Export promotion has been defined as “those public policy measures which actually or potentially enhance exporting activity at the company, industry, or national level”. Although many forces determine the international flow of goods and services, export promotion is one of the principal opportunities that governments have to influence the volume and types of goods and services exported from their areas of jurisdiction.
Government of India, like in almost all other nations, has been endeavoring to develop exports. Export development is important to the firm and to the economy as a whole. Government measures aim, normally, at an overall improvement of the export performance of the nation for the general benefit of the economy. Such measures help exporting firms in several ways.
Export Promotion strategy promotes only the industries that have potential for developing and competing with foreign rivals. Since the goal is to trade abroad, there becomes competition, which in turn remedies the returns to scale. The main goal of the export promotion is to prepare the “potential” industries for competition with the foreign rivals. So the industries at their childhood must be protected for a while.
Exporters, facing the increasing competition, have to improve their technologies, their quality continuously in order to compete with their rivals. They have to make research and development studies.
Comparative advantage theory implies that a country must specialize in the production that uses the mostly possessed factors of production. By this way the structure of the overall industry is in harmony with the country structure. If the country has advantage in human capital then the EP strategy may be a remedy to the unemployment problem.
The indirect effect of the EP strategy appears in the export values of the countries. The increase in exports raises the foreign exchange inflow. However, there may be an increase in import expenditures due to the increasing income of the country, which in turn worsens the country’s trade balance.