Exports

What are Exports?

Exports are goods and services made by a country and sold to another. They are crucial to many economies, as they provide goods and services to areas that may not be in the position to produce such products; thereby, creating new markets.

Largest Exporting Companies

Based on a WorldAtlas report, the five-largest exporting countries in 2019 were:

1. China: Exported approximately $1.9 trillion
2. The United States: Exported $1.456 trillion
3. Germany: Exported $1.322 trillion
4. Japan: Exported $634.9 billion
5. South Korea: Exported $511.8 billion

Advantages of Exporting

Companies engage in export activities for several reasons. For example, exports can increase sales, and therefore profits, if the goods create new markets or expand current ones. It would ultimately provide opportunities for companies to capture larger market share globally.

Companies also diversify their risk by selling in multiple markets. Moreover, exporting to international markets can reduce per-unit costs by expanding operations overseas to meet higher demand for certain products.

Lastly, by exporting to international markets, many companies gain the opportunity to be exposed to different experiences. Such experiences include gaining knowledge of different operating systems, supply chains, technology, marketing tactics, and insights into foreign competitors.

Trade Barriers and Other Limitations

A trade barrier is a governmental law, regulation, or policy against exported goods that compete with domestic products; thereby, protecting domestic companies from foreign competition.

Often, when exporting, there may also be additional costs involved. Companies that intend to sell their goods to international markets may need to allocate extra resources to find the demand in foreign markets while also having to modify the goods to meet local regulations.

Therefore, it is possible where exporting companies are exposed to additional financial risk. For example, collections may be difficult to manage, and letters of credit and open accounts may be more difficult to process.

Trade Deficit

When a country’s exports are larger than its imports, there is a trade surplus. However, when imports are greater than its exports, then there is a trade deficit.

A trade deficit occurs because the country is not producing everything it needs, and therefore, will buy from other foreign countries. It can also occur when companies manufacture goods in other countries and import them for local consumption.

The raw material that is sent from a domestic country to an international country for manufacturing purposes is considered an export. However, finished manufactured goods that are shipped back to the domestic country are considered imports.

Effects of Trade Deficits

Trade deficits may not negatively affect the country. In fact, it can raise the standard of living, as residents gain access to a wider range of goods and services, all for a competitive price. It also reduces inflation, as it ultimately lowers the market price of goods.

However, the downside is that trade deficits can increase unemployment rates, as jobs are  outsourced to other countries. On the flip side, foreign countries will see lower unemployment rates as foreign companies set up shop and produce goods with local labor.

Related Readings

CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

• Balance of Trade (BOT)
• Globalization
• Tariffs
• World Trade Organization (WTO)
• See all economics resources