Exports

Goods and services made by a country and sold to another

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.

 

Exports

 

Summary

  • Exports are products or services made by one country and sold to another.
  • Exporting goods and services can increase sales and market share for companies by reaching out to customers internationally.
  • Exports are crucial for economic activity worldwide, as it provides goods and services that many importing countries are unable to access.

 

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 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 shares globally.

Companies also diversify their risk by investing 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 known as a governmental law, regulation, or policy against exports that are similar to 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 foreign markets that are related to or sell their products in the first place while also modifying the good to meet regulations.

Therefore, it is possible where exporting companies are exposed to additional cost risk. It, along with the fact that payment may be difficult to manage, as letters of credit and open accounts may be more difficult to process.

 

Practical Examples

An example of an export would be liquor, such as bourbon. As bourbon comes in various locations, if the label specifies the location, then it must be produced there. For example, Kentucky bourbon must be produced in the state of Kentucky. If a certain liquor is considered champagne, then the wine must come from the Champagne region of France.

 

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 borrow from other foreign countries. It can also occur when companies manufacture goods in other countries.

The raw material that is sent from the domestic country to the 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.

However, the downside is that trade deficits can increase unemployment rates, as it can outsource jobs to other countries. Simultaneously, foreign countries may therefore see lower unemployment rates in order to accommodate the high demand for exports that must be pushed forwards internationally.

 

Related Readings

CFI is the official provider of the global Certified 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)

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