Risks and Benefits of Exporting and Importing

COLLEGE FOR BUSINESS AND MARITIME STUDIES

12

INTERNATIONAL MARKETING ASSIGNMENT

RISKS AND BENEFITS OF ENTERING INTERNATIONAL MARKET

Samkelo THABEDE

International market is the identification and meeting human and social needs at a profit, across the borders of the domestic country. There are two reasons for entering the international markets:-

1. Absolute advantage: nations have an absolute advantage in producing goods for example: The US will produce 150 of product X and 200 of product Y and the EU will only produce 100 of product X and 150 of product Y. here the USA produces more of both goods and has an absolute advantage.

2. Comparative advantage: The law states that countries should specialize in the production of those goods that they have comparative cost advantages in producing and on the other hand should allow those goods that have least cost advantage to other countries. E.g. South Africa (S.A) and Zimbabwe both produce gold and maize, before specialization S.A produces 80 units of gold, Zimbabwe 60 units of gold and S.A produces 40 units of maize and Zimbabwe 70 units of maize. S.A should specialize in the production of gold and Zimbabwe in the production of maize because their production capability is higher in the different products than the other country. This will be further illustrated in a form of a diagram.

BEFORE SPECIALIZATION |

| S.A | ZIMBABWE | OUTCOME |

GOLD | 80 UNITS | 60 UNITS | 140 |

MAIZE | 40 UNITS | 70 UNITS | 110 |

OUTCOME | 120 UNITS | 130 UNITS | 250 |

AFTER SPECIALIZATION |

| S.A | ZIMBABWE | OUTCOME |

GOLD | 160 UNITS | 0 UNITS | 160 |

MAIZE | 0 | 140 UNITS | 140 |

OUTCOME | 160 UNITS | 140 UNITS | 300 |

Means of entering international markets is through exporting, exporting is the process of selling of goods and services produced in one country to other country/countries. There are two types of exporting: Direct and indirect exporting.

Direct exports represent the most basic mode of...