AN Introduction to Barriers, Motivators & Challenges of Export/Import

Introduction to Barriers, Motivators & Challenges of export/import Contents:- Motivation and barriers

  • Sunk Cost of firm
  • Overall Exports sales by extending into new market
  • Improved performance through learning from international competitors
  • Learning by-exporting by spreading export activities across several market then focusing on a single product-market relationship
  • Market specific knowledge and networks
  • Does an existing trade relationship with a given country tent to increase the probability that new product will be exported to that country
  • Whether helping one firm to reach a new export market will tend to create spill-over benefits to other firms by providing an example which they can follow
  • Receipt of export development assistance
  • Whether government programmers are successful in promoting new trade relationships

Motivators

  • Increased growth
  • Greater profit potential
  • Increase stability
  • Large market share
  • Excess capacity

Barriers

  • Too much red tape
  • Trade barriers
  • Conditions overseas
  • Lack of incentives
  • Cross border security
  • Currency fluctuation
  • Political climate
  • Lack of competitive products
  • Payment default
  • Language barrier
  • Slow payments
  • Lack of assistance
  • Transportation
  • Protectionism

Challenges

  • High entry barrier to venture in certain countries
  • Export/import licenses and documentation
  • Government regulations
  • Tension between the two countries
  • Extra costs
  • Product modification
  • Financial risk
  • Market information
  • References

Motivation & Barriers

  • Sunk Cost of firm:-Sunk cost is that which has already invest and we cannot receive it again or refund it. Sometime sunk cost are different prospective cost and if we are taken an action So that cost are future costs and that may invest or changed.

Example: – There are ABC wood ltd. Company in new Zealand and that company wants to sell their product in India. It does market research and it invest some amount of money on market research after this market research they find that their product is not suitable for selling in India and they decide that they will not sell their product in India and money which is incurred for market research that is sunk cost.

  • Overall Exports sales by extending into new market:- When a business & exporter wants to enter into new market then they expected more sales which can be beneficial to ex point their business.

Example: – Ram is an exporter now he export the wood in India only but in future he is planning to export wood in Australia and he wants expand his business. So he will export wood in two countries, one is old market for him and another is new market for him. So he can earn more profit by selling his product into two countries.

  • Improved performance through learning from international competitors: – When an exporter enter into new international market there would be existing competitor who would be ruling in the market with their same tactics which can be adopted by exporter and brought that tactics to compete in the local market.

Example: – There are two exporters. One is in New Zealand and one is in Australia. New Zealand exporters has their own tactics to doing business in New Zealand but he wants to enter into Australian market and for this New Zealand exporter should be adopt new techniques of business from exporter who is in Australia and New Zealand exporter can improve his performance for business by adopting new techniques .

  • Learning –by-exporting by spreading export activities across several markets then focusing on a single product-market relationship: – It is beneficial to business in various markets rather than focusing on single market. Because if one market fails so there are other market for survival

Example: – ABD ltd. Company in New Zealand. That company exports their product in many countries like: – Japan, Australia, India etc. If India refuses for importing goods from ABC ltd. Company which located in New Zealand then ABC ltd. Company have other choices for export their product. They can export their product in Australia and Japan. ABC ltd. Company cannot fail because they have many choices for export.

  • Market specific knowledge and networks: – Exporter should have specific knowledge of market and contacts in the market which can be helpful for doing business before entering into the new market.

Example: – There are so many departmental stores in the market. They buy goods from the local wholesaler or export the good from the exporter who is in other state or countries. Exporter should have contact with that owner of departmental stores and knowledge of the market that means he knows that the demand of the product in the market.

  • Does an existing trade relationship with a given country tent to increase the probability that new product will be exported to that country? – Countries trade relationship plays a vital role in doing business to other nations. It would be a free trade agreement with another nation it will tend to do business in that nation because no duties will be charged and it will be easily imported in another nation which is beneficial for the both parties to do business.

Example: – We are assuming that there are two countries Australia and New Zealand which export/import the goods from each other because of free trade agreement. When they will export or import the goods from each other, no duties will be charged on it. They can easily export or import the goods from each other and it is beneficial for both the countries to do business.

  • Whether helping one firm to reach a new export market will tend to create spill-over benefits to other firms by providing an example which they can follow: – When one firm try to enter new market it will beneficial from the experience of the existing or past competitor which can help in improving us from their experience to put a step in new market.
  • Receipt of export development assistance: –

Some bodies of New Zealand existing in India that helping business. These bodies give information about business. Example :- When a local business man plan to expand the business in other country he would need assistance to develop knowledge about the market customers, competitors and local helper of that nation over which he can be benefited by the list of bodies present in that country for this help.

  • Whether government programmers are successful in promoting new trade relationships: – Government can help for the establishing new business and it also improve trade relationships through various programmers.

Example :- We are assuming that In India congress government are ruling at this time. Leaders of that party organize various programs in which they say that all business should start from India only and all outside importers should maximum exports from India. Main agenda of this government programs are to do business in India only. MOTIVATORS

  • Increased growth:- Increase growth means increase the demand of product among importers or customers.

Example:- Cadbury company make various types of chocolates and advertise it in different ways for promoting the product. Firstly they attracted youngsters and children’s and then they attracted old peoples by various advertisement and they replaced all sweets by chocolate on occasions like Diwali etc. From all these they enhanced the demand of chocolate and attract more customers towards the Cadbury chocolate and it also increase growth.

  • Greater profit potential:- It is the maximum profit that company/exporter/importer could make potentially.

Example:- Let’s assume ABC limited company sold $1000 of widgets last year and made of profit of $500 widget. Technology is changing rapidly and company ABC limited has the brightest mind in the industry to take an advantage of this technology. It also expects to be the first. Company on the industry to implement the technology which roughly halves certain product expenses. This analyst estimate that company ABC limited has another say $480 of earning potential.

  • Increase stability:-

Increase stability means more profit and more sales and it also creates the right environment for the balance of payments and it creates certainity and confidence and this enhance investment in busines Example:

  • Large market share:- Markets total sales which is earned by a exporter or particular company in a specified time period.

Example:- If importer as a whole import hundred quantity of product and forty of which are from one exporter and that exporter holds forty percent market share and other exporter holds sixty percent.

  • Excess capacity:- It is increase in supply because of increasing price and population.

Example:- We are assuming that there are large number of population in New Zealand , so that demand of particular product will be more and it enhance the sales and profit also. BARRIERS

  • Too much red tape:- Export or import business requires so many formalities and documents.

Example:- In export or import business we requires various types of documents for the export and import of goods, like bill of lading , insurances , airway bill certificate of inspection etc. and when we export or import the goods from the other country there are so many restrictions on particular product like bullets, cigarettes, alcohol, etc. It affects the business and it is red tape for the business.

  • Trade barriers:- Trade barriers are restrictions which Is forced on movement of goods between two countries, it is applied not on imports but also on exports, it can be divided into two parts: Tariff barriers and non tariff barriers.

Example:- when a businessman exports or imports the goods they pay some taxes on particular product. Like specific duty, Ad valoren duty, revenue tariff, custom quota, multi-lateral quota etc. These taxes create a barrier for the export or import of goods.

  • Conditions overseas: – It means condition in the exporting or importing country at the time of export or import of goods.

Example:– If we export or import the goods from the other country and political condition are bad or war is going on at the time of export and import or weather is not good so it creates problem in the exporting and importing of goods from the overseas and it is barrier for the business.

  • Lack of incentives: – It means no government support and benefits are provided by the government in the business.

Example:– When a businessman do export and import business and government do not provide the incentives for the business like rewards for the increasing business.

  • Cross border security: – Cross border security means security on the border of different country.

Example: – there are two businessmen in two different countries one is in New Zealand and other is in Australia. Businessman who is in New Zealand export the goods to Australia and he pay the taxes and he show the documents related to the goods which he export to the Australia to the cross border security which is in Australia.

  • Currency fluctuation: – It means increase and decrease the currency.

Example: – We are assuming that exporter who is in USA, he exports the goods to the importer who is in Japan, they final the deal and everything like price of the product at the time of dealing price of the dollar is sixty and Japanese importer ready to buy goods on that price after sometime price of the currency decrease and exporter may bears losses in the exporting of goods and it is barrier for the business

  • Political climate: – Political climate is the current mood and opinions of populace about political issues that also affects the business.

Example: – The governments have to seek re-election every few years and every government makes the different rules and regulations for the business in the every few years or after the elections. It is hard for the businessman to adopt the different rules and regulations because of changing government. And it is barrier for the export and import business.

  • Lack of competitive products:– In economics, one way that two or more goods can be classified is by examining the relationship of the demand schedules when the price of one good changes. This relationship between demand schedules leads to classification of goods as either substitutes or complements. Substitute goods are goods which, as a result of changed conditions, may replace each other in use (or consumption).A substitute good, in contrast to a complementary good is a good with a positive cross elasticity of demand this means a good’s demand is increased when the price of another good is increased. Conversely, the demand for a good is decreased when the price of another good is decreased.
  • Language barrier:- Different languages are barriers in business.

Example;– We are assuming that exporter from India and importer from China and importer imports some products from India ,both countries have their own languages, the both may not understand languages of each other, so language problem may create barriers in business.

  • Payment default:– It means payment not done by importer or buyer in business.

Example:– When a importer imports some goods from exporter and he says to make a payment of goods which he imported from exporter

  • Slow payments:– Slow payments means when a importer pay amount of money later than the due date. Payment reaching a certain no.of days late will appear.

Example:– When a buyer buy the goods from seller and he pay amount of money after the due date, so it creates problem or barrier in business for expand the business.

  • Lack of assistance:– It means no help or support provided by anyone in the business.

Example:– When a exporter or businessmen plan to start the business or expand the business in another country he would need assistance to develop knowledge about the market, customer and competitors. Helping bodies are not present in that country for his help, so it creates barrier in the business.

  • Transportation:– high transport costs push down profits and wages .the efficiency of transport service greatly determines the ability of firms to complete in foreign markets. For a small economy for which world prices of traded goods are largely given higher costs of transportation feed into import and export prices. To remain competitive exporting firms that face higher shipping costs must pay lower wages to workers accept lower returns on capital or be more productive.
  • Protectionism:– It is the economic policy of restraining trade between states or country through methods such as tariff on imported goods, restrictive quotas and a variety of other government regulations.

Example: – EU common agriculture policy, banana wars, Argentina food tariff, escalated tariff, anti-dumping tariff, and illegal subsidies. All these examples of protectionism are barrier in business. References:-

  • https://www.gov.uk/government/news/government-welcomes-business-led- plan-to-cut-eu-red-tape
  • https://www.gov.nl.ca/redtape/taskforcereport.pdf
  • https://www.rep-am.com/articles/2014/06/11/commentary/809083.txt
  • https://www.consumerpsychologist.com/international_marketing.html
  • https://www.teara.govt.nz/en/1966/trade-external/page-2
  • https://en.wikipedia.org/wiki/Default_(finance)
  • https://www.teara.govt.nz/en/overseas-trade-policy
  • www.expertbase.org
  • https://www.investopedia.com/terms/e/excesscapacity.asp
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