Direct exporting

By: Sneha Shah

Exporting to a foreign market is a strategy that many companies follow for at least some of their markets. Few countries offer a large enough market to justify local production. Exporting allows a company to manufacture its products for several markets centrally and thus achieve economies of scale. When this occurs, a firm can realize more profits, lower its prices, or sometimes do both. Hence, exporting is made all the more cost-effective.

Exporting normally begins as domestic sales of a product begin to slow down due to home market saturation. Exporting usually begins by simply shipping a product on receipt of payment, but as sales expand an export office may be set up in the domestic office, then sales offices may be set up overseas. As its simplest the product is manufactured in the home country and then marketed abroad.

The costs of exporting may be reduced by ‘piggyback’ distribution (i.e. by using an already established distribution network in the overseas country like a chain of stores). Direct exporting may be carried out using a local agency. This has the benefit of exploiting local knowledge and links, but will mean that a commission has to be paid which will reduce profitability.

Advantages of exporting include that it is least expensive and least complicated. Profits need not be shared. Risk is limited to the value of the shipment.

Disadvantages and potential problems include lack of market knowledge and complex distribution arrangements. Moreover, it is remote from customers and hence difficult to control.

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