Non-traditional Exports - Assignment Example

Non-traditional Exports International business has undergone drastic changes in the last decade because of the fast evolving changes in economy and the policies of different countries the world over. Technological improvements in communication and information technology have also made the whole world a single large market where factors like distance, culture, language and climate and even time have become immaterial. Globalisation and the consequent liberalisation etc have also played a key role in changing business concepts and theories across the world. Besides traditional avenues of international business many new ones have opened up, both for developed and developing countries. Companies are competing with each other in many fields like the export of software, and the various components of the service sectors like health, hospitality, education, banking, insurance. “International business can be defined as a business activity that transcends national boundaries and includes trade in all mercantile, service and other products. It may be carried out by private or public agencies or between governments.” (Balagopal. 1997, 3). Foreign trade plays a significant role in any country’s economic growth, and financial well-being. The last decade has witnessed drastic and fundamental changes in the trade policy of countries all over the world, often dictated by the compulsions of the international market. It has become impossible for any country to exist in isolation from the global scenario. “Today International Business has emerged as one of the important branches of management education and training in international business schools world over. There has been a rapid increase in the volume and complex nature of the problems posed by international business.” (Balagopal. 1997, 13). The process of ‘Globalisation’ has not spared any country or citizen. The decisions of international financial organisations like the International Monitory Fund (IMF), the World Bank, and the World Trade Organisation (WTO) frequently influence government policies, and are in turn affected by changes in the international market. “Decision makers in both the private and public sectors need greater understanding of the forces of global economic changes. These multifaceted forces are commonly summarised as constituting “Globalisation,” “Interdependence”, or an intensified process of “Internationalisation.” Nothing since the 2nd world war has had a greater impact on the economy.” (Meier. 1998, 3). Changes in the global economy have a direct impact on an organisation’s export and international trade. The growth of the world economy is based on international import and export. Economic growth of a country is calculated on the basis of its Gross Domestic Products (GDP). In a world ranking of GDP, USA, Japan and Germany occupy the first three positions in that order. The world economy as whole is further classified into developed, developing and under developed countries. The classification is based on several other factors apart from GDP. Positive and enhanced GDP growth rates are crucial to under developed and developing countries rather than for developed countries. Traditional and non-traditional exports: Traditional exports refer to the export of products and commodities that are easily available, like agricultural products and allied goods that are produced abundantly in the country, originally meant for consumption by the local population. Traditional goods are mostly sold in the domestic market for consumption and only the surplus is exported in the international market. Non-traditional exports refer to those products that may be available in a country, but are not commonly used by the local population. Many of them are manufactured products incorporating substantial value addition to traditional products. The products created by the use of abundantly available human resources or knowledge pools are new entrants to the area of non-traditional items of trade. Software, outsourced service and manufactured products find a place in this list. A major share of the export revenue of developing countries now comes from the export of non-traditional products or service. A comparative statement of traditional and high tech export during 2000 and2004 in the East Asia Pacific region is given below. (World Bank data. April, 2006). EXPORT ITEM 2000 2004 Agricultural value Added (% Of GDP) 14.9 13.2 Industry value Added (% Of GDP) 44.5 45.1 Export of goods and service (% Of GDP) 36.1 42.9 High technology export (% Of GDP) 31.3 34.2 They meet a demand for these products and services in another country where the required resources are either not available or are comparatively expensive. Development in science and technology, combined with the forces of globalisation, is thus creating a new international industrial revolution. The impact of this revolution has created new opportunities in export of non - traditional products and services like Software, Components, and services. Export plays an important role in developing a broad and robust industrial base in any country. Shifting from dependence on the production and export of primary commodities towards industrial products is viewed as a means of more effective value addition and productive use of labour. It has helped many countries offer their citizens a better standard of living and has indirectly resulted in improvement of the quality of infrastructure. It often achieves this without depletion of any natural or non-renewable resources. Modern day exports of software and related products and services are also much more environmental friendly. Manufacturers are able to enhance profitability through export earnings by using the advantages of economies of scale, which would otherwise have been impossible with a limited domestic market. Improvement in productivity levels, quality standards and volumes result from a manufacturers access to the international market. Greater stability, particularly in terms of costs and prices are achieved as volumes expand, thereby avoiding many disadvantageous terms-of-trade that has frustrated the development efforts of many commodity-dependent economies. Developing countries in Asia, Latin America and Africa export their traditional products to countries like USA, Japan, Germany and other developed countries. At the same time, as developing countries strived hard to integrate more closely into the world economy, a new trade round was transforming the global playing field. These countries have also been able to tap the potential of Information Technology and transform according to the needs of time. Thus, today many developing countries appear to have succeeded in moving into technology-intensive manufactured exports, which have been among the most rapidly growing products in world trade over the past two decades. While traditional exports had several limiting factors, these stand removed in the case of non-traditional exports. Developing countries, in most cases have switched to inward oriented export strategies to evolve themselves and adapt to the changing trends. This becomes most visible in the fifties and sixties when most economists realized that developing countries could sustain their growth rates in the long run by protecting their new industries rather than applying more open trade policies. They identified the problem that these countries mainly exported primary commodities, whereas countries that received high income were focusing on the export of manufactured products. Based on these concepts, developing countries began to follow the inward oriented strategy by finding a domestic market for goods produced by local manufacturers. In order to achieve this, governments raised tariffs, established import quotas and imposed other non- tariff imports barriers. This was based on the primary notion that in the long run increasing deficits would not be sustainable and economic growth would have to be slower in the developing countries than in the high-income countries. Economic profile in the East Asia and Pacific region during 2000, 2004, and 2005 is given as Annexure.I (World Bank Report. April, 2006). "The World Bank has urged poor nations to adopt development strategies which emphasize export expansion, dismissing the caution against excessive trade dependence voiced by political economists” (http://www.lehigh.edu/~bm05/research/OOD.205.htm). Yet, some countries continued to follow an outward oriented strategy. In the early 70s an increasing number of economists began to criticise the strategy of import substitution. Its origin could be traced to the two observations that: (1) it was felt that countries adopting inward oriented policies experienced problems in balance of payment and their growth rates fell; and (2) The few countries that switched to outward oriented strategy could register noticeable rise in the exports and were able to penetrate the markets, which were hitherto the monopoly of the developed countries, apart from hastening the pace of their economic growth. The main concept of outward oriented strategy is based on the fact that the international trade enhances opportunities for the division of labour. International trade allows countries to produce those goods that have a comparative advantage and to import other goods from where they are available at good quality and lower prices. In the case of cheaper imports of raw materials, it helps reduce the cost of production .The finished products can be sold in the international market, earning better profits than would have been possible with an inward looking policy. Many developing countries have shared in this prosperity arising out of non-traditional exports and enjoyed better economic growth, development, and reduction in poverty levels. “Also it helps to generate foreign direct investment to developing countries to develop their economy and upgrade their infrastructure. An indicator of infrastructural changes in 2000 and 2004 in Asia Pacific Region is given below.” (World Bank Data April 2006). Indicators 2000 2004 Military expenditure (% of GDP) 1.7 1.9 Fixed lines and Mobile phone subscribers(in 1000) 151.4 431.4 Internet users (per 1000 people) 18.8 73.8 “Global firms are raising capital from many countries. Salomon Brothers predict that international equity trading will expand $ 12.85 trillion by 2010.” (Meier. 1998, 9). Trade has been an engine of growth as witnessed during the past fifty years in the case of countries like Singapore, Hong Kong and other tiny countries with very little natural resources or agricultural activities. The economic growth of any developing country is therefore highly dependant on their foreign trade policies and practices. In comparison with an inward-oriented strategy, an outward oriented strategy offers many advantages to developing countries. A developing country, which follows an outward oriented strategy, can produce high quality products or render services at lower costs and higher marketability in terms of quality and acceptability. By exporting their products, they ensure their own stability in international business. An outward oriented strategy also helps to achieve technological improvements in their production and manufacturing processes and methods by opening up access to emerging technology and ideas. The international transfer of technology from developed countries to developing countries with a package of Technology, Management and capital and also has advantages to develop their existing technologies by international alliances that have been formed to promote cooperative R&D activities. (Meier.1998, 9). These technological improvement in production and manufacturing can helps to enhance their products quality in domestic market also. Most developing countries adopt the strategy of expanding their foreign trade since it helps to increase activities in non-traditional sectors and also to reduce dependence on traditional activities that usually use up already depleted natural resources. There are exceptions too, with many countries still relying heavily on exports of traditional items, often due to domestic compulsions or vested interests. Some countries, on the other hand, are aggressively pursuing a policy of increasing exports of high value non-traditional items because they have realized the advantages it offers. Software, electronics and automobile components are sectors that have been in focus. The strategy of promoting non-traditional high technology products also helps build up a vast pool of technically competent persons within the country. Domestic services and infrastructure like education also rise to a better standard. An outward oriented strategy also helps in better implementation of professionalism in their industries and processes including governance, which ultimately benefits the common citizen. A high rate of economic growth, a better share in world markets and international trade and an increase in the country’s stature in international forums are other added benefits. International organisations like the WTO, the IMF and others attach much importance to the economic growth of developing countries. It will open up more business opportunities to all the major countries. With the rapid changes in technology and other areas, the factors of time and space have become irrelevant. Revolutionary changes have occurred in the areas of transportation also. Globalisation and liberalisation also helps to increase foreign trade. Globalisation has created a better environment for developing countries to enter the international market. Developing countries have access to foreign capital and technology for their internal development through an outward looking strategy. Availability of skilled human resources and other unique natural resources attracts foreign investors. Compared to traditional exports, non-traditional export has many advantages as far as any country, particularly developing countries, are concerned. It utilises the opportunities provided by the new economic order for producers and consumers to exercise the freedom of choice according to market forces and also provides an opportunity for making up for the lack of needed resources through imports. Works Cited Balagopal, T. A. S. 1997. Export management, Mumbai: Himalaya Publishing House. Meier, Gerald. M. 1998. The International Environment of Business: Competition and Governance in the Global Economy. New York, Oxford: Oxford University Press. World Bank report. (April 2006) Read More