Why should you care about two words that may mean something on economical front? Because if you are reading this, capital dumping is already affecting you. It affects customers, entrepreneurs, businesses, investors, workers and the economy in general. You need to know how your choices now affect your choices in the future.
Capital Dumping is an international price discrimination in which an exporter firm sells a portion of its output in a foreign market at a very low price and the remaining output at a high price in the home market. In simple terms, this means that companies operate in losses in potentially huge and growing markets like India, China etc. and fund that loss by profit in other countries.
Dumping is harmful for the importing country if it continues for a long period. This is because it takes time for changing production patterns in the importing country and it's domestic industry is not able to bear competition. And when cheap imports stop or dumping does not exist, it becomes difficult to change the production lines again. If the exporting firm targets monopoly and dumps the commodity for removing his competitors from the foreign market, the importing country gets the benefit of cheap commodity in the beginning, but after competition ends and it sells the same commodity at a high monopoly price, the importing country incurs a loss because now it has to pay a high price. Monopoly also prohibits growth, competitive pricing and innovation.
What are some of the cases of capital dumping seen recently?
Amazon vs Diapers.com: Diapers.com had been successful in establishing it's market among US parents as a diaper selling startup. Amazon took notice and sought to eat the small fish. The big fish went on to buy it out and becoming the everything store. Read more details on this here.
Chinese Textiles: Labor cost in China is a fraction of those in other countries because of their demography. As a result, it can dump cheap textiles into foreign markets to compete with local manufacturers. Retailers and buyers see more profit, shifting the buying patterns to the Chinese suppliers.
Canadian Lumber: US Government announced Tariff on Canadian Lumber entering the states as an anti-dumping measure, designed to stop companies from exporting products cheaper than what is sold in their homeland.
When a welcome news comes that a foreign company is investing millions and billions of dollars in India, it generally actually means they are providing heavy discounts on their products and services to gain market share in the long run at the cost of that initial investment. Take Amazon for example. It is providing quality services, appealing returns and discounts to gain loyal customers at the cost of it's profits in the other markets. Reference.
China largely prevents entry of foreign brands, giving advantage to new local companies. That is why Facebook, Google, Uber, Amazon and other US companies have not been able to figure out how to set their roots in China.
Most of the time, you will get what you are looking for on the Internet. This post has been inspired by several amazing articles: Business Insider Investigation, Investopedia, Mahesh Murthy's blog, Balance, Smriti Chand and my Quora Answer.
To successfully write about fresh and diverse topics such as this, I will need detailed feedback on my writing style, content and research. Share that random thought you just had, your difficulties in understanding, your appreciation for my work or whatever, with me, here. By an inquisitive fool trying to make things simple ;)