Exporting As a favorite entry strategy

Exporting is the admittance strategy accountable for the massive inflows and outflows that constitute global trade. Exporting typically produces substantial foreign-exchange income for countries. Companies internationalise for a variety of reasons.

Content

1. 0 Summary

2. 0 Exporting

Importing

Direct Investments

Licensing

Joint Venture

Advantages and Disadvantages of the export strategy

3. 0 Conclusion

4. 0 Recommendations

5. 0 References

INTRODUCTION

In this article we will examine the different export strategies that exist to a company internationalising for the first time. With reference to specific illustrations, we will analyse the advantages and disadvantages of your export strategy.

Market entry strategies available to a firm internationalising for the first time consist of exporting, sourcing (importing), overseas direct investments, licensing and jv. Each strategy places its demands on commercial resources and features, and has advantages and disadvantages.

To decide on a market entrance strategy, mangers must consider the following:

The firm's resources and capabilities

Conditions in the mark country

Risk inherent in each venture

Competition from existing and potential rivals, and

Characteristics of the products and services to be offered.

Expansion into overseas markets can be achieved via the next mechanisms:

1. 1 Exporting is the entrance strategy responsible for the massive inflows and outflows that constitute global trade. It creates substantial foreign-exchange earnings for countries. China is currently the key exporter of various goods such as computer systems, mobile phones and other information technology products. Britain has been one of the primary entertainment exporters in history with shows such as Britain's Got Skill and Pop Idol-X Factor.

1. 2 Global Sourcing (importing) is the strategy of buying products and services from foreign sources.

1. 3 Foreign immediate investment (FDI) can be an internationalisation strategy in which the firm establishes a physical occurrence overseas through acquisition of fruitful investments such as capital, technology, labour, land, flower, and equipment.

1. 4 Licensing is a technique that makes an arrangement where in fact the owner of intellectual property grants a company the to use that property for a specific period of time in trade for royalties or other settlement.

1. 5 JV is a strategy that is a form of cooperation between two or more firms to make a jointly owned business.

2. 0 EXPORTING

This is the strategy of producing products and services in one country (usually the producer's home country), and selling and distributing these to customers located in other countries.

It is a traditional and well-established method of reading the overseas markets. Exporting will not require that the goods be produced in the prospective country; no investment in overseas production facilities is needed. A lot of the costs associated with exporting take the proper execution of marketing expenditures.

Exporting requires the coordination of four players

Exporter

Importer

Transport provider

Government

Firms venturing in another country for the very first time usually use exporting as their admittance strategy as it is very flexible compared to more complex strategies such as overseas direct investments. The exporter can enter in and withdraw from the markets quite easily with minimal risk and expense and is also most favoured by small and medium-sized enterprises (SMEs) such as Vellus Products a small company in america that make pet grooming products like customized shampoos, conditioners, brushing sprays and detanglers. All types of organizations beyond the original entrance large and small, use exporting irrespective of their stage of internationalisation. For example, Lockheed Martin, Northrop Grumman and Boeing are some of the most significant exporters in america, utilizing 400, 000 people, their combined revenues makes up about 1% of the United Areas' $10 trillion gross domestic product (GDP).

Exporting includes limited risk, expense, and understanding of foreign markets and ventures, most firms prefer exporting as their primary foreign market access strategy. The focal organization retains its processing activities in its market but conducts marketing, syndication, and customer service activities in the export market. It is the entry strategy responsible for the substantial inflows and outflows that constitute global trade. Exporting typically creates substantial foreign -exchange profits for countries. Japan has benefited from substantial inflows of export cash flow for years. Zambia export performs an important role in the economy of the united states. It really is an important forex earner. The principal product of Zambia export is copper and accounts for 50% of the full total exports.

Zambia exports commodities in two categories, traditional and non traditional. Traditional export goods include:

Lead

Zinc

Copper

Cobalt

Non traditional category includes:

Gemstones

Vegetables

Fresh fruits

Zambia export goods to Democratic republic of Congo, South Africa, Tanzania, UK, Zimbabwe and Switzerland.

2. 1 IMPORTING

Global sourcing (also called importing, global procurement, or global purchasing) identifies the strategy of shopping for products and services from international sources.

It can even be thought as the commercial activity of buying and getting goods from a international country.

While sourcing or importing represents an inbound flow, exporting represents outbound international business.

2. 2 International DIRECT INVESTMENT

Foreign direct investment (FDI) is the immediate possession of facilities in the prospective country. It includes the copy of resources including capital, technology, and personnel. Direct international investment may be made through acquisition of a preexisting entity or the establishment of a new enterprise.

Direct ownership offers a high amount of control in the businesses and the capability to better know the consumers and competitive environment. However, it needs a high level of resources and a high degree of dedication.

For example, the truth of Euro Disney - different settings of entrance may be more appropriate under different circumstances and the function of entry can be an essential aspect in the success of the task. Walt Disney Co. encountered the challenge of creating a theme recreation area in European countries. Disney's mode of admittance in Japan had been licensing. The organization chose immediate investment in its Western theme recreation area, owing 49% with the rest of the 51% held publicly.

Besides the method of entrance, another important component in Disney's decision was where exactly in European countries would the theme playground be located. There are many factors in the site selection decision, a firm must carefully explain and evaluate the criteria for choosing a location. The issues with the EuroDisney job illustrate that even when a company has prevailed before, as Disney have been with its California, Florida and Tokyo theme parks, future success is not assured, especially when getting into a different country and culture. The appropriate adjustments for countrywide distinctions always should be made.

Another exemplory case of foreign immediate investment is Toyota, they may have used foreign direct investment to construct factories in key locations in Asia, European countries, and North America. Toyota uses these creation bases to export autos to neighbouring countries and regions.

2. 3 LICENSING

Licensing essentially enables a company in the target country to utilize the property of the licensor. Such property usually is intangible, such as trademarks for protection under the law to use the intangible property and possibly for technological assistance. Because of the little investment on the part of the licensor is required; licensing has the potential to give a very large return on investment (ROI). However because the licensee produces and market segments the merchandise, potential earnings from developing and marketing activities may be lost.

2. 4 JOINT VENTURE

Joint venture is a technique that is a form of collaboration between two or more firms to create a jointly owned venture.

There are five common aims in a jv:

Market entry

Risk /Reward sharing

Technology showing and joint product development

Joint product development

Conforming to federal government regulations

Other benefits include politics connections and distribution channel access which could depend on connections.

Alliances tend to be favourable when:

The partner's proper goals converge while their competitive goals diverge.

The partner's size, market electricity and resources are small set alongside the industry market leaders.

Partners are able to learn from each other, while limiting access to their own proprietary skills.

The key issues to consider in a joint venture are possession, control, amount of agreement, prices, technology copy, local firm functions and resources and federal government intentions.

Potential problems include:

Conflict over asymmetric new investments

Mistrust over proprietary knowledge

Performance ambiguity - how to break up the pie

Lack of parent or guardian firm support

Cultural clashes

If how so when to terminate the relationship

Joint projects have conflicting stresses to cooperate and compete. Strategic imperatives; the lovers want to increase the advantage gained for the jv, but they also want to maximize their own competitive position.

The joint venture is controlled through negotiations and coordination functions while each organization would like to have hierarchical control.

Characteristics of Company Internationalisation

There are five characteristics associated with international expansion.

Push and take factors provide as initial sets off - Push factors include unfavourable developments in the domestic market such as declining demand, dropping income, growing competition at home and reliance on products that have reached an adult period in their life pattern, that compel firms to explore opportunities beyond their national borders. Quite simply a firm is really pushed / make out of the local market to try / go out to markets far away. Pull factors are favourable conditions, in international markets that produce international development attractive, such as management desiring faster progress and higher profit margins, or the will to enter into markets that contain fewer competitors, overseas government incentives. For instance, Zambia offers very liberal investment environment. Currently, foreign direct investment is governed by the Zambia Development Company Act of 2006, which will not stipulate any requirements for local content, technology transfer, equity, job or use of subcontractors, although overseas investor should commit to local involvement. The function allows traders to repatriate any capital opportunities freely, repatriate profits, dividends, interest, fees. It also allows transferring out wages gained in the united states. Or opportunities to study from competition. Both factors force and pull combine to motivate the firm to internationalise.

Initial participation may be accidental - first international expansion for most companies is unplanned as most companies internationalise unintentionally or because of occasions. For example DLP, Inc. , a supplier of medical devices for open-heart surgery, made their first major sales to international customers that the firm's manager met at a trade rational. Without necessarily signifying to the company got were only available in international business right from it's founding. Vellus Products, Inc. internationalised quickly because a foreign distributor showcased the firm's products at a puppy show in Taiwan. Unplanned internationalisation was typical to many firms before the 1980s but today due to the growing pressure from internationalisation competitors and the simplicity with which internationalisation can be achieved, firms tend to be deliberate in their international projects.

Balancing risk and gain - managers ponder the potential revenue, revenues, and success of strategic goals of internationalisation against the initial investment made in terms of money, time, and other company resources. Risk-taking choices of mangers determine what initial investment funds the firm will make and its own tolerance for delayed dividends. Risk-averse managers have a tendency to prefer more conservative international projects that require relatively safe markets and entrance strategies. For example a risk-averse U. S. company would favour Canada over India. A risk-averse Australian company would prefer Britain over Egypt that's because mangers target foreign marketplaces that are culturally close; they have similar culture and words to the house country. With better anticipated returns, the more likely management will follow an international project and commit resources necessary to ensure its success. Because of increased costs and greater complexity, international projects often take longer to be profitable than domestic ventures.

An ongoing learning experience - internationalisation is a steady process that can stretch out over a long time and involve access into numerous nationwide settings and energetic involvement in international business provides the firm with many new ideas and valuable lessons that can be applied to the house market and other foreign market segments. For example, in the process of growing fuel-efficient automobiles for United States, General Motors turned to its European businesses, where it turned out marketing smaller autos for quite a while. Standard Motors leveraged ideas so it had acquired in Europe to develop fuel-saving autos for america market.

Firms may progress through stages of internationalisation - companies choose to internationalise in periods, by employing relatively simple and low-risk internationalisation strategies and get to more complex strategies as the firm increases experience and knowledge.

2. 6 BENEFITS OF EXPORTING

Serving international customers through exporting has been a popular internationalisation strategy throughout background because it offers ways to accomplish the next:

Increase overall sales volumes, improve market share, and generate income that tend to be more favourable than in the domestic market.

Increase economies of scale and therefore reduce per-unit cost of manufacturing.

Diversify customer foundation, lowering dependency on home market segments.

Stabilise fluctuations in sales associated with economical cycles or seasonality of demand. For instance, a company can offset declining demand at home due to an economic recession by refocusing work towards those countries that are experiencing more robust economic development.

Minimize risk and take full advantage of flexibility, compared to other admittance strategies, the firm can quickly withdraw from an export market.

Lower cost of foreign market entry because the firm doesn't have to purchase the mark market or maintain a physical occurrence there. The company may use exporting to test new markets before committing more resources through international direct investment.

Leverage the features and skills of international distributors and other business lovers located in foreign countries.

2. 7 DISADVANTAGES OF EXPORTING

Exporting as an accessibility strategy also has some draw backs.

Firstly, exporting does not require the firm to truly have a physical presence in the international market (as opposed to foreign direct investment), management have fewer opportunities to find out about customers, competition, and other unique areas of the marketplace. With too little direct contact with foreign customers means that the exporter may neglect to perceive opportunities and hazards, or might not acquire the knowledge that it requires to succeed in the market in the long term.

Exporting usually requires the company to acquire new capabilities and dedicate organisational resources to properly execute export transactions. Companies that are seriously interested in exporting must seek the services of personnel with competency in international deals and foreign languages. It requires management to expend the time and effort to learn about freight forwarders, documentation, foreign currency and new funding methods. Acquisition of such capacities puts a pressure on firm resources.

In comparison to other entry strategies, exporting is much more hypersensitive to tariff and other trade obstacles, as well as fluctuations in trade rates. For example in 2005 the U. S dollars gained 12 percent against the euro and 15 percent against the yen, this resulted in slower growth of U. S export, harming those firms that rely closely on exporting for generating international sales. A move in exchange rates makes the exported product very costly to foreign potential buyers.

Trade barriers and tariffs increase costs

Limited usage of local information and the organization can be regarded as an outsider

2. 8 BENEFITS OF FOREIGN Immediate INVESTMENT

Conditions that favour this mode are:

Greater understanding of local market

Can better apply specialised size

Minimum knowledge spill over

Can be viewed as an insider

2. 9 DISADVANTEGES OF International INVESTMENT

Has higher risk than other modes of entry

Requires more resources and commitment

May be difficult to manage the local resources

2. 10 BENEFITS OF LICENSING

Has minimum risk and investment

Speed of entry

Is able to circumvent trade barriers

Has high go back on investment

2. 11 DISADVANTAGES OF LICENSING

There is lack of control over use of assets

Licensee may become the competitor

There is knowledge spill over

The license provided is limited

2. 12 ADVANTAGES OF JOINT VENTURE

Overcomes ownership limitations and social distance

Combines resources of two firms

There is potential for learning

Viewed as an insider

Less investment required

2. 13 DISADVANTAGES OF JOINT VENTURE

Difficult to manage

Dilution of control

Greater risk than exporting and licensing

There is knowledge spill over

Partner may become competitor

CONCLUSION

In bottom line, exporting is a favorite entry strategy for firms venturing in another country for the first time and it is an accessibility strategy in charge of the considerable inflows and outflows that constitute global trade. Exporting generates substantial foreign-exchange income for nations. It can be moved into into through different strategies, that is; exporting, importing, international immediate investment, licensing, and jv. Exporting, licensing and joint venture require relatively low level of managerial commitment and dedicated resources. On the other hand foreign direct investment needs a higher level of dedication and resources.

RECOMMENDATIONS

It is most beneficial for managers to employ a systemic method of exporting that is by:

Asses global market opportunity - that is mangers asses the firm's readiness to internationalise and choose the most likely country market segments and partner.

Organise for exporting- professionals make the decisions about the amount of the firm's participation, resources to be devoted, and the sort of domestics and international intermediaries to hire.

Acquire needed skills and competencies - the firm acquires skills and competencies to take care of export procedures, trains staff, employ appropriate facilitating organizations (such as freight forwarders, bankers, and international trade lawyers.

Implement export strategy - professionals make decisions about product adaptation, marketing communications adaptation, costing and support to overseas intermediaries or subsidiaries.

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