Alternative Avenues for Expanding Through Exports

Abstract

"For the decade of the 90's, the arms race has been replaced by the export race. A company that isn't exporting by the year 2000 will be left behind -just like a company today that isn't using computers is far behind the times," stated Department of Treasury Secretary Lloyd Bentsen ( 4, p.ll ). Bentsen hit the nail on the head with that statement. Exporting should be taken seriously by every company in the United States, regardless of their size. U.S. companies are losing market share in the domestic market because of tremendous amounts of imports to compete with; therefore, U.S. firms need to discover where they have a comparative advantage and export to that country's market. Chapter II examines the reasons why a firm would choose to export along with some of the barriers a firm will face once they have made the decision to engage in international trade. The U.S. market may be shrinking because of the increased competition from foreign imports, but overseas markets are growing. And, the growing foreign markets provide a chance for U.S. firms to make up for the losses in the domestic market. The opportunities to export products to foreign markets provides firms with a chance to extend a product's life cycle and increase their profits. Unfortunately, these chances are neither free nor easy. Exporters have to deal with barriers such as quotas and tariffs which are specifically designed to protect domestic producers and restrict competing foreign corporations. Trade barriers need to be taken into account when exporting, but they do not outweigh the advantages gained from engaging in exporting. Chapter III discusses some alternative avenues that exporters can follow in order to secure their products in foreign markets. Indirect and direct exporting are the two main categories that most export activity falls under. For the most part, indirect exporting uses an export intermediary, such as an Export Management Company (EMC), to get their product to the foreign market. Inexperienced exporters and small firms usually find that indirect exporting best suits their export needs. On the other hand, direct exporting is essentially direct trade between a domestic producer and a foreign buyer. This method is often preferred by larger companies or by firms with previous international trade experience. Technology licensing, joint ventures, and overseas expansion are also popular and profitable methods American companies consider when choosing to export their products. The United Kingdom, as a potential export market for U.S. companies, is discussed in Chapter IV. The U.K. is the world's fifth largest trading nation, and they rely heavily on imports due to the fact that they have very few natural resources. For example, they need to import about one-third of their food. It is estimated that imports will make up twenty-two percent of their GDP in 1995. Since both countries speak English, business can be conducted relatively easily, and the U.K. can be used as a stepping stone to the rest of the European Community (EC). Chapter IV shows that the United Kingdom represents a vast market with great potential for U.S. exporters. It can be concluded that exporting is an excellent way for firms to make profits because it provides a firm with more than one market in which to sell their product. Expanding to an overseas market, when done correctly, can only help a firm grow. Dennis Donovan, Senior Managing Director of the Wadley-Donovan Group, made an excellent point when he stated, "There are a number of reasons to locate overseas, but the basic common thread is that it makes good sound business sense" (2, p. 62).