What is a quota? Definition and meaning
The definition and Meaning of a quota, in the world of business and economics, has two meanings: 1. A government-imposed restriction on trade, such as an import – a quantity that must not be exceeded. With this meaning it is a form of **protectionism. 2. A proportionate part or share, such as a sales quota, i.e. the target that companies’ sales people must hit each week, month, quarter or year.
** Protectionism is an attempt by a nation’s government to restrict imports or boost exports by imposing quotas, tariffs and other barriers to trade.
When a quota is imposed on a specific import, the aim is usually to protect domestic suppliers. For example, if Country A imposes a limit on the number of cars imported from Country B to, say, 5,000 per year, it is limiting the supply, which also raises the price, thus helping domestic car makers.
An import or export quota may be a limit on the number of goods, or the total monetary value over a specific time. Sometimes quotas are aimed at specific countries rather than products.
The vast majority of economists today believe that import quotas, tariffs and other obstacles to free international trade harm the economy of the government that imposes them.
Trade quotas are not the same as customs or tariffs, which are taxes placed on exported or imported goods and services leaving or entering a country, but place no limits on quantities traded. However, both tariffs and quotas are protective measures that governments impose in their attempt to improve their country’s balance of trade.
According to ft.lexicon.com, to define a quota is:
“A limit on the quantity of imports of a certain good. Some quotas are allocated to specific countries, while others are universal.”
Pros and cons of quotas
All protective measures imposed by governments aimed at reducing imports run the risk of triggering trade disputes or wars between countries.
In 2014, there was a trade dispute between the United States and China regarding silicon solar panels which were being produced by China and exported to the US. The US had proposed to raise the 19% tariffs on the Chinese solar panels to 35%.
China responded to this proposal by threatening to raise tariffs on a range of goods imported from the US. It also started hounding the offices and facilities of American multinationals in China with regulatory license problems and sudden inspections.
Despite what current economists tell us, there are dozens of examples across the world of economies that have benefited from quota measures on imported goods. Every single country across the globe has imposed them.
Even though most economists today warn that quotas and other forms of economic protectionism are risky and tend to cause more problems than solutions for a country’s economy, economic historians point out that during the 19th century, the dominant European countries grew considerably faster on the back of protectionist policies and with freer trade.
During the protectionist era of the 1870s and 1890s Europe, GNP (gross national product) in the region grew by 2.6% annually, compared to just 1.7% during the continent’s ‘liberal period’ in the middle of the 19th century, when tariffs were considerably lower.
Protectionists also argue that ‘infant’ domestic industries – those that are just getting off the ground – need protection from giant foreign multinationals in order to develop and grow.
Sales quotas are individual sales target figures assigned to each sales person, sales unit, distributor, or dealer in a company or territory.
Most sales quotas are related to weekly, monthly, quarterly and annual performances. They are either set in monetary figures (dollars, euros, pounds, etc.) or in the number of products or services sold.
In sales, a quota can mean a target that your managers set you – you have to meet that target by the end of a specified period, such as a week, month, quarter or year. The term can also refer to a quantity that you set yourself, as in: “During my diet, I made sure I consumed my daily quota of fruit and vegetables.”
Sales people are managed by sales quotas, as are their managers and directors. That is why sales managers spend a great deal of time setting ambitious but achievable goals for their reps. It is also why sales reps are under a great deal of pressure to meet their sales quotas at the end of each specified period.
According to superoffice.com, a surprising 23% of all respondents in an extensive survey said they did know know whether their teams had achieved their sales quota. The study also reported that sixty-seven percent of all sales people regularly miss their quota.
Video – Import quota – Definition
This Ecnonplus Dal explains what effect an import quota may have on the market.