In well-established economies, the balance of trade and balance of payments gained from conducting import and export activities is crucial if a country is to maintain a healthy economic environment for business to thrive. These results to cash inflow from external trade groupings, a concept that most growing economies rely on in order to maintain a favorable environment. However, economies may also be hindered by different factors of trade, including external trade environments, currency fluctuations and trade laws of a given country.
This research presents a proposal for Solartech, a company manufacturing solar plates used for constructing houses. These plates are built using transparent like glass materials that can be used to build almost every section of a building. In most cases, these plates are mounted on roof tops to convert light energy to electrical energy for domestic and commercial use. The difference with others is that it can be used in constructing side walls, window panes and roof tops, a distinct advantage over others, since it only relies on light to generate electric energy.
These efficient green energy solutions present a noble idea, given the recent developments in construction technology. The company intends to design Solartech plates which will be shipped to Malaysia given the country’s appetite towards green based energy solutions. This also coupled with certain economic factors of trade, makes the proposal economically viable based on macro and micro economic factors in Malaysian. In the first instance, the country experiences a great desire in construction technology, with many buildings designed to depend on green energy solutions. This is a prime factor that indicates how a market is potential for business activities.
Solartech’s primary competitive advantage is its ability to convert light into electrical energy. This is a key feature in Solartech’s green energy solutions, compared to its only competitor currently in the market, Telsa solar tiles manufactured by Telsa motors which can only convert sun rays into electrical energy for domestic use only. This distinct feature is critical for the company which in turn will benefit the export activity of the firm.
In analyzing the recent developments initiated by the government in the infrastructure segment, Solartech tends to resonate well with the taste of the population hence becoming an item, beneficial for commercial and domestic use. Some of the country’s initiatives which make it fit the population and the government desire is the Economic Transformation Program (ETP) and the Government Transformation Program (GTP). These programs are aimed at re-inventing the economy, in elements of infrastructural upgrade, and the revitalization of certain areas by constructing green buildings and towns, hence creating a niche market for Solartech’s products.
In support of such mega construction initiatives, the country has implemented specific trade laws to liberalize, open the market to exporters and encourage foreign direct investments to help it realize its goals. This has been implemented through specific measures such as in tariff rates and trade laws which help to increase import export activities. A key trade law in tariff construction which benefits suppliers of green energy solutions is in customs laws, which pertains the importation of green energy solutions that Solartech trades in. In this, Malaysian customs authority being the revenue collection agency and trade facilitation arm of the government, implements customs related trade laws on the construction of green energy solutions.
Apart from the trade policies related to import businesses, that will be of immense advantage to Solartech, the ministry of international trade and industry also pursues a general trade policy to stimulate the importation of such green solutions. Based on a strong multilateral trade system based on GATT, the country has liberated its market facilitating an expansion and partnership with other countries leading to an open based market. However, in as much as there is great potential, Malaysia has implemented certain trade controls mainly for the import segments. This has largely been implemented through the customs Act of 1967 which in a way controls import quotas from international markets in a way to protect and encourage the expansion of the local domestic market. In this, the government is able to control import operations based on its developmental goals.
To facilitate trade, attract foreign trade investments to benefit the country, the country’s customs authority has implemented subsidies and tax relief elements for firms that supply energy based solutions to the country. This, implemented by the ministry of international trade and the policy unit, has entrenched trade laws and policies aimed at attracting suppliers for such solutions. In this arrangement, the government foresees itself achieving its construction objectives, in that it levies low tariff rates to such products while also implements quotas for specific countries that supply the products. By doing this, Solartech’s export activity is enhanced in that demand for such products increase, while at the same time low tariff rates and duty encourage foreign direct investments which is a plus to the economy, and the attainment of the goals aimed at uplifting the economy.
Economic stability of a country also depends on the currency markets in that particular country. This is particularly composed of financial institutions, banks and other financial organizations which participate to maintain stability and an efficient regulated financial system (Gandolfo, 2013). This would facilitate payments to companies supplying products to the Malaysian economy, regulate currencies and maintain an attractive investment climate especially for import export activities (Luca, 2007). The stability of the Malaysian currency is critical given the financial situation as observed after the U.S elections, with the Malaysian Ringgit being the hardest hit currency in the Asian continent. This has affected the currency market with the American dollar climbing to much higher rates, which in turn will affect importation of Solartech’s products. This is as a resultof the strength of the dollar where Malaysian importing companies would reduce imports due to high exchange rates against the dollar.
Central bank operations
A key institution that helps on maintaining the stability of the financial system is the central bank of Malaysia. One of the functions of the bank is to monitor and contain the foreign exchange situation, in order to stabilize the import export operations. In this, the bank strivesto intervene in the exchange rate volatility to prevent further rise of the dollar against the Malaysian ringgit.In instances where this is not normalized, the net imports of Malaysia would be much lower, directly affecting the ability of Solartech to export products to foreign countries (“Exchange Rates: How Money Affects Trade” n.d.). This would meana reduction of exportsdue to low demand of Solartech’s products as a result of a reduction in the purchasing power of importers.In the cycle of the import export business, changes in currency markets and the operations of a country’s central bank would affect the demand for products. It is important to maintain the macro factors of an economy in order to achieve a substantial economic growth and minimal interferencesto the global supply chain of internationally traded products.
Exchange Rates: How Money Affects Trade. (n.d.). Retrieved November 25, 2016, from http://www.econedlink.org/lesson/342/Exchange-Rates-How-Money-Affects-Trade
Gandolfo, G. (2013). International Economics II: International Monetary Theory and Open-Economy Macroeconomics. Berlin, Heidelberg: Springer Berlin Heidelberg.
Luca, C. (2007). Trading in the global currency markets. New York: Prentice Hall Press.