If your export business is performing well in domestic market for some time, you should be thinking of expanding it to the international market. It won't only help you make more profits but by increasing your production runs you can reduce the overall cost per unit.
Branching into global markets can be the real silver bullet for many companies. However before you rush out and branch your business out into the international market you need to realise domestic trade differs substantially from international trade, which brings many new factors into play.
The Exchange Rate is probably the most important element. It allows you to better distribute and allocate overall profits and may, in some situations, seriously harm you if you don't play your cards correctly.
Exchange rate:
Every major country in the world has their own currency. When you're trading with other countries, you can choose to either take payment in their currency or your currency. In order to convert between two currencies you perform a conversion at any bank.
This conversion us determined by the market defined exchange rate. Rate of exchange is the value or price of one currency in terms of another currency. Rate of exchange is also a very important factor of the economy, having an impact on country's overall imports & exports.
Forms of exchange rate:
Two methods are used to determine foreign exchange rate.
i) Floating Exchange rate
ii) Fixed Exchange rate
Floating (or flexible exchange rate), the one widely used in most parts of the world; let the markets decide by means of demand & supply, at which rate the local currency will be exchanged for any other particular foreign currency.
This type of exchange rate is often fluctuating, and the exporters need to be secure that some dramatic change will not severely impact upon their profits or the overall revenues of their business.
Forward exchange rate (estimated exchange rates for some future supply) should always be calculated when pricing. Normally exporters come up with a cushion to make sure they have a secured position in the event that there is a substantial change in exchange rate. Fixed exchange rates are set by the government of the country for their own particular reasons.
Providing the lowest cost possible is vital in international trade, so it isn't good business practice to put the entire burden upon your buyers.
In this manner it is therefore necessary that you observe the markets in the country you wish to export to, and even then possibly hire someone to analyse the markets before you choose the pricing levels of your particular goods.
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