Trading companies have all along had honorable history as important intermediaries in the development of trade between nations. Trading companies accumulate transport and distribution goods from many countries. In concept, the trading company has changed little in hundreds of years.
The British firm Gray Mac Kenzie and company is typical of companies operating in the Middle East. It has some 70 sales people and handles consumer products from toiletries to outboard motors and Scotch Whisky. The key advantage to this type of trading company is that it covers the entire Middle East
Large, established trading companies generally are located in developed countries; they sell manufactured goods to developing countries and buy raw materials and unprocessed goods. Japanese trading companies (sogo shosha) date back to the early 1700s and operate both as importers and exporters. Some 300 are engaged in foreign and domestic trade through 2,000 branch offices outside Japan and handle over $ 1 million in trading volume annually. Japanese trading companies account for 61 per cent of all Japanese imports and 39 per cent of all exports or about one fifth of Japan’s entire GDP.
For companies seeking entrance into the complicated Japanese distribution system, the Japanese trading company offers one of the easiest routes to success. The omnipresent trading companies virtually control distribution through all levels of channels in Japan. Because trading companies may control many of the distributors and maintain broad distribution channels they provide the best means for intensive coverage of the market.
US export trading companies
The Export Trading Company (ETC) Act allows producers of similar products to form export trading companies. A major goal of the ETC Act was to increase US exports by encouraging more efficient export trade services to produces and suppliers in order to improve the availability of trade finance and to remove antitrust disincentives to export activities. By providing US businesses with an opportunity to obtain antitrust pre-clearance for specified export activities, the ETC Act created a more favorable environment for the formation of joint export ventures. Through such joint ventures US firms can take advantage of economics of scale, spread risk and pool their expertise. In addition through joint selling arrangements domestic competitors can avoid inter firm rivalry in foreign markets. Prior to the passage of the ETC Act, competing companies could not engage in joint exporting efforts without possible violation of antitrust provisions. The other important provision of the ETC Act permits bank holding companies to won ETCs.
Immediately, after passage of the ETC Act, several major companies General Electric, Sears Roebuck Kmart and others announced the development of export trading companies. In most cases, these export firms did not require the protection o the ETC Act since they initially operated independently of other enterprises. They provided international sales for US companies to a limited extent but primarily they operated as trading companies for their own products. To date, many of the trading companies (particularly the bank owned ones) established after passage of the ETC Act have closed their doors or are languishing.
Companies with marketing facilities or contacts in different countries with excess marketing capacity or a desire for a broader product line sometimes take on additional lines for international distribution although the formal name for such activities is complementary marketing it is commonly called piggybacking. General Electric Company has been distributing merchandise from other suppliers for many years. It accepts products that are noncompetitive but complementary and that add to the basic distribution strength of the company itself.
Most piggyback arrangements are undertaken when a firm wants to fill out its product line or keep its seasonal distribution channels functioning throughout the year. Companies may work either on an agency or merchant basis, but greatest volume of piggyback business is handled on an ownership (merchant) purchase and resale arrangements. The selection process for new products for piggyback distribution determines whether 1) the product relates to the product lien and contributes to it 2) the product fits the sales and distribution channel presently employed, 3) the margin is adequate to make the undertaking worthwhile and 4) the product will find market acceptance an profitable volume if these requirements are met, piggybacking can be for both the carrier and the piggy backer.