Why Exporting Occurs

“Exporting” refers to the outward distribution of goods into foreign markets for sale or consumption in those markets or incorporation into unfinished goods. “Exports” typically denote goods (but can include services) that are shipped for sale to customers in a country other than the country in which the goods are manufactured or in which the selling company is headquartered.

10 Reasons for Exporting

1. To sell into larger markets in order to secure growth or fend off local competition.
2. Local markets may be saturated, so opportunities for growth through local sales will be limited.
3. To take advantage of favourable currency asymmetries (the purchasing currency of foreign buyers may be stronger than the local currency, which means the price-cost ratio will favour the buyer, assuming transport and export costs do not erode the margin).
4. Partnering with foreign manufacturers often results in the absorption of the larger company’s technology and/or processes (firm-level spillover).
5. Government incentives attract foreign buyers; taxation concessions might be offered to companies who are export-oriented, since governments of developing countries often see foreign direct investment as a means of obtaining economy-enhancing benefits (human capital and socially beneficial technological and managerial know-how, i.e. society-level spillover).
6. At the macroeconomic level, export-focused national business activity leads to favourable asymmetry in the national balance of payments (BOP).
7. Successful performance as a supplier can often lead to mergers and acquisitions by the buying company, which expands opportunities and brings capital.
8. Domestic growth opportunities through partnership: multinational companies often internalise suppliers who are based in high potential growth markets; suppliers can market the advantage of their location to the foreign partner and, by exploiting the capital and knowledge transfer from the partner, develop as a domestic player.
9. Strongly backed suppliers can, in some circumstances, acquire their buyers, i.e. perform reverse vertical integration, which grants them access to the markets of their acquisition.
10. Export allows companies operating in business restrictive environments opportunities to engage profitably in less restrictive environments.