The Meaning and Importance of Export Trade
Explain the meaning and importance of export trade
Is the selling of goods, materials or services to foreign markets. An export is a function of international trade whereby goods produced in one country are shipped to another country for future sale or trade. The sale of such goods adds to the producing nation’s gross output.
- Increasing sales;Exporting
is one way of increasing your sales potential; it expands the “pie”
that you earn money from, otherwise you are stuck trying to make money
only out of the local market. In the case of South Africa, our market is
relatively small in comparison to the markets of North America, Europe
and Asia. While the local market may represent enough sales potential
for smaller firms, for medium and larger companies the local market is
just too small and the only way to expand sales is to export. It should
be said, however, if you are not yet selling regionally and nationally,
then you should first aiming at expanding your market share within the
local market. Once you have saturated the national market, only then
should you look beyond the borders of South Africa. It has been said
that there are no sales barrier that automatically begins where your
border ends. Increased sales also impact upon your profitability
(although not always positively), your productivity by lowering unit
costs, and may increase your firm’s perceived size and stature, thereby
affecting its competitive position compared with other similar-sized
organisations. What is more, research and development (R&D) and
other costs can also be offset against a larger sales base, or the move
into exports may contribute to the company’s general expansion. For
others, exports may be a way of testing the opportunities for overseas
licensing, franchising or production.
- Increasing profits;Clearly,
you are not likely to enter the export market in order to make a loss.
Companies generally strive to make profits and the bigger the profits
the better. In many instances, exports can contribute to increased
profits because the average orders from international customers are
often larger than they are from domestic buyers, as importers generally
order by the container instead of by the pallet (thereby affecting both
total sales and total profits). Some products – especially those that
are unique or very innovative in nature may also command greater profit
margins abroad than in the local market. Having said this, it is also
not uncommon – indeed, it is highly likely – that you may receive
smaller profit margins from your export sales compared with the local
market. The reason for this is the highly competitive nature of global
markets that forces exporters to lower prices, squeeze profits and
reduce costs. You may also find that in some markets you generate higher
profit margins, while in other markets your profit margins are
- Reducing risk and balancing growth;It
is risky being bound to the domestic market alone. Export sales to a
variety of diverse foreign markets can help reduce the risk that the
company may be exposed to because of fluctuations in local (and foreign)
business cycles. At any one time, the UK, Australia and Germany will be
enjoying different growth rates. By selling in all of these countries,
the risk of low growth in one or more of these countries will be offset
by increased growth in the others, thus resulting in a balanced
portfolio of growth overall. In addition, with the challenging labour
conditions that many firms in South Africa face today, exports may help
to create and/or maintain jobs thus reducing the risk of a labour
dispute that could otherwise cripple the company.
- Lower unit costs;Exports
help to put idle production capacity to work. This is generally
achieved the more efficient utilisation of the existing factory,
machines and staff. What is more, because you are now selling more
products without increasing total costs to the same extent, this has the
effect of lowering your unit costs which represents a more productive
overall operation. Lower unit costs make a product more competitive in
the local marketplace as well as in foreign markets, and/or can
contribute to the firm’s overall profitability.
- Economies of scale;Exporting
is an excellent way to enjoy pure economies of scale with products that
are more “global” in scope and have a wider range of acceptance around
the world (in other words, they can be used in other parts of the world
without much adaptation). This is in contrast to products that must be
adapted for each market, which is expensive and time consuming and
requires more of an investment. The newer the product, the wider range
of acceptance in the world, especially to younger “customers,” often
referred to as the “global consumer”. With increased export production
and sales, you can achieve economies of scale and spread costs over a
larger volume of revenue. You reduce average unit costs and increase
overall profitability and competitiveness. Long-term exports may enable a
company to expand its production facilities in order to achieve an
economic level of production. (This should not be confused with
increased throughput on existing capacity, as discussed above.)
- Minimising the effect of seasonal fluctuations in sales;Being
in the Southern Hemisphere, South Africa has seasons that are opposite
to those in the Northern Hemisphere. For companies that sell seasonal
goods such as fruit growers, and swimwear or suntan lotion
manufacturers, being able to sell these goods in the Northern Hemisphere
when our season ends, helps achieve a longer and more stable sales
pattern. This increases the sales potential for these goods and also
helps reduce risk.
- Small and/or saturated domestic markets;One
good reason to begin exporting is when the local market is too small to
support a firm’s output or when the market becomes saturated. For
companies that produce heavy industrial machinery or that have invested
in large factories, they need to be able to sell enough of their
manufactured goods to justify the investment and to insure that the unit
price of goods are kept acceptably low. With relatively small markets
such as South Africa, it is usually not long before the local market
becomes saturated and offers limited additional opportunities for sales.
Many of South Africa’s larger manufacturers have had to turn to foreign
markets to justify their existence. Examples include most of the motor
vehicle manufacturers such as Opel, VW and BMW; the paper producers such
as Mondi and Sappi; and mining houses such as Anglo-American and De
Beers. The same is true of international firms such as Volvo, Philips
and Roche. They only way firms such as these can justify their
investment is to sell abroad because their respective local markets are
just too small.
- Overcoming low growth in the home market;It
is not uncommon for a recession in the local market to act as a spur
for companies to enter export markets that may offer greater
opportunities for sales. While this may have the benefit of offering
ongoing sales potential for the firm in question, the danger with this
approach is that when the local market improves, these companies abandon
their export markets to focus on the now buoyant local market. Overseas
importers become disillusioned with this type of exporter and often see
all firms from South African being the same and will want nothing more
to do with South African exporters, even if they are serious.
- Extending the product life-cycle;All
products go through a product life-cycle. In the beginning they are
novel and sales increase quite dramatically, then sales level off and
they become what is referred to as mature products and eventually sales
start to decrease and the product goes into decline. Now, a product that
has entered its decline stage may have a life elsewhere in the world
and by finding a market where this product could be sold anew, you are
essentially extending the life-cycle of the product. Alternatively, even
if it is a fairly common product, it may also be nearing the end of its
life cycle in other overseas markets (particularly in bigger markets
such as Germany, the UK and the US) and they may decide to discontinue
the product. Although the market may have declined to a point that makes
it uneconomical for these companies to continue manufacturing the
product in question, the market may still be big enough for you to
supply the declining market. This has the effect of making more
efficient use of the existing factory infrastructure and other
investment spent on producing the product. This extends sales, lowers
the unit costs even further and may allow for higher margins to be
generated. When you have a product that is nearing its life cycle, you
should always strive to see if you can find a market for the product
- Improving efficiency and product quality ;The
global market is a highly competitive place and by participating in
this marketplace, you need to become equally efficient and quality
conscious. It is generally the case that successful exporters are also
very successful in their home markets because of their heightened
efficiency and focus on product quality.
elsewhere in the world. In this instance, these untapped markets are
likely to drive the firm’s export activities. Other firms may want to
take advantage of high-volume purchases in large markets overseas, such
as in the US, Europe and Asia.
more formal theory of internationalisation discusses customer,
competitor and cost factors that drive the internationalisation process.
The theory argues that in some cases companies may go global in
response to their customers moving abroad. Alternatively, they may
follow their competitors abroad, or may decide to enter a particular
foreign market in order to attack an overseas competitor that has
entered the firm’s domestic market, in the competitor’s own home market.
Finally, companies may go international to take advantage of lower
labour costs, skilled workers or other cost factors (such as lower
telecommunication or energy costs) that are much better in a particular
foreign market. For example, expanding into India to take advantage of
programming skills and lower salaries could translate into a major
advantage for a local software development firm. It should be said,
however, that these factors are more likely to be relevant to larger
firms, instead of small scale export operations.
often, however, many local South Africa companies simply follow their
domestic competitors into exports or they turn to export markets because
of the difficulties encountered in the local marketplace(see low growth
in home market mentioned above). Alternatively, a company may use
exports as means of offloading excess production capacity. None of these
reasons are very solid reasons for moving into exports. In the latter
case, when local sales pick up again the “fair-weather” export firm then
ignores its export markets to concentrate on domestic sales again,
often leaving foreign companies in the lurch thereby creating a bad
impression and a resistance to future export sales.
- Cotton marketing board,
- Coffee marketing boards,
- Cashew marketing board
- Pooling Resources;Marketing
boards provide an opportunity for member businesses to pool their
marketing resources. Boards frequently run ads in several media
including television, radio, newspapers, magazines and websites
including social media. Individually, member businesses might not be
able to afford such comprehensive or even partial media campaigns.
However, when teamed up with other growers, producers or companies,
businesses can reap the benefits of a well-coordinated media marketing
- Demand;Many agricultural producers
sell their products to large food companies or directly to commercial
buyers, including restaurants and distributors. However, consumer taste
and demand for their product still impacts sales. Consumers with a
positive regard and taste for cheese cause restaurants and other food
businesses to incorporate cheese in their offerings, which in turn
drives business for producers.
in agriculture, both small and large farming and food-producing
operations lack a brand. That’s in part because consumers don’t need to
know the names of all the businesses that produce hazelnuts or shrimp,
since these companies sell to larger distributors, not the public.
However, branding can inspire consumer demand. Marketing board media
campaigns can turn a general product such as Louisiana shrimp into a
brand in itself. The Louisiana Seafood Marketing Board tries to make it
so that supermarket shoppers check packages for Louisiana shrimp, rather
than foreign imports — which helps its relatively anonymous member
- Networking;Although marketing
boards are not chambers of commerce or even necessarily industry
associations, member organizations can become involved in meetings and
campaign direction. As a result, marketing boards provide opportunities
for companies within an industry to network, form alliances and learn
about opportunities. Developing industry contacts can have long-term
benefits, as members who don’t need anything today can find someone to
call for assistance or cooperation at some unexpected point in the
- Conducting research
- Collection and storage
BOARD OF INTERNAL TRADE
- Setting and revising internal trade policies
- Conducting market research
- Supervising and coordinating internal trade activities.
- Supervising,designing the accounting and operating system
are required to obtain a valid trading/business license from the
city/town council where the business will be conducted. The license is
valid for one year.
EXPORT PROCEDURES AND DOCUMENTATIONS
products require specific license/permit from the Government
departments/institutions or a controlling body legally empowered to do
so, exporters therefore have to contact the following:
- Forest department for Forestry products
- Fisheries department for Fisheries products
- Wildlife department for Wildlife products
- Mining department for Minerals/Gemstone products
- Marketing Boards for Coffee, Tobacco, Cotton, Sisalfibre, Raw Tea, and Raw Pyrethrum.
- Ministry of Agriculture for Food (staple) products.
an exporter has obtained an order from a buyer abroad and an agreement
has been reached to export goods to the buyer and mode of shipment
determined, the following steps are necessary:
exporter applies for an export license/permit for the export product if
it falls under the above-mentioned product groups otherwise other
products call no license. After confirmation of cargo space an airway
bill is prepared by the carrier or its agent on presentation of the
- A commercial invoice,
- An export license/permit (if required),
- Technical documents (if required) on health, quality, weight, certificate of origin etc
a Single Bill of Entry (SBE) by attaching all the above documents at
the customs long room. A customs release/approval is obtained.
- Goods are taken to the Airport for air freighting vide the cleared documents by customs
- Apply/obtain a license/permit (if required).
- Apply/obtain technical documents for your product
- Apply for shipping space to an agent/shipping company
obtain a single bill of entry from customs, complete it and then attach
all the previous or required documents for processing the SBE at the
- A shipping company/agent will finally prepare a bill
of lading after accomplishing customs verification/approval, port
charges and procedures, cargo loading (FOB).
receiving a request for an SBE from the importer, the Inspection Agent
(IA) shall give three copies of the SBE printed on non-security paper.
For ease of identity this printout shall be stamped “Tax Assessment
- The importer shall go to the relevant bank and pay the assessed duties and taxes.
- The bank shall stamp the three copies of TAN and give one copy back to the importer along with a receipt of payment.
- The importer shall return to IA and present the stamped copy and the bank receipt.
IA shall keep the stamped copy and a copy of the receipt for their
record and issue to the importer an SBE printed on security paper.
- The importer shall use the SBE printed on security paper for clearance of good as usual.
- Twice a day the IA shall collect one of the copies retained by the bank for bank reconciliation.
section covers documents that are commonly used in exporting, but
specific requirements vary by destination and product. It is divided
into the following subsections: common export documents, transportation
documents, export compliance documents, certificates of origin, other
certificates for shipments of specific goods, other export-related
documents, and temporary shipment documents. Learn more about export
documentation. For additional assistance with country-specific
documentation requirements, please email the Trade Information Center
COMMON EXPORT DOCUMENTS
- Commercial Invoice
A commercial invoice is a bill for the goods from the seller to the
buyer. These invoices are often used by governments to determine the
true value of goods when assessing customs duties. Governments that use
the commercial invoice to control imports will often specify its form,
content, number of copies, language to be used, and other
- Export Packing List
Considerably more detailed and informative than a standard domestic
packing list, an export packing list lists seller, buyer, shipper,
invoice number, date of shipment, mode of transport, carrier, and
itemizes quantity, description, the type of package, such as a box,
crate, drum, or carton, the quantity of packages, total net and gross
weight (in kilograms), package marks, and dimensions, if appropriate.
Both commercial stationers and freight forwarders carry packing list
forms. A packing list may serve as conforming document. It is not a
substitute for a commercial invoice. In addition, U.S. and foreign
customs officials may use the export packing list to check the cargo.
- Pro Forma Invoice
A pro forma invoice is an invoice prepared by the exporter before
shipping the goods, informing the buyer of the goods to be sent, their
value, and other key specifications. It also can be used as an offering
of sale or price quotation.
- Airway BillAir freight shipments require airway bills. Airway bills are shipper-specific (i.e., USPS, Fed-Ex, UPS, DHL, etc.).
- Bill of LadingA
bill of lading is a contract between the owner of the goods and the
carrier (as with domestic shipments). For vessels, there are two types: a
straight bill of lading, which is non-negotiable, and a negotiable or
shipper’s order bill of lading. The latter can be bought, sold, or
traded while the goods are in transit. The customer usually needs an
original as proof of ownership to take possession of the goods. See
also: straight bill of lading and liner bill of lading.
- Electronic Export Information Filing (formerly known as the Shipper’s Export Declaration) Electronic
Export Information (EEI) is the most common of all export control
documents. It is required for shipments above $2,500* and for shipments
of any value requiring an export license. It has to be electronically
filed via the AES Direct online system, which is a free service from