WHY EXPORT? A FIRM'S PERSPECTIVE : There are a number of factors which may motivate a firm to export. Let us discuss them in detail.
i) Relative profitability: The price realised in export markets may be relatively higher than that realised in the home market. This is so, for example, in the case of readymade garments and jewellery. In other cases, export incentives provided by the Government may make exporting relatively more profitable than selling in the domestic market.
ii) Insufficiency of domestic demand: The level of domestic demand may be insufficient for utilising the installed capacity in full. Export business offers a suitable mechanism for utilising the unused capacity. This will reduce costs and improve the overall profitability of the firm. Recession in the domestic market often serves as a stimulus to export ventures. In fact, export of engineering goods from India picked up momentum at the time of recession in the Indian economy during 1967-69. As a result, Indian manufacturing units faced with large inventories and weak order book position. This led them to go for export markets. Developing diversified export markets thus provides a firm with a degree of protection against cyclical domestic economic slowdown.
iii) Reducing business rise: A diversified export business may help in mitigating sharp fluctuations in the overall activity of a firm. When a firm is selling in a number of markets, the downward fluctuation sales in on; market. (which may be the domestic country) may be fully or partially counterbalanced by a rise in the sales in other markets.
Secondly, geographic diversification also provides the momentum to growth in as much as a single or a few markets will have only limited absorbing capacity.
IV) Legal restriction: Governments may impose certain restrictions on further growth and capacity expansion of some firms within the domestic market in order to achieve certain social objectives. But there may not be any such restrictions on making investments overseas or the restrictions may be relaxed even in the domestic market, provided the additional capacity envisaged by the company is utilised for exports. In such a situation, s firm may contemplate export operations, because it offers a way to achieve corporate growth, which may otherwise not be possible. v) Social responsibility: In many cases, businessmen themselves feel a sense of responsibility and contribute towards the national exchequer by increasing their exports.
vi) Increased productivity: Increased productivity is necessary for the ultimate survival of a firm. This itself 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 cost of research and development, larger markets become necessary and exports become unavoidable.
vii) Technological improvement: Entry into export markets may enable a firm to pick up new product ideas and to add to product line. This also helps in improving its product and reducing the costs. The firm can discover new applications for its product.
viii)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.
x) To build up image and goodwill: By exporting at a time when it is difficult to export, some firms build up their image in the domestic market. They also look at exporting to attain status and prestige.