Exporting

Imagine today's world without the possibility of exporting. Imagine how different our shopping habits would be! You would not have the opportunity to enjoy a German beer if you grew up anywhere other than Germany or munch on delicious American snacks if you are from another part of the world. Life would be so different and limited. Read along to learn more about what exporting means to companies and consumers worldwide.

Exporting Exporting

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Table of contents

    Exporting Definition

    Not all products that consumers want and need are being produced worldwide. Countries produce products depending on their resources. Based on their resources, they estimate costs, expenses, revenues, and profit and decide whether they should sell the product to other countries or not.

    The process of producing goods in one country and selling them to another is known as exporting.

    Exporting forms an integral part of international trade. Exports help countries expand their market globally. This way, customers also have access to products from around the world. Some countries can grow globally faster than other countries. The ease of exporting and expanding into other areas of the world depends on various factors, such as the political and economic conditions of the nation. We will take a closer look at this concept in the following sections.

    Exporting Exporting Example StudySmarterFig. 1 - China and USA Exporting

    Export Types

    When it comes to exporting, there are two main types - direct exporting and indirect exporting.

    Exporting Types: Direct Exporting

    Direct exporting is a type of exporting where the company directly sells products to overseas customers. All the deals are done directly between the companies without any intermediaries. This way, the companies have more control over the processes. Direct exporting also increases profits as the intermediary is eliminated, reducing costs. Direct exporting also creates a stronger bond between the supplier and the buyer, and maintaining business relationships is crucial for business success.

    Despite the advantages mentioned above, direct exporting also demands more resources from the exporting company. This exporting type requires more personnel, resources, and time than it would if the export process were to happen through an intermediary.

    Direct exporting is the best strategy for companies trying to penetrate new markets globally for the long term.

    Exporting Types: Indirect Exporting

    Indirect exporting is a type of exporting practiced by companies that sell products to other countries with the help of an intermediary. The company has various intermediaries, such as foreign agents, export merchants, expert management companies, etc. Here, businesses have lesser control over the processes.

    The intermediaries are present in the country producing the product. They are responsible for sending the products to the customer's country and finishing all the paperwork, transport, and marketing. The first intermediary may sell directly to the customer or the customer's intermediary.

    Indirect exporting is less expensive than direct exporting. It is easier to cancel indirect exports than direct exports. The main disadvantage of indirect exporting is the transfer of power to the intermediaries. As a result, companies may lose the opportunity to build long-term relationships and offer after-sales services to customers.

    Indirect exporting is a strategy best suited for companies trying to increase profits quickly.

    Exporting Strategy

    Setting up the right export strategy is essential for all businesses involved in exporting. Strategy formulation depends on the business's goals. Direct exporting is preferred if the firm plans long-term trade with a foreign country or company. In cases of short-term trade, companies opt for indirect exporting.

    The steps involved in developing an effective exporting strategy are as follows:

    1. Starting the market expansion

    Companies planning an export must first set up a market expansion program. Leaders should be assigned their tasks, and the organization should establish an export team. They must also define actions that need to be taken to expand into the desired market. The business will also determine a long-term financial plan with its objectives and review and assess the results to make changes if needed.

    2. Selecting products with export potential

    Marketers must then select the products with the most potential of thriving abroad from their product line. After determining the products, it is crucial to identify and form good relationships with the export promotion organizations. Marketers then collect information and screen the market to examine its potential. The collected information is then analyzed, and the best-suited markets are selected. The company then evaluates this information further and changes its product and market selection if its previous decisions were incorrect.

    3. Developing market-expansion plans

    This step focuses on building market expansion plans. Marketers review the different entry modes, and the best-fitted strategy is selected.

    After selecting the markets, the organization identifies the most effective distribution channels. The company will then have to find distribution channel partners. The next crucial step is identifying direct and indirect competitors in the new market and understanding their products and customers. Understanding competitors' pricing strategies and distribution channels will also help the company learn more about the overall market.

    Once all the markets and their competitors are analyzed, the different channels of distribution, pricing strategies, products to be exported, etc., should be summarized. The following steps include determining the objectives and actions to be taken to start exporting. Marketers then evaluate all decisions and summaries to make changes if necessary.

    4. Developing an export organization

    The next step includes determining an export organization. Here, marketers should:

    • Develop and adjust the export policies for increased efficiency,

    • Set up export teams throughout the company,

    • Hire the necessary staff and provide the required training,

    • Select the most suitable export service organization,

    • Identify necessary approvals.

    There should be an understanding and coordination among the different organizations. Therefore, the company must also develop new communications guidelines.

    This stage also involves planning and organizing promotions for the new target markets and for new potential customers. Marketers must identify and build a contact base in the new market and develop new communications and response channels with distributors.

    Finally, similarly to the previous stages, the company must evaluate the strategies formulated in this step and make changes if necessary.

    5. Designing a distribution network

    The following step includes designing a distribution network. For this stage to be successful, marketers must:

    1. Find and recruit distribution partners,

    2. Filter and process all the potential distribution partners,

    3. Select partners that can match the company's budget and scale,

    4. Discuss terms and agreements with the partners and reach an agreement,

    5. Evaluate the terms and sign a contract after consideration.

    6. Starting the Export

    It is now finally time to start exporting! During this last stage, marketers should:

    • Implement the export strategies designed in the earlier stages,

    • Respond to sale inquiries and finalize the deals,

    • Discuss the quantity and pricing strategies that work for both companies,

    • Carry out negotiations that may be required for specific terms and sign the agreements,

    • Prepare for the shipment and inspections,

    • Clear all the required paperwork needed for the export and start shipping,

    • Collect payment based on agreed terms,

    • Evaluate the process and how all the workings have panned out for the company,

    • Take corrective measures if needed.

    Exporting Advantages

    Exporting and moving on to new markets can be challenging for a company, but exporting has its merits. We outline the key advantages of exporting below.

    Exporting Advantages: Global Market

    Exporting's most significant advantage is the opportunity to grow in new markets and gain customers worldwide. Without exporting, companies may be limited to one market, reducing their growth potential. Selling in different markets can help companies grow their brand reputation and increase revenues.

    Exporting Advantages: Higher Revenue

    Companies can charge a significantly higher price for products in a foreign market. This is because of the exclusivity of the product and possible arbitrage between the countries. However, it is essential to note that the potential price difference depends on the product and the market the company exports to.

    Exporting Advantages: Government Support

    Governments often encourage exports as they boost the international economy and increase the flow of foreign currency into the exporting country. This trade can work in favor of the country's economy.

    Exporting Advantages: Increased Life Cycle

    Exporting products will help in expanding the life cycle of many products. When a product reaches its maturity phase in one market, marketers can introduce it to a new market, extending its life cycle. This process allows businesses to sell the products for longer and increase revenues.

    Check out our explanation of the Product Life Cycle to learn more.

    Exporting Disadvantages

    Despite many advantages, companies that engage in exporting may face the following disadvantages.

    Exporting Disadvantages: High Initial Costs

    The initial costs to set up an exporting system can be very high. This is because exporting requires extensive market research, recruitment of personnel, training, finding a distribution partner, more promotions, and so on.

    Exporting Disadvantages: Documentation and licenses

    The process of starting an exporting business can be very strenuous. It requires many documents and licenses. The company must also abide by all the laws and legislation of the country it exports to. All the actions carried out in the country must be legal and in accordance with the country's acceptable business principles.

    Exporting Disadvantages: Product Adaptation

    Some products may require adaptation to sell better in that market. All the products must meet the country's quality and safety rules and regulations. The company must eliminate any component considered offensive to consumers or their culture in the new market.

    Exporting Disadvantages: Exchange Rate Fluctuations

    The fluctuation of exchange rates can affect a business's profits - if the currency of the country the company exports to falls, consumers' purchasing power will also decrease. This fluctuation may lead to a decrease in the demand for the company's products.

    From a consumer's perspective, exports play an essential role, as it allows them to experience goods from all over the world. From a business perspective, exporting enables them to expand their market reach and increase their profits.

    Exporting - Key takeaways

    • Producing goods in one country and selling them to another is known as exporting.
    • The two main types of exporting are direct exporting and indirect exporting.
    • Direct exporting is a type of exporting where the company directly sells products to overseas customers.
    • Indirect exporting involves an intermediary.
    • The steps involved in developing the best export strategy are as follows:
      • Starting the market expansion,
      • Targeting products with export potential,
      • Developing market-expansion plans,
      • Developing an export organization,
      • Designing a distribution network, and
      • Starting the export.
    • The advantages of exporting include higher revenues, global reach, government support, and an increased product life cycle.
    • The disadvantages of exporting include high initial costs, documentation and licenses, product adaptation, and exchange rate fluctuations.

    References

    1. Fig. 1 - China and USA Exporting (https://www.pexels.com/de-de/foto/flagge-usa-geschaft-markt-4386371/) by Karolina Grabowska (https://www.pexels.com/de-de/@karolina-grabowska/) is licensed by CC (https://www.pexels.com/de-de/lizenz/)
    Frequently Asked Questions about Exporting

    What are the types of exporting? 

    The two main types of exporting are direct and indirect exporting. Direct exporting is a type of exporting where the company directly sells products to overseas customers. Indirect exporting is a type of exporting practiced by companies that sell products to other countries with the help of an intermediary. 

    What is an exporting strategy? 

    An exporting strategy decides how the company will export to a foreign country and which country it will export to. It determines the pricing strategies, the products that will be sold, the markets it will sell to, and how the products will be exported.

    What are the benefits of exporting? 

    The advantages of exporting include:

    • Expansion into a global market,
    • Higher revenues,
    • Government support,
    • Increased product life cycle.

    What is a disadvantage of exporting? 

    The disadvantages of exporting are as follows:


    • High initial costs,
    • Documentation and licenses,
    • Product adaptation,
    • Exchange rate fluctuations.

    What is exporting? 

    Not all products that consumers want and need are being produced worldwide. The process of producing goods in one country and selling them to another is known as exporting. 

    Test your knowledge with multiple choice flashcards

    Exporting forms an integral part of international trade.

    __________ is a type of exporting where the company directly sells products to overseas customers.

    Companies have more control with this type of exporting:

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