What is an Indirect exporting?
Methods of Indirect exporting
There are two methods of indirect exporting:
- Selling to a merchant exporter or export house in India and
- Selling to visiting or resident buyers.
Selling to export house in India:
Merchant exporters buy goods from Indian manufacturers and sell them abroad. They operate on their own, thereby undertaking all risks involved in exporting. They take their own purchasing decisions. In other words, they are free to decide what should they do, where and at what price. They maintain their branches at port towns and foreign countries. They carefully watch the market trends and assess the prospects of export market. Generally, export houses specialize in certain commodities. Companies which are not in a position to start export departments of their own, sell to export houses operating in India.
Selling to visiting buyers:
In India, there are resident buying representatives who represent big foreign companies. They are entrusted with the work of buying commodities from Indian manufacturers. Alternatively, some foreign companies regularly send buying teams to India. Their volume of purchase is substantial. Selling to resident buyers relieves the manufacturer from the botheration of cumbersome formalities involved in exporting. In other words, the manufacturer enjoys the fruits of exports without being burdened with the actual exportation of goods. Moreover, the resident buyers help manufacturers adapt products by providing valuable information about the overseas markets. They provide guidance on product specifications, designs and style, offer training in quality control and advise on packaging, labeling and shipping.
Import houses operating in some countries allow entry into overseas markets. Entering Japanese market through trading houses is easy and less expensive. Japan has trading houses which handle import and export transactions through a network of branches established all over the world. Manufacturers contact these trading houses for selling in Japan. Since the distribution system prevailing in Japan is somewhat complicated, exporters do their business only through trading houses.
Advantages of Indirect exporting
Generally, small companies lack adequate financial and managerial resources required for making a successful entry into a foreign market. Indirect exporting is suitable for such companies.
The important advantages of indirect exporting are:
Indirect exporting are free from risks:
A big advantage of Indirect exporting is that the merchant exporter assumes all sales and credit risks. Moreover, he takes care of all formalities related to documentation, shipping arrangements, financial, political and credit risks, obtaining licenses from Government departments, etc. Therefore, the producer exporter is relieved from the botheration of complying with tedious formalities involved in the export activities.
No Financial burden in indirect exporting:
Indirect exporting is a rapidly growing form of foreign market entry since it involves less financial outlay for the manufacturer. The firm does not have to build up an overseas marketing infrastructure. So, the financial resources committed are minimum which is a big advantage in indirect exporting. Firms with small means cannot afford to invest a huge capital in developing their own global marketing structure. Moreover, export merchants pay manufacturers against the purchase of their goods. So, their capital is not tied up.
No need for own market research by the exporter in indirect exporting:
The indirect method is more popular with companies which are just beginning their export activities. In the initial stage of a company, its export business may not be considerable. So, it cannot spend more money on market research. Merchant exporters ate well versed in studying market conditions. They are the principal source of information to the exporter. So, producers can adapt their products on the basis of information furnished by the merchant exporters.
Concentration on production in indirect exporting:
Merchant exporters are frequently approached by resident or visiting buyers. Hence, they are in a position to provide sales opportunities available in the overseas markets. This enables the producers to concentrate on production, leaving to the sales specialists of export houses.
High volume of business in indirect exporting:
A manufacturer improves the volume of foreign market sales considerably over a period of time. Generally, middlemen in the channel of distribution enjoy a good reputation in the market. So, it is easy for them to obtain large orders from the importers of different countries. Thus, the producer enjoys the benefits of increased volume of sales.
Services of middlemen in indirect exporting:
In indirect exporting, the manufacturer utilities the services of various types of independent international marketing middlemen or cooperative organizations. For example, the “export drop shipper” places an order with a manufacturer directing the manufacturer to deliver the product directly to the foreign buyer. The services of an export shipper is inevitable in the international marketing of bulky products of low unit value such as coal and construction materials.