Any company, before committing its resources to venture in the export business, must carefully assess the advantages and disadvantages of exporting into a new market. Whether it is unintentional or a deliberate move companies need to evaluate and carefully assess the advantages and challenges of exporting before committing resources.
Any company, before committing its resources to venture in the export business, must carefully assess the advantages and disadvantages of exporting into a new market. While some companies enter the export business unintentionally after receiving order to purchase from foreign buyer that found their product. Others make a deliberate move and conduct thorough research before entering new market. Whether it is unintentional or deliberate move companies need to evaluate and carefully assess the advantages and challenges of exporting before committing resources.
Advantages of exporting
The reason for your company to consider exporting is quite compelling; the following are few of the major advantages of exporting:
Increased Sales and Profits. Selling goods and services to a market the company never had before boost sales and increases revenues. Additional foreign sales over the long term, once export development costs have been covered, increase overall profitability.
Enhance Domestic Competitiveness. Most companies become competitive in the domestic market before they venture in the international arena. Being competitive in the domestic market helps companies to acquire some strategies that can help them in the international arena.
Gain Global Market Shares. By going international companies will participate in the global market and gain a piece of their share from the huge international marketplace.
Diversification. Selling to multiple markets allows companies to diversify their business and spread their risk. Companies will not be tied to the changes of the business cycle of domestic market or of one specific country.
Lower Per Unit Costs. Capturing an additional foreign market will usually expand production to meet foreign demand. Increased production can often lower per unit costs and lead to greater use of existing capacities.
Compensate for Seasonal Demands. Companies whose products or services are only used at certain seasons domestically may be able to sell their products or services in foreign markets during different seasons.
Create Potential for Company Expansion. Companies who venture into the exporting business usually have to have a presence or representation in the foreign market. This might require additional personnel and thus lead to expansion.
Sell Excess Production Capacity. Companies who have excess production for any reason can probably sell their products in a foreign market and not be forced to give deep discounts or even dispose of their excess production.
Gain New Knowledge and Experience. Going international can yield valuable ideas and information about new technologies, new marketing techniques and foreign competitors. The gains can help a company?s domestic as well as foreign businesses.
Expand Life Cycle of Product. Many products go through various cycles namely introduction, growth, maturity and declining stage that is the end of their usefulness in a specific market. Once the product reaches the final stage, maturity in a given market, the same product can be introduced in a different market where the product was never marketed before.
Exporting Challenges
While the advantages of exporting by far outweigh the disadvantages, small and medium size enterprises especially face some challenges when venturing in the international marketplace.
Extra Costs. Because it takes more time to develop extra markets, and the pay back periods are longer, the up-front costs for developing new promotional materials, allocating personnel to travel and other administrative costs associated to market the product can strain the meager financial resources of small size companies.
Product Modification. When exporting, companies may need to modify their products to meet foreign country safety and security codes, and other import restrictions. At a minimum, modification is often necessary to satisfy the importing country's labeling or packaging requirements.
Financial Risk. Collections of payments using the methods that are available (open-account, prepayment, consignment, documentary collection and letter of credit) are not only more time-consuming than for domestic sales, but also more complicated. Thus, companies must carefully weigh the financial risk involved in doing international transactions.
Export Licenses and Documentation. Though the trend is toward less export licensing requirements, the fact that some companies have to obtain an export license to export their goods make them less competitive. In many instances, the documentation required to export is more involved than for domestic sales
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Market Information. Finding information on foreign markets is unquestionably more difficult and time-consuming than finding information and analyzing domestic markets. In less developed countries, for example, reliable information on business practices, market characteristics, cultural barriers may be unavailable.
Entering an export business requires careful planning, some capital, market know-how, access to quality product, competitive pricing strategy, management commitment and realizing the challenges and opportunities without them it is almost impossible to succeed in the export business. While there are no hard-and-fast rules that can help companies make decision to export and to become successful, understanding the advantages and disadvantages of exporting can help smooth entry into new markets, keep pace with competition and eventually realize profit.
References:
Breaking Into The Trade Game U.S. Small Business Administration & Global Source, Inc
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