Degree of commitment for exports

Once a decision to enter the export market or “go international” is taken, the next question relates to the degree of commitment to be made towards international operations. There are four distinct but overlapping categories:

No involvement:
The firm does not involve itself in export marketing. Yet the products manufactured by a firm may enter export markets due to (i) foreign buyers coming of their own accord and purchasing their requirements, and (ii) domestic intermediaries like export houses purchasing its goods and selling them to overseas customers.

Temporary Involvement: The firm gets involved in foreign business to dispose of temporary surpluses or to utilize temporary excess capacity.

Continued Involvement: Here the firm makes a serious commitment to export. It may demarcate a definite percentage of capacity for exports. Visits to foreign countries are more frequent and overseas agents are appointed to look after the firm’s interest.

Global Involvement: In such a case, a firm becomes a truly international company involving itself in international operations by establishment of branches in a number of countries.

However, before actually entering into the export markets, the firm should undertake a thorough analysis to find out whether or not it is ready to enter into international marketing. In fact, a very special and crucial job of resource audit is necessary to make this decision. The questions to be answered by the firm are:

1. Do you have or can you acquire the management knowledge to operate in international markets?
2. Do you or can you acquire the productive capacity to service new markets?
3. Do you have or can you acquire the financial resources necessary to service international markets?
4. Do you want to make the commitment necessary to approach international markets properly?

Producing for Export:
The situations envisaged above take for granted that companies thinking of export ventures enjoy good or at least substantial domestic sales. Existence of sound domestic market provides a cushion. But this need not be the case always. A company may set up operations to cater solely to foreign demand. This will be the case where the company is internationally competitive because of certain economic factors but cannot operate viably on the basis of domestic sales which are insignificant. For example, the units specializing in the export of diamonds in India import rough diamonds cut and polish them in India and re-export. This business is possible because Indian labor is highly skilled in this profession and the labor costs are much lower than in the competing developed countries. Similar situations may arise if the foreign demand is for items which can be made but not sold substantially in the domestic market. Certain types of readymade garments being exported from India fall in this category.

Obtaining Imported Inputs:
Nations have to export to pay for imports of materials, technology or processes not available within their national boundaries. Government therefore may be compelled to impose export obligations on the firms, specially those in need of imported inputs.

Increased Productivity: It is necessary for ultimate survival of a firm. This it self may lead a company to increase production and then seek export markets. Moreover, in these days of technological developments, bigger companies have to spend a lot on research and development. To meet the increased costs of research and development, larger markets become a necessity and exports become unavoidable.

Technological Improvement: Entry into export markets may enable a firm to (i) pick up new product ideas and to add to product line. (ii) Improve its product, (iii) reduce costs, and (iv) discover new applications for its product. Export exposes us to the fiercely competitive international market and compels us to update our products. This up gradation of our vehicles unmistakably benefits the Indian customer also.