Advantages and Disadvantages of Exporting - 2022 Guide (2023)

In December 2021, the value of US exports stood at the record level high of $228.1 billion USD.¹ ²

On top of this, the United States currently ranks as the second largest exporter in 2022, with approximately $2 trillion USD in goods and services exported annually.³ ⁴

Expanding into foreign markets through exports is important for securing your success as an international business, as well as in bolstering your business during domestic downturns.

In this article, the advantages and disadvantages of exporting will be put under the spotlight.

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What is exporting?

Exporting is the process in which a business produces goods and services in one country to then sell them to buyers in another country.

With new businesses going global everyday, and many advantages of exporting, now is a great time to join the more than 286,000 US businesses in the exporting industry.⁵

Who can export goods from the USA?

Depending on the type of product you offer, you may need a license to export it.

A product requiring a license has an Export Control Classification Number (ECCN) and can be found on the Commerce Control List (CCL).

The purpose of ECCNs is to control and trace the movement of goods that may be used in “military, terrorist or proliferation applications” (US Census Bureau, 2018).⁶

In order to know if you require an export license, you’ll need to first find your ECCN.

The good news is that 95% of exported items don’t require an export license, so the likelihood of needing one is statistically low.⁷

But, nevertheless, it is your responsibility as an exporter to find out whether your product requires a license, as well as to perform “due diligence” checks regarding the end-use of your product by the buyer.⁷

For more information, it is best to refer to government sources such as the International Trade Administration and the Bureau of Industry and Security.

Advantages and disadvantages of exporting

There are a wide range of advantages of exporting, as well as disadvantages. Here’s a quick summary:

Advantages of exporting

There are multiple advantages of exporting for businesses of all sizes. Let’s take a closer look.

1. Extending to a global scale

One of the primary benefits of exporting is access to a global market of buyers.

The population of the US accounts for approximately 4.25% of the world’s total population.⁸

In other words, by exporting your products and going global, you open your business to more than 95% of the world’s population - and by not exporting, you limit your sales to less than 5% of potential buyers.

The International Trade Association (ITA) reported that exports accounted for 20% of annual earnings for a whopping 60% of small businesses, and for 44% of medium-sized businesses.⁹

2. Increased profits

Another advantage of exporting is profitability. Access to a global market of buyers means sales will increase, translating to increased profits. This is all the more so when direct exporting is utilized.

With the growth of e-commerce, marketing and selling your product online across the globe has never been easier.

With sophisticated e-commerce solutions that translate payment gateways into multiple languages, among many other crucial functions, reaching potential buyers has also never been easier.

In addition to this, many products are scarce in the countries to which they are exported, meaning they command a higher price than in their domestic market.

This also often means that these products will be bought and exported in larger order sizes, as well as repeatedly.

All of these factors contribute to the increased profitability of exporting firms.

3. Risk mitigation

Another one of the advantages of exporting is risk mitigation.

Introducing your products to foreign markets and buyers diversifies your customer base, making your business less reliant on and susceptible to changes in a single domestic economy.

Exporting protects your business against fluctuations in the domestic business cycle, thereby protecting your revenue and employees.

4. Increased competitiveness and market share

Entering a global market means that your number of competitors increases.

This, however, comes with the benefit of forcing your company to become more efficient and thereby more competitive itself.

Exposure to price and marketing competition, differing management systems, innovations, among other factors, will force your business to adapt accordingly in order to remain competitive.

This will not only give you an advantage on the international stage, but will in turn make you more competitive in your domestic market, leading to a potentially greater share of the market.

Just take a look at the largest US companies ranked by market capitalization - nearly all of them are exporters.

5. Economies of scale

Another instance of export benefits is that of economies of scale.

Increasing sales abroad represents a need for your business to increase production.

Depending on the efficiency of your business, increasing production can result in decreasing costs per unit of product.

This allows your company to benefit from economies of scale, reducing overall costs and increasing net income.

This frees your business up to reinvest in other aspects, leading to increased growth.

6. Government support

When exporters receive international payments, they deposit foreign currencies into domestic banks.

This allows governments to build foreign currency reserves, which is one of the reasons government support exists for businesses exporting products.

The US Department of Commerce offers businesses export counselling from trade professionals, as well as customized export solutions.

Similarly, the US Export-Import Bank and Small Business Administration can give your business access to key export resources, such as financing.⁴

Disadvantages of exporting

Despite the many advantages of exporting, it’s not without its challenges. Here are a few of the main disadvantages of exporting in international business.

Keep in mind - even though this list is a bit longer it doesn't mean that exporting isn't beneficial for your business. It only means there are quite a few things to consider when exporting successfully.

1. Supply chain disruptions

In light of the COVID-19 Pandemic, and the consequent disruptions in supply chains, delayed shipments pose a risk to the success of your business.

Products that fail to reach the buyer result in unhappy customers and refunds, costing your business unnecessarily.

2. High up-front costs

The initial investment required to become a successful exporting business can be high.

Market research, marketing campaigns and initiatives, administrative costs, travel costs for employees - these costs can add up significantly.

This of course comes with increased risk, and can also pose a greater challenge for small businesses in the beginning.

Choosing a business account and exchange rate provider that helps you to reduce international costs is key to easing the exporting process. This is where a Wise Business account can help you.

3. Export licenses and documentation

Though 95% of all exported goods don’t require licenses, it may just be that your product does.

It’s your job as an exporter to stay current with laws and regulations, not only in the US, but also to countries you’re exporting to.

Not doing so could come with massive legal and financial costs to your business.

On top of this, these laws and regulations are frequently changing and responding to global events.

This can be a headache as an exporter, costing you both time and money.

4. Product adaptation

Foreign markets have different consumer preferences, as well as different regulations.

Additionally, US governmental departments and agencies have their own codified requirements.

• For example, each country has laws regarding the safety and quality of food and beverages.

• Similarly, technical equipment has to meet certain standards of safety.

As an exporter, compliance with these standards is non-negotiable. This could result in your business having to modify its products, which could come with extra costs.

That being said, your business can mitigate some of the disadvantages of exporting through product localization.

5. Political disruptions

Just as with export/import rules and regulations, political events - such as trade wars - can be detrimental to the exporting industry.

The implementation of import tariffs in countries you’re exporting to, and/or export duties at home, could cost your business a significant amount in sales.

This was seen recently in the US-China Trade War, in which China placed tariffs on $110 billion USD worth of US imports in 2018.¹²

Unfortunately, these events are largely out of your hands as an exporting business, and can be fairly unpredictable.

6. Cultural hurdles

If you’re planning to export to a country with a starkly different culture, then devoting resources to cultural understanding is paramount.

Language barriers and cultural customs can pose large hurdles for businesses new to the market.

And if your business doesn’t adjust to the cultural status quo, it could cost your business its success.

7. Exchange rate fluctuations

Fluctuations in the exchange rates can cost your business in sales and thus profit.

The exchange rate is simply the price one currency can be bought at, expressed in that of another currency.

When the US Dollar is strong against the Mexican Peso, for example, that means a higher amount of Pesos are required to “buy” the equivalent amount of Dollars.

So, if you’re a US business exporting to Mexico, then it's likely that Mexican demand for your product will decrease as their purchasing power has decreased.

This means that fluctuations in currencies, which are out of your control, can end up costing you sales.

8. Multi-currency payments

Receiving and making international payments in foreign currencies can end up costing your business a lot in fees related to currency conversion - hidden fees and poor rates of exchange add up quickly.

Having a transparent provider that gives you a fair exchange rate without hidden fees is crucial for your success in the export market.

Get paid fast and easy, when you sell your products overseas with Wise Business

Having a competitive edge in the global market is necessary to your businesses success. A Wise Business account can give you this edge.

Get a fair rate of exchange when sending international payments, using the mid-market rate.

Get access to account details - from IBANs and Routing Numbers, to Sort Codes - for up to 10 different currencies, allowing you to get paid like a local.

Additionally, with the help of local account details, you can make invoicing easier and get paid quicker by allowing your customers to pay in their own currency.

On top of all this you can save up to 19x compared to PayPal when sending or receiving international business transfers.

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Sources:

1. Bea.gov - U.S. International Trade in Goods and Services - December 2021
2. Trading economics - United States Exports
3. World Population Review - Export by Country 2022
4. Trade.gov - Why Export?
5. Census.gov - Preliminary Profile of U.S. Exporting Companies, 2019
6. Census.gov - The Importance of Export Control Classification Numbers and Administration Regulations
7. Trade.gov - U.S. Export Licenses: Navigating Issues and Resources
8. Worldometer - US Population
9. Trade.gov - Strategic Reasons to Export
10. Statista - Retail e-commerce revenue in the United States from 2017 to 2025
11. Trade.gov - Additional Reasons to Explore or Expand Exporting
12. BBC - A quick guide to the US-China trade war

All sources checked 25 March 2022