Question

Explain the benefits to companies begin by exporting their products. What steps should this executive team take to determine whether exporting this product is a wise business decision? Minimum of 500 words.

Answer 1

Exporting goods can be a very wise decision for a company because it brings in a lot of benefits which can help a company grow faster. Exporting of goods also offers a plenty of business opportunities to small and medium scale businesses. Producing goods and selling them only to the domestic market limits the profit margin for a company. The potential profits it could earn by selling its products outside the country is far more than the profits earned in domestic market.

The key benefits of export of goods to a business are as follows.

• Selling products to foreign countries mean earning in foreign currency. So when a business starts selling its product to a country with high foreign exchange rate then for that one product it gets high value compared to the domestic market. The cash flow of foreign currencies increases when a company exports.

• The consumer market gets diversified once a company starts exporting. Even when due to any reason even domestic market or economy starts to falter, the company remains unaffected as it will still have other markets worldwide where it can sell the products at a desirable price and earn healthy profits.

• The company can expand the lifespan of of its products by selling to other nations. Mature products that seem to quickly saturate in the domestic market will get a new lifecycle in the foreign market when introduced. This way a company can increase the sale of one product multiple times than the domestic sale.

• By offering the products in the developed and developing countries, a company not only expands it’s business circle but also widens the scope of earning worldwide name and reputation in the global market. Once the name gets established, the chance of getting financial assistance or potential loan guarantees from world known financial agencies increases manifold. These loans in turn will further help a company to fund other export initiatives.

• Lower production or manufacturing costs is another big advantage of export. The increase in the amount of sales would eventually lead to fall in production costs by following the theory of “economies of scale”. The large amount of output for a worldwide market would lead to specialization, innovation, research and development, and all of this together will pull down the company’s cost.

• Global competition will also help the company to gain business experiences and learn new approaches to stay ahead of the competition.

Before taking any final decision to export the company needs to assess its export potential and then judge whether it’s a wise decision for the firm. For that it needs to do certain things.

The company should check whether it is ready for export. It should evaluate accurately to understand if it’s fixed resources,variable inputs and management are capable to cater to the demands and requirements of global market. Meeting the global scale needs at a competitive price is the firstmost criterion to check whether it is the time to start exporting. For that you need to comprehend the capacity of the resources that already exist in your production team and then calculate the additional knowledge, manpower and resources you need to execute export operations.

As for human resource requirements, this also includes your legal resources because exports require a lot of legal paperwork, tax implications, international trade law compliance, etc.

Financial resources availability also needs to be checked by the company. If the costs for all of these covers the potential profit the company would earn after taking its business outside the domestic boundary , then it’s certainly a good decision by the company.