International concern is the nucleus subject in carry oning concern in current epoch of globalisation. In the competitory environment, concerns are viing at planetary degree. In international concern a company can prosecute in either of the two ways such as import or export. Import and export are the two basic and primary ways of carry oning the concern ( Dunning, 2007 ) . Whenever a company engages into the international concern, there are lot many factors which impact the concern. Hence there are advantages and disadvantages of both import and export. Sing this position, this assignment study addresses the critical analysis of two primary ways of happening international concern and several advantages and disadvantages. In add-on to this the assignment study besides discusses the international concern and free trade ( Fortanier, 2008 ) .
International trade is besides known as planetary trade where the bargainers can interchange the goods or services and natural stuff across the boundary lines. International trade was foremost started by the industrial revolution in US and spread across the Earth in the late 18th and early nineteenth century. A drastic alteration in the communicating, transit and logistics has changed the manner of carry oning international concern and simplified the procedure. The technological promotion and alteration in the communicating and transit installations has surged the international trade in the twentieth century. The present signifier of international trade has been transformed into the outsourcing and transnational companies ( Gupta and Govindarajan, 2008 ) . A dramatic rise has been noted in the trading volume from the mid of twentieth century. In the twelvemonth 1928 the entire export value in the universe was about $ 31.7 billion while after 70 old ages this figure is $ 4,215,000.2 billion. In order to keep the stableness and equilibrium among the states the formation of World Trade Organization came into being ( Hennart, 2004 ) . The organisation non merely solves the trade affairs but besides back up the developing states in export their merchandise and service to foreign states. The dominating place in WTO is left with G-7 states which include US, France, Germany, the UK, Italy, Japan and Canada. The organisation controls the kineticss of international trade which besides support in fixing the trade understanding between the states. There are few trade theories which provide the overall position of international trade as discussed below:
Absolute Advantage Theory:
The absolute advantage theory provided the position about the capacity and control in footings of competitory landscape for international trade among the states. Harmonizing to this theory, if any state A can bring forth the merchandises and service of same quality at lower cost of resources than the other state B so state A has absolute competitory advantage over state B. besides for other trade goods state B can hold the absolute competitory advantage over state A. the great economic expert Adam Smith has put this theory frontward to understand the international trade ( Johanson and Wiedersheim-Paul, 2008 ) .
Comparative Advantage Theory
Comparative advantage theory is the extension of absolute advantage theory which stated that a state should bring forth merely those points in which it has expertness and specialisation for the intent of developing the comparative advantage in footings of resources. In order to regulate the form of trade the comparative factor gift has a cardinal function ( ( Jones, 2006 ) .
Heckscher Ohlin theory is some what different from absolute advantage and comparative advantage theory since it emphasizes merely on the production factors in which the company has expertness and from that produce the goods. This theory stated that a state should export merely those goods which are copiousness in the state and for which the agency of production factors can be utilized more intensively. In contrast the state should import merely those goods in which the state is less capable for its agencies of production factors and besides non available in copiousness ( Nelson and Winter, 2007 ) . Therefore it has been observed that the factor of gift and comparative fluctuation has cardinal function in the form of international trade. As against this statement, Wasily Leotieff tested this theory through empirical observation in which he found that the Hecksher Ohlin theory may non ever be true. In support of this statement he stated that the export in US is for the trade goods which are labour intensive nevertheless the state has abundance capital and this illustration is celebrated by the name as Leontief Paradox ( ( Jones, 2008 ) .
Specific Factors Model
The specific theoretical account theory stated that for bring forthing the goods and exports them to other state, the capital should be fixed for the short tally and labour should be nomadic. It would assist to minimise the cost of production i.e. in instance the monetary value of a trade good addition so the manufacturer an get the benefit by utilizing the labour which is available at low cost. This theoretical account is suited merely for some specific industries ( Easterly, 2008 ) .
As per the gravitation theoretical account theory, the form of trade between the states is affected by the distance between the states and these findings are besides supported by the economic sciences ( Hennart, 2007 ) .
International equities are the assets of the state in which the state transact with the other state. In the international equity a state has greater or lesser value dealing over the other state. There are few theories comes under international equity which provides the better thought to understand the international equity. These theories are provided in the undermentioned subdivision ( Hennart, 2007 ) .
Balance of Trade:
Whenever, a state export to other state or import from other state, so the difference between the export and import is known as balance of trade. If the export of goods is greater than the import of goods so the different between the export and import is positive and said that the state has positive balance of trade. On the other manus if the export is less than the import so the balance of trade will be negative and this state of affairs is called trade shortage ( Casson, 2008 ) .
Balance of Payment:
Balance of payment is the record of all the dealing which has been done by the state with remainder of the universe. The dealing may include the import, export, fiscal capital, goods of services, and the fiscal transportations of the financess. The balance of payment is prepared in a individual currency and normally prepared for specific period as like the fiscal twelvemonth of a company. The grosss of loan, investings grosss and export beginnings of financess are recorded as excess or positive points. On the other manus the use of financess as like the investings, import and collectible are recorded as negative or shortage points ( Dunning, 2006 ) . There must be balance when all the constituents of balance of payment are recorded as similar balance sheet of a company. Ideally balance of payment is the difference between the current history and capital history and the balance point are added or subtracted depending on the value it holds. There is a point of concern for the states holding shortage in current history since it generates the long term liability for the state ( Bartlett and Ghoshal, 2007 ) .
Advantages and Disadvantages of International Trade:
There are some advantages and disadvantages of international trade for both the export and import.
Advantages of Exporting:
One of the major advantages of export is the ownership advantage which is specific to the houses ‘ international experience, plus and ability of the exporter to either develop the differentiated merchandise or low cost merchandise with in the values concatenation ( Hertner and Jones, 2007 ) . A combination of investing hazard and market potency is known as the location benefit of the peculiar market combination. In order to retain the nucleus competences within the organisation and sewing it throughout the state without retaining the licence, selling or outsourcing is the international advantage in export ( Amatori and Jones, 2003 ) .
Some of the organisations holding lower degree of ownership advantage may make non come in into the foreign markets. In instance a company ‘s merchandises and company ‘s ownership equipped with the international advantage and ownership advantage, the entry can be made through low hazard theoretical account known as exporting under the eclectic paradigm. There is low investing requires in exporting of goods than the other manners of international trade and enlargement such foreign direct investing. Some how it is recognized that the lower degree of hazard consequence in, lower degree of rate of return than perchance the other manners of international trade ( Khanna, 2007 ) . On the other manus the usual return on international trade in export gross revenues might non hold greater potency but besides there will be no hazard. In export of goods the directors are allowed to exert the assorted operational control nevertheless it does non hold the option over the control of marketing activities of the company. The end consumer of exported goods is far off from the exporter though the assorted mediators can mange the hazard ( Jones, 2008 ) .
Disadvantages of Exporting:
The exportation of goods is specifically hard and disadvantageous for the little and average size houses holding employees less than 250. The sale of services and goods into the foreign market is hard for them instead functioning the domestic market. A deficiency of cognition of different linguistic communications, difference in civilization, exchange ordinances and trade ordinances holding the major impact on exporting the goods for SMEs. In add-on to this the staff interaction and strain of resources is a major block of exporting the goods. Despite this disadvantage, some of the SMEs are still exporting nevertheless two 3rd of them sold out to the foreign markets ( Jones, 2008 ) .
In add-on to this there are some major disadvantages highlighted in the export of goods such as fiscal direction, communicating engineering betterments, and client demand and direction errors. In order to minimise the hazard of dealing procedure of exporting the goods and exchange rate fluctuation, it is indispensable to hold more capacity for pull offing the financials for get bying up the attempts ( Nelson and Winter, 2007 ) . Customers can now interact with the providers due to the recent development is the communicating engineering has improved the manner of buying goods, since the communicating is mush cheaper so what is was two decennaries ago. It leads more transparence in dealing and buying of goods and sellers are responsible for following the existent clip demand for subjecting the dealing inside informations ( Hennart, 2007 ) . The clients are going progress due to the betterment in the engineering and they demand more support and services from the seller such as startup and equipment installing and startup, bringing service and care which are hard for the exporter to supply. There might be some booby traps in the organisation occurred by some of the direction errors such as oversea a distributer, an agent or pandemonium in the planetary organisation ( Johanson and Wiedersheim-Paul, 2008 ) .
Advantages of Importing:
Importing natural stuffs and goods is one of the waies of increasing the net income borders. There are figure of benefits in importing the goods, such as high quality, low monetary values, and benefits related to the international trade. An importer can hold the comparative advantage which means lower monetary values ( Jones, 2006 ) . Besides the importer can hold the much cheaper merchandises from the foreign market due to low labour cost, low revenue enhancements etc. in footings of quality, the importer can hold the higher quality goods and produce the finished goods with high quality and widen the concern net income borders. In some states, authorities provides the support to the importer for developing the trade dealingss ( Nelson and Winter, 2007 ) .
Government provides the information of the makers and manufacturers in the foreign state so that the importer can buy the high quality and low monetary value goods. Besides due to the authorities engagement reduces the dealing hazard. An importer can entree to the regionally sole resources and inexpensive labour for bring forthing the goods. These resources are required in the fabrication procedure that have specialized accomplishments and can be sound in certain states. For illustration in electronic points, Nipponese people are extremely efficient and maker in UK use the labour from Nipponese market for bring forthing goods. The importation of resources includes everything get downing from labour to engineering ( Fortanier, 2008 ) .
Disadvantages of Importing:
There are many authoritiess and economic experts who believe that the importing goods have legion disadvantages. For illustration importation of goods could take the eroding of the domestic markets and national economic systems specifically when there is trade shortage happening i.e. the import is higher than the export. Some of the goods like autos ; contraptions lead a higher degree of domestic car and electronic markets and besides loss of occupations in the several markets ( Hennart, 2007 ) .
Some other jobs can besides be increased due to import of goods such as struggle in the domestic values due to the credence of societal values. The domestic industries can besides be crippled due to the import of the states where the rewards are low and the domestic industries are unable to vie since they can non take down down their monetary values of goods than the cost of goods and besides they have the duty to the worker brotherhood ( Hertner and Jones, 2007 ) .
Free Trade Concept:
The construct of free trade was introduced in the system to profit the state and bettering the status of hapless by supplying them high quality and cheaper merchandises. However as an economic expert, in my sentiment free trade is erosion the domestic participants for illustration if UK authorities lower down the import responsibility on sugar so the demand for the imported sugar will increase and domestic participant will non be able to vie with the foreign participant ( Johanson and Wiedersheim-Paul, 2008 ) . On the other manus the economic class argues that free trade promote the environmental debasement, back uping the kid labour, income inequality and pay labour, bondage, harming the national defence, enforcement of cultural alteration and stressing the poorness in the state.
The economic experts besides argued that the importing goods under free trade are opposed by the domestic industries due to lift in competition in footings of merchandise quality and cheaper monetary values ( Nelson and Winter, 2007 ) . A maximal development of workers due to the free trade is besides opposed by the socialists. Free trade by and large do non cut down the poorness or better the status of working category in the state but often do them more hapless. It besides supports the colonialism and imperialism in the state. On the other manus I believe that in free trade consumer could derive more than the industrialists and the domestic manufacturers are more likely to mobilise their merchandises without raising the duties ( Jones, 2006 ) .
Decision and Suggestions:
The competitory concern environment enforces the concerns in both the international and domestic markets to retain their concern and remain competitory. However depending on the demand and potency of the concern, it is indispensable to understand whether the company should indulge into the export or import activity ( Gupta and Govindarajan, 2008 ) . It is recommended to the concerns specially the medium and little companies to widen their concern potency at domestic market foremost and so widen into the international market coaction, joint venture or concern partnership. Prosperity in the state can non be achieved through protectionism since it increases merely the poorness and besides do non protect the domestic industries or occupations but harm the export concern and industries which has belief on imports ( Hennart, 2007 ) .