Import Substitution

Government strategy that emphasizes replacement of some agricultural or industrial imports to encourage local production for local consumption,
rather than producing for export markets. Import substitutes are meant to generate employment, reduce foreign exchange demand, stimulate innovation, and make the country self-reliant in critical areas such as food, defense, and advanced technology.
SUBSTITUTING PORDUCTS THAT ARE IMPORTED WITH DOMESTIC ONES AS THIS REDUCES COST OF IMPORT RESULING IN SAVINGS OF THE COUNTRY IT ALSO MAKES THE COUNTRY SELF RELIANT N ENABLES TO INCRESE ITS EXPORT IT ENCOURAGES DEVELOPMENT OF DOMESTIC INDUSTRIES ENABLING IN FASTER GROWT OF THE ECONOMY ,REDUCES UNEMPLOYMENT POVERTY & IN A WAY CONTRIBUTES IN THE NATIONAL INCOME.
IMPORT-To bring goods or other things in one country from another Substitute -- A thing used in place of another Import Substitution -- means replacement of goods and services for one an other Import Substitution is defined as An attempt by a country to reduce imports (and hence foreign exchange expenditure) by encouraging the development of domestic industries regardless of inefficiencies
The notion of import substitution was popularized in the 1950s and 1960s as a strategy to promote economic independence and development in developing countries (Bruton 1998). This initial effort failed due in large part to the relative inefficiency of 3rd world production facilities and as a result their inability to compete in a globalizing marketplace. Since then, those countries and the rest of the world rely a great deal on foreign-produced products and, as globalization trends suggest, an export oriented approach has became the norm. Despite this, in the 1970s, import substitution came into the U.S. consciousness as a means to promote national (Buy American campaigns) and regional development and the debate continues as to its effectiveness
Information Sharing and Networking-Matching local producers Buy Local Programs- Encouraging firms and consumers to purchase local products rather than imported Industry Targeting- Attracting firms and business that will engage in or import substitution
Information Sharing and Networking

Actions Identify imported inputs Search for same inputslocally Link suppliers and buyers
Advantages Takes existing opportunities Cost savings forlocal suppliers Flexibility of supply chain Engages local businesses Examples Oregon market place Washington market place Industrial supplies office
Industry targeting
Actions
Analyses opportunities, expert opinion Provides information to entrepreneurs Encourages import substitution
. Thorough procedure Engages local entrepreneurs Generates useful information for others
Advantages
Examples
Centre for economic development university of Alaska at Anchorage. British Columbia Business Service Centre.
Active industrial policy by the government

State Owned Enterprises (e.g. PEMEX, CFE, etc.) Develop technology internally Limited access to Multinationals
Policies State Owned Enterprises

Pros: Their administration seeks after National interest Economies of Scale Promote growth Cons: Under pricing Inefficiencies Corruption
Policies Protectionism
Export Subsidies Foreign Exchange Controls Import Licensing
Industrial Incentives
Quotas
Tariffs
Policies Fiscal and Monetary Tools

Subsidies Tax Cuts
Deficits
Accommodating Monetary Policy Development Banks
Procedure for clearing imported goods is very difficult and time-consuming. Renewal of license is based on the previous years consumption and imported quantity is about one years requirement Infrastructure problems viz. port facilities, cargo handling, etc. Different commercial practices and commodity specifications Problem of different technical representation in foreign countries Limited foreign exchange resources to settle external bills Lack of experience and technical skills Needs supply of capital and willing entrepreneurs High quality materials are not available locally Due to lack of technical know- -how the goods produced is not as good as the imported one, despite of high price The quantity required is too small Power cuts, informal voltage fluctuations etc. delay the delivery of goods Natural calamities like flood, earthquake etc High lead time Profit margin of 100% Bad after sales services
ENERGY EFFICIENCY
Energy efficiency provides perhaps a non-intuitive approach to plugging capital leakage. Many communities get their energy by purchasing from providers outside their region. Those communities however are unlikely to be able to produce such energy for themselves so one cannot hope to substitute externally produced energy for locally produced energy. The Rocky Mountain Institute estimates that 20% of a communitys gross income is spent on energy and 80% of that spending leaves the local area. Instead, communities can simply require less externally produced energy by becoming more energy efficient. The money that is saved through the energy efficiency programs is effectively new moneymoney that would otherwise not have been availableand, though not guaranteed, it is available to be spent locally. Example-Osage, Iowa.
Its benefits can be difficult to measure since import substitution strategies are often lumped with other strategies and its effects are difficult to tease apart. Local industries often cannot take advantage of economies of scale in manufacturing their products. For example, a manufacturer who mass produces shoes with streamlined processes and exports them all over the world may be able to sell shoes at a lower price than a local shoemaker and as result the local shoemaker may not be able to compete. The responsibility of import substitution is shared by the government and the industry. The materials manager is incharge of source development.

Import Substitution

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What are some strategies for import substitution?

What are some advantages and disadvantages of import substitution?

Government strategy that emphasizes replacement of some agricultural or industrial imports to encourage local production for local consumption,

Information Sharing and Networking

Active industrial policy by the government

Policies State Owned Enterprises

Policies Fiscal and Monetary Tools

Accommodating Monetary Policy Development Banks

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