EXPORT STRATEGY
Export Strategy
In the discussion of global sourcing, we noted that demand in a country can be satisfied by goods produced in that country or abroad, and that domestic production can use a combination of domestic and foreign components. At this point, we need to look at how domestic production can satisfy foreign consumption through exports. In some cases, goods are shipped to foreign consumers independent of the exporter. In other cases, parts and components are exported to company-owned plants in foreign locations for final assembly and sale. Caterpillar, for example, adopted a strategy after World War II of manufacturing key components in its domestic plants and shipping them around the world for final assembly, which allowed them to maintain tight quality control. Thus the export strategy also is part of the larger sourcing and manufacturing strategy of the MNE as well as a sales strategy for servicing final markets around the world.
Exports take place for a number of good reasons. Raw materials must be exported to the manufacturer, components need to be exported to the assembly operation, and, as illustrated in the Sunset Flowers case, finished goods need to be exported to foreign distributors and consumers. Sometimes this process occurs within the confines of a vertically integrated company so that the exporter can sell directly to the next level through an intracompany transaction. However, the sale may be to an outsider; in that case, the exporter may decide to sell directly to the buyer or indirectly through an intermediary.
Factors Favoring Exportation
The most common means by which firms begin international activity is through exportation. Even firms with sizable foreign contractual arrange-
ments and investments usually continue to export to achieve their overall objectives.
The major reason firms get involved in exporting is to increase sales revenues. Firms that are capital and research intensive, such as biotechnology and pharmaceuticals, need to export in order to spread their capital base over a larger volume of sales. Export sales also may be a means of alleviating excess capacity in the domestic market. Some firms export rather than invest abroad because of the perceived high risk in foreign environments. Finally, many firms export to a variety of different markets as a diversification strategy. Since economic growth is not the same in every market, broadly based exports allow a firm to take advantage of strong growth in one market to offset weak growth in another.
In the discussion of global sourcing, we noted that demand in a country can be satisfied by goods produced in that country or abroad, and that domestic production can use a combination of domestic and foreign components. At this point, we need to look at how domestic production can satisfy foreign consumption through exports. In some cases, goods are shipped to foreign consumers independent of the exporter. In other cases, parts and components are exported to company-owned plants in foreign locations for final assembly and sale. Caterpillar, for example, adopted a strategy after World War II of manufacturing key components in its domestic plants and shipping them around the world for final assembly, which allowed them to maintain tight quality control. Thus the export strategy also is part of the larger sourcing and manufacturing strategy of the MNE as well as a sales strategy for servicing final markets around the world.
Exports take place for a number of good reasons. Raw materials must be exported to the manufacturer, components need to be exported to the assembly operation, and, as illustrated in the Sunset Flowers case, finished goods need to be exported to foreign distributors and consumers. Sometimes this process occurs within the confines of a vertically integrated company so that the exporter can sell directly to the next level through an intracompany transaction. However, the sale may be to an outsider; in that case, the exporter may decide to sell directly to the buyer or indirectly through an intermediary.
Factors Favoring Exportation
The most common means by which firms begin international activity is through exportation. Even firms with sizable foreign contractual arrange-
ments and investments usually continue to export to achieve their overall objectives.
The major reason firms get involved in exporting is to increase sales revenues. Firms that are capital and research intensive, such as biotechnology and pharmaceuticals, need to export in order to spread their capital base over a larger volume of sales. Export sales also may be a means of alleviating excess capacity in the domestic market. Some firms export rather than invest abroad because of the perceived high risk in foreign environments. Finally, many firms export to a variety of different markets as a diversification strategy. Since economic growth is not the same in every market, broadly based exports allow a firm to take advantage of strong growth in one market to offset weak growth in another.
Comments
Post a Comment