Developing countries lacking the presence of any resource can always have a comparative advantage of gaining access to the deficit resource through trading with advanced economies. In this context, the law of comparative advantage states that even countries producing goods and services efficiently can benefit from getting involved in trading activities. This is achieved through maximising the wealth of a nation by diversifying its resources in most competitive industries (McDonald, 2012). Countries can heavily benefit from the diversification achieved through export and import of products and services. The large dependence of a country on few resources makes it more susceptible to market forces such as recession, introduction of new trade laws and technologies. The decline in the demand of a product and service on which a country is largely dependent will negatively impact its economic growth. Thus, international trading helps in the development of a diversified economy that will hel p in ensuring that downturn of some industries would be balanced by the growth and development of other competitive industries (Meja, 2011). The import and export of goods and services also helps the countries worldwide to gain knowledge of the cultural values and beliefs of the foreign nations. This helps them to produce the goods and services in accordance with the taste and preferences of people. Thus, exporting countries involved in manufacturing of goods and services can gain advantage through obtaining knowledge of the global cultural diversity (Mac-Dermott and Mornah, 2014). Import and export activities are also essential to be carried out by the nations for eliminating monopoly that restrict wealthy nations to establish their monopoly in the market. Also, global trading facilitates countries to develop cordial relations with foreign countries that can help them to gain access to better educational opportunities and achieve international peace. International trade of goods and services through export and import also help nations worldwide to raise the living standards of people. The increased availability of resour ces enhances the productivity resulting in increase in per capital income leading to economic prosperity (Coats and Brady, 2015). International trading has also helped in the globalisation of economies by connecting different countries across the borders. Multinational companies of a country enjoys numerous benefits from the globalization process as they can gain access to better quality products and services from the developing countries at reasonable prices (Mac-Dermott and Mornah, 2014). Large corporations can take advantage of lower cost of labour and operational costs in the developing economies thus enhancing their productivity and profitability (Shenkar and Luo, 2008). The benefits realised by the nations through export and import of goods and services has been evaluated and examined by international trade theories such as classical trade theory, factor proportion theory and product lifecycle theory. Classical theory states that extent of international trade in a country are related to its trading pattern with other countries. The theory states that countries are only able to gain economic advantage by trading from other country only if both are actively involved in sharing of resources with each other (Dimand, 2004). The theory mainly emphasises that international trading activities involves production of goods and services by a nation having a competitive advantage over them and thereafter exporting of surplus products. Thus, as per classical theory economic advantage or disadvantage of a country mainly refers to the differences in factors such as resources, labour, capital or technology (Dimand, 2004). On the other hand, factor proportion theory emphasises on the presence of difference in economic advantages exhibited by the trading nations. As per the theory, countries across the world are continuously involved in the production and export of goods and services for which they have wide availability of production factors (Kjeldsen-Kragh, 2002). They import generally the goods and services requiring large amount of production factors that are in deficiency in the domestic market. Thus, the theory extended the concept of economic advantage by emphasising on factors of production (Kjeldsen-Kragh, 2002). Product life cycle theory also focused on explaining the patterns of international trade and expansion of multinational firms through global trade. The theory stated that trade cycle of a product and service initiates from its production by the domestic firm, then by a foreign firm and at last anywhere around the world offering best possible cost advantage. It also take into account th e reason for export of surplus products and services by a country and then after its import in case of deficiency. Product life cycle theory was mainly based on emphasising the concept of technological innovation and market expansion for determining the international trade patterns. This is because technology innovation results in the development of high quality products and services and market size helps in determining the extent of trading activities (Bhat, 2010). Countries around the world try to indulge more in exporting activities in comparison to import activities. This is because exporting leads to increased revenue generation for the countries. Nations involved in import although gain access to better resources for production of goods and services but it ultimately leads to income deficit in a country. The excess of import activities in a country in comparison to export activities means that more money is going to that gained through exporting. The country involved more in exporting activities as compared to that of importing have more economic prosperity as it leads to creation of more employment options, production and enhanced profit margins (Capela, 2011). The gross domestic product (GDP) of a country increases through enhanced exporting activities thereby making a nation wealthier. However, the countries involved in international trade activities have to also face trade barriers that hinder the free trade activities across the natio ns. Tariff, a special type of tax is imposed on goods and services exported and imported from a country. These types of barriers often restrict the international trade activities and most seriously impact the economic development of developing countries. In this context, World Trade Organisation (WTO) facilitates and promotes free trade activities in all areas of commerce including tariffs and subsidies (McDonald, 2012). Conclusion Thus, it can be stated from the discussion held in the above essay that nations are involved in export and import of goods and services for their economic growth. The main benefits achieved by the countries through global trading are diversification of risk, achieving competitive advantage and economies of scale. Also, the countries involved in international trade should strive to maintain a balance between their export and import activities. This is necessary so that import activities of a country do not exceed the export activities otherwise money leaving from a country will outweigh the incoming money. References Bhat, M.K. 2010. International Trade Financial Environment. Ane Books Pvt Ltd. Buthe, T. and Milner, H. 2008. The Politics of Foreign Direct Investment into Developing Countries: Increasing FDI through International Trade Agreements? American Journal of Political Science 52 (4), pp. 741762. Capela, J. 2011. Import / Export For Dummies. John Wiley Sons. Cavusgil, S. T. et al. 2014. International Business. Pearson Australia. Coats, S.D. and Brady, K. 2015. Consumer Benefits from International Trade. [Online]. Available at: https://www.jec.senate.gov/public/_cache/files/952113f2-9deb-4642-914c-e291d55f0d1b/may-14-2015-republican-staff-analysis-consumer-trade-benefits.pdf [Accessed on: 12 August 2016]. Dimand, R.W. 2004. The Origins of International Economics: Classical theory of the gains from trade. Taylor Francis. Dridi, J. and Zieschang, K.D. 2002. Compiling and Using Export and Import Price Indices. International Monetary Fund. Introduction to International Trade. 2010. [Online]. Available at: https://www.uob.com.sg/assets/pdfs/corporate/corporate/TradeTutorials_Introduction.pdf [Accessed on: 12 August 2016]. Kjeldsen-Kragh, S. 2002. International Economics: Trade and Investment. Copenhagen Business School Press DK. Langenfeld, J. and Nieberding, J. 2005. The Benefits of Free Trade to U.S. Consumers. [Online]. Available at: https://courses.wcupa.edu/rbove/eco338/050trade-debt/freetr/050700benefits.pdf [Accessed on: 12 August 2016]. Mac-Dermott, R. and Mornah, D. 2014. The Role of Culture in Foreign Direct Investment and Trade: Expectations from the GLOBE Dimensions of Culture. Open Journal of Business and Management 3, pp. 63-74. McDonald, B. 2012. International Trade: Commerce among Nations. [Online]. Available at: https://www.imf.org/external/pubs/ft/fandd/basics/trade.htm [Accessed on: 12 August 2016]. Meja, J. F. 2011. Export Diversification and Economic Growth: An Analysis of Colombias Export Competitiveness in the European Unions Market. Springer Science Business Media. OECD. 2009. OECD Investment Policy Perspectives. OECD Publishing. Seyoum, B. 2009. Export-import Theory, Practices, and Procedures. Taylor Francis. Shenkar, S. and Luo, Y. 2008. International Business. John Wiley Sons. The benefits, challenges and opportunities of importing. 2013. [Online]. Available at: https://www.anzbusiness.com/content/anz-superregional/expanding-offshore/importing/the-benefits-challengesandopportunitiesofimporting.html#.V614Uk197IU [Accessed on: 12 August 2016]. Trent, R.J. et al. 2009. Managing Global Supply and Risk: Best Practices, Concepts, and Strategies. Ross Publishing.