Disadvantages of direct exporting
In spite of several advantages in direct exporting, there are also certain limitations that direct exporting suffers from which are detailed below.
1. Greater initial outlay
The cost of doing direct export business is very high. It involves greater initial outlay before profits begin to flow in. So, small exporting firms cannot arrange adequate finances for export. This system is more favorable to large firms.
2. Larger risks
Direct exporting involves lot of risks related to credit, financing, collection, rejected merchandise and after sale service. These risks are borne by the manufacturer alone.
3. Difficulty in maintenance of stocks
The success of direct exporting depends upon the timely availability of goods in the overseas markets. But the maintenance of stocks in overseas depots is an expensive proposition which is considered a big disadvantage of direct exporting.
4. Higher distribution costs
The channel of distribution in direct exporting may be lengthy. It has to carefully decide the most appropriate channel to link the domestic operations to the overseas channels. Presence of middlemen in the channel is unavoidable. As middlemen charge higher margins, the cost of distribution becomes high.
5. Greater managerial ability
One of the disadvantage of direct exporting is that it involves lot of formalities. The process of documentation, shipping, financing, collection etc., require greater managerial ability on the part of the exporter. When the exporter hicks competence to deal with these technicalities, he cannot succeed in the foreign market.
6. Too much dependence on distributors
A distributor is the sole importer of the manufacturer’s products. He buys and holds large stocks of goods. He may be granted exclusive rights to operate on his own account. So, the success of direct exporting depends upon the role of agents or distributors. When the functions of the distributors are not efficient, they may land the exporter in trouble.