Two basic methods of exporting are:
- Indirect Exporting,
- Direct Exporting.
Many companies use both methods to export their products.
Indirect export is the process of exporting through domestically based export intermediaries. Indirect methods of exporting requires less marketing investment, but, as the exporter has no control over its products in the foreign market, the company lose substantial control over the marketing process.
Types or methods of indirect exporting are:
- Filling orders from domestic buyers who then export the product;
- Seeking out domestic buyers who represent foreign customers;
- Exporting through an Export Management Company (EMC);
- Exporting through an Export Trading Company (ETC);
- Franchising – mostly popular it is with restaurants and retailers;
- Licensing – license is a contract to identify what is being licensed: trademarks, patents, designs, copyrights or software. Licensing allows rapidly entering into the chosen foreign market and reduces capital requirements to establish manufacturing facilities overseas. Your contract does not violation of the host country's existing laws and regulations;
- Contract manufacturing;
- Piggyback marketing – low cost market entry strategy in which two or more firms represent one another’s complementary (but non-competing) products in their respective market. Or, in other words, it is an arrangement, where two or more companies help each other to market their products, where the products have to be complementary and not competing against each other;
- Export merchants – these are wholesale companies that buy unpackaged products from suppliers/manufacturers for resale overseas under their own brand names. The advantage of export merchants is promotion. One of the disadvantages for using export merchants result in presence of identical products under different brand names and pricing on the market, meaning that export merchant’s activities may hinder manufacturer’s exporting efforts.
Advantages of indirect exporting:
+ Fast market Access;
+ Concentration of resources for production;
+ Little or no financial commitment. The export partner usually covers most expenses associated with international sales;
+ Low risk exists for those companies who consider their domestic market to be more important and for those companies that are still developing their R&D, marketing, and sales strategies;
+ The management team is not distracted;
+ No direct handle of export processes.
Disadvantages of indirect exporting:
- Higher risk than with direct exporting;
- Little or no control over distribution, sales, marketing, etc. as opposed to direct exporting;
- Inability to learn how to operate overseas;
- Wrong choice of market and distributor may lead to inadequate market feedback affecting the international success of the company;
- Potentially lower sales as compared to direct exporting, due to wrong choice of market and distributors by export partners.
Indirect exporting is preferred by companies who would want to avoid financial risk as a threat to their other goals.
Direct exports represent the most basic mode of exporting, capitalizing on economies of scale in production concentrated in the home country and affording better control over distribution. Direct export works the best if the volumes are small.
Types of direct exporting are:
- Sales representatives - that represent foreign suppliers/manufacturers in their local markets for an established commission on sales. Provide support services to a manufacturer regarding local advertising, local sales presentations, customs clearance formalities, legal requirements.
- Importing distributors - purchase product in their own right and resell it in their local markets to wholesalers, retailers, or both.
Advantages of direct exporting:
+ Control over selection of foreign markets and choice of foreign representative companies;
+ Good information feedback from target market;
+ Better protection of trademarks, patents, goodwill, and other intangible property;
+ Potentially greater sales than with indirect exporting.
Disadvantages of direct exporting:
- Higher start-up costs and higher risks as opposed to indirect exporting;
- Greater information requirements;
- Longer time-to-market as opposed to indirect exporting.
Due to exported goods type, the export can be classified into three categories:
- Merchandise Exports – refer to the export of physical goods, for example, readymade garments, engineering goods, furniture, works of art etc.;
- Services Exports - refers to the export of goods that don’t exist in physical form, that is, professional, technical or general services;
- Project Exports - refers to establishment of a project by a business firm in another country. It is viewed as scientifically evolved work plan devised to achieve a specific objective within
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