UNIT 4.

EXPORT AND IMPORT STRATEGIES

The international market is larger than a firm’s domestic market. Hence, exporting is a way of

increasing the revenue and profit of a company.

Many would-be exporters are often intimidated by the complexities and mechanics of exporting to

countries where business practices, language, culture, legal systems, and currency are all very

different from the home market.

Some exporters tend to underestimate the time and expertise needed to cultivate business in

foreign countries.

I. Few realize the amount of management resources that have to be dedicated to this

activity.

II. Many foreign customers require face-to-face negotiations.

III. An exporter may have to spend months learning about a country’s trade regulations,

business practices, and mores before a deal can be closed.

IV. Exporters often face voluminous paperwork, complex formalities and many potential

delays and errors.

Where to export?

I. Companies usually select neighboring markets to their initial country of origin and

markets in the same economic region.

II. Market research should start with a general approach to the market potential: GDP,

GDP per capita, GDP growth, infrastructures and overall stability.

III. The final step should be to developed a market research of the specific industry of

interest.

1. WHY TO EXPORT?

Companies export in order to:

 Increase sales

 Achieve economies of scale in production

  Diversify markets

 Minimize risk

All of these objectives are ultimately motivated by the potential for greater profitability.

Companies can often sell their products at a greater profit abroad than at home due to

differences in the competitive environment or differences in stages in the product life cycle in

foreign markets. Government actions at home and abroad in such areas as tax policy can also

affect profitability and stimulate exporting.

1.1. SHOULD WE EXPAND INTERNATIONALLY?

What does the company want to gain from exportin?

- Sales volume, risk distribution, innovation, margin…

- Other reasons for expansion could be learning from international markets or reacting to a

competitor’s move.

Too often companies focus on minimizing risk and investment, while looking too much towards

revenue and ignoring profitability. International markets carry a higher degree of uncertainty and

almost always will be necessary for the company to change/adapt its marketing strategy.

2. EXPORT STRATEGY

The probability of exporting successfully can be increased dramatically by taking a handful of

simple strategic steps.

a. It helps to hire an experienced export professional to help with the identification of

opportunities and navigate through the web of paperwork and regulations.

b. If often makes sense to initially focus on one market, or a handful of markets. The firm

that enters many markets at once runs the risk of spreading its limited resources.

c. It is recommended to enter a foreign market on a small scale to reduce the costs of any

subsequent failure. Entering on a small scale provides the time and opportunity to learn

about the foreign country before making significant capital commitments.

d. The exporter needs to recognize the time and managerial commitment involved in

building export sales and should hire additional personnel to oversee this activity.

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 e. In many countries, it is important to devote a lot of attention to building strong and

enduring relationships with local distributors and/or customers.

f. It is important to hire local personnel to help establish the firm in a foreign market. Local

people have a greater knowledge of the market, its tricks and culture.

g. It is important for the exporter to keep the option of local production in mind. Once

exports build up to a sufficient volume to justify cost-efficient local production.

2.1. DIRECT SALES

The exporter works directly with individual customers, maintaining full control without any

intermediaries. This approach is best suited for scenarios with a small number of customers

where an intensive customer service isn’t required. However, transportation costs might be

elevated as shipments to various customers aren’t consolidated. Selling abroad could face

challenges with sales pressure, thus limiting the sales potential compared to other strategies.

Additionally, there’s a heightened risk of payment issues due to limited market insights.

2.2. AGENT

Given that most agents operate on a commission-only basis, this strategy proves highly cost-

effective. However, granting exclusivity should be selective, limited to specific territories or

distribution channels (customer groups), contingent upon meetings sales targets. Effective

control over agent performance and market intelligence gathering are essential when employing

this approach. Similar to direct sales, transportation costs may still pose a significant factor.

2.3. DISTRIBUTOR

Distributors play a pivotal role in a company’s expansion by managing sales and logistics within

each market directly. However, this strategy comes with notable drawbacks. The expanding

company relinquishes control over pricing and market information, and unless it actively monitors

these aspects, it risks losing valuable insights if the distributor relationship ends. Nevertheless,

this approach proves efficient in terms of transportation, as goods, are consolidated, into a single

shipment for the distributor to manage its own logistics thereafter.

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3. WHY TO IMPORT?

Prior to component manufacturing, the procurement of raw materials is essential. This process

becomes particularly critical for countries with limited natural resources, such as Japan and many

European markets, where a significant portion of uranium, crude oil and agricultural products

must be sourced internationally.

Importing raw materials involves risks akin to those encountered by exporters, including: cultural

and language barriers, transportation and logistics, quality and delivery concerns, currency

exchange risk, political risks…

3.1. IMPORT STRATEGY

Importation requires a certain level of expertise in navigating regulatory institutions and

managing documentation, which some firms may prefer to avoid. Consequently, importers may

opt to engage the services of an import broker to streamline the process.

Strategic considerations become particularly crucial in the long term. For instance, when the US

dollar is strong, US companies may find it advantageous to increase their sourcing from

overseas. This was exemplified in the early 1980s when the US dollar was robust. In response to

competition from foreign manufacturers, companies like GM explored the option of sourcing more

of their purchases internationally to maintain competitiveness.

Several fundamental reasons drive companies to engage in imports: price, quality, availability,

faster delivery and continuity of supply, technical service, access to advances technology.