Exports, imports and specialisation

Exports and imports

Exports are goods and services sold to buyers in other countries; money flows in. Imports are goods and services bought from abroad; money flows out.

Balance of trade = value of exports - value of imports. A deficit means imports exceed exports.

For a business, exporting means more customers and economies of scale; importing means access to cheaper or better raw materials, components and finished goods, but also competition from foreign rivals in its home market.

Specialisation

Specialisation means a country, region or business concentrating on producing what it is best at and trading for the rest. Countries specialise according to their resources: natural resources (Saudi Arabia and oil), labour costs (Bangladesh and garments), skills and technology (Taiwan and semiconductors, Switzerland and pharmaceuticals). Businesses specialise in stages of a global supply chain, for example design in one country, components in another and assembly in a third.

Implications of increasing specialisation

Benefits: higher productivity and lower unit costs; economies of scale from serving world markets; firms can focus on core competencies; consumers get lower prices and more choice; world output rises.

Drawbacks: dependence on other countries and suppliers, so supply chains are vulnerable to disruption (natural disasters, conflict, pandemics, tariffs); a country that specialises narrowly (for example in one commodity) is exposed if world prices fall; jobs lost in industries that cannot compete; transport adds costs and emissions.

Many businesses now balance efficiency against resilience, for example by using more than one supplier country.

Worked example

A firm exports goods worth $36 m and imports components worth $21 m. A government reports national exports of $410 bn and imports of $455 bn. Find the national balance of trade.

1. Balance of trade = exports - imports
2. 410 - 455 = -45

Answer: A trade deficit of $45 bn.

Check yourself

1. A country's exports are $86 bn and its imports are $97 bn. Calculate its balance of trade (use a minus sign for a deficit).
   Show answer

   -11 $ bn. 86 - 97 = -$11 bn, a deficit.

2. A firm's total sales are $250 m, of which $95 m are exports. What percentage of sales are exports?
   Show answer

   38 %. 95 / 250 x 100 = 38%.

3. A business's exports rise from $40 m to $46 m. Calculate the percentage increase.
   Show answer

   15 %. (46 - 40) / 40 x 100 = 15%.

4. A furniture maker in Kenya imports cheaper wood from abroad. The most likely effect on the business is
   • higher costs and lower margins
   • more exports of wood
   • no change in competitiveness
   • lower costs and possibly higher profit margins
   Show answer

   lower costs and possibly higher profit margins. Cheaper inputs lower unit costs.

5. Explain one risk to a business of relying on a single overseas supplier country.
   Show answer

   If that country suffers a disruption such as a natural disaster, conflict, a pandemic or new tariffs, supplies stop or become more expensive, so the business cannot produce and loses sales.. Dependence on one source makes the supply chain fragile.

6. Which is an advantage of a country specialising in products where it has low costs?
   • Less dependence on other countries
   • Protection from falls in world prices
   • No need for international trade
   • Higher productivity and lower prices for consumers through trade
   Show answer

   Higher productivity and lower prices for consumers through trade. Specialisation raises efficiency and total output, so goods can be traded more cheaply.

7. A smartphone is designed in the USA, uses chips from Taiwan and is assembled in Viet Nam. This is an example of
   • protectionism
   • a global supply chain built on specialisation
   • a trading bloc
   • import substitution
   Show answer

   a global supply chain built on specialisation. Each stage is done where it can be done best or most cheaply.

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Sources

• Pearson Edexcel International Advanced Level in Business specification (first teaching 2018)

Last updated 8 November 2026. Spotted a mistake? Tell us.