The Advantages and Disadvantages of Indirect Exporting
Indirect exporting means selling to an intermediary, who in turn sells your products either directly to customers or to importing wholesalers. The easiest method of indirect exporting is to sell to an intermediary in your own country. When selling by this method, you normally are not responsible for collecting payment from the overseas customer, nor for coordinating the shipping logistics.
An export management company (EMC) is one such intermediary. A good one will act in all respects as a global extension of your sales-and-service presence—more or less what you are attempting to do on behalf of a manufacturer. EMCs offer a wide range of services, but most specialize in exporting a specific range of products to a well-defined customer base in a particular country or region. For example, an EMC might specialize in exporting personal computer business software to educational institutional customers in Asian-Pacific countries.
An EMC is highly market-driven, representing your product along with other companies' non-competing products as part of their own import "product line" aimed at the customer base they have created. Generally, the EMC buys the product from a manufacturer and marks up the price to cover their profit. It is called a buy-resell arrangement.
Other common compensation structures used by EMCs include both commission and buy-and-resell, start-up or project fee only, fee plus commission, or fee plus commission and buy-and-resell. An EMC will carry out all aspects of the export transaction:
- Identifying international markets for your product or service
- Locating customers overseas
- Arranging agent/distributorship relationships
- Preparing, negotiating, and handling all communication, documentation, and shipping logistics
- Exhibiting at international trade shows
- Traveling overseas to meet with potential customers
- Setting up appropriate distribution channels
Finding a good EMC is not that difficult. A good internet search can help you access a list. For each listed company, take note of how long they have been in business, the number of employees, the products in which they specialize, and the countries to which they export. Start your select list of companies that export products similar to your own. Then consult the following for more referrals to add to your list:
- A local trade association with an international focus. Attend a few meetings and talk some shop—somebody's bound to know of an EMC or even run their own.
- The international division of your bank. They're likely to have an inside line on which companies are reputable and doing well.
- As always, you can rely on your local chamber of commerce or small business assistance center. They generally know who has been in the export trading business for a while. At the very least, they can point you to a good online exporting directory.
- Freight forwarders and logistics experts also might provide you with the names of EMCs that use their service, but because you probably haven't made a sale at this point, you probably don't have a working relationship with a transportation company. Ask someone you know who uses a freight forwarder or reputable international transportation company regularly.
- Again, your first and possibly last resort is to search the internet for listings under "Export Trading Companies" or "Export Management Companies."
You might also use the services of an export trading company (ETC). ETCs are virtually identical to EMCs, but they tend to function on a more demand-driven basis, by which the demand of the market compels them to buy specific commodities. They usually have long-standing customers for whom they source products on a regular basis.
For example, they might get a request from a customer to find a supplier of canned sweet peas who can provide twenty container loads a month for a given number of months. The ETC will then seek out a reputable manufacturer who can handle the demand at an economical price, and then arrange for the transport of the goods to the customer.
You can track down a good ETC via the same channels recommended above for finding an EMC. In continuation of indirect exporting methods, here we explore other export intermediary options. We also offer the pros and cons of using an export sales intermediary.
Indirect exporting can also involve selling to an intermediary in the country where you wish to transact business, who in turn sells your products directly to customers or other importing distributors (wholesalers). Under these circumstances, you will not know who your ultimate consumers are. When selling by this method, you are normally responsible for collecting payment from the overseas customer and for coordinating the shipping logistics.
In some instances, the overseas agent might request that they are allowed to handle the shipping, usually because they receive special transportation rates from carriers with whom they've done volume business for years. In this case, you will need to arrange for the cargo to be ready by the shipment date. You must still collect payment from the customer, but your actual involvement in the transaction is minimal. It is nearly as easy as a domestic sale.
- It's an almost risk-free way to begin.
- It demands minimal involvement in the export process.
- It allows you to continue to concentrate on your domestic business.
- You have limited liability for product marketing problems—there's always someone else to point the finger at!
- You learn as you go about international marketing.
- Depending on the type of intermediary with which you are dealing, you don't have to concern yourself with shipment and other logistics.
- You can field-test your products for export potential.
- In some instances, your local agent can field technical questions and provide necessary product support.
- Your profits are lower.
- You lose control over your foreign sales.
- You very rarely know who your customers are, and thus lose the opportunity to tailor your offerings to their evolving needs.
- When you visit, you are a step removed from the actual transaction. You feel out of the loop.
- The intermediary might also be offering products similar to yours, including directly competitive products, to the same customers instead of providing exclusive representation.
- Your long-term outlook and goals for your export program can change rapidly, and if you've put your product in someone else's hands, it's hard to redirect your efforts accordingly.
Piggybacking your goods or services is another viable indirect export option. With this method you allow another non-competing company, which has a customer and distribution base already in place, to sell your company’s product or service in addition to its own, giving you immediate overseas market access at a nominal expense. If you have no intention of ever selling direct, this process works fabulously.
Only you can determine which export strategy suits your needs. Your choice will depend on your goals, your available resources, and the type of business you run. It is recommended that you choose the method that makes you most comfortable and lets you focus on your business priorities so that you won't be wasting your energy worrying that something isn't working. At the same time, though, many believe that direct exporting is the only way to maximize control, profits, and market presence.
If you are two or three times removed from a direct relationship with your customers, think twice about how you might get to them directly. After all, the name of the global game is generating your network of customer relationships. The sooner you begin building this foundation, the sooner you will have a flourishing import/export business.