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What is an 'Export'

An export is a function of international trade whereby goods produced in one country are shipped to another country for future sale or trade. The sale of such goods adds to the producing nation's gross output. If used for trade, exports are exchanged for other products or services in other countries.

BREAKING DOWN 'Export'

Exports are one of the oldest forms of economic transfer and occur on a large scale between nations that have fewer restrictions on trade, such as tariffs or subsidies. Most of the largest companies operating in advanced economies derive a substantial portion of their annual revenues from exports to other countries. The ability to export goods helps an economy to grow, by selling more overall goods and services. One of the core functions of diplomacy and foreign policy within governments is to foster economic trade in ways that benefit both parties involved.

Exports are a crucial component of a country’s economy. Not only do exports facilitate international trade, they also stimulate domestic economic activity by creating employment, production and revenues. As of 2014, the world’s largest exporting countries in terms of dollars are China, the United States, Germany, Japan and the Netherlands. China has exports of approximately $2.3 trillion, primarily exporting electronic equipment and machinery. The United States exports approximately $1.6 trillion, primarily exporting capital goods. Germany has exports of approximately $1.5 trillion, primarily exporting motor vehicles. Japan has exports of approximately $684 billion, primarily exporting motor vehicles. Finally, the Netherlands has exports of approximately $672 billion, primarily exporting machinery and chemicals.

Advantages of Exporting for Companies

Companies export products and services for a multitude of reasons. Exporting, if done correctly, has the ability to increase sales and profits by expanding into new markets. It may even present an opportunity to capture significant global market share. Companies that export spread business risk by diversifying into multiple markets. Exporting into foreign markets can often reduce per-unit costs by expanding operations to meet increased demand. Finally, companies that export into foreign markets generally gain new knowledge and experience that may allow discovery of new technologies, marketing practices and insights into foreign competitors.

Challenges of Exporting

Companies that export are presented with a unique set of challenges. Extra costs are likely to be realized, as companies have to allocate considerable resources into researching the foreign market and modifying the product to meet local demand and regulations. Companies that export are typically exposed to a higher degree of financial risk, as collection of payment methods such as open-account, letter of credit, prepayment and consignment are inherently more complex and take longer to process than for domestic customers.

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