Exporting and Importing

Meaning

• Exporting means sending goods and services from the home country to a foreign country.
• Importing means purchasing foreign products and bringing them into one's own country.

Two ways to export or import

• Direct exporting/importing — the firm itself approaches overseas buyers or suppliers and handles all the formalities, including shipment and financing of goods and services.
• Indirect exporting/importing — the firm's own involvement is minimal; most tasks are handled by middlemen such as export houses, the buying offices of overseas customers located in the home country, or wholesale importers. Such firms do not deal directly with overseas customers or suppliers.

Advantages

• It is the easiest way to enter international markets — far less complex than running joint ventures or wholly owned subsidiaries abroad.
• It is less involving: the firm need not commit as much time and money as when setting up plants or joint ventures abroad.
• Since it requires little investment abroad, exposure to foreign investment risk is nil or much lower than with other entry modes.

Limitations

• Because goods physically move from one country to another, it involves extra packaging, transportation and insurance costs. For heavy items, transport cost alone can discourage trade. On arrival, goods also attract customs duty and other levies, together raising cost and reducing competitiveness.
• Exporting is not feasible when a foreign country imposes import restrictions. In that case the firm must switch to other modes such as licensing/franchising or joint ventures to produce and market locally. …