As Michael Porter said: “Strategy is about making choices, trade-offs; it’s about deliberately choosing to be different”. Nowadays this difference can be defined by one word: specialisation. Each country has its own speciality: Germany specialises in automobiles, France is renowned for its fashion, the UK is recognised for its intellectual property … Their differences have allowed them to export and gain a competitive advantage. This week, This Foreigner Can will focus on the benefits of export. As in our previous article, we aim to help you start your export business in the UK.
Let’s begin this article with the definition of “export business”. This expression is used when a company trades its goods/services across national barriers. Nowadays a lot of companies choose to export because of the potential advantages. With globalisation, the number of export businesses has grown; for example, in the UK 47% of the trade are exports.
How, and why? More and more companies decide to expand their businesses in order to generate more sales and basically apply what we call economies of scale. In other words, when you choose to extend your sales you have to increase the number of goods that you produce, and therefore your average costs are reduced.
Exchanging with countries from all the world helps increase your client base, and as a result you generate more sales and consequently increase your profit. In addition, you will contribute to the growth of the national economy by hiring more employees, by paying more tax, etc.
To stimulate this trade, the Government set up the UK Export Finance. This export credit agency guides exporters with:
- their loans
- contract bonds
- their letters of credit
In addition, this department provides insurance to protect each exporter against non-payment.
Exporting has a lot of advantages; however, there are some risks.
The main issues in export businesses arise from the fluctuating exchange rates. For example, if we compare the Euro and the Pound Sterling, we see that the value of Sterling is higher than the Euro. This means that you can purchase more. However, because of this high value it will be more difficult to sell your products.
By exporting in a foreign country you face competition from other companies, and obviously you will need to adapt your business to the competition.
The conditions necessary to start your export business are the same as with an import business:
You need to choose the territory where you want to trade (outside/inside the EU) because the VAT conditions are not the same. The other things that you need to pay attention to are:
- your licence to export
- the customs freight simplified procedure (CFSP)
- the import control
For more information about these, visit our previous article about import businesses.