Definition of Export
Export meaning includes such manufactured goods and services which originate in one country, but are procured by another country. Export can be of services and goods of any type, and that may be traded through electronic transmission or traditional transportation like shipping.
The top exports from India are mineral fuels (14.9%), precious metals and gems (12.4%), machineries (6.3%), and pharmaceuticals (4.4%) among others. The fastest gain rate of exports from India is recorded for organic chemicals at 30.7%.
What is Export Trade?
Export trade is the transaction in international trade where the manufactured goods and services from one country are purchased by residents of another country. Another component of international trade is import.
Test Your Knowledge –
What was India’s export trade volume in 2018-2019?
(Refer to the solution given at the end of the article)
Various Terminologies
1. Exporter Meaning
Consistent with exports meaning, one has to also know what an exporter is. An exporter pertains to such a person, firm or country that sends and sells goods or services to another country.
2. Exporting Meaning
The procedure for export essentially involves the act of exporting. Exporting is the carrying of manufactured goods or sending services to another country to be traded. For example, organic chemicals are to be shipped from India to be sold in foreign countries.
3. Import
Import is the opposite concept to export where residents of a country purchase foreign manufactured goods or services. Imported goods and services are usually expensive, owing to those being subjected to a range of tariff schedules.
4. Trade Surplus
A trade surplus takes place in a country when the exported goods and services value amounts to higher than its imports. It indicates that there is a greater inflow of the exporting company's currency from the markets in a foreign country.
5. Trade Deficit
A trade deficit occurs in a country when the imports of that country exceed its exports costs. It can be considered as problematic to the extent that it can cause foreign exchange shortages within the country.
Do You Know?
A high trade deficit of a country leads to the weakening of its currency. As imports consistently exceed exports, there is more outflow of U.S. dollars. Such outflow weakens the country’s currency. The weakening of currency further makes the imports expensive.
Export Trade Objectives
Domestic Resources Being Optimally Utilized
The natural resources which are in greater abundance in a particular country can be used for production increase. It would be sold in the markets of those industries that have a shortage of such resources.
Surplus Production Sale
If there is a surplus production in a country, it can be sold off in markets of another country which will bring in revenue.
Accumulation of Foreign Exchange
On selling surplus production in a foreign country’s market, there will be a greater inflow of foreign currency in the selling country's reserve.
Increasing National Income and Greater Employment Opportunities
The increase in foreign exchange earnings causes addition to the country’s national income. It not only helps in increasing employment opportunities but also improves the standard of living of the residents.
Export Trade Procedure
The broad export procedures have been laid down in the following chart.
Step 1: An international buyer may make a trade enquiry related to quality, price, and terms and conditions, among others.
Step 2: As a response to the enquiry of the buyer, the exporter sends the quotation in the form of ‘Proforma invoice’ indicating quality, selling price, mode of delivery, quantity etc.
Step 3: The buyer, when he agrees on the quotation, places the order receipt to the exporter for importing the goods or services.
Step 4: To determine the creditworthiness of the buyer, the exporter demands a Letter of Credit from the buyer that provides the assurance that the bill of exchange will be honored.
Step 5: The exporter has to take out an export license from the controller of imports and exports in lieu of depositing fees.
Step 6: The pre-shipment finance application can be made based on the order receipt, Letter of Credit and export license.
Step 7: In this stage, the exporter has two options – procure the raw materials to manufacture the goods according to buyer’s specifications or purchase the already made goods from the market to ship to the buyer.
Step 8: It is mandatory to apply to the government for a quality check. After checking, an Inspection Certificate is issued.
Step 9: Only after the Inspection Certificate is received, the exporter can obtain excise clearance from the Excise Commissioner.
Step 10: Origin certificate indicates the country from which the ordered goods are manufactured and exported.
Step 11: The packaging of the goods has to show specific details like title and address of the importer, weight (net and gross), destination port, origin country, railway or road receipt etc. The exporter also has to obtain a valid insurance policy.
Step 12: Only after the customs duty is paid, the cargo can be loaded to be transported.
Step 13: Mate's receipt is the documentation delivered by the ship captain to the port superintendent.
Step 14: After the delivery of freight receipt, the company submits the Bill of Lading. The Bill acts as proof that the shipping company is authorized to transport the cargo to the specified destination.
Step 15: The invoice is prepared after the goods are shipped.
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The Benefits of Export Trade
The most important benefits of export trade are:
It is one of the best ways to enter into the global market and generate huge employment opportunities for people.
This method requires less investment in terms of money and time when compared with the other methods of entering into the global market for trade.
It is comparatively a safe method as compared to the other methods of entering into international business.
No country is self-sufficient, export helps in the proper functioning and growth of a country’s economics.
It can help countries to access the best technologies available in the world. It also helps to use the best products and services available in the world.
It gives better control over the trade than setting up a whole market because the risk is very low.
FAQs on Export: Definition, Importance, and Processes
1. What is meant by export trade in the context of international business?
Export trade refers to the process of selling goods and services that are produced in one country to buyers in another country. It is a fundamental component of international trade, where a transaction is only considered an export if the goods are produced domestically and sold to a foreign customer. This activity is crucial for a country's economic growth and global integration.
2. Why is exporting considered so important for a country's economy?
Exporting is vital for a country's economy for several key reasons:
- Foreign Exchange Earnings: It is a primary source of earning foreign currency, which is essential for paying for imports and strengthening the national currency.
- Employment Generation: Increased demand from foreign markets leads to higher production, creating more jobs in manufacturing, logistics, and service sectors.
- Utilisation of Surplus Production: It allows a country to sell its surplus goods that exceed domestic demand, preventing wastage and improving resource allocation.
- National Reputation: Exporting high-quality goods enhances the country's image and brand value on the global stage.
3. What are the key stages involved in the export process for a business?
The export process is a systematic procedure that involves several critical stages. The main steps include receiving an enquiry from an importer, obtaining an Import Export Code (IEC), arranging for pre-shipment finance, procuring or manufacturing the goods, ensuring quality control through pre-shipment inspection, arranging for packing and marking, clearing customs formalities, booking shipping space, insuring the goods, and finally, preparing and submitting the required documents to the bank to receive payment.
4. How does exporting help a business achieve growth beyond its domestic market?
Exporting acts as a powerful catalyst for business growth by moving beyond the limitations of the domestic market. It provides access to a much larger customer base, which can significantly increase sales and revenue. Furthermore, producing for global markets often leads to economies of scale, reducing per-unit costs. It also helps in risk diversification; if the domestic market faces a downturn, sales from foreign markets can provide stability.
5. What is the fundamental difference between direct and indirect exporting?
The fundamental difference lies in how a company interacts with the foreign market. In direct exporting, the manufacturing firm itself handles all export-related tasks, such as finding buyers, managing documentation, and shipping. This gives them more control but requires more resources and expertise. In indirect exporting, the firm sells its products to an intermediary, like an export trading house located in its own country. This intermediary then manages the entire export process, making it a lower-risk option for businesses new to exporting.
6. Besides generating revenue, what are some of the non-financial benefits a company gains from exporting?
Beyond direct profits, exporting offers significant non-financial advantages. Competing on a global scale often forces a company to improve its product quality and operational efficiency to meet international standards. It fosters innovation as the business adapts products for diverse cultural preferences and market demands. This global exposure also enhances the company's brand reputation and provides invaluable learning experiences about international business practices and new technologies.
7. What are some common challenges or limitations that businesses face when they start exporting?
Businesses often encounter several challenges when entering export trade. These include:
- Complex Procedures: Export documentation and customs clearance can be complicated and time-consuming.
- High Costs: Additional costs for special packaging, transportation, and insurance can make products less competitive.
- Trade Barriers: Countries may impose high tariffs, import quotas, or non-tariff barriers that restrict market access.
- Foreign Exchange Risk: Fluctuations in currency exchange rates can impact profitability.
- Cultural and Language Differences: Misunderstanding foreign business etiquette or market needs can lead to failed negotiations.
