Indirect Exporting

The distinction between direct exporting and indirect exporting is on the basis of how the exporter carries out the transactions flow between himself and the foreign importer or buyer. In indirect export, the manufacturer utilizes the services of various types of independent international marketing middlemen or co-operative organizations. In other words, when a manufacturer exports directly, he transfers the responsibility for the selling job to some other organization. On the other hand, in direct export, the responsibility for performing international selling activities rests on the producer. These activities are carried out by so called dependent organizations that are administratively a part of the manufacturer’s company organization.

The indirect method is more popular with firms which are just beginning their exporting activities and with those whose export business is not considerable. Indirect exporting has this advantage that the firm does not have to build up an overseas marketing infrastructure. The risk involved is also less. This method is, therefore, advantageous for firms with small means ad for those whose limited export business does not justify large investment in developing their own international marketing infrastructure.

The main disadvantage of the indirect method of exporting is that the development of the overseas market depends to a very large extent on middlemen and not on the firm producing the export goods.

Broadly, two alternative channels are available for indirect exporting, viz.,

1. International marketing middlemen; and
2. Co-operative organizations.

Marketing Middlemen

There are two important middlemen –merchants and agents. The basic distinction between the merchant and the agent is that the merchant takes title the product he sells, while the agent does not.

Export Merchants

The domestic based export merchant buys the manufacturer’s product and sells it abroad on his own. When this type of middlemen is used in an international marketing channel, the marketing job of the manufacturer is reduced to essentially domestic marketing and except for certain modification in the product mix which are sometimes required to suit the international market, all aspects of the international marketing task are handled by this merchant.

Export/Trading Houses: In India there are a number of merchant exporters including export houses and different categories of trading houses who export products procured from many manufacturers. Some companies have established their own export marketing subsidiaries (for example, HMT International Ltd).

Trading Companies: A very important intermediary in International trade is Trading Company. Unlike an export house which concentrates on exports, a trading company is active both in exports and imports .In Japan, the general trading companies are known as sogo shosba and include such well-known MNCs as Mitsubishi., Mitsui and Itochu. The nine largest trading firms handle roughly half of Japan’s imports and exports. Even large Japanese domestic companies buy through trading companies.

Export Drop Shipper: In some countries, there is a special kind of export merchant known by such names as export drop shipper, desk jobber or cable merchant. Upon receipt of an order from overseas, the export drop shipper in turn places an order with a manufacturer, directing the manufacturer to deliver the product directly to the foreign buyer. The manufacturer collects payment from drop shipper who in turn is paid by the foreign buyer. Exports drop shippers are common in the international marketing of bulky products of low unit value like coal and construction materials.

Agents/ Brokers

The second type of marketing middleman in indirect exporting is the domestic based agent. Unlike the merchant middleman, the agent does not take the title to the goods; he simply seeks overseas buyers for a commission. In this case, the manufacturer assumes all the financial risks.

There are different types of agent middlemen in the international marketing field. There are export commission houses or export buying agents who are representatives of foreign buyers residing in the exporter’s home country. Then there are brokers whose chief function is to bring the buyers and sellers together for which they are paid a commission, either by the buyer or seller. Finally, there are manufacturers’ export agents, who represent several exporters whose interests are non-competing, and offer selling and other services.