Significance of Export Diversification in Global Export Scenario

Many countries rely on export diversification to overcome the woes of economic instability that arises out of unstable global demand for their products. A severe export instability can completely mar the economic growth of a country. In the earlier days, we have witnessed that export diversification is an agenda of developed countries. Very recently, small nations also started thinking and implementing trade diversification measures to strengthen their economy.
Export diversification is the process by which a country or business focuses on a wide range of products and services, instead of one single product.

In simple words, rather than selling one particular product, a business can satisfy the needs of a plethora of customers. Increasing the customer base assists economic growth and reduces the instability in earnings by focusing on the export of a single commodity. It’s an effective remedy to survive against unfavorable trade conditions. Export diversification is changing a country’s export structure to accommodate either more commodities for export or offering some add-ons on the existing commodity to protect against the instabilities in against earnings due to variations in global demand.

Indeed, there are some benefits expected from export structure amendments, particularly for developing nations. Here we take a look at a few of those advantages that come with export diversification.

Minimises Risks: A shift from the export other than primary commodities, that is, food, fuel and base metals reduces a lot of vulnerabilities, plus aims at enjoying many economic benefits. The risks of low earnings from dealing with export of one single commodity can be avoided, plus it gives some leverage for a business against the possible risks.

Greater Returns: It is evident that reliance on export of one single commodity during times of unstable returns would take a toll on the financial growth of business and the nation as a whole. As mentioned earlier, it is the means of getting more returns from exports either by embellishments made in the same commodity that has been exporting or changing the entire export structure by offering exclusively new products.

Increases Trade Volume: Allowing the inclusion of different items in a country’s export basket, aims at enhancing the total quantity of exports and it also plays an instrumental role in generating more foreign income. A great way to hedge against the variations in currency exchange rates also, adding new products is a real boon as opposed to regional diversification where more overseas markets are targeted.

In a nutshell, export diversification and economic growth are two sides of a coin. Economic growth is always targeted with export diversification. There are several models in place with regard to the export diversification that suits each country so that they can adapt and imitate existing products to take advantage of the trade situation prevailing in foreign markets.


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