Challenges and Advantages of Exporting

Economies around the world depend on imports and exports. There are various challenges of exporting that every business will have to face. However, businesses that plan their exports well will be profitable in the long run.

However, there are certain challenges to exporting that every business that plans to become an exporter will have to face. In this article, we will explain the key challenges as well as the advantages of exporting.

What is Exporting?

Exporting, in simple terms, is the act of selling goods & products manufactured in one country but then sold in another. The goal of exporting is to expand into new markets and get better gross margins compared to their home country.

For almost every business around the world, exports are crucial to scale and grow their business. Exporting also helps diversify a business' revenue and protect it.

The Challenges of Exporting

There are specific challenges and difficulties in doing any kind of business. Following are some challenges you might face as an exporter:

Finding New Potential Buyers

Finding new buyers abroad presents a unique set of challenges for exporters. Exporting to foreign markets requires prior planning and analysis. Identifying qualified and reliable buyers in a foreign market can be difficult, especially for smaller companies. Unlike domestic sales, where potential customers are readily accessible, reaching foreign buyers requires crossing geographical borders. This can be particularly difficult for small and medium-sized businesses without a global presence. Building trust with new buyers is crucial for any business, but it takes on added importance in exporting. Since you're operating in an unfamiliar market, potential buyers might be hesitant to partner with an unknown company.

Even with today's technology, communication across cultures can be challenging. Nuances in language, business etiquette, and even product preferences can vary greatly from country to country. Misunderstandings can arise during negotiations, marketing, or customer service interactions.

Finding the right buyer isn’t a cakewalk. However, with supply chain intelligence tools, you can find reliable and emerging buyers for your product categories and create a list of potential buyers.

Finding the Right Market for a Specific Product

Selecting the perfect international market for your product can be a significant hurdle in the exporting journey. Understanding a foreign market's needs and preferences requires in-depth research that goes beyond readily available domestic data. Factors like cultural nuances, income levels, existing competition, and legal regulations all need to be considered. While domestic market research might involve focus groups or surveys, gathering such information abroad can be expensive and time-consuming.

Even after identifying a country with potential demand for your product, you need to assess the competitive landscape. Is the market already saturated with similar products from domestic or international players? Can you offer a unique selling proposition or a competitive edge to stand out? Failing to consider existing competition can lead to a situation where your product struggles to gain traction.

Every market has different needs and requirements. It is important to research the markets that you’re aiming to capture, figure out buyers in said markets, and note the product trends for the same. Adapting your product design, marketing strategy, or even pricing structure to fit the target market is crucial.

While every exporter wants a profit, it is important to optimize how you supply it to various regions of the globe. The right markets can make or break your business model. To choose the right markets, you need a supply chain data & research platform that will help you make data-driven business decisions.

Import/export duties & tariffs

There are export duties levied on certain products by the government. Apart from export duties, there are also import tariffs that impact exports. An import tariff is a tariff that a country imposes on one unit of import.

Navigating the complexities of import duties and tariffs can be complex and time-consuming. These vary considerably by country and product category and can change frequently. Failing to comply with these regulations can result in delays, fines, or even seizure of your goods. Import duties and tariffs add to the landed cost of your product in the target market. Therefore, it will increase the total costs for the customers who are going to buy/import your product. If your target country increases the import tariffs, then it might affect the viability of your customers buying your products.

To overcome this challenge, you need to be able to price your products with import and export tariffs in mind. Ensure that you can ship these goods to your customers at a competitive price. Exporters need to stay updated on the latest regulations for their target markets, which can require significant research or working with customs brokers to ensure smooth passage through customs.

Quality Standards

Quality standards can differ significantly between countries. A product that meets the standards in your home country might not be compliant in the target market. This discrepancy can be due to safety regulations, environmental concerns, or even labeling requirements. Failing to meet these standards can result in rejected shipments, delays at customs, and reputational damage.

Ensuring your product meets the target market's quality standards can involve additional costs. This might include modifying your production process to meet stricter safety regulations, obtaining certifications from accredited bodies in the target country, or implementing stricter quality control measures throughout your production line. Quality standards are constantly evolving. Regulatory bodies may update their requirements based on new safety concerns or technological advancements. Exporters need to stay informed about changes in regulations to ensure their products remain compliant. This might involve subscribing to updates from regulatory bodies or working with consultants who specialize in international trade compliance.

The Currency Exchange Rate

Fluctuating currency exchange rates can be a major headache for exporters, introducing uncertainty and potentially eroding profits. The exchange rate between your home currency and the target market's currency can fluctuate significantly. This makes it difficult to predict your profit margins accurately. Imagine you agree to sell your product to a foreign buyer for a fixed price in their currency. If your home currency strengthens against the target market's currency after the sale, you'll receive fewer units of your home currency when you convert the payment. This translates to lower profits than you initially anticipated. Conversely, a weakening home currency can boost your profits by effectively increasing the value you receive when converting foreign currency.

Setting competitive prices in a foreign market requires careful consideration of the exchange rate. You need to find a price that is attractive to foreign buyers while still generating a profit for your business. If the exchange rate fluctuates after you set your prices, you may need to adjust them to maintain profitability. This can be difficult, especially if you've already entered into agreements with buyers. Frequent price changes can also damage your reputation and make it difficult to build trust with foreign customers.

Pricing Strategy

You need to set a price that covers your production, shipping, and other export-related costs while remaining competitive in the target market. Pricing your product too high can make it unattractive to foreign buyers, especially if they have access to similar products from domestic or international competitors. However, pricing too low can erode your profit margins and make exporting unsustainable in the long run. Finding the sweet spot between these two extremes requires careful research on competitor pricing and a good understanding of your target market's price sensitivity.

Exporting involves additional costs beyond domestic sales, such as transportation, customs duties, tariffs, and insurance. These costs need to be factored into your pricing strategy to ensure you maintain profitability. If you have subsidiaries or affiliates in different countries, you'll need to consider transfer pricing regulations. These regulations aim to prevent companies from artificially manipulating prices between related entities to minimize taxes.

While pricing your products for export, it is important to keep import and export tariffs in mind too. Try to undercut your competitors in pricing. If you do not know how your competitors are lowering your prices, studying detailed shipment data might help you accomplish that.

A trade intelligence tool provides suppliers with shipment data from around the world that allows you to find, monitor, and research your competition.

Compliance and Documentation

Compliance is one of the biggest challenges for exporters today, especially considering different requirements for different countries. The compliance process is often cumbersome and lacks clarity. Exporting often involves a mountain of paperwork. From commercial invoices and packing lists to export licenses and certificates of origin, the specific documents required can differ by shipment. Preparing these documents accurately and efficiently takes time and meticulous attention to detail. Furthermore, relevant authorities and bureaucracies can sometimes make running an export business costly and difficult.

To help you overcome all such challenges, a trade compliance management software offers a complete set of solutions with which you can classify your goods, determine their fair value, and ensure they are compliant with all import/export norms.

The Advantages of Exporting

Exporting commodities can be very profitable for your business. Every company that wants to grow eventually plans to scale for global needs. The benefits and advantages of exporting outweigh every single challenge that your business might face:

A Good Product Will Always Sell

One of the first advantages of exporting is that a good product will always sell. Exporting is a business that can be started by anyone with a good idea and product. You don’t need to have a college degree or come from a business school to start your export business. All you need is the right product at a competitive price.

Your product should be of good quality and be able to meet the needs of your customers. Most importantly, the world is more open and connected than ever before.

Limitless Market

You can sell your product in almost all countries in the world today, making the market limitless. Selling your products in your native country can limit your market size to that of the local market. However, exporting products abroad gives you unlimited opportunities to showcase your talent and earn big.

Selling your products globally can help you build up your brand reputation and revenues. While it was not possible to sell your products to almost all countries in the world just a few decades earlier, today it is!

Higher Prices and Margins

The prices for your products on the foreign market can be significantly higher, than in the local markets because of the cost arbitrage between the two countries. Of course, this also depends on the markets you venture into and your product categories. This is quite often the main reason why businesses look to start exporting globally.

Government Benefits for Exporters

Exporting goods or services abroad is one of the key activities, which brings foreign currency into your country and helps create foreign currency reserves. That’s why the governments give many incentives and benefits to exporters.

Exporting goods or services abroad is one of the key activities, which brings foreign currency into your country and helps create foreign currency reserves. That’s why the governments give many incentives and benefits to exporters.

Faster Payments

Sometimes, in the local markets, if the competition is really high, then the businesses receive due payments after 2-3 months of goods being sold. While exporting to foreign countries, one might expect the payment even before the goods are exported.

Of course, this all depends on the payment terms and negotiation with the buyer. However, with international buyers, payments are protected by various laws and you can generally sell your products at a higher price.

Summing Up

Starting an exporting business has its own challenges and advantages. These challenges and obstacles can, however, be overcome by proper planning. The advantages of exporting to foreign markets and the business opportunities it brings along obviously outweigh the challenges.

The global markets will present you with unlimited opportunities, which you generally don’t get if you are doing business locally. So go on ahead, and grow your business today!