Embarking on the path of exporting is a pivotal decision for any business looking to expand its horizons. While exporting can offer a multitude of advantages, such as access to new markets, increased revenue, and enhanced brand recognition on a global scale, it is not without its challenges and drawbacks. In this article, we will delve into the world of exporting, examining both its compelling advantages and potential pitfalls. Whether you’re considering taking your first steps into international trade or looking to refine your existing export strategy, understanding the advantages and disadvantages of exporting is crucial to making informed decisions and achieving sustainable success in the global marketplace.
Advantages of Exporting
Exporting has advantages that can elevate your business. Three of them are increasing sales and profits, diversifying the market, and increasing the life cycle of products.
- Increased sales and profits
When you export, you’re like a local seller who starts selling to people all over the world. This means more customers, and more customers mean more sales. So, it’s like making more money. But that’s not all. When you sell in different places, you can sometimes charge more for your stuff. Why? Because in some places, there aren’t many sellers like you, or lots of people really want what you’re selling. So, you can sell it for a higher price and make even more money. - Diversified market
When you export to another country, you automatically get new different customers. Diversifying means you spread your money around, so if one place has a problem, you don’t lose everything. But it’s not just about playing it safe; it’s also about trying to grow and make more money. - Increased life cycle of products
When you export to other countries, you’ll get different markets, trends, and behavior of the customers too. For example, think about a tech gadget. In rich places, lots of people already have it, and it’s not so exciting anymore. But in other places that are still catching up, it’s like a new superstar. So, by selling it there, you give your product a fresh start. Also, different places like different things. So, a version of your product that didn’t work in one place might be a big hit somewhere else. And when you sell in different places, you can make your product even better. You change it to fit what people in that place like or need. This can make your product last longer and be even more successful.
Disadvantages of Exporting
Aside from the advantages it offers, exporting also has disadvantages. Three of them are the high cost it bears, cultural and language barriers, and political risks.
- High cost in exporting
There are direct and indirect costs when it comes to exporting. Direct costs are those that are directly indicated with the export process such as shipping and logistic costs, custom duties, and taxes. Indirect costs are those that are not directly indicated with the export process. Those include time and resources to research foreign markets and adapt products to meet foreign standards. Not only that, these costs always fluctuate, making it harder for exporters to export their products. - Cultural and language barriers
Cultural and language barriers can be big hurdles when a business wants to sell its products or services in another country. For languages, It’s not just about speaking different languages; it’s also about understanding the small details, sayings, and special ways of talking in a culture. For cultures, Each group has its own customs, beliefs, and behaviors. For example, in some places, looking someone in the eye shows confidence, but in others, it can be seen as rude. When these language and culture differences clash, it can lead to misunderstandings, problems at work, lower productivity, and people feeling disrespected. Plus, it can stop a business from connecting with its target customers in a new place. - Political risks
Political and legal risks in international business are like surprises that can seriously mess up your plans. They come from things like government decisions, social problems, or rules and laws. Imagine you have a successful business in another country, and then one day, the government changes the rules in a way that hurts your business a lot. Or if the government suddenly says you have to change how you make your product to be more eco-friendly, it can cost you a lot of money and time. These risks are real and can make your business life harder. Like, if new rules make your stuff more expensive to import or export, your products might not sell well anymore.
One of the examples of businesses that succeeded facing the challenges in exporting is McDonald’s. This USA food chain is one of the reasons the USA leads global agricultural exporter in 2020. In 2020, the agricultural sector of the USA exports valued at $147.9 billion. In 2021, the value of U.S. exports increased to a record $177 billion. McDonald’s offers a high range of menu specializing in burgers. Their beef or pork burgers menu is one of their bestsellers. However, when they want to expand their market to India, they face a new challenge with Indian culture. Most people in India don’t eat beef, they are known to be vegetarian or even vegan. In order to thrive McDonald’s needs to adapt to Indian culture by changing their menus. McDonald’s does not offer any beef and pork items in India. Instead, they offer vegetarian menus to suit Indian taste and culture. We could draw the conclusion that McDonald’s faces one of the disadvantages of exporting, the cultural barriers. But they also manage to face it by changing and adapting to the culture in order for them to survive.
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