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Pakistan and international trade, The Pros and Cons of Exporting, Export…
Pakistan and international trade
What is trade
Trade involves the transfer of goods or services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market. An early form of trade, barter, saw the direct exchange of goods and services for other goods and services.
Impact of Import export
An import is a good or service bought in one country that was produced in another. Imports and exports are the components of international trade. If the value of a country's imports exceeds the value of its exports, the country has a negative balance of trade (BOT), also known as a trade deficit.
Exports – International Trade
Both the exports and imports of products and services form part of international trade.
The export of goods in commercial quantities generally requires the involvement of customs authorities in both the exporting and importing countries.
Since the birth of the Internet and cross-border online shopping, customs authorities have been involved in fewer and fewer imported goods. Goods bought in one country through eBay or Amazon, because of their low individual values, have largely bypassed customs involvement.
Even so, these small exports continue being subject to the legal restrictions applied by the country of export.
International trade
International trade is the exchange of goods and services between countries. Trading globally gives consumers and countries the opportunity to be exposed to goods and services not available in their own countries, or which would be more expensive domestically.
What is Import ?
An import is a good or service bought in one country that was produced in another. Imports and exports are the components of international trade. If the value of a country's imports exceeds the value of its exports, the country has a negative balance of trade (BOT), also known as a trade deficit.
What is Export
Export
:
An export is a product or service that we sell to a customer in another country. The word can be either a verb or a noun. Put simply; to export means to sell abroad.
Exports are the opposite of imports – goods and services that come into a nation from outside.
It does not matter how either trade comes in or leaves, it can be sent by post, truck, car, ship, air, email, in an airplane passenger’s suitcase, or even across a border on the back of a camel, donkey, mule or horse.
An export is anything that is produced domestically and sent or sold to foreigners, regardless of what it might be and how it gets there.
The person, company or entity that sells the good or service that is sold abroad is referred to as an exporter and is based in the country of export. The foreign buyer is known as an importer.
When a country imports more than it exports it has a trade deficit. When exports exceed imports it has a trade surplus.
Pros and cons
The Pros and Cons of Exporting
You may think that your product is already doing well in the domestic market and therefore, there is no need to expand to new markets. However, with the increasing opening of Caribbean economies to goods and services produced abroad, competition in the domestic market will continue to increase and survival might very well depend on an ability to compete both domestically and internationally. In this sense, despite the challenges and risks associated with exporting, it also offers numerous benefits which are not likely to be achieved by remaining domiciled in the local market.
Benefits of Exporting:
Increased Competitiveness: Exporting can allow you to gain exposure to new ideas, management practices, marketing techniques, and ways of competing which can help you to better position your business both within the Caribbean and overseas markets to increase competitiveness.
• Increased Sales: Exporting is one way of increasing your sales potential. Given the small size of most Caribbean markets, exporting allows a firm to expand its market beyond the scope of a limited and increasingly saturated national market. For instance, a producer in Trinidad and Tobago has access to a market of just over 1.5 million people. However, exporting to Brazil for example expands that producer’s potential market to close to
200 million people. With an expanded market, exporting can pave the way for increased sales and expansion.
• Higher Profits: No company would export unless it intends to make a profit. Generally speaking, internationalcustomers in larger markets are likely to place much larger orders than a local buyer. Some rare products (such as certain specialty foods) may also be able to command a higher price in an overseas market particularly in a market where the consumer is relatively affluent and willing to pay a premium price for a premium product. All these factors can positively affect the profit margins of a firm.
• Lower costs: By expanding international beyond the domestic Caribbean market, sales will increase and therefore production levels will also increase. As production levels rise, the costs per product is typically reduced depending on the manufacturing process. Specialty food and beverage providers need to carefully assess the production process when levels increase to ensure the quality is not compromised.
• Reduced Vulnerability: When you export, then your company is no longer solely dependent on sales within the local market. Therefore, if economic conditions become unfavourable domestically, the impact on your operations might not be as huge if you have been able to expand your business to foreign markets. It is also advisable that you do not become dependent on a single export market as this too can make you too vulnerable to fluctuations in that market.
• Extending the Product Life Cycle: In the domestic market, your product might be approaching the end of its life cycle. In such an instance, finding an export market would be ideal in order to extend the life cycle of the product.
• Follow your Customer Abroad: Outward migration from the Caribbean to Europe and North America in particular is fairly high. This has led to the creation of a sizeable Caribbean diaspora abroad with Caribbean “taste” and a desire for authentically Caribbean products. You can take advantage of this situation by targeting the diasporic market to drive your export sales.
Challenges Associated with Exporting:
Competition: Competitors can typically not be avoided in export markets. The world is global and to stay competitive specialty food and beverage providers need to understand their competitive advantages to stay ahead of the competition and be successful abroad.
Extra Costs: Developing an export market takes time. It can also be costly to develop new promotional/marketing materials, develop new packaging and assign new personnel to travel and undertake other administrative and operational tasks. These can place severe strain on the financial resources of firms, especially the smaller firms.
Product Modification: In order to meet safety, security and other requirements in the export market, your product may have to be modified. Some firms may not have the technical know-how where these modifications are concerned and might have to incur the costs associated with hiring an expert. Having to modify your product for the export market can also stretch the human and other operational resources of the firm.
Payment: Apart from the risk of non-payment, the complicated processes involved in the collection of payments using the various methods (consignment, letter of credit etc) can be time consuming. Firms with limited cash-flow therefore need to fullyunderstand the financial pitfalls associated with exporting.
Financial Risks: economic or government restrictions in the export market could negatively impact on your business. Exchange rate fluctuations could also prove to be problematic, particularly for those Caribbean countries with a floating exchange rate.
Transportation Risks: In exporting your product, there is the risk of damage, loss or theft.
Commitment: Without a high level of commitment, it is highly unlikely that your export venture would succeed in the long term. Maintaining a sustained presence in the export market requires time, willingness and substantial resources. It can also take months or even years before your decision to export begins to reap dividends. These are all issues that the potential exporter must bear in mind.
Cultural Differences: The language, business practices and other customs in the export market may be different to your own domestic market. To achieve greater success in the export market, you need to become familiar with the cultural situation in your export market and adjust your approach to suit if required.
Market Information: Finding information on some markets can be extremely difficult. Lack of information would mean that you do not have sufficient information on your competitors and the trends related to your specific product and similar products. This can negatively affect your ability to do well in the target market.
Export pros and cons
Selling to consumers outside your national borders comes with great rewards as well as some risks. Before deciding on whether to venture out into foreign markets, you should weigh up the pros and cons.
Advantages
– Markets can be expanded significantly.
– Less dependence on the home market.
– If you sell more you produce more, which leads to greater economies of scale and superior margins.
– Your R&D (research and development) budget could work more extensively and harder as you can change existing goods to suit new markets.
Disadvantages
– There is a risk that you might lose focus on your existing customers, i.e. your home market. You need to be careful.
– Administration costs could increase due to having to deal with export regulations.
– Your relationships may extend to faraway lands where customs, languages, etc. are quite different from yours.
– You will have much less control over what happens in foreign markets, compared to your home market.
– Foreign consumers may have different tastes compared to your domestic ones.
Written Work
Q1. Explain what is International trade?
Q2.Define the following terms.
a) Import and Export
b)Demand and Supply
e) Trade regulations
Q3.a)Name the goods that make up most of Pakistan's imports today.
b) How have the kinds of goods imported by Pakistan changed over time? Explain why this has happened.
Q4.a)What are the pros and cons of free trade agreements.(three pros and three cons).
b)Give some possible solutions for improving free trade.