In the case of business apart from selling its products to domestic markets companies can also sell their products to international markets and this act of company selling its products to other countries of the world is called exports. Exporting can be a tricky decision for the company because although exports have benefits at the same time it has limitations too and that is the reason why one should look at the advantages and disadvantages of exports –
Advantages of Exports
Increase in Sales and Revenue
If you have only one professional qualification then you have can do one type of job only which implies limited career opportunities for you but when you have multiple professional qualifications than you can do multiple jobs giving you plenty of career opportunities exporting is quite similar because if company is catering to domestic markets only than the scope of sales is limited but when company starts exporting to many countries than the scope of sales increases due to the increase in the number of consumers which in turn will lead to more profits for the company.
Diversification of Markets
Another benefit of exporting is that company enjoys diversification benefits because when country is focused only on one market than any problem in that market will lead to collapse in the sales of the company but when company is exporting in multiple countries than any sluggishness in sales from one country can be made up by good growth in sales from another country.
Lower Cost of Production
When the company starts exporting than due to anticipated sales demand it produces more goods and due to a company producing goods in bulk quantities it enjoys a lower cost of production which further increases the bottom line of the company. In simple words, higher sales and lower cost of production due to exports are two factors which can propel the company to great heights.
Disadvantages of Exports
Country Risk and Currency Risk
The biggest disadvantage of exporting is that apart from normal risk there is two additional risks associated with exports that are country risk and currency risk. Country risk is the risk of change in policies by the countries which can negatively affect the company, hence suppose if company is based in Europe and the USA is its main exporting country and the USA decides to impose additional tariffs from goods arriving from Europe than the company will lose its competitiveness due to additional tariffs leading to a fall in sales of the company. Apart from country risk, there is currency risk also because there is always a time lag between the time by which company sells its products and time by which company receives the payments for goods sold and if the currency moves adversely than it can lead to a loss for the company.
Stiff Competition
Another problem with exports is that company will have to face stiff competition as the company is not dealing with a domestic market where competition is with other domestic companies only but the company is dealing in international markets where the company has to face stiff competition from many companies across the world who are very competitive.
Difference in Culture and Consumer Taste
Culture and consumer taste are other two factors which make the task of exporters difficult as these two factors play an important role when it comes to demand for company’s products because the same product which is popular in one country may not find acceptance in other nations. Hence for example if the company sells fashion products for women than it may find it difficult to find consumers in conservative nations of Asia region as opposed to Europe or America region where there is a good market for such products.
As one can see from the above that export has advantages as well as disadvantages and that is the reason why any company thinking of going exports should carefully read above points and then decide whether to do export or not.