The Pros and Cons of Exporting

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You may think that your product is already doing well in the domestic market and therefore, there is no need to expand to new markets. However, with the increasing opening of Caribbean economies to goods and services produced abroad, competition in the domestic market will continue to increase and survival might very well depend on an ability to compete both domestically and internationally. In this sense, despite the challenges and risks associated with exporting, it also offers numerous benefits which are not likely to be achieved by remaining domiciled in the local market.

Benefits of Exporting:

Increased Competitiveness: Exporting can allow you to gain exposure to new ideas, management practices, marketing techniques, and ways of competing which can help you to better position your business both within the Caribbean and overseas markets to increase competitiveness.

Increased Sales: Exporting is one way of increasing your sales potential. Given the small size of most Caribbean markets, exporting allows a firm to expand its market beyond the scope of a limited and increasingly saturated national market. For instance, a producer in Trinidad and Tobago has access to a market of just over 1.5 million people. However, exporting to Brazil for example expands that producer’s potential market to close to
200 million people. With an expanded market, exporting can pave the way for increased sales and expansion.

Higher Profits: No company would export unless it intends to make a profit. Generally speaking, internationalcustomers in larger markets are likely to place much larger orders than a local buyer. Some rare products (such as certain specialty foods) may also be able to command a higher price in an overseas market particularly in a market where the consumer is relatively affluent and willing to pay a premium price for a premium product. All these factors can positively affect the profit margins of a firm.

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Lower costs: By expanding international beyond the domestic Caribbean market, sales will increase and therefore production levels will also increase. As production levels rise, the costs per product is typically reduced depending on the manufacturing process. Specialty food and beverage providers need to carefully assess the production process when levels increase to ensure the quality is not compromised.

Reduced Vulnerability: When you export, then your company is no longer solely dependent on sales within the local market. Therefore, if economic conditions become unfavourable domestically, the impact on your operations might not be as huge if you have been able to expand your business to foreign markets. It is also advisable that you do not become dependent on a single export market as this too can make you too vulnerable to fluctuations in that market.

Extending the Product Life Cycle: In the domestic market, your product might be approaching the end of its life cycle. In such an instance, finding an export market would be ideal in order to extend the life cycle of the product.

Follow your Customer Abroad: Outward migration from the Caribbean to Europe and North America in particular is fairly high. This has led to the creation of a sizeable Caribbean diaspora abroad with Caribbean “taste” and a desire for authentically Caribbean products. You can take advantage of this situation by targeting the diasporic market to drive your export sales.

Challenges Associated with Exporting:

Competition: Competitors can typically not be avoided in export markets. The world is global and to stay competitive specialty food and beverage providers need to understand their competitive advantages to stay ahead of the competition and be successful abroad.

Extra Costs: Developing an export market takes time. It can also be costly to develop new promotional/marketing materials, develop new packaging and assign new personnel to travel and undertake other administrative and operational tasks. These can place severe strain on the financial resources of firms, especially the smaller firms.

Product Modification: In order to meet safety, security and other requirements in the export market, your product may have to be modified. Some firms may not have the technical know-how where these modifications are concerned and might have to incur the costs associated with hiring an expert. Having to modify your product for the export market can also stretch the human and other operational resources of the firm.

Payment: Apart from the risk of non-payment, the complicated processes involved in the collection of payments using the various methods (consignment, letter of credit etc) can be time consuming. Firms with limited cash-flow therefore need to fullyunderstand the financial pitfalls associated with exporting.

Financial Risks: economic or government restrictions in the export market could negatively impact on your business. Exchange rate fluctuations could also prove to be problematic, particularly for those Caribbean countries with a floating exchange rate.

Transportation Risks: In exporting your product, there is the risk of damage, loss or theft.

Commitment: Without a high level of commitment, it is highly unlikely that your export venture would succeed in the long term. Maintaining a sustained presence in the export market requires time, willingness and substantial resources. It can also take months or even years before your decision to export begins to reap dividends. These are all issues that the potential exporter must bear in mind.

Cultural Differences: The language, business practices and other customs in the export market may be different to your own domestic market. To achieve greater success in the export market, you need to become familiar with the cultural situation in your export market and adjust your approach to suit if required.

Market Information: Finding information on some markets can be extremely difficult. Lack of information would mean that you do not have sufficient information on your competitors and the trends related to your specific product and similar products. This can negatively affect your ability to do well in the target market.

Source: CE intelligence