Advantages and Disadvantages of Exporting

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Introduction

Companies willing to enter a new market with their products or services have many options and one of them is exporting. I divided exporting into two sub-groups by comparing financial involvement of a company and taking into account their strengths and weaknesses. Then I compared exporting with other market entry strategies, so I could gain further insight to advantages and disadvantages of exporting. In the conclusion I outline which types of exporting fit SME’s and which fit MNE’s.

Low cost exporting (“AT THE GATE” SELLING, EXPORT HOUSES, PIGGYBACKING, AGENTS, DISTRIBUTORS, FRANCHISES)

Advantages

Low cost exporting requires only a small direct investment, if any. It usually carries low risks of financial loss and companies can increase their revenue without additional costs for marketing. Products can be simply bought at the company’s production plant and be exported, even without an agreement with the manufacturer, which is the easiest way. Other than that, there are several ways companies can make agreements with partners (Stock J.R., Lambert D.M., 1983). These partners usually have already established large international network and they have knowledge of the foreign market, purchasing practices and government regulations, which is very helpful (Stock J.R., Lambert D.M., 1983). Products need to be sold in a way that attracts customer attention. Exporting partners usually carry a wider product range, therefore they can offer attractive sales packages. Administration and transport costs are spread over all products sold by partner, which helps to keep them as low as possible (Terpstra, V., 1990). By franchising, a company also gains the ability to gain bigger market share, international growth in addition to low risks of proven business (Duckett, B., 2008).

Disadvantages

A low-cost exporting company usually has very little control. It has limited control over how the products are sold, to whom they are sold and sometimes not even in what market they are sold. Companies operating this way are highly dependent on their partners (Stock J.R., Lambert D.M., 1983). These partners may specialize in geographical areas, products or customer types, which can be different from company’s preferences. Problems may also occur with different branding and types of customer service (Terpstra, V., 1990). If a company is exporting special products, partners could prefer products with immediate sales, rather than the special ones, which are more difficult to market (Web in France team. 2008). They may have too many products listed and not enough attention is given to company’s product. They can also carry competitor’s product due to higher preference (Terpstra, V., 1990). Partners usually require exclusivity (González-Hernando S., Argüelles V.I., Gutiérrez J.A.T., 2003) and it is difficult to separate from them. They have well established networks and after separation they can get similar product and become a very strong competitor (Stock J.R., Lambert D.M., 1983). Selection of partners can be problematic as many of them do not have sufficient networks or capabilities (Stock J.R., Lambert D.M., 1983). Low cost exporting carries lower income. Partners carry most of the risks and costs associated with marketing and sales, therefore they ask for higher commission (Terpstra, V., 1990). Franchising requires some investments in training, help with management and needs to be done by well know brand (Duckett, B., 2008). This type of exporting also carries high risk. If one franchise has bad reputation, it can harm the whole chain (5 Star Control. 2012).

HIGH COST EXPORTING (OWN SALES AND MARKETING OFFICES)

Advantages

High cost exporting usually carries nearly full to full control over the business (Li, P.P., 1998).

Disadvantages

There are high costs associated with initial investments and marketing, therefore there is a high risk of financial loss if the product is not so successful as expected....
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