There are many good reasons (or benefits)
While the local market may represent enough
sales potential for smaller firms, for medium and larger companies the local
market is just too small and the only way to expand sales is to export.
Increased sales also impact upon your profitability
(although not always positively), your productivity by lowering unit costs, and
may increase your firm's perceived size and stature, thereby affecting its
competitive position compared with other similar-sized organisations. What is
more, research and development (R&D) and other costs can also be offset
against a larger sales base, or the move into exports may contribute to the
company's general expansion.
Companies generally strive to make profits and the bigger
the profits the better. In many instances, exports can contribute to increased
profits because the average orders from international customers are often
larger than they are from domestic buyers, as importers generally order by the
container instead of by the pallet (thereby affecting both total sales and
total profits). Some products - especially those that are unique or very
innovative in nature may also command greater profit margins abroad than in the
The reason for this is the highly competitive nature of
global markets that forces exporters to lower prices, squeeze profits and
Reducing risk and balancing growth
It is risky being bound to the domestic market alone. Export
sales to a variety of diverse foreign markets can help reduce the risk that the
company may be exposed to because of fluctuations in local (and foreign)
Lower unit costs
Exports help to put idle production capacity to work. This
is generally achieved the more efficient utilisation of the existing factory,
machines and staff. What is more, because you are now selling more products
without increasing total costs to the same extent, this has the effect of
lowering your unit costs which represents a more productive overall operation.
Lower unit costs make a product more competitive in the local marketplace as
well as in foreign markets, and/or can contribute to the firm's overall
Economies of scale
Exporting is an excellent way to enjoy pure economies of
scale with products that are more "global" in scope and have a wider
range of acceptance around the world.
With increased export production and sales, you can achieve
economies of scale and spread costs over a larger volume of revenue. You reduce
average unit costs and increase overall profitability and competitiveness.
Long-term exports may enable a company to expand its production facilities in
order to achieve an economic level of production.
Minimising the effect of seasonal fluctuations in sales
For companies that sell seasonal goods such as certain food
products, or products that are dependent on seasonal cycles and needs, being
able to sell in other countries, helps achieve a longer and more stable sales
pattern. This increases the sales potential for these goods and also helps
Small and/or saturated domestic markets
One good reason to begin exporting is when the local market
is too small to support a firm's output or when the market becomes saturated.
In todays globalized environment usually it does not take
long before many foreign competitors are selling their products in your home
market, and consequently your key home market
becomes more crowded, saturated and offers limited additional
opportunities for sales.
Overcoming low growth in the home market
It is not uncommon for a recession in the local market to
act as a spur for companies to enter export markets that may offer greater
opportunities for sales. While this may have the benefit of offering ongoing
sales potential for the firm in question, the danger with this approach is that
when the local market improves, these companies abandon their export markets to
focus on the now buoyant local market.
Extending the product life-cycle
All products go through a product life-cycle. In the
beginning they are novel and sales increase quite dramatically, then sales
level off and they become what is referred to as mature products and eventually
sales start to decrease and the product goes into decline. Now, a product that
has entered its decline stage may have a life elsewhere in the world and by
finding a market where this product could be sold anew, you are essentially
extending the life-cycle of the product.
Improving efficiency and product quality
The global market is a highly competitive place and by
participating in this marketplace, you need to become equally efficient and
quality conscious. It is generally the case that successful exporters are also
very successful in their home markets because of their heightened efficiency
and focus on product quality.
A company may have a very unique product that is not yet
available elsewhere in the world. In this instance, these untapped markets are
likely to drive the firm's export activities.
Status as an exporter
For some companies, the status of being involved in
international trade is very important to them.