The advantages and challenges of exporting for the SME

by Tekle Sebhatu, Ph.D.
STC International

Before committing their resources to ventures in the export business, small and medium enterprises (SME) must carefully assess the advantages and disadvantages of exporting. While some SMEs enter the export business unintentionally after receiving a request to purchase from a foreign buyer, others make a deliberate move and conduct thorough research before entering a new market. Whether it is unintentional or deliberate move, SME need to evaluate and carefully assess the advantages and challenges of exporting before committing resources.

The advantages

The reasons for SMEs to consider exporting are compelling; the following are few of the major advantages of exporting:

Increased sales and profits
Selling goods and services to a market the company never had before boost sales and increases revenues. Additional foreign sales over the long term, once export development costs have been covered, increase overall profitability.

Enhanced domestic competitiveness
Most companies become competitive in the domestic market before they venture in the international arena. Being competitive in the domestic market helps companies to acquire some strategies that can help them in the international markets.

Gain global market shares
By going international, companies will participate in the global market and gain a piece of the huge international marketplace.

Diversification
Selling to multiple markets allows companies to diversify their business and spread their risk. As a result, companies are not be tied to changes within the domestic market or of one specific country.

Lower Per Unit Costs
Capturing an additional foreign market will usually expand production to meet foreign demand. Increased production can often lower per unit costs and lead to a more effiecient use of existing capacities.

Compensation for seasonal demands
Companies whose products or services are only used during certain seasons domestically may be able to sell their products or services in foreign markets during different times of the year.

Potential for company expansion
Companies who venture into the export business usually have to have a presence or representation in the foreign market. This might require additional personnel and thus lead to expansion.

Sell excess production capacity
Companies who have excess production for any reason can probably sell their products in a foreign market and not be forced to give deep discounts or even dispose of their excess production.

New Knowledge and Experience
Going international can yield valuable ideas and information about new technologies, new marketing techniques and foreign competitors. The gains can help a company's domestic as well as foreign businesses.

Product life cycle expansion
Many products go through various cycles namely introduction, growth and maturity before declining signifying the end of their usefulness in a specific market. Once a product reaches its mature stage in a given market, it can be introduced to a different market where it will be perceived as new.

The challenges

While the advantages of exporting far outweigh the disadvantages, SMEs face the following challenges when venturing into the international marketplace.

Extra costs
Because it takes more time to develop extra markets, and the pay back periods are longer, the up-front costs for developing new promotional materials, allocating personnel to travel and other administrative costs associated to market a product can strain the meager financial resources of SME.

Product modification
When exporting, companies may need to modify their products to meet foreign country safety and security codes, and other import restrictions. At a minimum, modification is often necessary to satisfy the importing country's labeling or packaging requirements.

Financial risk
Collections of payments using the available methods (open-account, prepayment, consignment, documentary collection and letter of credit) are not only more time-consuming than for domestic sales, but also more complicated. Thus, companies must carefully weigh the financial risk involved in doing international transactions.

Export licenses and documentation
Though the trend is toward less export licensing requirements, the facts that some companies have to obtain an export license to export their goods make them less competitive. In many instances, the documentation required to export is more involved than for domestic sales.

Market information
Finding information on foreign markets is unquestionably more difficult and time-consuming than finding information and analyzing domestic markets. In less developed countries, for example, reliable information on business practices, market characteristics and cultural barriers may be unavailable or very limited.

Small and Medium Enterprises must realize that entering an export business requires careful planning, some capital, market know-how, a quality product, competitive pricing, management commitment and realizing the challenges and opportunities of foreign markets. While there are no hard-and-fast rules that can help companies make decision to export or not and to become successful, understanding the advantages and challenges of exporting can help a smooth entry into new markets, keep pace with competition and eventually realize profit.


References: Breaking Into The Trade Game U.S. Small Business Administration & Global Source, Inc

Other articles by Tekle Sebhatu

To contact Tekle Sebhatu, please visit his website at www.stcinternational.us

 

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Re: The advantages and challenges of exporting for the SME
by Georgegong on 19 May 2007 01:08
Replying to [ResourcesAdmin]:

good article to share with us....

Re: The advantages and challenges of exporting for the SME
by BarryZhang on 27 May 2007 21:42
Replying to [ResourcesAdmin]: It looks very great, thanks!

Re: The advantages and challenges of exporting for the SME
by honeymoon on 13 Aug 2007 23:04
Good article, thanks for your share.[em7]