Many manufacturing firms begin their global expansion as exporters and only later switch to another mode for serving a foreign market. We take a close look at the mechanics of exporting in the next chapter. Here we focus on the advantages and disadvantages of exporting as an entry mode.

Exporting has two distinct advantages.

* It avoids the often-substantial costs of establishing manufacturing operations in the host country.
* Exporting may help a firm achieve experience curve and location economies (see Chapter 12)

By manufacturing the product in a centralized location and exporting it to other national markets, the firm may realize substantial scale economies from its global sales volume. This is how Sony came to dominate the global TV market, how Matsushita came to dominate the VCR market, and how many Japanese auto firms made inroads into the US auto market.

Exporting has a number of drawbacks:
* Exporting from the firm's home base may not be appropriate if there are lower-cost locations for manufacturing the product abroad (i.e., if the firm can realize location economies by moving production else where).
** Thus, particularly for firms pursuing global or transnational strategies, it may be preferable to manufacture where the mix of factor conditions is most favorable from a value creation perspective and to export to the rest of the world from that location. This is not so much an argument against exporting as an argument against exporting from the firm's home country. Many US electronics firms have moved some of their manufacturing to the Far East because of the availability of low-cost, highly skilled labor there. They then export from that location to the rest of the world, including the United States.
* High transport costs can make exporting uneconomical, particularly for bulk products.
** One way of getting around this is to manufacture bulk products regionally. This strategy enables the firm to realize some economies from large-scale production and at the same time to limit its transport costs. For example, many multinational chemical firms manufacture their products regionally, serving several countries from one facility.
* Tariff barriers can make exporting uneconomical
** Similarly, the threat of tariff barriers by the host-country government can make it very risky. An implicit threat by the US Congress to impose tariffs on imported Japanese autos led many Japanese auto firms to set up manufacturing plants in the United States. By 1990, almost 50 percent of all Japanese cars sold in the United States were manufactured locally-up from 0 percent in 1985.
* When a firm delegates its marketing in each country where it does business to a local agent. the foreign agent may not do as good a job as the firm would if it managed its marketing itself.
** There are ways around this problem, however. One way is to set up a wholly owned subsidiary in the country to handle local marketing. By doing this, the firm can exercise tight control over marketing in the country while reaping the cost advantages of manufacturing the product in a single location. 

Thu, 05 Jan 2012 11:39:52 GMT
Thu, 05 Jan 2012 11:39:52 GMT