Benefits and Risks

Video Lesson Topics

- Unintentional vs. Deliberate

Some companies enter the export business unintentionally after receiving an order from a foreign buyer.

Other companies make a deliberate decision to conduct thorough research and planning before entering the export market.

Whether it is unintentional or deliberate, companies need to evaluate and assess the benefits and risks of exporting before committing resources.

Increased Sales and Profits: Selling goods and services to a market the company never had before can boost sales which will increase revenues. Once export development costs have been covered, the business experiences an increase in overall profitability.
Enhanced Domestic Competitiveness: Most companies become competitive in the domestic market before the venture into the global market. Being competitive in the domestic market helps businesses acquire some strategies that can help them in the global market.
Gain Global Market Shares: By exporting, businesses will participate in the global market and gain a piece of their share from the huge international marketplace.
Lower Per Unit Costs: Capturing additional foreign markets will usually expand products to meet foreign demand. This increased production can often lower per unit costs.
Compensate for Seasonal Demands: Companies whose products or services are only used domestically in certain seasons, may be able to sell their products or services in foreign markets during different seasons.
Sell Excess Production Capacity: Companies who have excess production can probably sell their products in a foreign market and not have to give deep discounts or have to dispose of their excess production.
Gain New Knowledge and Experience: Going international can yield value by ideas and information about new technologies and new marketing techniques in foreign competitors.

Extra Costs: Because it takes more time to develop extra markets and the payback periods are longer, the upfront costs for developing new promotional materials, allocating personnel to travel, and other administrative costs, can strain the financial resources of small businesses.
Product Modification: When exporting, companies may need modify their products to meet foreign country security and safety codes. At a minimum, modification is often necessary to satisfy the importing countries packaging or labeling requirements.
Financial Risks: Collections of payments using the methods that are available are more time consuming and complicated than for domestic sales.
Export Licenses and Documentation: Some businesses have to obtain an export license to export their goods. In most cases the documentation required to export is more involved than for domestic sales. There can also be more serious consequences for errors.
Market Information: Finding information on foreign markets is more difficult and time consuming than on domestic markets. In less developed countries finding reliable information on business practices, market characteristics, cultural barriers, and etc. may just not be available.