Advantages of Export Sector Over Import Substitution Industries

Some economists suggest that focusing on export sector expansion and diversification is more advantageous for a country than promoting Import Substitution Industries (ISI). In the Sri Lankan economy, this perspective is subject to scrutiny. Export involves shipping goods and services out of a nation's port, while import entails bringing goods into a jurisdiction from an external source. ISI is an economic concept utilized by developing countries to enhance self-sufficiency and reduce reliance on developed nations. This approach centers on safeguarding and fostering domestic industries to compete with imports and enhance the local economy's autonomy.

While importing raw materials and products can boost profits and provide advantages like high quality, low prices, and benefits in international trade, there are numerous drawbacks associated with heavy dependence on imports for a country.

Importing goods can have detrimental impacts on domestic markets and national economies, particularly when a trade deficit occurs with imports surpassing exports. This situation can be worsened by imported products clashing with local values and industries struggling to compete with nations where labor costs are lower.

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Conversely, exporting goods can pose difficulties for small and medium-sized businesses due to issues like language barriers, cultural disparities, and trade restrictions, making it simpler to concentrate on the domestic market. Despite these obstacles, exporting goods typically offers more benefits than importing them.

Exporting offers various advantages for firms, including ownership advantage based on international experience, assets, and ability to develop differentiated or low-cost products. Location benefit combines investment risk and market potential in a specific market.

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Retaining core competencies throughout the organization without licensing, selling, or outsourcing provides an international advantage in exporting. Companies with lower ownership advantage may choose not to enter foreign markets. For companies with both international and ownership advantages, entry through exporting under the eclectic paradigm is a low-risk option. Exporting generally requires less investment compared to other international trade modes like foreign direct investment.

It is acknowledged that lower risk levels in international trade may result in a lower rate of return compared to other modes. On the contrary, while export sales in international trade may not offer a significant potential for return, they also come with no risk. Managers in the export of goods have operational control but lack control over marketing activities. Despite the distance between exporters and end consumers, various intermediaries can help manage the risk. Sri Lanka's economy shows strong export performance at present, with a significant growth in foreign exchange earnings. Overall, exports have improved by approximately 14%, with certain sectors experiencing even higher growth.

In the electronic sector, the percentage is as high as 80%, while rubber performs at 45%, wooden products at 57%, and so on. The government's policy aims to increase foreign exchange earnings from exports but also prioritizes ensuring that benefits reach all levels of society. Though Sri Lanka is considered a 'middle income country' with a per capita income of US$ 1,370, one of the challenges is the unequal distribution of income within the nation.

One example highlighting the income disparity is that the per capita income in Colombo is seven times higher than in Monaragela, Pollonnaruwa, and Hambantota. It is crucial to address these inequalities by focusing on the development of 'export promotion villages' across the country. However, in 2014, Imports in Sri Lanka increased from June ($1439.40 USD Million) to July ($1845.30 USD Million). The average imports in Sri Lanka from 2001 to 2014 were $1035.70 USD Million, with a peak of $1986.40 USD Million in November 2011 and a low of $408 USD Million in February 2002.
(Data sourced from the Central Bank of Sri Lanka)

Sri Lanka traditionally exports a variety of products such as apparel, tea, rubber, coconut, and gems. The nation's tea trade is particularly important, with pure Ceylon tea being a well-known global brand. Sri Lanka is the top tea exporter worldwide, producing over 300 million kilos of black tea annually. Our orthodox teas command higher prices than similar varieties from other countries, boosting profits for Sri Lanka. By focusing on expanding and diversifying our export industry, we can increase production, enhance manufacturing capabilities, and boost earnings. Importing goods often involves paying high taxes to other nations, resulting in money being wasted. Developing our exports sector will help us retain more revenue in our economy and create job opportunities for our citizens - ultimately driving economic growth.

Imports and exports play a significant role in influencing consumers and the economy. In today's interconnected world, imports enable consumers to access goods from different countries, expanding their choices and aiding in financial planning. Yet, an uneven ratio of imports to exports can impact a country's trade balance and currency strength, both vital for economic health. It is therefore essential for nations to focus on boosting their export industries and fostering diversity instead of relying solely on import substitution industries (ISI).

Updated: Feb 21, 2024
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Advantages of Export Sector Over Import Substitution Industries. (2016, May 19). Retrieved from https://studymoose.com/globalization-and-import-substitution-industries-essay

Advantages of Export Sector Over Import Substitution Industries essay
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