Exporting and Importing
Exporting and Importing
Exporting is the act of producing goods or services in one country and selling or trading them to another country. The term export originates from the Latin words ex and portare, meaning “to carry out.” The counterpart to exporting is importing: acquiring goods from one country and selling them in another country. Although it is common to speak of a nation's exports or imports in the aggregate, the company that produces the good or service—as opposed to a nation's government—usually conducts exporting in terms of logistics and sales transactions. However, export and import levels may be highly influenced by government policies, such as offering subsidies that either restrict or encourage the sale of particular goods and services abroad. Certain exports, such as military technology, may be banned entirely, at least for certain recipients, in cases of trade embargoes or other government regulations (e.g., U.S. companies generally cannot export to or import from Cuba). Exporting is just one method that companies use to establish their presence in economies outside their home country. Importing is the method used to acquire products not readily available from within a country or to acquire products at a less expensive cost than if they were produced in that country.
A country may be in a favorable position to export for several reasons. A nation may export if it is the world's sole supplier of a certain good, such as when it has access to natural resources others lack. Some countries are also able to manufacture products at a relatively lower cost than other countries, for example, when labor costs less. Other factors include the ability to produce superior quality goods or the ability to produce the goods in a season of the year when other countries need them (Branch, 1990).
BALANCE OF TRADE
A country's international trade consists of both importing and exporting goods and services. The difference between the amount exported and the amount imported equals the balance of trade. A trade surplus consists of exporting more than importing while a trade deficit consists of importing more than exporting.
BRIEF HISTORY OF U.S. EXPORTS AND IMPORTS
The United States has been heavily dependent upon exporting throughout its history. It has played an important role in global trade as well. Even before its Declaration of Independence, the United States relied heavily on the exportation of cotton, tobacco, and other agricultural products to Europe for much of its commerce. After the Revolutionary War, the United States endured English duties and restrictions in Europe and the West Indies. This caused the United States to form new trade ties with overseas buyers in Africa, India and East Asia, helping to form a legacy of U.S. trading overseas.
Although the United States thrived in exporting during its first one hundred years, it was not until the Industrial Revolution gained momentum in the late nineteenth century that exporting began to significantly increase. This occurred mainly due to the technological advancements in communications, manufacturing, transportation, and food preservation techniques. It was during this time that the United States made the transition from being a supplier of agricultural products to a manufacturer of industrial goods, such as ships, railroads, clothes, and cars.
However, in the first decades of the twentieth century there was an increase in protective trade barriers and restrictions created by counties to further their own trade interests. As a result, many laws were created to protect domestic industries and give local firms an advantage in trade. The Sherman Antitrust Act of 1890, the Federal Trade Commission Act of 1914, the Trading with the Enemy Act of 1917, and the Smoot-Hawley Tariff Act of 1930 were some of the laws passed in the United States at this time. While not all of these were intended to reduce trade, and probably none were intended to devastate U.S. exports, the general pattern internationally was to raise protectionist trade barriers and tariffs in kind, creating an unfavorable climate for U.S. exports. This repressive trade environment is considered one of the causes of the Great Depression.
During the mid- and late 1930s, the United States and other nations cooperated to reduce trade barriers and create a smoother world trade climate. The U.S. Reciprocal Trade Agreements Act of 1934 helped to introduce lower tariffs and duties imposed on imports. Additionally, the most-favored-nation (MFN) trading program extended the benefits of any bilateral tariff reductions negotiated by the United States to all MFNs.
World War II helped to increase United States exports, as did reduced trade barriers. At this time, countries turned to the United States for supplies and it was increasingly perceived as an industrial power and a source of high-quality goods. In the postwar years, the United States emerged as the most powerful international trade
leader, while the European and Japanese manufacturing sectors concentrated on rebuilding. From the 1940s through the 1960s, the U.S. trade surplus—the value of exports out of the country less the value of imports into the country—increased at a rate of 20 percent annually. U.S. exports continued to increase throughout the 1970s, growing from about $43 billion in 1970 to nearly $225 billion by 1980.
In the 1970s, however, increased competition from Western Europe and Japan wrested international market share from the United States. In the 1980s U.S. exports were outweighed by imports, as the national trade deficit grew to more than $160 billion annually by the late 1980s. Much of this deficit was due to oil imports; however, Japan's success at manufacturing quality goods for export, particularly autos and electronics, also contributed.
Despite this, increasing globalization of markets and an ongoing effort to lower trade barriers greatly expanded global trading. From 1986 to 1990, U.S. merchandise exports contributed more than 40 percent of the rise in gross national product (GNP). In 1990, almost 84 percent of U.S. GNP growth was due to exports, which totaled a record high of $394 billion. The increase of U.S. exports in the late 1980s and early 1990s led to a significantly lower trade deficit and two million new jobs attributed to exports. The U.S. Department of Commerce estimates that for every $45,000 in export sales, one job is created, more than double the rate of jobs created by domestic sales. By 2004, annual U.S. exports of goods and services were around $1.147 trillion, leaving a $617 billion trade deficit, based on U.S. Census Bureau, Foreign Trade Statistics figures. According to World Trade Organization estimates, in 2004 the United States supplied about 9.6 percent of the world's merchandise exports by value. The United States was the world leader in imports claiming a 16.8 percent share of world total imports.
CHARACTERISTICS OF EXPORTERS
Exports remain an important growth vehicle for U.S. companies, as many domestic product and service markets are saturated and offer only limited growth prospects. Many smaller firms export occasionally and seek to develop permanent, recurring business in foreign countries. Other companies only export to a few countries and want to increase the number of countries in which they do business.
In 2004, 15 percent of U.S. exporters accounted for 84 percent of the value of U.S. manufactured exports. Half of all exporters sell in only one foreign market. Fewer than 20 percent of exporters and fewer than three percent of U.S. companies overall export to more than five markets. From January of 2007 to January of 2008, U.S. exports increased by 16.56 percent, the most growth in one fiscal year since 2004. From 1993 to 2008, the largest single dip in U.S. exports was in 2001, and this was largely due to the events and aftermath of September 11, 2001.
METHODS OF EXPORTING
Direct Exporting. The typical exporting system is a company-owned export department in which a manufacturer sells directly to companies or consumers in foreign countries. In this arrangement, the company has complete control over the marketing and distribution of its goods and services, distribution, sales, pricing, and other business choices. Most U.S. exporters, however, don't utilize this system. Many companies depend on one or several specialized export channels outside their organizations. Most companies choose direct and indirect routes. Direct exports are sold through foreign-based parties. Indirect exports are sold through home-based proxies or resellers. Both methods can be implemented through either merchants or agents. In these cases, merchants actually assume ownership of the goods, as opposed to agents, who only represent the manufacturer or owner. Bartering is another method that manufacturers may use to sell their goods abroad.
A direct merchant is an organization that buys goods abroad, then sells the goods in their own country. The merchants usually offer complementary services to their buyers such as maintenance, parts sales and technical support. A direct merchant often has a close relationship with the exporter, giving the merchant exclusive rights to sell and service the goods.
There are several different types of direct agents. Some direct agents, for example, are paid by U.S. firms on commission, have a contract, and usually do not sell competing products. The exporter trains a representative on the product and provides them with collateral material. Purchasing agents are similar to commission agents in that they are sent abroad by their company or country to purchase products. Purchasing agents are only in the target country long enough to broker a purchase.
Indirect Exporting. Indirect exporting is using a home-based merchant or agent to find and deliver goods to foreign buyers. This method of exporting poses the least amount of risk and expense because it is relatively easy to start up and has a moderate up-front capital investment. Indirect agents act as intermediaries between the exporter and buyer and facilitate the flow of goods.
There are several different types of indirect agents. One is an export management company (EMC). EMCs usually represent several companies in one or more industries. The agent charges the domestic company a fee or commission and in return provides the manufacturer with access to foreign channels of distribution and knowledge of foreign markets. Another type of indirect agent is a Webb-Pomerene Association. There are about forty such associations in
the United States. These associations are composed of competing manufacturers for the purpose of exporting. The associations are exempt from U.S. antitrust laws relating to price setting, discounting, and customer information. Export trading companies (ETCs) are another type of indirect agent. These were created in 1982 by the U.S. government to help U.S. manufacturers compete with powerful Japanese conglomerates. These companies are similar to but larger than EMCs and Webb-Pomerene Associations. Export commission houses are another indirect agency. In this case, commission agents represent buyers in foreign markets. The foreign buyer places an order and the commission agent solicits bids from domestic manufacturers. The lowest bidder usually receives the order and is compensated by the foreign buyer with a commission. This is an advantage for the exporter because the payment is usually received immediately and it takes little effort to complete the sale. Other indirect trading methods include foreign freight forwarding, which manage overseas shipments for a fee; brokering, which brings buyers and sellers together, but do not handle or distribute the goods; and export agents, who represent the manufacturer, and act under their own name.
The international market is more than four times larger than the U.S. market. The growth rates in foreign countries are also much greater than domestic market growth. For the first time in recent history, countries other than the United States are economically stronger due to their importing and exporting savvy. This is largely due to the fact that international exports are no longer just traveling West to serve the United States; much exchange (between even third world countries) now makes up overall global exports.
By exporting, companies can keep ahead of competition. Before starting to export, a company should measure the benefits against the costs and risks associated with it. The following are eleven keys to keep in mind when exporting.
- Obtain export counseling and create an international marketing plan before beginning to export. The plan should include goals, objectives, and expected challenges.
- Get a statement of financial commitment from executive management. Take a long-range view of exporting and ensure that management is ready and willing to troubleshoot and work to resolve any issues that may arise.
- Carefully select foreign distributors. Due to global communication and transportation difficulties, international distributors must act independently.
- Establish and agree unanimously to a foundation for a profitable operation and growth.
- Continue dedication to export effort even when the U.S. market is booming. Many companies ignore their exporting plan when the U.S. economy picks up and subsequently lose a good share of the market.
- Foreign distributors should be treated like domestic counterparts. Many companies implement advertising campaigns, discount offers, sales incentive programs, and so on to the U.S. market but don't make similar offers to their international distributors.
- Do not assume that a marketing technique that works in one market will automatically work in others. Each market has to be treated separately to ensure success.
- Research target demographics anywhere a presence is desired; not doing so will result in creating costly campaigns that may not work.
- Be willing to make modifications to products to meet foreign regulations. Suppliers must take into account cultural preferences in other countries.
- Messages pertaining to sale and warranties should be printed in local languages. Keep in mind that a foreign distributor may speak English, but it is unlikely that all sales and service personnel have this capability.
- Readily available servicing for products should be provided. A company can earn a bad reputation when service support is not provided.
Importing products into countries is often dependent on what product, commodity, or service is being imported. In the United States the Harmonized Tariff Schedule is the directory for determining which tariff is imposed on a given product. Importing will involve communicating with customs agencies to determine the necessary licensing and logistics issues of each nation. Often a customs broker is necessary to facilitate the smooth transfer of goods and services between countries. Inherently, importing involves exporting from one country; thus many of the issues involved in exporting are relevant and necessary for importing goods and services as well.
BARRIERS TO EXPORTS
Barriers to the export and import of goods have been widely established by governments. These barriers serve a number of purposes, including protecting industries, national employment levels, and improving trade balances. The United States and many other nations have made efforts to lower trade barriers, although many countries
still have an intricate network of barriers that greatly impact the world export market.
The two major classes of trade restrictions are tariff and nontariff. Tariffs are duties imposed on goods coming or going into a country. Among other uses, tariffs are used to penalize other countries for trade or political actions. Nontariff barriers include quotas, taxes, and exchange rate controls. These can be broken down into six major categories that include specific trade limitations, customs and administrative entry restrictions, standards, government participation, import charges, and miscellaneous categories. Many governments offer various global export initiatives to encourage free trade. The General Agreement on Tariffs and Trade (GATT), which was signed by the United States and the majority of developed and developing countries, calls for a decrease of both tariff and nontariff barriers worldwide. Other important developments include the North American Free Trade Agreement of 1993 and the European Union's gradual evolution toward economic unity. These agreements significantly reduce trade barriers within the affected regions. In the United States, most governments support specific industries or companies through financial aid, lower tax rates, loans, and grants.
REASONS TO EXPORT
The most important reason a company begins exporting is to maximize profits by exploiting opportunities in foreign markets that are not available in domestic markets. A product may become obsolete in one country, but may perform well abroad. When this happens, a manufacturer can reduce new product development costs and take advantage of learned efficiencies related to the product dealing with production, distribution, and marketing. When markets for products in the United States begin to mature and become saturated, producers can continue to receive continuous sales and profit gains through exporting. International markets are often less saturated and less competitive, allowing manufacturers to gain faster sales growth and higher profit margins. Foreign markets can provide shelter not only from maturing domestic markets, but also from increased competition in the home market. As manufacturing volume increases, benefits related to economies of scale aid the exporter's competitiveness in both foreign and domestic markets. Market risk diversification is another benefit of exporting. A supplier can usually decrease its exposure to cyclical economic downswings or regional issues by increasing its geographic presence. Exporting also decreases risks associated with seasonality of some products, e.g., warm-weather-related products might be marketed in the Southern Hemisphere when it is winter in the Northern Hemisphere.
As trade barriers continue to dissolve due to the efforts of the World Trade Organization, exporting will become much more lucrative. The significant consumer buying power of industrialized nations, including the United States, is creating an ever expanding market for the exporting and importing of goods and services.
SEE ALSO International Business; International Management
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