What is indirect exporting?
To give indirect export definition in simple words, we can say that Indirect exporting relates to the sale to a middleman who subsequently sells the products or services either directly to the importing wholesaler or the customer.
Indirect exporting also means selling in your territory to an intermediary. Selling to an intermediary in your own country is the simplest way of indirect export. A local middleman can be an export trading company or an export management company. In this particular case, you are not liable for collecting payment from the foreign client or coordinating the shipping logistics when selling under this approach.
An intermediary in the exporter’s country plays specific promotional roles related to the exchange of the commodity between the exporter and the importer. Indirect exports are similar to domestic sales.
Small businesses generally don’t have adequate financial and managerial resources to make a direct entry into a foreign market. So indirect exporting is the least expensive entry approach available to such small businesses. It is flexible and, if needed, export operations can be terminated directly and immediately.
Below are the indirect exporting advantages and disadvantages
Advantages of indirect exporting:
Risk-Free and no special skills are required
One of the most significant benefits of indirect exporting is that intermediary organizations handle all exporting operations. Besides, an intermediary handles all the tasks related to documentation to get licenses from the government. No exporting experience or abilities are needed, and all the risks involved in shipping and organizing payment from the global market are taken on by the intermediary organization.
Minimal Involvement in the export process
In indirect exporting, the company generally uses the services of independent international marketing intermediaries or cooperative organizations. So they don’t always have to involve themselves in all the operations personally. And thus it is a great way to start your career with indirect exporting in international business.
High Volume of Business
A manufacturer significantly increases the sales volume of the overseas market over a while. Ordinarily, the distribution channel’s agents enjoy significant market credibility. So, receiving substantial orders from importers from different countries is easy for them. The producer thus enjoys the benefits of an enhanced sales volume.
Support from a local agent
Indirect exporting is more popular with firms who are just starting their export activities. It may not be significant in the initial phase of a company’s export business to spend a lot of money on market research. And this is when local agents come to the rescue. Merchant exporters are very well acquainted with studying market trends. And based on the information provided by exporters, businesspersons can start their export business.
Disadvantages of Indirect Exporting
The demerits of Indirect Exporting are as follows:
No control over foreign sales
The biggest drawback of indirect exporting is that the authority of overseas activities is transferred to the intermediary organization. Organizations interested in extending to a target group will not gain a valuable understanding of the functioning of that market. Organizations also can not set up after-sales service or value-added operations, and this can adversely affect their reputation in a foreign market.
No personal interaction with the customers
Since the intermediary buyer takes responsibility for exporting and selling the goods, the organization never gets an opportunity to develop personal communication with the customers. This makes it an unsuitable market entry strategy as organizations will never know what product needs modification to cater to the needs of end-users.
Lack of control over prices
The seller doesn’t have any control over prices. The merchant exporter or export house buys and sells products from the manufacturer on the global market. He has the liberty to choose what to buy, from where to buy and at what price. Ultimately, the manufacturer of the product does not have enough to say when it comes to pricing.
Low profitability rate
Intermediary involved in export trade may impose a certain percentage of commission for the services provided by him. It eventually increases the product’s price to the end customers and decreases the manufacturer’s profitability.
It is strongly recommended to the businesses who are looking to start their export business to take into account the market trend. The markets they have chosen, the products or services they wish to sell and their objectives for global trade. It might seem a daunting task to consider the range of elements, but without a full assessment of the situation for each potential market, an organization might put itself in a non-profit-making business.