Potential Disadvantages 
of Exporting
(Pitfalls of Exporting)
updated 2014 July 2nd
 
 
 
Pitfalls ! !  Some textbooks use the word "pitfalls" of Exporting. In a multi-cultural learning environment it is not wise to use too many slang expressions since it confuses the student as to the meaning. 
WTGR
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INTRODUCTION Question: Why would you discuss Disadvantages of exporting in a course which spends most of the time discussing how to export?

Answer: because the course (MRK460, MGSC44, IBM600) is not, srictly speaking, "how to export".

The course (for which this unit was written) deals with International Business Management which literally means how to be an international business manager. Sometimes managers need to make decisions about whether to pursue a new situation, or not: what we call a GO - NO GO decision. 

For the purposes of saving money and running the company efficiently, sometimes it is better to NOT GO - that is to say NOT export because the cost might be too high, or you may be consuming resources you don't have - it might be better to concentrate on making money on your "regular" business.

Deciding NOT to export doesn't mean your company is not involved in international business 

  • you can still be involved in importing, directly, or indirectly 
  • and therefore international business circumstances (currency fluctuations, political risk etc.) will still effect you 


WTGR

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Ramping Up "Ramping Up" has become a popular slang expression in business in the 1990's and is used in business and international business situations.

It is a metaphor that comes from putting a ramp up to a ship, or the back end of a cargo plane, and moving goods on to the ship or plane. The concept is that you are getting ready to do something by putting the ramp up.

WTGR

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Ramping Up

Being Export Ready

"Ramping Up" , or being "Export Ready" is something that can be 
  • expensive
  • time consuming
  • and use resources that you do not easily have access to


So one of the Disadvantages of Exporting is the challenge of "Ramping Up" and getting ready to export. These challenges can include:
 

  • management focus 
  • develop new promotional material
  • subordinate short-term profits to long-term gains
  • incur added administrative costs
  • allocate personnel for travel
  • wait longer for payments
  • modify your product or packaging
  • finding good distributors for the product overseas
  • apply for additional financing
  • obtain special export licenses
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click Received email from student Mara M. in MGTC44 at UTSC in July 2012.

Mara said 

"I wanted to share an article I read on Yahoo! Finance:..The article talks about TD Canada's expansion in the US by acquiring South Financial Group two years ago and even mentions the exact phrase "ramping up" in describing the new call centre that opens a month from now in South Carolina."

cc
Being Export Ready management focus 
  • it can be hard on middle management carrying out the operations if the senior management do not give them the time and money to do the job right, 
    • or if they ask for results in a time frame that is too short
      • or of the sr. management is focused on a different product line from the one you are exporting
..
 
Being Export Ready develop new promotional material
  • which includes translation costs
  • finding a really good, ACCURATE translator

  •  witiger.com/internationalbusiness/badtranslation.htm
  • translation of user manuals and other marketing promo material is critical for success - especially when so many countries are very nationalistic in the Millennium
..
Being Export Ready subordinate short-term profits to long-term gains
  • which means you have to have enough money from domestic sales to support a time lag until you make money from export sales
  • hard when medium and large sized companies are public and there is constant pressure to keep the share price value strong
..
Being Export Ready incur added administrative costs
  • for handling paper-work, communications, and other tasks
  • admin costs are essentially HR costs and HR costs are usually the largest cost of running a company
  • admin costs can rise quickly especially if there is a lot of foreign regulations that require extra communication and forms and documents to be processed
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Being Export Ready allocate personnel for travel
  • advances in telecommunications technology has helped cut some costs for int'l business but you still have to put some "boots on the ground" to meet people in foreign locations and it is critical that you send the right people with the right qualifications and experience
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Being Export Ready wait longer for payments
  • arranging for LCs  witiger.com/internationalbusiness/LCs.htm 

  • and other payment procedures is longer for exporting than domestic sales
  • waiting longer to get paid can be difficult for SMEs because small and medium sized businesses often have to borrow money from financial institutions in order to produce more product to export, and the longer you have to wait for money from the foreign customer, the longer you have to pay interest on the money you borrowed
..
Being Export Ready modify your product or packaging
  • these modifications can be small, or extreme depending on the product
    • for some food and clothing products, the biggest costs could be developing packaging that will allow the product to be shipped very long distances in containers and still arrive in good shape.
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Being Export Ready finding good distributors for the product overseas, once you found the market - a critical part of the 4P's - Place - you need to get the product to the right place, warehoused, and then distributed to the vendors
  • International Distributors need to have a good relationship with you on par with Domestic Distributors - this may take time and money you don't have
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Being Export Ready apply for additional financing
 witiger.com/internationalbusiness/export~financing.htm
  • financing from banks
  • financing from regional or national government agencies
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Being Export Ready obtain special export licenses
  • government rules and regulations restrict certain types of products from being exported according to standards
    • for example, Canadian beef cannot be exported unless it is Grade A, even if the buyer wants to use it for dogfood
    • certain consumer electronics and computer parts cannot be exported to countries that are considered to be supporting terrorism
some of the points in the above list came from
 http://www.njsbdc.com/international/itadv.asp
- other points were based on the personal experience of Prof. Richardson who has been involved with several companies to Ramp Up for exporting.
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Being Export Ready

obtain special export licenses
  • American rules and regulations can effect Canadian exports if some of the component parts are of American origins

  • examples:
    • 2006 "DI Canada, Inc. of Ontario, Canada, entered into a settlement agreement with the Commerce Department’s Bureau of Industry and Security (“BIS”) un¬der which it will pay a $6,600 civil penalty to settle charges that it re-exported oil-industry-related items from Canada to Libya without the required U.S. government authorization, and that it caused export to Libya without the required license, by special ordering from a U.S. company oil-industry-related items which were exported by the U.S. company through Canada to Libya without the required license."
    • 2005 "Medical Equipment Specialists, Inc. (“MES”) agreed to pay a civil penalty of $37,500 to settle charges that it committed five violations in connection with the attempted export of X-ray film processors to Cuba through Canada."
    • 2003 "an officer of Zimex, Inc. in Ontario, Canada, agreed to a five-year denial of export privileges to settle charges that he attempted to export U.S.-origin parts to Iran in violation of U.S. export control laws. "

    • from  www.reedsmith.com
  • American export license considerations

  •  www.export.gov/regulation/exp_000968.asp
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