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International business is the core theme in conducting business in current era of globalization. In the competitive environment, businesses are competing at global level. In international business a company can engaged in either of the two ways such as import or export. Import and export are the two basic and primary ways of conducting the business (Dunning, 2007). Whenever a company engages into the international business, there are lot many factors which impact the business. Hence there are advantages and disadvantages of both import and export. Considering this view, this assignment report addresses the critical analysis of two primary ways of occurring international business and respective advantages and disadvantages. In addition to this the assignment report also discusses the international and free trade (Fortanier, 2008).
Ways of Occurring International Business:
Researcher identifies that there are two primary ways of conducting international business: import and export. In import a company or individual purchase the goods outside the country of origin and sold out in domestic country. On the other hand whenever a company or individual produces the product/goods in the country of origin or domestic country and sold out in foreign company (Gupta and Govindarajan, 2008). In both ways there are several factors which have greater impact and influence on international business practice. In addition there are several advantages and disadvantages of import and export. The term export refers to the shipping of goods and services outside the port of a country (Hennart, 2004). Whenever a seller sells such goods, it is known as exporter and whenever a person purchase the goods or services outside the country then it is known as importer. In the international business, the term export means selling the goods and services outside the home country and vice a versa. Except some goods or services, any products and goods can be exported to other country. The distribution of exported goods is undertaken by the domestic trader in which the goods are exported (Hennart, 2006). It is required to have the involvement of custom authorities while exporting the commercial quantities of goods in both the country of import and country of export. Due to the low value trades, the small trade over the internet such e-bay and Amazon is usually by-pass through custom. Therefore the export is subject to legal and formal restriction by the country of export to safeguard the interest of domestic producers (Johanson and Wiedersheim-Paul, 2008).
The counterpart of export is known as import. The transaction of goods and services from resident to non resident is also known as national account export. National accountant therefore sometimes need to make some adjustments of basic trade data and hence the basic trade data requires the statistical analysis. it is different from the coverage of national accounts as the data for international trade is usually obtained from the custom service in the respective country. In case any country consists of general trade then the goods exported or imported in the country are recorded on respective dates. On the other hand in case a company uses special trade system in which the goods are received in warehouses then the goods are not recorded as external trade till the time goods are sent to the free trade zone (Jones, 2006). In free trade zone developed with in the country, some of the goods move freely without any custom, control or statistics in the trade of goods. This is also true in case of goods are transferred between the member states. Banks are responsible for the statistical recording for the trade in services and these data points are then reported to the central bank. It is not only applicable for only export but also for the import. In the globalization, the services are provided outside the country electronically such as via internet, therefore it is difficult to measure the amount earned is such cases (Nelson and Winter, 2007). Some basic information or statistics in international trade is normally avoided such as smuggled goods or international flow of illegal services. In the official trade such of type of goods and services is not accounted.
Commercial policy and international trade is one of the oldest and most famous branches of international business and thought of economics. Export and import are the major components of the international business. Economists are generally discusses the macro economic risks and benefits of export and import. In presenting the different perspectives, there the two different views such as determining the benefits of international trade and concerning the possibly that the domestic industries may be influenced through international trade (Jones, 2008). For example if an importer imports the electronic goods from china then it is 3 to 4 times cheaper than the domestic producers’ products. Then the market for the domestic players can be captured by the importer’s products and the domestic labor will get crushed by the international player. In order to safeguard the interest of domestic market, the government has imposed some policies and duties on imported goods (Easterly, 2008).
The export methods include the good or product which is being hand delivered, shipped via port or mailed through internet. The similar process is followed in importing the goods.
Some of the natural regulations on import and export of goods are export administration regulation, bureau of industry and security, international tariffs, BIS regulation. In addition to this there are some commodities which need international license for import and export. These commodities includes, liquor, gold, tobacco, drugs etc. These regulations vary country to country. The exported or imported item falls under the specific product category and respectively the company can obtain the license. There are some restricted destinations which restricted for both the import and export such as Cuba, Sudan, North Korea, Pakistan, Syria and Iran since these countries promote the terrorist activity (Hennart, 2007).
Government laws, regulation, policy and practices are generally known as trade barriers which are developed for safeguard the domestic products, labor and market from the foreign players or particular domestic products from the stimulating of artificial export. in order to restrict the business practices, there have been s similar effect which is not generally regarded as trade barrier. The government policies are imposed to protect the international exchange of goods and services in general common foreign trade barriers (Casson, 2008).
There are certain type of goods, services and information which is limited in the international trade for example goods which are associated with the weapons caused of mass destruction, arms, ammunition, advanced telecommunication, archaeological artifacts and all those items which are not in favor of the country. Some of the major example of these goods includes the nuclear suppliers group, missile technology and technological development (Dunning, 2006).
A trade tariff is the tax also known as economic barrier which is imposed by the local government on the items imported in the country. Whenever in the country the foreign competitors’ goods demand is rising and fallen the demand of domestic players then this tactic is used to safeguard the interest of domestic player. It is therefore the strategic reason to retain the domestic producers and increase their capability by providing them with subsidies and other support (Bartlett and Ghoshal, 2007).
Advantages and Disadvantages of International Trade:
There are some advantages and disadvantages of international trade for both the export and import.
Advantages of Exporting:
One of the major advantages of export is the ownership advantage which is specific to the firms’ international experience, asset and ability of the exporter to either develop the differentiated product or low cost product with in the values chain (Hertner and Jones, 2007). A combination of investment risk and market potential is k won as the location benefit of the particular market combination. In order to retain the core competencies within the organization and stitching it throughout the country without retaining the license, selling or outsourcing is the international advantage in export (Amatori and Jones, 2003).
Some of the organizations having lower level of ownership advantage may do not enter into the foreign markets. In case a company’s products and company’s ownership equipped with the international advantage and ownership advantage, the entry can be made through low risk model known as exporting under the eclectic paradigm. There is low investment requires in exporting of goods than the other modes of international trade and expansion such foreign direct investment. Some how it is recognized that the lower level of risk result in ,lower level of rate of return than possibly the other modes of international trade (Khanna, 2007). On the other hand the usual return on international trade in export sales might not have greater potential but also there will be no risk. In export of goods the managers are allowed to exercise the various operational control however it does not have the option over the control of marketing activities of the company. The end consumer of exported goods is far away from the exporter though the various intermediaries can mange the risk (Jones, 2008).
Disadvantages of Exporting:
The exporting of goods is specifically difficult and disadvantageous for the small and medium size firms having employees less than 250. The sale of services and goods into the foreign market is difficult for them rather serving the domestic market. A lack of knowledge of different languages, difference in culture, exchange regulations and trade regulations having the major impact on exporting the goods for SMEs. In addition to this the staff interaction and strain of resources is a major block of exporting the goods. Despite this disadvantage, some of the SMEs are still exporting however two third of them sold out to the foreign markets (Jones, 2008).
In addition to this there are some major disadvantages highlighted in the export of goods such as financial management, communication technology improvements, and customer demand and management mistakes. In order to minimize the risk of transaction process of exporting the goods and exchange rate fluctuation, it is essential to have more capacity for managing the financials for coping up the efforts (Nelson and Winter, 2007). Customers can now interact with the suppliers due to the recent development is the communication technology has improved the way of purchasing goods, since the communication is mush cheaper then what is was two decades ago. It leads more transparency in transaction and purchasing of goods and vendors are responsible for following the real time demand for submitting the transaction details (Hennart, 2007). The customers are becoming advance due to the improvement in the technology and they demand more support and services from the vendor such as startup and equipment installation and startup, delivery service and maintenance which are difficult for the exporter to provide. There might be some pitfalls in the organization occurred by some of the management mistakes such as oversea a distributor, an agent or chaos in the global organization (Johanson and Wiedersheim-Paul, 2008).
Advantages of Importing:
Importing raw materials and goods is one of the paths of increasing the profit margins. There are number of benefits in importing the goods, such as high quality, low prices, and benefits related to the international trade. An importer can have the comparative advantage which means lower prices (Jones, 2006). Also the importer can have the much cheaper products from the foreign market due to low labor cost, low taxes etc. in terms of quality, the importer can have the higher quality goods and produce the finished goods with high quality and extend the business profit margins. In some countries, government provides the support to the importer for developing the trade relations (Nelson and Winter, 2007).
Government provides the information of the manufactures and producers in the foreign country so that the importer can purchase the high quality and low price goods. Also due to the government involvement reduces the transaction risk. An importer can access to the regionally exclusive resources and cheap labor for producing the goods. These resources are required in the manufacturing process that have specialized skills and can be sound in certain countries. For example in electronic items, the Japanese people are highly efficient and manufacturer in UK use the labor from Japanese market for producing goods. The importing of resources includes everything starting from labor to technology (Fortanier, 2008).
Disadvantages of Importing:
There are many governments and economists who believe that the importing goods have numerous disadvantages. For example importing of goods could lead the erosion of the domestic markets and national economies specifically when there is trade deficit occur i.e. the import is higher than the export. Some of the goods like cars; appliances lead a higher level of domestic automobile and electronic markets and also loss of jobs in the respective markets (Hennart, 2007).
Some other problems can also be increased due to import of goods such as conflict in the domestic values due to the acceptance of social values. The domestic industries can also be crippled due to the import of the countries where the wages are low and the domestic industries are unable to compete since they cannot lower down their prices of goods than the cost of goods and also they have the obligation to the worker union (Hertner and Jones, 2007).
Free Trade Concept:
The concept of free trade was introduced in the system to benefit the country and improving the condition of poor by providing them high quality and cheaper products. However as an economist, in my opinion free trade is erosion the domestic players for example if UK government lower the down the import duty on sugar then the demand for the imported sugar will increase and domestic player will not be able to compete with the foreign player (Johanson and Wiedersheim-Paul, 2008). On the other hand the economic category argues that free trade promote the environmental degradation, supporting the child labor, income inequality and wage labor, slavery, harming the national defense, enforcement of cultural change and accentuating the poverty in the country.
The economists also argued that the importing goods under free trade are opposed by the domestic industries due to rise in competition in terms of product quality and cheaper prices (Nelson and Winter, 2007). A maximum exploitation of workers due to the free trade is also opposed by the socialists. Free trade generally do not reduce the poverty or improve the condition of working class in the country but frequently make them more poor. It also supports the colonialism and imperialism in the country. On the other hand I believe that in free trade consumer could gain more than the industrialists and the domestic producers are more likely to mobilize their products without lifting the tariffs (Jones, 2006).
Conclusion and Suggestions:
The competitive business environment enforces the businesses in both the international and domestic markets to retain their business and remain competitive. However depending on the need and potential of the business, it is essential to understand whether the company should indulge into the export or import activity (Gupta and Govindarajan, 2008). It is recommended to the businesses specially the medium and small companies to extend their business potential at domestic market first and then extend into the international market collaboration, joint venture or business partnership. Prosperity in the country cannot be achieved through protectionism since it increases only the poverty and also do not protect the domestic industries or jobs but harm the export business and industries which has belief on imports (Hennart, 2007).
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