Define Trade:-
Trade is the activity of buying, selling, or exchanging goods or services between people, firms, or countries.
Two categories of trade includes
1) Home trade: typical trade carried on within a country. It is divided into two types
a) wholesale trade - Buys goods usually in large quantities from the manufacturer or producer.
b) Retail trade: Can not afford to buy large quantities from manufacturer but buys in small quantity from the wholesaler and sales in bits to the consumer.
2) Foreign Trade: This is the commercial affairs between two countries which is divided into two -
Import And Export:
An import is a good brought into a jurisdiction, especially across a national border, from an external source. The party bringing in the good is called an importer. An import in the receiving country is an export from the sending country.
The term export in international trade means the sending of goods or services produced in one country to another country. The seller of such goods and services is referred to as an exporter; the foreign buyer is referred to as an importer. Export of goods often requires involvement of customs authorities.
TYPES OF IMPORT
There are two basic types of import:
1. Industrial and consumer goods
2. Intermediate goods and services
Companies import goods and services to supply to the domestic market at a cheaper price and better quality than competing goods manufactured in the domestic market. Companies import products that are not available in the local market.
Industrial Goods:-
Industrial goods are based on the demand for the consumer goods they help to produce. Industrial goods are classified as either production goods or support goods. *Production goods* are used in the production of a final consumer good or product, while *support goods* help in the production process of consumer goods, such as machinery and equipment.
Consumer Goods
Consumer goods , on the other hand, are tangible commodities produced and purchased to satisfy the wants of a buyer. Consumer goods are classified as durable goods, non-durable goods or consumer services.
Durable Goods
Durable goods have a significant lifespan of three years or more. The consumption of a durable good is spread out over the entire life of the good, which causes demand for maintenance and upkeep. Bicycles, furniture and cars are examples of durable goods.
Non Durable Goods
Non-durable goods are goods that are purchased for immediate consumption or use, and they have a lifespan that is less than three years. Food, beverages and clothing are examples of non-durable goods.
INTERMEDIATE GOODS AND SERVICES
An intermediate good is a product used to produce a final good or finished product. These goods are sold between industries for resale or the production of other goods. One example of an intermediate good is salt, a product that is directly consumed but also used to manufacture food products.
There are many intermediate goods that can be used for multiple purposes. Examples include steel, which can be used in the construction of a house or the production of cars; wood, used to make flooring and furniture; glass, used in theproduction of windows and eyeglasses and gold and silver, which can be used to make decorations, housing fixtures and jewelry.
Consumer Services
Consumer services are intangible products or services that are produced and consumed at the same time. Haircuts and car washes are typical examples of consumer services. Also other examples of intangible products includes accounting, banking, cleaning, education, medical, transportation, etc.
TYPES OF EXPORT
1) Export by means of consignment
Consignment in international trade is a variation of the open-account method of paymentin which payment is sent to the exporter only after the goods have been sold by the foreign distributor to the end customer.
An international consignment transaction is based on a contractual arrangement in which the foreign distributor receives, manages, and sells the goods for the exporter, who retains
title to the goods until they are sold.
Payment to the exporter is required only for those items sold. One of the common uses of consignment in exporting is the sale of heavy machinery and equipment since the foreign distributor generally needs floor models and inventory for sale. Goods not sold after an agreed-upon time period may be returned to the exporter at cost.
2) Barter Trade Export
Barter is an act of trading goods or services between two or more parties without the use of money (or a monetary medium such as a credit card ). In essence, bartering involves the provision of one good or service by one party in return for another good or service from
another party.
How Countries Barter :- Countries also engage in bartering when they are deeply in debt and are unable to obtain financing . Goods are exported in exchange for goods that the country
needs. In this way, countries manage trade deficits and reduce the amount of debt they incur.
3) Export-Traders
The export-traders include the export companies known as trading houses, trading companies, buying offices, buying agents, purchasing agents, resident buyers, sourcing agents, export representatives, export distributors, export agents, export management companies (EMCs), and manufacturers' representatives. The export-trader operates on a buy-and-sell basis or a commission/fee basis, or a combination of these two. In the buy-and-sell basis, the export-trader buys from export- manufacturers and adds a markup to the export price. In the commission/fee basis, the export- trader collects a commission or fee from the export-manufacturer or the foreign importer, or from both of them without adding a markup to the price.
4) Export-Manufacturers
Export-manufacturers include the manufacturers, producers, assemblers and processors of export goods. Export-manufacturers either directly export the goods or indirectly export the goods through the export-traders.
5) Service-Exporters
Service-exporters include the banks, ocean shipping (steamship) companies, air cargo companies or airlines, trucking companies, rail carriers, insurance companies, freight forwarders or consolidators, consulting firms, and miscellaneous service companies. Service- exporters provide services to export-traders and export-manufacturers.
ADVANTAGES AND DISADVANTAGES OF EXPORT AND IMPORT
ADVANTAGES
1. Global Markets can be captured so that country will earn foreign exchange.
2. Exports Generate huge Employment opportunities.
3. Economy of Country will be developed. As no Country can self sustain by itself Exports and Imports are Necessary for their functioning and growth.
DISADVANTAGES
1. Exporting Depleting resources like crude oil , minerals , ores Countries will lose valuable resources which can never be replenished.
2. Export products are subject to quality standards any bad quality products which are exported will result in Country reputation and remarks on countries.
3. Low Value Addition Exports will be earning less Foreign exchange
ADVANTAGES OF IMPORT
1. Import can help Countries to access best technologies available and best products and services in the world.
2. Cheap resourcing of products can be possible through Imports by globally Procurement goods and services.
3. Imports can improve countries Standard of living of people of that country
DISADVANTAGES
1. Foreign Goods are substituting domestic goods so domestic manufactures may lose their business and this may cause to total collapse of local industry.
2. Foreign exchange loss to country by importing goods
.
3. Import will discourage local manufacturing and inflation may cause .
4. unemployment may increase .
BARRIERS OF TRADE
Definition::- Trade barriers are government policies which place restrictions on international trade. Trade barriers can either make trade more difficult and expensive (tariff barriers) or prevent trade completely (e.g. trade embargo)
Examples of Trade Barriers
a) Tariff Barriers . These are taxes on certain imports. They raise the price of goods making imports less competitive.
b) Non-Tariff Barriers . These involve rules and regulations which make trade more difficult. For example, if foreign companies have to adhere to complex manufacturing laws it can be difficult to trade.
c) Quotas:- A limit placed on the number of imports
d) Voluntary Export Restraint (VER):- Similar to quotas, this is where countries agree to limit the number of imports. This was used by US for imports of Japanese cars.
e) Subsidies:- A domestic subsidy from government can give the local firm a competitive advantage.
f) Embargo:- A complete ban on imports from a certain country. E.g. US embargo with Cuba.
BENEFITS OF IMPORT AND EXPORT TO THE ECONOMY
As soon as a business starts operating internationally, there are many additional factors which can have a huge impact on its success. Exporting and importing goods is not just the
core of any large, successful business; it also helps national economies grow and expand. Each country is endowed with some specific resources. At the same time, a country may lack other resources in order to develop and improve its overall economy. For example, while some countries are rich in minerals and precious metals or fossil fuels, others are experiencing a shortage of these resources.
Some countries have highly developed educational systems or infrastructures, while others do not. Once countries start exporting whatever they are rich in, as well as importing goods they lack, their economies begin developing. Importing and exporting goods is not only important for businesses; it is important for individual consumers, too. Consumers can benefit from certain products or components that are not produced locally, but are available to purchase online from a business abroad.
BENEFITS OF IMPORTING
1. INTRODUCING NEW PRODUCTS TO THE MARKET
Many businesses in India and China tend to produce goods for the European and American
market. This is mostly due to the size of these markets and the purchasing power of the population there. But once a new product is introduced to these two markets, it may take a
year or more before the product is introduced to other, smaller markets. If a product produced in China seems attractive/ useful to entrepreneurs in Australia, they can import it and introduce it to their potential consumers. Thanks to the internet expansion, entrepreneurs can conduct market research prior to importing a certain product. This will help them determine if there is an actual need on the market for such an imported product, so they can develop an effective marketing strategy in advance.
2. REDUCING COSTS
Another major benefit of importing is the reduce in manufacturing costs. Many businesses today find importing products, parts of products and resources more affordable than producing them locally. There are numerous cases when entrepreneurs find products of good quality which are inexpensive even when the overall import expenses are included. So instead of investing in modern, expensive machinery, entrepreneurs choose to import goods and reduce their costs. In most cases, they end up ordering large quantities in order to get a better price and minimize the costs.
3. BECOMING A LEADER IN THE INDUSTRY
One of the key benefits of importing products is the opportunity to become a market leader in the industry of interest. Since manufacturing new and improved products is a never-ending
process, many businesses worldwide use the chance to import new and unique products
before their competitors do. Being the first to import a fresh product can easily lead you to
becoming a leader in a certain industry.
4. PROVIDING HIGH QUALITY PRODUCTS
Another benefit of importing is related to the ability to market products of high quality. Lots of successful entrepreneurs travel abroad, visit factories and other highly professional sellers in order to find high quality products and import them into their own country. Moreover, manufacturers may provide informative courses and training, as well as introduce standards and
practices to ensure the company abroad is well prepared to sell their products. If you choose to base your business on importing products, chances are you are going to get high quality products. This is due to the fact that manufacturing businesses are very aware that their reputation largely depends on the quality of the items they produce. This is a reason more to consider importing the essence of your new business.
BENEFITS OF EXPORTING
Just as there is a variety of benefits of importing products and services, there are numerous reasons for exporting, too. Here are the two key benefits of exporting products to other countries:
1. INCREASING YOUR SALES POTENTIAL
While importing products can help businesses reduce costs, exporting products can ensure increasing sales and sales potential in general. Businesses that focus on exporting expand their vision and markets regionally, internationally or even globally. Instead of earning money by selling their offerings on the local market, these businesses are focused on discovering new opportunities to present their work abroad.
Exporting products is especially good for medium and large businesses – the ones that have already expanded within the local market. Once they have saturated the market in their
country, exporting products abroad can be a great opportunity for these businesses to increase the sales potential. Additionally, exporting can be one way of scanning opportunities for overseas franchising or even production.
2. INCREASING PROFITS
Exporting products can largely contribute to increasing your profits. This is mainly due to the
foreign orders, as they are usually larger than those placed by the local buyers. While local
customers buy a few products or a pallet, businesses abroad oftentimes order a container of products which inevitably leads to increased profits. Moreover, if your products are considered unique or innovative abroad, your profits can increase rapidly in no time. Achieve your business goals by importing and exporting products Importing and exporting products can be highly beneficial for businesses today. While importing can help small and medium businesses develop and expand by reaching larger markets abroad , exporting can increase the profits of medium and large businesses.
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