Export Trade from China to the USA - Assignment Example

FACTORS AFFECTING THE EXPORT PERFORMANCE OF A FIRM & EXPORT TRADE FROM CHINA TO USA By This article discusses various factors that may hamper a firm’s export business globally. The paper also includes a review of export business of China with USA. Countries depend on their export trade for earning substantial money in the international market. Some of the important issues the exporting firms must account for are: product quality, price competitiveness, service quality, relationship with importers and reputation of the firm. Countries like China depend a lot on their export commerce. The biggest trade partner of the country is USA. Various products like electrical machinery & equipment, toys & games, furniture, plastic articles and apparel etc are exported from China to US. Electrical machinery and equipment has the maximum share in the export products of China. Introduction Firms give significant importance to their export business to earn attractive money for their company and their country. Export trade has contributed to the fast growth and development of different economies like China, US, Germany, Japan and France. Different factors may affect the export performance of a firm. The dedication and responsible behavior of the firm towards its representation in the international markets and aids from the government may make a significant difference to its export trade. China is an example of highest economic growth from the export sector in few years from 1992-2003. By 1980’s, petroleum was the main product exported but after 1990 manufactured goods accounted for 90% share in exporting. Major factors that influence a firms export performance Firms export their different products to other countries to participate in the international markets and earn handsome money. The export of goods brings foreign exchange to the nation and promotes the economic growth and development of the country. A number of factors affect the export performance of a firm: Product quality: Product quality is a very important factor as shown in the table 1 also. Other countries will let the firms sell their products on their lands only if they are up to the standards. It is the responsibility of the exporting company to ensure that the quality of the product is par excellence as in addition to extending their business to a foreign land, the company’s products also represent their country to the people abroad. Any compromise in the quality of the product will affect the trade of the company as well as bring a bad name to the country. People will not only stop using the products of the respective company but also be suspicious about other products from the same nation. This will affect the overall growth and economy of the country. Superior product quality will boost the sales of the firm and help it to further expand its business in other nations. It will enhance the confidence of the staff and help them produce better. Price competitiveness i.e. value for money: Value for money is another important factor that may affect export performance in a positive or a negative manner. Consumers, in the age of such a high inflation in almost all the countries, want the value for their money. The firms’ while deciding the cost of their products must make sure that in addition to earning them profit, the price must be in accordance with the buying capacity of the people in the country they are exporting their products to. Only a worthy deal on the products will attract consumers and earn profit for the businesses. Service quality: Offering a great and responsible service quality will definitely build up the customers trust in the company. Being accessible easily and at the times of need will relieve customers’ headache and pamper firm’s growth. After selling the product it is the duty of the company to assist the customers with any hassles associated with their product. Relationship with importers: Trust and sincerity is also an important factor which is the basis of relationships in the international scenario. International networking: Relationships are an essential mode of expansion of trade. Reputation and characteristics of firm: Reputation of the firm in the international market is the result of its product quality and responsibility. Some enthusiasm and driving force to export: Motivation keeps the working force behind the company inspired to work and perform. Capability to market the firm and its products internationally: It is vital for the business to market and present itself on the global front. A good marketing strategy will connect consumers and the exporter and boost up sales. Managements’ approach towards exporting and marketing: Responsible and dedicated behavior of the management is very important. Meeting the expectations of the customers and keeping up with the latest technological developments in other countries are the duties of the management. Personal attributes of the managing staff: Innovation, confidence, motivation and reliability are the key attributes of a good managing staff. Endorsement and promotion tactics: Impressive promotion of the business communicates well with the consumers and helps them know and identify the firm. Assistance from Foreign Credit Insurance Association: Limitation of finance can hamper the growth of a good business. The company should seek help from FCIA whenever possible and also be responsible towards its liabilities. Various exporting problems that the firm may have to face and its capability to cope with them: Hurdles will come in the path but the organization should be prepared to face them. Support from the government of the country: Governments support the exporters giving them various aids and information. Status and place of the country in the global markets such as its developed or developing condition: Availability of resources is easier in developed countries than in developing ones. Size of the work force of the firm: Strength of the work force adds to the growth of the company. Thus there are many factors that may hamper the exporting business of a company and it must be prepared to face and deal with them to survive (Ogunmokun & Ng, 2004; Lages, Carmen, & Cristiana, 2004). Figure 1 (Smith, 2004) above shows the important factors that affect export trade. Table 1(Lages, Carmen, & Cristiana, 2004)below shows the results of a study conducted in Europe to determine the most important factors that influence a firm’s export performance. Exporting of products to other countries globally is a bonus for the economy of the nation. Various countries like US, Germany, Japan, France and China have become world’s largest trading nations on the basis of their export sectors. China is a state that has shown highest export growth from 1992-2003 (Johansson, 2006). Chinese Exports to US The export sector of China contributes a major share in the development and growth of the economy of the nation. China is famous worldwide for its variety of products. The biggest trade partner of the country is United States of America as shown in the Table 2 (US-China Trade Statistics and Chinas World Trade Statistics, 2007): Fig 2 (US-China Graphs, 2005) above shows China’s top export partners as per 2005 records. In 2006, China exported products worth $287.8 billion to USA. The major products exported were: 1. “Computer accessories, peripherals and parts …US$28.9 billion (10.1% of China to U.S. exports, up 12.4% from 2005) 2. Miscellaneous household goods (e.g. clocks) … $26.5 billion (9.2%, up 17.2%) 3. Toys & sporting goods (e.g. bicycles) … $22.2 billion (7.7%, up 10.2%) 4. Computers … $17.4 billion (6%, up 20.2%) 5. Non-cotton household furnishings & clothing … $14.6 billion (5.1%, up 11.3%) 6. Video equipment (e.g. DVD players) … $14.5 billion (5.0%, up 34.9%) 7. Household furniture … $13.2 billion (4.6%, up 14.3%) 8. Footwear ... $10.7 billion (3.7%, up 11.1%) 9. Cotton household furnishings & clothing … $9.9 billion (3.4%, up 29.6%) 10. Telecommunications equipment … $8.3 billion (3.0%, up 23.7%) The Chinese exports that are going up at a fast pace in the US market are: (Sales increase from 2005 to 2006) 1. Zinc … US$8.6 million (up 616% from 2005) 2. Nickel … $25.9 million (up 273%) 3. Lumber … $74.7 million (up 213%) 4. Specialized mining & oil processing equipment … $96.6 million (up 188%) 5. Oil field drilling equipment & platforms … $1.6 billion (up 182%)”( Workman, 2007). Table 3(US-China Trade Statistics and Chinas World Trade Statistics, 2007) shows Chinese export and import trade statistics with US. Table 3: Chinas Trade with the United States ($ billion)   1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 US Exports 14.3 13.1 16.3 19.2 22.1 28.4 34.7 41.8 55.2 65.2 % change 10.9 -8.0 24.4 18.3 15.1 28.5 22.2 20.6 32.1 18.1 US Imports 71.2 81.8 100.0 102.3 125.2 152.4 196.7 243.5 287.8 321.5 % change 13.8 14.9 22.3 2.2 22.4 21.7 29.1 23.8 18.2 11.7 Total 85.5 94.9 116.3 121.5 147.3 180.8 231.4 285.3 343.0 386.7 % change 13.4 11.0 22.6 21.4 21.2 22.8 28.0 23.3 20.2 12.7 US Balance -56.9 -68.7 -83.7 -83.0 -103.1 -124.0 -162.0 -201.6 -232.5 -256.3 Note: US exports reported on FOB basis; imports on a general customs value, CIF basis Sources: US International Trade Commission, US Department of Commerce, and US Census Bureau Diagram 1.2 (Johansson, 2006) shows China’s net export in US$. Table 4 (US-China Trade Statistics and Chinas World Trade Statistics, 2007) below shows Chinese export statistics of different products to US in the year 2007. Table 4: Top US Imports from China 2007 ($ billion) HS# Commodity Description Volume % Change(Percent change over 2006) 85 Electrical machinery & equipment 76.7 18.2 84 Power generation equipment 64.0 2.9 95 Toys & games 26.1 25.1 61, 62 Apparel 24.0 20.7 94 Furniture 20.4 5.2 64 Footwear & parts thereof 14.1 1.8 72, 73 Iron & steel 11.9 12.6 39 Plastics & articles thereof 8.3 10.6 42 Leather & travel goods 7.2 5.8 87 Vehicles other than railway 6.1 18.6 Diagram 1.4 (Johansson, 2006) shows China’s 3 largest export sectors and their growth. China has recorded the highest export growth from 1992-2003. After US, Germany, Japan and France, China is the fifth largest trading nation. Even during the Asian crisis, Chinese economy suffered the least. In 1980’s, petroleum was the main product exported and after 1990’s manufactured goods accounted for 90% of the exported goods. Electrical machinery and equipment has the maximum share in the export products of China. This field has undergone greatest export growth. Technological development in this area takes place at an extremely fast pace and the electrical products of manufacturers are outdated very soon. This trend makes it necessary for the country to keep up with the developments in technology to maintain its share in the world market. Electrical machinery and equipment represented 9.6 per cent of the total Chinese export in the year 1992 and its share rose to 22.3 per cent in 2004 which made it a very significant sector of the overall Chinese exports. Diagram 1.3 (Johansson, 2006) shows export price per unit EME and corresponding export value. On the other hand, China imports more electrical products than it exports. The country’s semiconductor sector is able to fulfill only 20% of the domestic need and the rest depends on the import as shown in Diagram 1.5 (Johansson, 2006) below. As concluded by Johansson (2006) various factors like “relative prices, GDP in importing country, distance to importing country and the importing country’s FDI in China affect foreign demand in this sector”. His test results showed that the most important factor affecting the export is GDP in importing country. EME export rose by 0.85 per cent with 1 percent increase in the importers GDP and 1 percent increase in FDI resulted in a 0.28 per cent increase in export. Relative price affected the EME export positively while the distance to importing nation influenced the EME export negatively. Other factors like “consumer preferences, technology levels in importing country, export/import barriers, prejudices, logistics and cultural barriers” (Johansson, 2006) also have an impact on the export performance and preferences of a country. Conclusion In order to establish itself in the export trade a company should pay special attention to its product quality, service quality, relationship with importers and reputation of the firm. Export sector is very important for bringing finances to a country and contributes a major share in a nation’s economic development. As a perfect example, growth of China in a short span of time and its economic stability in Asian crisis is mainly due to the strong foundation of its export sector and trade relations with strong economies like USA. Bibliography Johansson, F.(2006). Chinese Export of Electrical Machinery Equipments. Master Thesis in Economics. Jönköping International Business School, Jönköping University, Sweden. Lages, L.F.,C. & C.R. (2004). European Perspectives on Export Performance Determinants: An Exploratory Study* [online]. Available from: http://portal.fe.unl.pt/FEUNL/bibliotecas/BAN/WPFEUNL/WP2004/wp444.pdf. [Accessed 14 April 2008]. Ogunmokun,G. & Ng,S. (2004). Factors Influencing Export Performance in International Marketing: A Study of Australian Firms. International Journal of Management [Internet]. Jun 2004. Available from: http://findarticles.com/p/articles/mi_qa5440/is_200406/ai_n21353038. [Accessed 14 April 2008]. Smith, M.(2004). Impact of the exchange rate on export US-China Graphs (2005). [online] Available from: http://www.sierraasia.com/US-China%20Graphs0327.pdf. [Accessed 14 April 2008]. US-China Trade Statistics and Chinas World Trade Statistics (2007). [online] Available from: http://www.uschina.org/statistics/tradetable.html [Accessed 14 April 2008]. volumes. Reserve Bank of New Zealand Bulletin, Vol. 67. No.1. March 2004, pp 5-13. Workman, D. (2007). Top Chinese Exports & Imports: Most Popular Products Traded Between China & America. [online]. Available from: http://internationaltrade.suite101.com/article.cfm/top_chinese_exports_imports. [Accessed 14 April 2008]. Read More