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The Export Process

In many cases, a country will partner with another country tounderstand the demand needs for certain products. Instead ofblindly manufacturing goods and hoping for an international buyer,the export process often starts with the manufacturing countryreceiving an order. The exporting country must often receive properclearance from their home country to export goods; this is oftendone by obtaining an export license or meeting othercountry-specific requirements.

The export process usually entails settling several financialmatters upfront. First, the exporter may seek out a letter ofcredit from the importer if applicable. This ensures the exportercan have greater faith in the transaction and will receivecompensation for the goods once exported. The exporter and importeralso fix the exchangerate at which the exported goods will be exchanged at fromthe foreign currency to the home currency. At this point, aninvoice is most often issued and paid for, finalizing the sale.

As the order is prepared, formal documents are gatheredincluding a permit issued by the customers department, financialdocument such as a bill oflading and shipping documents are prepared, and andshipment advance information. These documents are remit to theseller; of primary importance is the shipment advance whichnotifies the importer how goods will be transmitted.

Trade Barriers and Other Limitations

A tradebarrier is any governmentlaw, regulation, policy, or practice that is designed toprotect domestic products from foreign competition orartificially stimulate exports of particular domesticproducts. The most common foreign trade barriers aregovernment-imposed measures and policies that restrict, prevent, orimpede the international exchange of goods and services.

Companies that export are presented with a unique set ofchallenges. Extra costs are likely to be realizedbecause companies must allocate considerable resources toresearching foreign markets and modifying products to meet localdemand and regulations.

Exports facilitate international trade and stimulate domesticeconomic activity by creating employment, production, andrevenues.

Companies that export are typically exposed to a higher degreeof financial risk. Payment collection methods, such as openaccounts, lettersof credit, prepayment and consignment,are inherently more complex and take longer to process thanpayments from domestic customers.

Advantages and Disadvantages of Exports

Pros of Exports

Companies export products and services for a variety ofreasons. Exports can increase sales and profits if the goodscreate new markets or expand existing ones, and they may evenpresent an opportunity to capture significant global marketshare. Companies that export spread business risk bydiversifying into multiple markets.

Exporting into foreign markets can often reduce per-unit costsby expanding operations to meet increased demand. Finally,companies that export into foreign markets gain new knowledge andexperience that may allow the discovery of new technologies,marketing practices and insights into foreign competitors.

Cons of Exports

To export goods, countries may need to incur high transportationcosts and the risk of loss due to the transportation of goods. Ifownership of the goods does not pass to the buyer until goods arereceived, this may make the exportation unduly risky for theexporter.

Because of logistic and economic constraints, small andmedium-sized businesses or governments may find difficulty inexporting goods. In addition, smaller companies often do not havethe in-house personnel needed to potentially navigate internationaltrade regulation. Exporting of goods is much more common for largerbodies with greater resources to seek out these outsidemarkets.

Last, exporting to foreign countries may result in currencyrisk. Depending on exchange rate agreements at the time ofcontract, a foreign currency's worth may deteriorate, negativelyaffecting an exporter. Consider when one currency strengthensagainst another; if the exporter is to be paid in the currencywhose value has depreciated, their export may be devalued. Thisdevaluation may also occur based on extenuating tariffs or lowerexport prices.