Exporting: Why and how?
Read time: 13 mins Added: 26/05/2023
Exporting can bring great benefits to your business, such as increasing your revenue and diversifying your risk. In this guide, we’ll explain why you should consider exporting, how to get started and the pitfalls to watch out for.
The increasing globalisation of markets and the opportunities of digitisation have made it more attractive to export goods and services. As well as increased revenue and profitability, exporting can be an opportunity to:
- Shield your business from fluctuations in your domestic market. An economic downturn in one country (or even one continent) may not affect other markets. So, the more dispersed your customer base, the better.
- Reduce your reliance on seasonality. If your business focuses on one product area, you may experience seasonal ups and downs in sales. Widening your market could help with this. For example, you could sell summer-oriented products in hotter climates when it's winter at home.
- Stimulate new demand for your product. A product with moderate sales in the UK may be a greater success elsewhere.
Pros and cons of exporting goods and services
To identify the best overseas market for your business, you’ll need to do some research. So, what do you need to consider?
Is there a demand for your product or service in that country? Perhaps you'll need to modify your product to suit local requirements, regulations and standards. If so, remember to adapt your marketing and advertising accordingly.
If you are selling consumer products or services, consider the demographic makeup of a potential export country. Start with questions like:
- What age group does your product appeal to – are they a big enough market?
- What is the gender split in the country?
- Is the population shrinking or growing?
- How does the local population split their expenditure between food, housing, leisure, etc?
- What are the trends in current spending patterns – is more money being spent on leisure activities, for example?
You need to know if you already have competitors in that country. If so, would this market still be viable for you? You should consider:
- Who else, if anyone, is selling your product there?
- Can local suppliers match what you offer?
- Does your product have a strong enough unique selling point (USP) to stand out there?
Ease of trade
Trade is easier in markets with minimal trade barriers or tariffs and manageable logistics. Many exporters start by identifying a few nearby key markets with low entry barriers. Here are some questions to consider:
- Is foreign investment incentivised or are imports restricted in your country of choice?
- What are the tax and administration costs you need to be aware of?
- What distribution methods are used?
- How are payment terms managed and how could this impact your business?
Political and social environment
Research the political system and social customs of the country and how they could influence trading there.
- Is the country politically stable?
- How bureaucratic is it?
- Does it have strong trade unions?
- Are there any trade sanctions in place?
Research the cultural considerations of your target export countries. Cultural preferences will matter, especially if you’re exporting consumer goods. Also, consider what languages are spoken in the country and the religious and ethical landscape. How might this affect the way you present and market your product? Visiting your target country is a good idea. You can experience the local cultural environment and see first-hand how business is done there.
What legislation will affect your manufacturing, trading or performance? For example, what are the laws around trading methods or company structure? Are advertising and promotions restricted?
Export market research
You can get the background knowledge to plan with confidence, plus practical resources, from targeting the right market to making your first shipment when you sign-up to our International Trade Portal.
Market visits are an excellent way to personally experience the local cultural environment and help you understand how to conduct business in a particular area.
You have two important considerations before deciding whether or not to export: your business and your industry.
Ask yourself the following about your business:
- Do you have the financial reserves to develop your export market potential? Or can you access funding and support from your bank?
- Are you already receiving substantial overseas enquiries about your product?
- Can your production capacity and human resources meet the potential increase in demand?
- Do you know where to find the necessary skills and knowledge?
- Does your product meet overseas regulations and standards?
Ask yourself the following about your industry:
- Is your product already being exported by other UK companies?
- Do any of your trade association reports recommend exporting?
- Are similar products to yours being imported for sale in the UK?
Our customers can also use the Lloyds Bank International Trade Portal which provides a gateway to explore international trade opportunities and detailed market information.
The Department for International Trade (DIT) provides a range of helpful diagnostic tools plus a wealth of information.
Create an effective export strategy that complements your overall business plan.
It can be helpful, especially if your expansion will need external financing. Investors like to see a commitment to exporting and an international perspective.
There are several ways you can get into new markets. Determining the right method for your company will depend on your products, the markets you are entering and your own circumstances.
Some of the most common options include:
Exporting from your UK base
Manufacturing your products in the UK and then shipping them overseas. This approach is scalable and can work well if you want to trade with multiple markets.
Using an overseas sales base
If sales are strong in a particular location, consider establishing a base there. It could reduce costs, increase market penetration and help you comply with local regulations. Most countries have government-backed economic development organisations that can help with this.
Using licence agreements
A local business would produce and sell your product under licence and on your behalf. Licence agreements are often used when there appears to be no other way of making profitable returns from an area. For instance, many developing countries insist on the highest possible level of local manufacturing as this represents the best long-term commitment to the region.
Using overseas agents or distributors
When you use a retail or distribution specialist in your product or service area, they often do a lot of the overseas legwork. So, it can be a good way of testing the market before making a greater commitment, such as setting up an overseas base.
However, it’s important to draw up pre-agreed contracts. These should set out who does what and how you will communicate. The success of a distributor often depends on their commitment to their product.
Be aware of your agent or distributor’s other commitments and take the time to ensure they understand the benefits of your product or service.
Understanding potential exporting risks will help you mitigate them.
Your product must comply with the regulations and standards of the countries you export to.
Exporting may lead to changes in how you manufacture and supply your product. If manufacturing overseas, keep a close eye on standards. You must also protect your intellectual property (IP) rights overseas, which can be complex as IP rights are territorial.
When exporting to countries with different languages, take care to redesign your:
- Point-of-sale material
You may also need to review your marketing materials for cultural differences, even in other English-speaking countries. For example, if your advertising relies on a very British sense of humour, the American market may not always respond in the same way.
A major risk, as an exporter, is that a customer will fail to pay promptly (or at all). Protect yourself against this possibility by:
- Insuring yourself against non-payment
- Negotiating payment upfront
- Finding ways to vouch for your client’s creditworthiness
- Doing your research on the company, the country and the sector