Basic industries focus on exporting products and services rather than domestic sales, attracting foreign money and creating a vibrant economic chain. However, relying too heavily on basic industries can be risky if the industry struggles.
A basic industry is an industry that focuses on the production of products and services for export, rather than for domestic sales and circulation. Such industries play a key role in their regional economies and sometimes occupy an outsized portion of market share. This can create problems when an export industry goes bankrupt or when political situations change and limit the market for exported goods. Many nations maintain statistics on their import and export activities and keep a close eye on their basic industries.
Activity in the basic industry sector actively encourages the inflow of foreign money. When companies export, they receive money from new sources in return and can invest this in creating and developing jobs. The internal circulation of products and services tends to have a limited market, and while money can move within the market, large capital injections from external sources are not available. In basic industries, external wealth flows into a nation and can be accompanied by expertise, positive relationships, and so on.
Basic industries can produce a wide variety of goods. An example is wheat in the Midwestern United States. Much of the corn, soybeans, and wheat grown in the United States is an industry staple produced specifically for export, not for domestic use. These goods are sold abroad to nations with inadequate production. Some of these nations in turn produce goods that end up in the United States, such as finished tofu made with soybeans.
Economically, basic industries can be an important part of the national economy. The demand for goods and services from abroad also impacts the global economy. At every step from basic industry to the final consumer, middlemen profit from activities such as shipping goods from one location to another, storing them, and repackaging cargo for sale at new locations. This can create a vibrant economic chain that can falter if there is a problem at one end of the distribution.
Companies can determine the best mix of exports and domestic sales for their needs. Some try to divide the two more or less evenly, while others may focus on one or the other. Domestic demand can be inherently limited, while basic industries can take advantage of demand from a wide variety of locations to create a stable market for their products. This flexibility can also become a threat when a local economy relies on basic industry, as people could disproportionately suffer if industry starts to struggle.
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