Disadvantages of indirect exporting
Though indirect exporting is advantageous in many respects, one cannot underrate its drawbacks. The serious limitations of indirect exporting are:
1. Too much dependence on middlemen: The main drawbacks of indirect exporting is too much dependence of the exporter producer on the middlemen operating in the channel. The development of the overseas market depends a lot on middlemen and not on the company that produces the goods that are exported. Non-availability of competent middlemen may hinder the export activities of the firm.
2. Reduced profitability rate: Middlemen engaged in export trade may charge a commission for the services he offers. It increases the cost of the product to the ultimate users and reduces profitability to the manufacturer.
3. Ignorance of export trade: The serious limitation of indirect exporting is that the manufacturer of the export product remains ignorant of export market. Since he is totally dependent on the export houses or foreign buyers, he
lacks experience in export trade.
4. Limited scope for product development: In Indirect exporting, the products are sold through merchant exporters. So, the export products are not directly identified with the manufacturer. Moreover, the manufacturer himself is not in direct contact with the ultimate buyers in the market. As the export firm remains ignorant of the market, there is virtually no scope for product development.
5. Inappropriateness: Indirect method of exporting is found unsuitable in the following situations:
- The products are highly specialized and custom built. Overseas importers desire to deal directly with the manufacturer or his representative.
- The products need after sale service and warehousing facilities.
- The product has high unit value. It is an industrial product and importer asks for complete details and full satisfaction about the quality of the product.
6. Lack of control over prices: The seller does not have any control over prices. The merchant exporter or export house buys products from the manufacturer and sells them in the international market. He himself assumes the risks involved in exporting. The merchant exporter is acting independently. He is free to decide what to buy, where to buy and at what price. Ultimately, the manufacturer of the export product has a little say in the matter of pricing.
7. Lack of knowledge about the product: The role of merchant exporter significant in indirect exporting. They are usually well financed. They maintain an elaborate network of branches at port towns and in paramount focuses abroad. They usually have a system of gathering market information and track the prevailing market trends. Marketing operations are totally dependent on the export houses. The manufacturer has no knowledge of the market.
8. No goodwill: The export merchants generally concentrate on products, which give them more profit. They buy products in the cheapest market and sell them in the best market. They do not feel obliged to any manufacturer. They only deal with manufacturers who offer better commissions compared to others. There is no publicity about brand name and the seller does not enjoy any goodwill.