By Pierre Heistein
The basic premise behind exporting and importing is that somebody, somewhere out there, does something better (or worse), than we can do it here. If they do it better; we should import it. If we do it better; we should export ours.
The importance of international trade can be illustrated with the simple example of South Africa and Singapore. Currently, one of Singapore?s major exports to South Africa is electrical machinery, while fruit and vegetables are a major South African export to Singapore. Both countries need fruit, vegetables and electrical machinery, and both countries are capable of producing these products themselves. Why then do they have exporters and importers?
The reason is in the differences between the countries. South Africa is rich with wide tracts of high quality farming land, and it has a large unskilled labour sector. Singapore, however, has a great deal of skilled labour, but has little land of good enough quality for farming. Singapore could replace some of its factory land to produce food but it would be a struggle and an expensive sacrifice.
South Africa could use some of its arable land to build factories of electrical equipment, but this would also require heavy investment into the skillsets of its workers.
What makes most sense is for Singapore to devote its resources to factories producing electrical equipment, and for South Africa to use its resources for farming, and for the two to trade. Each will produce their own goods better, cheaper, and faster.
It is in facilitating this trade that export and import companies make their money, by identifying differences and opportunities between South Africa and Singapore. These companies are tasked with communicating to the market that their needs are better met by goods from elsewhere, and negotiating the complexities of international purchases, so that the final customer does not need to.
To be more specific, there are three main ways that a company can benefit from being involved in exporting and importing. Firstly, there is huge financial benefit to having the first mover advantage, by being the first to introduce a product into a foreign market.
If you can identify a product that is produced particularly well in your country, but does not yet exist in a country where it will be demanded, this provides a perfect business opportunity to export it before somebody else does, or before the destination country starts producing it themselves.
Importing and exporting increases consumer choice of products and services. Consumer choice is a strong point of competitive advantage for a company and is valued so highly by society that it is included in international measures of welfare.
Thirdly, importing and exporting can allow for a country or industry to carry on producing at a lower cost. Costs of production are a large determining factor behind the competitiveness and profitability of a business. The wise exporter or importer will seek to take advantage of differences in prices around the world to help these benefit local or foreign firms.
The first importer of Chinese textiles to South Africa was faced with a choice; produce these locally to sell to SA clothing factories, or get involved in importing. Their willingness to look beyond their own borders paid off handsomely.
Success in business is ultimately determined by taking advantage of differences, in needs, prices and quality. When you open up to the possibilities of importing and exporting, the differences available become all the greater.
The University of Cape Town ([email protected]) Import and Export course is presented online throughout South Africa. For more information contact Nikki on 021 447 7565 or [email protected]. Alternatively, visit GetSmarter