The pros and cons of exporting

Exporting can really boost the bottom line for a small business. It can generate extra revenues which may not have been possible in the domestic market and opens up all sorts of possibilities and opportunities...

That's when it runs smoothly. Exporting can have its downside too and can leave your business exposed to risks over which you have little, if any, control. So before committing your business to exporting your product, you must be aware of the benefits as well as the disadvantages.

The pros

Economies of scale 

Exporting will mean that you will have to buy larger amounts of products or raw materials from your suppliers. This should boost your negotiating position and enable you to get better deals. You may qualify for discounts or buy at a cheaper price per unit or you may be able to negotiate longer credit terms meaning that you can keep potential borrowing to a minimum.

Access to new customers 

Customer acquisition can be an expensive business, particularly when you are trading in a crowded market. A new foreign market can mean a new and fresh customer base to which you can sell.

Business growth 

Exporting can be useful if you are trading in a market place which is shrinking or has a large amount of players competing for the same business.

Profit boosting 

Exporting can be a real boost to profits if you plan properly, consider and weigh up the possible risks, and set your prices properly. You may also find that it helps you to manage your resources better if you are not operating at full capacity or your business activity is seasonally sensitive or your market volatile.

Spread your risks

You may find that your business has all its eggs in one basket. Relying on too few large customers to buy from you can be dangerous. If, for some reason, the customer decides to buy from a competitor or his business begins to do less well, this will have a negative impact on your profits. Likewise, if you are trading in two or more markets, you are less exposed when one of them suffers from a downturn.

The cons

Understand the risks

One of the main downsides of exporting is exposure to risk and this is something that small businesses in particular are often not able to accept. The risks include:

• fluctuations in currencies
• loss or damage to the goods
• customers that refuse to pay
• delays in delivery times
• misunderstanding contract terms and
• falling markets. 

Most risks can be insured against or minimised but this comes at a cost and will have an impact upon your margins, so you should consider each of these before you consider exporting.

Understand the lingo

Language and cultural barriers can also cause problems. Not everyone speaks English and you may need to negotiate in the local language. If you cannot speak the language yourself, you will need to trust a translator to represent you.

In addition to this, what may be acceptable in a UK business meeting may be the height of bad manners in a foreign environment. Formal or casual dress? Small talk before or after negotiation? These are matters of business etiquette that you need to be aware of.

Cash up front

Exporting often needs large sums of money up front, and the funds can be tied up for a long period of time while the goods move along the delivery process.

You can outsource virtually every stage of delivery but, of course, this will cost money and reduce profit margins. You may need larger premises to store products while you put an export order together and you will almost certainly need to allocate more of your time managing the export, perhaps requiring you to hire extra staff.

Meet customers expectations

Customers will often want to deal in their local currency and this too can be a problem, particularly where the currency is volatile. There will also be transaction costs to consider too. You can hedge against exchange rate movements by buying currency options or using a foreign exchange contract. Your bank will be able to give you guidance on this.

Exporting can take up a lot of time and effort and requires in-depth research and exploratory discussions with customers. There are a lot of sources of advice at your disposal, but it will be a drain on your time and this must be planned for.

There are compelling reasons why a business should look to export just as there are many pitfalls and risk to consider along the way. Like most aspects of running a small business, planning well ahead and getting the information you need to make a qualified decisions are paramount.