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Exporting to a foreign market is a strategy that many
companies follow for at least some of their markets. Few countries offer a
large enough market to justify local production. Exporting allows a company to manufacture
its products for several markets centrally and thus achieve economies of scale.
When this occurs, a firm can realize more profits, lower its prices, or
sometimes do both. Hence, exporting is made all the more cost-effective.
Exporting normally begins as domestic sales of a product begin to slow down due
to home market saturation. Exporting usually begins by simply shipping a
product on receipt of payment, but as sales expand an export office may be set
up in the domestic office, then sales offices may be set up overseas. As its
simplest the product is manufactured in the home country and then marketed
The costs of exporting may be reduced by
‘piggyback’ distribution (i.e. by using an already established distribution
network in the overseas country like a chain of stores). Direct exporting may
be carried out using a local agency. This has the benefit of exploiting local
knowledge and links, but will mean that a commission has to be paid which will
Advantages of exporting include that it is least expensive and least
complicated. Profits need not be shared. Risk is limited to the value of the
Disadvantages and potential problems include lack of market knowledge and
complex distribution arrangements. Moreover, it is remote from customers and
hence difficult to control.
More information at: http://www.made-from-india.com/article/Direct-exporting-1130.html