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Exporting, Advantages And Disadvantages Of Exporting, Common Pitfalls Of Exporting

1007 words - 4 pages

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...

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