Exporting, Advantages and disadvantages of exporting, Common Pitfalls of Exporting

Topics: Business, Strategic management, Management Pages: 5 (1002 words) Published: February 25, 2007
Companies that do business in expanding industries must grow to survive. Continuing growth means increasing sales, and a chance to take advantage of the experience curve to reduce the per-unit cost of products sold, thereby increasing profits (Wheelen et al, 2000).

A corporation can grow internally or it can grow externally. Nowadays, growth usually has international implications. A corporation can select from several strategic options the most appropriate method for it to use in entering a foreign market. There are six methods of entering a foreign market; exporting, licensing, franchising, joint ventures, turnkey projects, and wholly owned subsidiaries. Exporting is becoming increasingly popular especially for small businesses because of modern communication, transportation technologies, and gradual decline in trade barriers.

The international market is normally so much larger than the firm's domestic market that exporting is nearly always a way to increase the revenue and profit base of a company. By expanding the size of the market, exporting can enable a firm to achieve economies of scale, thereby lowering its unit cost (Hill, 2006). Firms that do not export often lose out on significant opportunities for growth and cost reduction (Pope, 2002).

Exporting is sending goods and services from one country to another (Daniels, et al 2006). According to Campbell (et al, 2002), it is the transfer of goods (services) across national borders from the home production facilities.

As said before, exporting is one of the methods to enter foreign markets and it has become a growing trend for companies which are large and small. There are many specific goals by doing this, but the main reason is to guarantee the long-term sustained growth for their business. But like other methods to enter foreign markets, it has advantages and disadvantages. According to Johnson (et al, 2005) and Hill (2006), these can be summarized as follows:

a) Advantages:

*No operational facilities needed in the host country. That is to say, it avoids the often substantial costs of establishing manufacturing operations in the host country.

*Economic of scale can be exploited.

*By using internet small/inexperienced firms can gain access to international markets.

b) Disadvantages:

*Does not allow the firm to benefit from the locational advantages of the host nation.

*Limits opportunities to gain knowledge of local markets and competitors.

*May create dependence on export intermediaries such as local agents and distributors.

*Exposure to trade barriers such as import duties. These tariff barriers can make exporting uneconomical.

*Incurs transportation costs.

*May limit the ability to respond quickly to customer demands.

c) Common Pitfalls of Exporting:

The firm wishing to export must identify and avoid the major problems that that are often associated with doing business in a foreign market. This is also necessary to understand the element in export strategy.

Common pitfalls include poor market analysis, a poor understanding of competitive conditions in the foreign market, a failure to customize the product offering to the needs of foreign customers, lack of an effective distribution program, a poorly executed promotional campaign, and problems securing financing (Ogbuehi et al, 1994).

Aside from these problems, there are some pitfalls that exporters often face. According to Daniels (et al 2006), these are; (1) failure to obtain qualified export counselling, (2) insufficient commitment by top management, (3) insufficient care in selecting overseas agents or distributors, (4) neglecting the export business, and (5) failure to treat international distributors.

To avoid some of the pitfalls of exporting such as lack of knowledge and access to distribution channels, many exporters use local agents or distributors. But, as mentioned above it is important to choose right agents or distributors and treat them....

References: Agarwal S., and Ramaswami, N. (1992), "Choice of Foreign Market Entry Mode: Impact of Ownership, Location and Internalization Factors", Journal of International Business Studies 23, No.1, p.2-5
Burpitt, W.J., and Rondinelli, D.A
Campbell, D., Stonehouse, G., and Houston, B. (2002), "Business Strategy", 2nd Edition, Butterworth & Heinemann, p.210-20
Cavusgil, S.T
Daniels, J.D., Radebaugh L.H., and Sullivan D.P. (2006), "International Business", Prentice Hall, p.504-534
Gowthhorpe, C
Hill, C.W.L (2006), "International Business", 6th Edition, McGraw-Hill, p.480-505
Johnson, G., Scholes, K
Julien, P.A., and Ramagelahy, C. (2003), "Competitive Strategy and Performance of Exporting SMEs", Entrepreneurship Theory and Practice, p.274-94
Ogbuehi, A.O., and Longfellow, T.A
Pope, R.A. (2002), "Why Small Firms Export: Another Look", Journal of Small Business Management 40, p.17-26
Wheelen, T.L
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