What is Exporting?
Exporting is the simplest and most widely used mode of entering foreign markets.
In a simple way, Exporting is the process of sending or carrying of the goods abroad, especially for trade and sales. With Export entry modes, a firm’s products are manufactured in the domestic market or a third country, and then transferred to the host market via two broad options: indirect, and direct exporting.
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Types of Exporting
- Indirect Exporting
- Direct Exporting
Indirect exporting is exporting the products either in their original form or in the modified form to a foreign country through another domestic company.
For Example, various publishers in India including Himalaya Publishing House sell their products, i.e. books to various exporters in India, which in turn export these books to various foreign countries.
Direct exporting is selling the products in a foreign country directly through its distribution arrangements or through a host country’s company.
Although a direct exporting operation requires a larger degree of expertise, this method of market entry does provide the company with a greater degree of control over its distribution channels than would indirect exporting.
Advantages of Exporting
The reason for a company to consider exporting is quite compelling; the following are few of the major advantages of exporting:
- 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.
- 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.
- By going international companies will participate in the global market and gain a piece of their share from the huge international marketplace.
- 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.
- 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.
- 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.
- 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.
- 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.
Disadvantages of Exporting
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.
- 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.
- 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.
- 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.
- Though the trend is towards less export licensing requirements, the fact that some companies have to obtain an export license to export their goods makes them less competitive.
In many instances, the documentation required to export is more involved than for domestic sales.
- 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, and cultural barriers may be unavailable.