Exporting and Importing – Meaning, Advantages and Disadvantages
Exporting goods and services refer to sending them from the home country to a foreign country. Similarly, Importing goods and services means purchasing or bringing them from the foreign market to the home country. This is the easiest way a firm can get into international business, as it requires almost no investment in setting up a production unit in a foreign country, only distribution channels are made to successfully import or export goods.
There are two ways a firm can export or import:
- Direct Exporting/Importing: In Direct Exporting/Importing, a firm directly deals with the customer/supplier of the foreign country and performs all the formalities, including shipment and financing of goods and services.
- Indirect Exporting/Importing: In Indirect Exporting/Importing, a firm deals with the customer/supplier with the help of middlemen. They do not directly deal with the customers/suppliers. With the help of middlemen, most of the formalities and work are done, such as export houses or purchasing businesses or offices of overseas customers, or wholesale importers in the case of import operations.
Advantages of Importing and Exporting:
1. Easiest and Simplest: Exporting and Importing is the easiest way to enter into the international market as compared to any other modes of entry. Here, there is no need to set up and manage any business unit abroad, which makes the process easier.
2. Less Investment: Less investment is required in the case of exporting/importing as it is not mandatory for the enterprise to set up a business unit in the country they are dealing with.
3. Less Risky: If there is no investment or very less investment required in exporting/importing in the foreign country, the firm is free from many risks involved in foreign investment.
4. Availability of Resources: As the resources are unevenly scattered around the globe, it is very important for every country to export/import goods around the globe, as no nation can be 100% self-sufficient.
5. Better Control: Exporting/Importing can provide better control over the trade, as there is very less involvement in the foreign country. Everything is controlled by the home country and there is no need to set up a unit in the foreign country.
Disadvantages of Importing and Exporting:
1. Extra Cost: Since goods are to be sent to different nations, there is some extra cost, incurred in packaging and transportation of goods, which is a major limitation.
2. Regulations: Different countries have different policies for foreign trade, and sometimes it becomes difficult for a company to comply with the rules and regulations of each country they are dealing with.
3. Domestic Competition: The companies involved in exporting/importing have to face severe competition in the domestic country due to the presence of domestic sellers.
4. Country’s Reputation on Stake: Goods that are exported to different countries are subject to quality standards. If any goods that are of low quality are exported to any other country, the reputation of the home country becomes questionable.
5. Documentation: Exporting/Importing requires obtaining licenses and documentation for foreign trade from every country, which can become frustrating at times.
6. Multitasking: Managing business across different countries involves a lot of multitasking, which can be hectic for a company.