There's no lack of lucrative business ideas in today's world. Import and export is no exception.
Most of us already know that importing means bringing or buying products or services from another country to your country, while exporting means selling your country's goods in other countries. Buying and selling are always prone to risks, and if there are enticing advantages, then there are risky disadvantages also.
To attain success, you need to conquer many challenges as an exporter. Risk is everywhere, and you should try gaining the right knowledge. Read this guide on the advantages and disadvantages of exporting carefully to equip yourself with the right knowledge.
Did you know?
In 2019, India ranked 15 globally in terms of total exports.
Advantages and Disadvantages of Exporting
Exporting means selling what's available in your country in other countries with demand, and you gain much better gross margins than your domestic markets. Let's check both sides of the coin to understand the intricacies of this business.
Advantages of Exporting
You Need the Right Product
A good idea, a good product, and you have your base ready! If you don't belong to any business school or don't have a college degree, you can still ensure your export business thrives. Just plan to sell the right product at a reasonable cost, be strict with your quality controls, and engage your target audience.
For instance, let's say, if you develop some new coco peat in India and begin exporting it in countries like the USA and Netherlands (there's a great demand there), who knows, you may beat your competitors there and generate high income. There can be a million more similar ideas.
You Enjoy Higher Prices
What makes your business grow faster? The simple answer is "a bigger profit margin." You either need to lower the manufacturing cost (which is a risk because the quality can be lost) or increase the selling price.
Maximizing the profit margin may be a great challenge in the local market due to heavy competition, but while targeting global buyers, it's easier. Now, as you're getting higher prices for your goods, you'll take less time to expand your business.
Also Read: How to Start Spice Export Business in India?
Compliance and Documentation
Governments of a few countries are generous and let you export your goods in their territories with minimum paperwork and hassle. Some countries are exactly opposite to that.
The bitter truth is that compliances are getting tougher with time for exporters. Sometimes, the compliance process lacks clarity, and you may find them tough to understand at first.
Besides that, authorities of a few countries have greater sets of rules and regulations. Such authorities are less supportive, and this may add extra workload, and many times, even expense to your export business.
So, spend time understanding the nature of the import-related rules and regulations imposed by the country's authorities which you are targeting to export. Keep in mind that no country in this world can survive without importing and exporting, and you need to find that entrance.
One advantage of exporting is that the market is limitless. Selling locally your products limits your market size and, sometimes, even growth. Selling your products in other countries with high demand may bring you even 10x profit than the local market.
Today, there are enough resources to research and a long list of countries to target. If you find the right market, it's also possible that you spend your whole life fulfilling the demands of just one country's market.
In terms of permanency, targeting multiple foreign markets is much better than solely depending on the local market. If the demand for the goods you're exporting in a country decreases, you can still rely on the other countries' markets. However, if your local market's demand collapses, you feel hopeless.
Govt Benefits for Exporters
How does any country expand its foreign currency reserves? The answer is pretty simple: exporting goods to other nations and bringing in as much foreign currency into the country as possible. It is why exporters enjoy many benefits and benefits from the governments.
The Indian government is very generous in the case we mentioned above. Recently, the Indian government announced cash incentives on exporting products falling under 38 categories. On top of that, one of the biggest advantages of export is that you may even get great support from banks. If you've got a strong and dependable business plan, getting loans from the bank won't be a challenge. It's a win-win situation for both you & the banks.
Disadvantages of Exporting
Finding Potential Buyers
It would help if you had deep planning and analysis before exporting to foreign markets. Finding global buyers for your products may sometimes invite challenges due to the lack of references. The cultural difference sometimes proves to be a barrier to entry while finding potential buyers.
Import/Export Duties & Tariffs
You can't ignore that governments levy export duties on certain products. Besides these export duties, import tariffs also impact the exports, and it increases the cost of your product for the buyers of that country. Hence, leading to lower demand and lower margins for your products.
You can't run your export business without meeting foreign quality standards, and these standards sometimes pose great challenges to your business. It is especially true when exporting agro-based products.
There are many other products on the list. Besides quality, there are other vital standards for labelling, packaging, branding, etc. If your business fails to meet these standards, it may go under very soon.
Also Read: Guide to Merchant Exports under GST
Hitting the Ideal Market With the Right Product
In exporting, you need to understand the specific importing requirements for a specific market. You won't always get an easy foreign market, and you may even need to struggle for a very long time if you fall into a heavy competition.
When it comes to grabbing a new market for exporting specific products, research proves to be your golden key. If many businesses are already offering similar products in that market, giving up the plans of exporting that product in that market will be better.
Competition can very easily break your exporting game. Even after you somehow manage to eliminate the competition, it isn't necessary that you'll dominate the market for the upcoming months or years.
The pro tip here's to target the long-term game. In other words, plan to sell a product in such a market that even if the competition increases in the upcoming time, you've already generated enough profit by then.
Currency Exchange Rate
What does the exchange rate mean? It means the rate of one currency when converted to another. People generally depend upon strong currencies like USD or Euro for international payments. If the foreign currency's value increases against your local currency, you reap an extra profit.
Similarly, you may lose a significant profit margin if the reverse happens. For example, the Yuan got pretty weak against the USD, and the US-China trade war was why.
If any Chinese person is importing from the US, they'll suffer losses. On the other hand, a person importing goods from China to the USA will enjoy profits.
So, those were the main advantages of exporting and importing. If you're courageous enough to meet the requirements of foreign markets and prepared enough with resources, you can skyrocket your export business.You enjoy bundles of extra benefits while targeting foreign markets that you don't enjoy while staying in your local markets. Undoubtedly you can generate enough income by staying in the local market, but it may take much time, and you may even reach a saturation level. Also, who knows that the trend of the product you're selling today will decrease or even go extinct in the upcoming time? So, think wider, plan deeper and play bolder! Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.