Export means selling goods and services abroad. It usually requires coordination between four players, namely exporters, importers, export intermediaries, and the government. It can be direct, namely through international marketing intermediaries, or directly, namely through the company’s own overseas sales representatives.
Exports encourage appreciation of the domestic currency. To pay, foreign buyers need to exchange their money into the domestic currency, thereby spurring demand for the domestic currency and pushing up its value.
When total exports are higher than total imports, a country experiences a trade surplus (or net export). Conversely, if total exports are lower than total imports, it is a trade deficit (net imports).
Why exports are important
Exporting is usually the first stage of a company when entering the international market. This strategy is relatively low risk compared to other foreign market entry strategies such as licensing, joint venture, or direct investment.
Benefits for company
Companies export products and services for various reasons. Increasing sales and profits are among the motives.
Foreign markets offer enormous potential for demand, and they become essential when the domestic market matures. By selling products abroad, the company spreads business risk by diversifying shipments to various markets.
By selling more, companies can achieve economies of scale and reduce unit costs.
Finally, exports enable companies to gain new knowledge and experience, which encourages the discovery of new technologies and improvements in marketing practices.
Benefits for the economy
Exporting is also a barometer of a country’s economic strength. It indicates the competitiveness of domestic products in international markets. It is significant when local products are competitive (in terms of price or quality). Although, sometimes, the government can intervene to make domestic products artificially competitive, for example, by dumping or devaluing the exchange rate.
Overseas sales foster domestic economic activity. The increase in exports reflects higher demand for domestic products, spurring businesses to increase production and to recruit new workers. As a result, it stimulates economic growth and reduces unemployment.
How to export
Companies can use several approaches to export. Each requires a different level of involvement and has a significant influence on the company’s international selling success.
- Passive export
- Active exports
- Direct export
In this approach, the company obtains orders from foreign buyers. Then, the company sends products to overseas buyers.
Another passive approach is that companies sell to domestic buyers, which then export products to overseas buyers. In this case, domestic buyers handle all export details and take all risks.
This approach is also known as indirect export. In active exports, the company seeks intermediaries, either domestic or foreign agents. The agent usually handles large customers for various goods and services. Just like passive exports, intermediaries handle export details and assume risks.
The company handles every aspect of trading, including those related to market research, distribution planning, and marketing. This approach is the most difficult because it requires a substantial commitment and investment to succeed.
On the other hand, compared to the two approaches above, direct exports is the best way to achieve maximum long-term profit. It also provides valuable insights when the company aims to become a fully international company in the future. The company obtains information related to needs in foreign markets and experience in handling storage, distribution, sales, service, and marketing.
Success in the domestic market does not guarantee success in foreign markets. Various factors affect the success of export sales, for example:
- Differences in needs due to cultural, environmental, or social factors.
- Purchasing power in foreign markets
- Convertibility or availability of foreign exchange
- Import controls by governments in destination countries, both through tariffs and quotas
- Non-tariff barriers, such as product safety and health standards