Direct and Indirect Exporting Strategies for Businesses

Direct and Indirect Exporting

• Exporting
  • Exporting can be direct or indirect.
  • In direct exporting, the company sells to a customer in another country.
  • The Internet is becoming increasingly important.

Exporting may be done passively or actively. Passive exporting occurs when a business receives orders from abroad without actively looking for them. Active exporting involves developing policies for setting up systems for organizing the export function and for dealing with export logistics, documentation, and finance.

With indirect exporting, intermediaries handle most aspects of export deals. Returns are obviously lower. You lose control over final selling prices.

• Indirect Exporting: Products are sold to a third party who then sells them within the foreign market. Reaching markets with the use of an intermediary located in the exporter's home country.
  • Advantages
    • Fast market access.
    • Little or no financial commitment.
    • Low risk.
    • No direct handling of export processes.
  • Disadvantages
    • Lower risk than direct exporting.
    • Little or no control over distribution and sales.
    • Inability to learn how to operate overseas.
    • Potentially lower sales.
  • The Use of Intermediaries: Good for companies with little international experience. For the novice exporter, the use of intermediaries is almost essential.
  • Choosing Intermediaries: Examine each candidate firm's knowledge of your product and target foreign markets, experience and expertise, required margins, credit rating, customer care facilities, and ability to promote your product in an effective way. Characteristics of an intermediary include:
    • A solid financial base.
    • A well-established corporate image.
    • Wide geographical coverage.
    • A substantial sales force.
    • Warehousing facilities.
  • Piggybacking: A "piggybacking" deal involves a large company that already operates in relevant markets and is willing to act on behalf of another business. This enables larger companies to make full use of their sales representatives, premises, office equipment, etc., in the countries concerned. The carrier will purchase the goods or act as a commission agent and may or may not sell under the carrier's own brand name. Piggybacking is an arrangement in which one manufacturer or service firm distributes a second firm's product or service. Successful arrangements usually require that the product lines be complementary and appeal to the same customers.
    • Advantages: Access to established markets without the complexities and risk.
    • Disadvantages: Lack of market knowledge and control. High-risk concentration.
  • Agent: An agent establishes sales for the product for a commission paid by the exporter. The agent may represent other non-competing products and may request exclusive representation for a territory. An agency agreement will have to be drawn up.
  • Distributor: A foreign distributor purchases your product at a discount and assumes control over marketing, retail pricing, and distribution. He sells the product under his own trade name.
  • Agents Versus Distributors: An agent's operations are subject to your direct control; the distributor assumes full responsibility for storing and selling the item. After-sales service and customer care can be arranged by your local representative. Agents are near to end customers and can communicate with them in languages they understand.