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The advantages of using an export strategy to build a customer base

The advantages of using an export strategy to build a customer base

 Options:

A. being able to minimize shipping costs, avoiding tariffs, and curbing the effects of fluctuating exchange rates.
B. minimizing its risk and direct investments requirements.
C. being cheaper and more cost effective than licensing and franchising.
D. being cheaper and more cost effective than a multicountry strategy.
E. being more suited to accommodating local buyer tastes and host government regulations than a global strategy.

The Correct Answer Is:

B. minimizing its risk and direct investments requirements.

An export strategy entails selling goods or services produced in one country to customers in another. The advantages of this approach, particularly the correct answer, B, revolve around minimizing risks and investment requirements.

Correct Answer Explanation:

B. Minimizing risk and direct investment requirements:

When a company opts for an export strategy, it often sidesteps substantial direct investments such as establishing physical presence or manufacturing facilities in the target market. This minimizes the risk associated with large capital investments.

Rather than committing significant resources upfront, the company can gradually expand based on market demand, reducing the exposure to financial risks. Additionally, it allows businesses to test new markets without extensive commitments, making it easier to adapt or pivot based on market feedback.

In choosing an export strategy to build a customer base, the significant advantage lies in its ability to minimize risks and investment requirements. By focusing on exporting goods or services, companies can test the waters in new markets without the immediate need for extensive capital outlay.

This approach allows for a more cautious and gradual expansion, enabling businesses to assess market receptiveness and make informed decisions without committing significant financial resources upfront.

As a result, companies can mitigate the inherent risks associated with entering new territories while maintaining a level of flexibility and adaptability crucial for sustainable growth.

Now, let’s delve into why the other options aren’t the most suitable answers:

A. being able to minimize shipping costs, avoiding tariffs, and curbing the effects of fluctuating exchange rates.

Minimizing shipping costs, avoiding tariffs, and curbing the effects of fluctuating exchange rates are undoubtedly advantageous aspects of an export strategy. However, while exporting can help manage shipping costs by leveraging economies of scale and efficient logistics, it might not entirely eliminate these expenses, especially for distant markets or bulky goods.

Tariff avoidance can be achieved through trade agreements or specific market conditions, but it doesn’t guarantee complete tariff exemption. Additionally, while exporting can mitigate some effects of fluctuating exchange rates, companies engaged in international trade are still susceptible to currency fluctuations, impacting profitability and pricing strategies.

B. minimizing its risk and direct investments requirements.

Comparing exporting to licensing and franchising requires considering various factors. While exporting might seem cheaper initially due to fewer immediate commitments, licensing and franchising involve different cost structures.

Licensing, for instance, allows companies to earn revenue through royalties without significant capital investment. Franchising, on the other hand, enables rapid market entry by leveraging local franchisees’ resources and knowledge.

Both licensing and franchising can provide a local presence and may be equally or more cost-effective depending on the market, product/service, and specific business objectives.

D. being cheaper and more cost effective than a multicountry strategy.

Suggesting that exporting is cheaper and more cost-effective than a multicountry strategy oversimplifies the complexities involved. A multicountry strategy involves establishing local operations in multiple countries, which could be more cost-effective in the long run.

While exporting might require lower initial investment, setting up local operations can provide benefits like better market adaptation, reduced transportation costs, and stronger connections with local customers, potentially outweighing the costs associated with initial setup.

E. being more suited to accommodating local buyer tastes and host government regulations than a global strategy.

An export strategy can indeed accommodate local buyer tastes to some extent, but it might not be as effective in complying with host government regulations compared to strategies like joint ventures or direct investment.

Establishing a local presence through avenues like joint ventures allows companies to align more closely with local regulations and preferences, potentially offering greater adaptability and responsiveness to the market’s nuances.

Each strategy exporting, licensing, franchising, and a multicountry approach—has its unique advantages and challenges, and the most suitable choice often depends on a company’s resources, market conditions, and strategic objectives. Companies need to assess these factors carefully to determine the most appropriate market entry strategy.

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