Business in General: Part 4

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by yurina_98

by yurina_98

Export and Import

An import is a good or service brought into one country from another. The word "import" is derived from the word "port," since goods are often shipped via boat to foreign countries. Along with export, imports form the backbone of international trade; the higher the value of imports entering a country, compared to the value of exports, the more negative that country's balance of trade becomes.

BREAKING DOWN 'Import'

Countries are most likely to import goods that domestic industries cannot produce as efficiently or cheaply but may also import raw materials or commodities that are not available within its borders. For example, many countries have to import oil because they cannot produce it domestically or cannot produce enough of it to meet demand. Free trade agreements and tariff schedules often dictate what goods and materials are less expensive to import. With globalization and the increasing prevalence of free trade agreements between the United States and other countries and trading blocks, U.S. imports have increased from $473 billion in 1989 to $2.24 trillion in 2015.

What Affects Imports

The largest trading partners with the United States include China, Canada and Mexico. Two of these countries are involved in the North American Free Trade Agreement (NAFTA) that was implemented in 1994 and created one of the largest free trade zones, at the time, in the world. This allowed for free movement of goods and materials within the host nations of the United States, Canada and Mexico with a few exceptions.

It is widely believed NAFTA has reduced automotive parts and vehicle manufacturing in the United States and Canada, with Mexico being the main beneficiary of the agreement within this sector. The cost of labor in Mexico is much cheaper than in the United States or Canada, creating a long-term effect of manufacturing switching to Mexico in the automotive industry.

Large Imports Reduce Manufacturing

Free trade agreements and the reliance on imports from cheaper labor locales are responsible for a large portion of the decline in manufacturing jobs. Free trade opens up the ability to import goods and materials from cheaper production zones in the world and reduces the reliance on goods made locally. This is evident by the collapse of manufacturing jobs during the period of 2000 to 2007, and was further exacerbated by the Great Recession and slow recovery afterward.

An export is a function of international trade whereby goods produced in one country are shipped to another country for future sale or trade. The sale of such goods adds to the producing nation's gross output. If used for trade, exports are exchanged for other products or services in other countries

BREAKING DOWN 'Export'

Exports are one of the oldest forms of economic transfer and occur on a large scale between nations that have fewer restrictions on trade, such as tariff or subsidies . Most of the largest companies operating in advance economies derive a substantial portion of their annual revenues from exports to other countries. The ability to export goods helps an economy to grow, by selling more overall goods and services. One of the core functions of diplomacy and foreign policy within governments is to foster economic trade in ways that benefit both parties involved.

Exports are a crucial component of a country's economy. Not only do exports facilitate international trade, they also stimulate domestic economic activity by creating employment, production and revenues. As of 2014, the world's largest exporting countries in terms of dollars are China, the United States, Germany, Japan and the Netherlands. China has exports of approximately $2.3 trillion, primarily exporting electronic equipment and machinery. The United States exports approximately $1.6 trillion, primarily exporting capital goods. Germany has exports of approximately $1.5 trillion, primarily exporting motor vehicles. Japan has exports of approximately $684 billion, primarily exporting motor vehicles. Finally, the Netherlands has exports of approximately $672 billion, primarily exporting machinery and chemicals.

Advantages of Exporting for Companies

Companies export products and services for a multitude of reasons. Exporting, if done correctly, has the ability to increase sales and profits by expanding into new markets. It may even present an opportunity to capture significant global market share. Companies that export spread business risk by diversifying into multiple markets. Exporting into foreign markets can often reduce per-unit costs by expanding operations to meet increased demand. Finally, companies that export into foreign markets generally gain new knowledge and experience that may allow discovery of new technologies, marketing practices and insights into foreign competitors.

Challenges of Exporting

Companies that export are presented with a unique set of challenges. Extra costs are likely to be realized, as companies have to allocate considerable resources into researching the foreign market and modifying the product to meet local demand and regulations. Companies that export are typically exposed to a higher degree of financial risk, as collection of payment methods such as open-account, letter of credit, prepayment and consignment are inherently more complex and take longer to process than for domestic customers.

Imports vs. Exports

The United States has experienced a trade deficit since 1975, the last year in which it saw a trade surplus. Economists and policy analyst are split on the positive and negative impacts of imports. Continued imports mean reliance on other sources for much of U.S. consumer product demands, while it also enhances the quality of life with cheaper goods. Economists feel these cheap imports over domestic manufacturing have also helped prevent rampant inflation.

A multinational corporation (MNC) has facilities and other assets in at least one country other than its home country. Such companies have offices and/or factories in different countries and usually have a centralized head office where they coordinate global management. Very large Multinational have budgets that exceed those of many small countries.

BREAKING DOWN 'Multinational Corporation - MNC'

Multinational corporations are sometimes referred to as transnational corporations.

Nearly all major multinationals are either American, Japanese or Western European, such as Nike, Coca-Cola, Walmart, AOL, Toshiba, Honda and BMW. Advocates of multinationals say they create high-paying jobs and technologically advanced goods in countries that otherwise would not have access to such opportunities or goods. On the other hand, critics say multinationals have undue political influence over governments, exploit developing nations and create job losses in their own home countries.

Largest Multinationals

The 10 largest multinational corporations in the world, as of 2015 revenue, are Walmart ($485.65 billion), Sinopec ($433.31 billion), Royal Dutch Shell ($385.63 billion), PetroChina ($367.85 billion), Exxon Mobil ($364.76 billion), BP ($334.61 billion), Toyota Motors ($248.95 billion), Volkswagen ($244.81 billion), Glencore ($209.22 billion) and Total ($194.16 billion).

WalMart has operations in 28 countries, including over 11,500 retail stores that employ over 2.3 million people internationally. There are a number of advantages to establishing international operations. Having a presence in a foreign country such as India allows a corporation to meet Indian demand for its product without the transaction costs associated with long-distance shipping. Corporations tend to establish operations in markets where their capital is most efficient or wages are lowest. By producing the same quality of goods at lower costs, multinationals reduce prices and increase the purchasing power of consumers worldwide.

A trade-off of globalization, or the price of lower prices, is that domestic jobs are susceptible to moving overseas. Data from the Bureau of Labor Statistics (BLS) shows that between 2001 and 2010, the United States lost roughly 33% of its manufacturing jobs (5.8 million jobs). This data underscores how important it is for an economy to have a mobile or flexible labor force, so that fluctuations in economic temperament aren't the cause of long-term unemployment. In this respect, education and the cultivation of new skills that correspond to emerging technologies are integral to maintaining a flexible, adaptable workforce. A few of the fastest-growing industries in the United States are peer-to-peer lending platforms, medical marijuana stores, telehealth services and motion capture software development; together, these industries are replacing many of the American jobs that were displaced by overseas manufacturing.