Export Promotion Rationale Continued – Part 2

In each one of these stages, firms have different concerns. For example, at the
awareness level, firms worry mainly about information on foreign markets and
customers. At the interest stage, firms become concerned about the mechanics of
exporting such as packaging or shipping. During the export tryout, communication,
supply chain management, and the sales effort become key considerations. At
evaluation time, regulations and financing take on greater importance. In the
adaptation stage, service delivery and control are major issues.

As a firm moves through these stages, unusual things can happen to both risk and
profit. Management’s perception of risk exposure grows. During domestic
expansion, the firm has become more familiar with the market, and has seen its
risk decline. During international expansion, the firm encounters new factors such as currency exchange rates,, greater distances, new modes of transportation, new government regulations, new legal and financial systems, new languages, and cultural diversity. As a result, the firm’s actual risk increases. At the same time, due to the investment needs of the exporting effort, in areas such as information acquisition, market research, and trade financing, the immediate profit performance may deteriorate. Even though eventually international market familiarity and diversification effects will reduce the risk and increase profitability, in the short and medium term, managers may face an unusual and perhaps unacceptable situation: rising risk accompanied by decreasing profitability. In light of this reality, and not knowing whether there will be a pot of gold at the end of the rainbow, many executives either
do not initiate export activities or discontinue them. Therefore, a temporary gap in the working of market forces exists. Government export assistance can help firms over this rough patch to the point where profits increase and risk heads downward. Bridging this short-term market gap, which lasts typically for 2 to 3 years, is the key role of export assistance, and the major justification for public sector involvement.

Fitting the Market, Unilever Customizes for India

Unilever saw an opportunity among low-income consumers in India who wanted to buy the company’s high-end detergents and personal care products, but could not afford them. The company responded by developing low-cost packaging and other options that allowed it to offer dramatically less expensive options. This flexibility not only opened a new market for the company, but also allowed it to develop brand loyalty that consumers could take with them when their income increased and they could afford higher-end products from the same manufacturer.

Regional norms have an impact on products such as detergent, too. For example, while in the U.S. people are accustomed to using both hot and cold water for laundry, some regions use only cold water and require detergents that will get clothing clean in those conditions.

 

This is an excerpt from Dr. Czinkota’s book Global Business: Positioning Ventures Ahead, co-authored by Dr. Ilkka Ronkainen.

Michael R Czinkota and Ilkka A Ronkainen, Global Business: Positioning Ventures Ahead (New York: Routledge, 2011), pg. 162.

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