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Why should an SME export?


By Dr.K.Rangarajan,
Professor - Strategic Management
Head, Centre for SME Studies
Head, Kolkata Centre,IIFT
rangarajan@iift.ac.in

Why should I export?

There are both 'pull' reasons as well as 'push' reasons for a company to decide to enter into exports.

Pull reasons could be that the foreign Markets are more profitable for a given product and have greater demand than the domestic market. Push reasons could be that the domestic market for a given products is stagnant, profitability is low and competition is more. These days, opportunities abound across the globe, no more so than in emerging markets such as South America, Eastern Europe, Russia, and parts of Asia and Africa. Entrepreneurial companies, in particular, must take advantage of them. As development costs soar and product life cycles get shorter, small companies will need to sell in as many markets as possible to make a reasonable profit --- maybe even to survive.


 

Exporting only makes sense if the process contributes to the attainment of company objectives. Fundamentally, these objectives involve survival and, in most cases, profitability and growth. Therefore, the decision to export or not must be made with the same thoroughness and the same objectivity as any other decision involving the expansion of the company. Ideally, strategic planning at the national level and exporting are only two facets of a unique master plan.


 

The following are the typical benefits that a company will gain from exporting:


 

  • Expanded markets and increased sales;

  • Decreased production costs and increased productivity due, in general, to economies of scale and better use of resources made possible by greater volume;

  • Decreased vulnerability to losing clients or even to economic fluctuations on the domestic market;

  • Increased useful life for products and services through the possibilities afforded by new markets, while demand is relatively satisfied on the domestic market;

  • Increased company expertise and experience, which will prove a valuable asset even on the domestic market, where it will often allow the company to assert its dominant position over its competitors.

Companies also enter into exports to escape excessive Regulatory Environment in the domestic market specially while distributing and marketing the products in domestic markets. Further, many companies prefer exports than domestic sales to take advantage of lucrative export promotional schemes.

However, participation in international trade helps expanding the horizon of the entrepreneur. With increasing interdependence among Nations, a company that is in international trade becomes more nimble and geared up to face competition than the one, which is totally relying on domestic business because it gets to know the signals of change as well as of opportunity, early.

Caution: Exports may not be desirable for each and every product. The feasibility needs to be explored further. However, exporting will involve constraints that must be taken into account. The main constraints are the following:


 

Increased fees and administrative workload;

Increased financing requirements;

Increased pressure for current employees, especially key players;

Increased training requirements.

How different Export Sales is from Domestic Sales?

Fundamentally, there is not much difference. You would be doing more or less the same things. However, difference is qualitative because of the following factors:

  • Buyers and Sellers live in different countries usually governed by different set of rules

  • Different countries usually have different currencies and different languages

  • Problems of trusting business partners separated by boundaries of two nations

  • Necessity to depend on third parties as Shipping Companies, Customs, Foreign Banks, Inspection Agencies etc. to complete the business transactions, on whom there is little control of seller or buyer

It makes the exports business more formal. Therefore, orders are required to be in a set format, documentation be as per laws and regulations, payment is through formal channels of Banks usually through a letter of credit, pre-export inspection is done by third parties and so on.

 

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