Exporting Business Considerations

Making the Export Decision

Exporting is crucial to America's economic health. Increased exports mean business growth, and business growth means more jobs. Yet, only a small percentage of potential exporters take advantage of these opportunities. It is critical for U.S. businesses to think globally.

At the same time, successfully penetrating foreign markets generally requires a substantial investment of financial and managerial resources. The decision, therefore, to pursue export opportunities should be well-researched and involve a strong managerial consensus.

A number of important issues should be addressed in assessing your export readiness. In addition, don't proceed without a clearly stated business plan for the export activities contemplated. These goals should be consistent with the overall mission and strategy.

The following includes three dimensions of the export decision that should be evaluated:

• Advantages and Disadvantages of Exporting
• Important Management and Organizational Issues
• The Business Plan

Advantages and Disadvantages of Exporting

Consider some of the specific advantages of exporting. Exporting can help your business:

• Enhance domestic competitiveness
• Increase sales and profits
• Extend the sales potential of existing products
• Stabilize seasonal market fluctuations
• Enhance potential for corporate expansion
• Sell excess production capacity
• Gain information about foreign competition

In comparison, there are certain disadvantages to exporting. You may be required to:

• Develop new promotional material in different languages
• Subordinate short-term profits to long-term gains
• Incur added administrative costs
• Allocate personnel for travel
• Wait longer for payments
• Modify your product or packaging
• Apply for additional financing
• Obtain special export licenses

These disadvantages may justify a decision to forego exporting at the present time. For example, if your financial situation is weak, attempting to sell into foreign markets may be ill-timed. On the other hand, some companies have been successful selling abroad even before they have made any sales domestically.

Management & Organizational Issues

1. What are the primary motives for seeking overseas markets? Firms seeking competitive advantage frequently develop foreign markets in order to: (1) increase production volumes and lower unit costs; (2) develop a broader, more diversified customer base when economic downturns in one geographicmarket may be offset by growth in others; (3) maintain key customer relationships by serving their various geographical locations; and (4) preempt potential foreign competitors by bringing new technologies, products, and services to their home markets.
2. What is management's level of commitment to the development of foreign markets? A properly executed international strategy generally requires a consistent level of senior management attention. Opportunistic attempts at export development frequently fail over the longer term as management attention is diverted to other priorities. Given the management challenges of dealing with distant markets and foreign business cultures, a significant investment of managerial resources in the export development process is a prerequisite for success.
3. What profit objectives are set for the export operation? What are the return on investment targets, both for the initial development period and as the export business matures? To adequately measure the success of the export initiative, management must establish and report against meaningful financial objectives.
4. What internal expertise does the company have in marketing abroad, including overseas selling experience and language capabilities? What lessons can be drawn from the previous export experience of the company or its competitors? If other firms in the industry have led the way into foreign markets, later entrants can benefit by avoiding the strategic and tactical missteps of the pioneering firms.
5. How will the export operation fit into the present organizational structure? Will export operations be concentrated in an export department or division, or will the various product divisions share responsibility for export operations? Organizational structure is important in ensuring a coherent, effective management focus. An evolutionary approach drawing upon local expertise is important during the early stages of market development.
6. What are the sources of competitive products or services? Are they marketing their products internationally? What are the sources of competitive advantage in the industry and which countries/firms are best positioned to exploit them? As in any business endeavor, understanding the competitive landscape is critically important in the international marketplace.

The Need For an International Business Plan

Behind most export success stories is a plan. Whether formally written down, or sketched out informally at a meeting of your management team, an international business plan is an essential tool to properly evaluate all the factors that would affect your company's ability to go international.

An international business plan should define your:

• Commitment to international trade;
• Export pricing strategy;
• Reason for exporting;
• Potential export markets and customers;
• Methods of foreign market entry;
• Exporting costs and projected revenues;
• Export financing alternatives;
• Legal requirements;
• Transportation method; and
• Overseas partnership and foreign investment capabilities.

Creating an international business plan is important for defining your company's present status, internal goals and commitment, but is also required if you plan to seek export financing assistance. Preparing the plan in advance of making export loan requests from your bank can save time and money. Completing and analyzing an international business plan helps you anticipate future goals, assemble facts, identify constraints and create an action statement. It should also set forth specific objectives, an implementation timetable and milestones to gauge success.