How to Export Products to a Foreign Market?
One of the most important and critical
decisions in international marketing is the mode of entering the foreign
market. This decision needs to be a cautious move for its implications will
have too much bearing on the future growth of the company. Market entry assumes
more significance due to the fact that no country willingly accepts anyone from
outside. At one side, a company may decide to produce the product domestically
and export it to the foreign countries. In this case the company need not make
any investment in foreign countries.
On the other hand, the company may
establish manufacturing unit in the foreign country to sell the product there.
This strategy requires direct foreign investment by the company. In between
these two extremes, there are several options each of which demands different
levels of foreign investment. No matter how mighty your company may be, it is
not a practical strategy to enter all foreign markets with a single entry method.
With all its power, even a largest
company may have to formulate different entry strategies to different foreign
markets. Exporter may opt for one entry strategy in one market and another
strategy in another foreign market, because one entry strategy may not suit all
the countries.
In this way a firm may adopt various
modes for international marketing ranging from indirect export to direct
investment in manufacturing units in foreign countries. Each of these
strategies requires different levels of investment, ranging from no additional
investment to high investment in production facilities. Where the investment is
low, the international business firm faces less risk, less control over the
foreign market. On the other hand, when the investments are high in the form of
manufacturing facilities abroad, international firm can have full control over
the market, but faces higher risk.
Exporting of products to a foreign market
is a quite common entry strategy many firms follow for at least some of these
markets. Under this strategy, the company exports the product from its home
base, without any marketing or production or organization in foreign countries.
Normally, company exports the same product which is being marketed in the home
market.
Exporting may be appropriate under the
following circumstances:
1. If cost of production is much higher
in the foreign country.
2. If there is political or other risks
of investment in the foreign country.
3. When there is excess production
capacity in the domestic market.
4. When expansion of existing plant is
less extensive and easier than setting up plant in foreign country.
5. If foreign investment is not
encouraged by the concerned foreign government.
6. If very attractive incentives are
given by the government in the country for establishing facilities for export
production.
7. If the value of export is not large
enough to justify.
A manufacturer who wants to introduce his
products in overseas markets can do so in two ways. The first alternative is to
manage the export sales himself in the foreign countries. It requires greater
involvement of the exporter. The other alternative is indirect exporting
involving middlemen from the beginning to the end. The manufacturer does not
involve himself in international marketing. Indirect export is not much
different from the sale in the domestic market.
The middlemen get the goods produced from
the exporter under their own specification and sell them in overseas markets or
alternatively, manufacturer contacts such middlemen in a bid to sell his
produce to them who sell them in foreign markets of their own choice. The
middlemen sell the goods so procured in the same form or after grading,
packing, designing or transforming them as per their own standards and
specifications.
Direct Exporting:
When a manufacturing firm itself performs
the task of selling goods in foreign countries rather than entrusting it to any
outside agency it is called direct exporting. Usually a home-based export
department or international marketing department in the firm is given
responsibility for selling the products in foreign countries. The exporting
firm may also establish its own sales subsidiary as an alternative mode.
When a manufacturer engages in direct
export, he takes more risks but gets more returns. More than anything else,
direct export means more involvement for the manufacturer, more control and
more expertise within the firm.
In this way in direct exporting, the
manufacturer takes upon himself the task of managing the export sales. The exporter
engages in or supervises every step in the export of goods and shoulders the
entire responsibility for the operations and bears all risks. This will
naturally mean greater involvement on his part in the export business.
Thus, if a manufacturer firm opts for
direct exporting strategy it has to perform the following functions which are
not required in indirect exporting:
(i) The direction and supervision and
control of export, including the development of export policy;
(ii) The adaptation of the product for
export, including export packing;
(iii) Selling, including such related
functions as advertising, sales promotion, sales training etc.,
(iv) Transportation of the product,
including documentation for shipment, rail and ocean shipping, insurance and
other related matters;
(v) Credit and terms of payment;
(vi) Financing, including exchange,
invoicing and collections.
In this way, the exporter manufacturer
performs all the functions relating to export from the beginning to end and has
to bear all risks.
Direct Exporting by Indian Exporters:
By analyzing the advantages and
disadvantages of direct exporting, it can safely be said that direct exporting
is much better, provided the exporting firm is financially sound. In India,
more and more exporters are taking recourse to direct exporting.
There are two reasons for this
involvement:
1. Improves Exporter’s Image in Domestic
Market:
If manufacturer adopts direct exporting
strategy and succeeds, it can boost the manufacturer’s image in the domestic
market because of- (i) goodwill earned by the firm in foreign markets; (ii)
improved quality of products as the firm will like to produce and supply
quality goods to the domestic market in order to achieve scale-economies (it
need not differentiate the product unless it is warranted by situation), (iii)
product development as the firm uses modern and the best technology available
in the world to make its product competitive in the foreign markets. The
advantage of product development is also available to domestic consumers.
2. Export Incentives:
In India, liberal export incentives are
given by the Government to promote foreign exports. They help exporters in
taking pricing decisions.
Due to above reasons, Indian exporters
are interested in direct exporting.
Indirect Exporting:
Indirect export means export of product
or services through middlemen. When an exporter allows an intermediary in his
own country to perform certain important marketing function in relation to
exporting the product, it is indirect exporting. In other words, when a firm
delegate the task of selling products in a foreign country to an outside
agency, it is called indirect exporting. It is almost equivalent to domestic
sales.
The company, under this system, sells its
products in its own country to another party which undertakes the
responsibility of exporting the same to other countries. In this way, the
exporter loses, to a limited extent, his control over certain marketing
operations. For small companies with little or no experience in exporting, the
use of domestic middleman readily provides expertise.
If
a manufacturer has once adopted the indirect method of exporting it is not
necessary always to export indirectly through middlemen nor does it preclude
the manufacturer from selling a part of his production directly. The actual
method that is adopted depends on the volume of business and the manufacturer’s
decision often changes in accordance with the different conditions of the
sales.
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