Export credit competition

Nature

The amount of sales in the international market depends, to a very great extent, on the facilities for deferred payments. For the importer, suppliers' credit may often be the chief, if not the only, available source of finance, particularly if he belongs to another developing country and is importing consumer manufactures or capital goods. Consequently, the payment terms become a crucial part of the contract, in addition to price and quality, and competition in the field of export credit becomes as important as pure price or quality competition. The severity of export-credit competition is such that a 'race' tends to develop, resulting in excessive borrowing on the wrong terms. This is particularly difficult for developing countries which may find themselves willing to ignore over-pricing and lower quality in favour of longer periods of credit.

Claim

The significance of this element of non-price competition in the export market is hard to exaggerate, particularly for the developing countries trying to increase their exports of capital goods. Owing to an enormous increase in the output of capital goods, importers appear to be in a strong position in the buyers' market for obtaining credit from the exporters of capital goods. In some developing countries facing balance of payments difficulties, the ease with which import licences can be obtained is often a function of how liberal the terms of deferred payment are.