Indirect and Direct Export

The normal way to get involved in an international market is through export. Occasional exporting is a passive level of involvement in which the company exports from time to time, either on its own initiative or in response to unsolicited orders from abroad. Active exporting takes place when the company makes commitment to expand into a particular market. In either case, the company produces its goods in the home country and might or might not adapt them to the international market.

Companies typically start with indirect exporting that is, they work through independent intermediaries. Domestic based export merchants buy the manufacturer’s products and then sell them abroad. Domestic-based export agents seek and negotiate foreign purchases and are paid a commission. Included in this group are trading companies. Cooperative organizations carry on exporting activities on behalf of several producers and are partly under their administrative control. They are often used by producers of primary products such as fruits or nuts. Export management companies agree to manage a company’s export activities for a fee.

Indirect export has two advantages. First, it involves less investment: The firm does not have to develop an export department, overseas sales forces, or a set of international contacts. Second, it involves less risk; because international marketing intermediaries bring Know-how and services to the relationship, the seller will normally make fewer mistakes. Companies eventually may decide to handle their own exports. The investment and risk are somewhat greater but so is the potential return. A company can carry on direct exporting in several ways:

* Domestic based export department or division: Might evolve into a self contained export department operating as a profit center.

* Overseas sales branch or subsidiary: The sales branch handles sales and distribution and might handle warehousing and promotion as well. It often serves as a display and customer service center.

* Traveling export sales representatives: Home based representatives are sent abroad to find business.

* Foreign based distributors or agents; these distributors and agents might be given exclusive rights to represent the company in that country, or only limited rights.

Whether companies decide to export indirectly or directly, many companies use exporting as a way to “test the waters” before building a plant and manufacturing a product overseas. University Games of Burlingame, California, maker of education games that encourage social interaction and imagination has blossomed into a $50 million per year international company through careful entry overseas ventures.

Bob Moog, president and founder of university Games, says his company’s international sales strategy relies heavily on third party distributors and has a fair degree of flexibility. We identify the international markets we want to penetrate says Moog and then form a business venture with a local distributor that will give us a large degree of control. In Australia, we expect to run a print of 5,000 board games. These we will manufacture in the United States. If we reach a run of 25,000 games, however, we would then establish a sub-contracting venture with a local manufacturer in Australia or New Zealand to print the games. The company now sells in 28 countries.

One of the best ways to initiate or extend export activities used to be exhibit at an overseas trade show. With the Web, it is not even necessary to attend trade shows to show one’s wares: Electronic communication via the internet is extending the reach of companies large and small to worldwide markets.

Major marketers doing global e-commerce range from auto makers (GM) to direct mail companies (LLN Bean and Lands’ End) to running shoe giants (Nike and Reebok) to Marketers like these are using the Web to reach new customers outside their home countries, to support existing customers who lived abroad, to source from international suppliers and to build global brand awareness.