Exporting to foreign markets is a quite common strategy many firm adopt to sell their products to an outside country. Under this strategy, the company exports products from the home base without any production or marketing or organisation out of the country. Generally, company exports products which are being produced and marked in the home country.
Exporting may be appropriates under following heads or circumstances which are given below:
- The volume of foreign market is not large enough to justify production in the foreign market.
- Cost of production is higher in the foreign market then the domestic market.
- Foreign market is characterized by production bottlenecks like infrastructural problems, problems of materials supply, etc.
- Their are political or other types of risk during investment in the foreign country.
- Their is no guarantee of the market available for longer period.
- Foreign investment is not encouraged by the concerned foreign government.
- Their are excess production capacity in the domestic market or expansion of existing facility is less expansive and easier than the setting of production facility abroad.
- Very attractive incentives are available in the domestic country for establishing facilities for export production.
Exporting allows firms to centrally manufacture its products for several markets and obtains economies of scales. Furthermore, when exports represent incremental volume out of an existing production operation located elsewhere, marginal profitability of such exports tends to be high. The main advantage of an exporting strategy is that it is easy to implement. Risks are least because the company simply exports its excess production when it receives orders from abroad. A firm has the following two basic options in carrying out its export operations: (i) Indirect Exporting
(ii) Direct Exporting
Indirect Exporting means a firms delegates the task of selling goods abroad to an outside agency.
Direct Exporting means a manufacturing firm itself perform the task of selling goods to abroad rather than entrusting it to any outside agency.
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