â€˜Direct exportâ€™ refers to the sale in the foreign market directly by the manufacturer as the name implies. The manufacturer may make the sale directly to the foreign customers or to a middleman or middlemen located in the overseas market. In both the cases, the export is direct â€“ manufacturer does not use any independent middleman in the channel between the home country and the overseas market.
Firms with considerable export business usually resort to direct exporting. Of course, the investment and risk involved in direct exporting are great, but so are the potential returns.
A number of organizational arrangements are available to a company for carrying on direct exporting.
1. The export business may be conducted by a domestic based export department or division. There are four important types of domestic-based export organizations.
(i) Built-in export department;
(ii) Separate export department;
(iii) Export sales subsidiary; and
(iv) Export combination, or co-operative export company.
2. The company may establish overseas sales branches or subsidiaries in addition to, or instead of, a domestic marketing department. An overseas sales branch enables a company to carry out the marketing activities in the foreign market more effectively. As a part of overseas sales branch, the company may also establish storage or warehousing facilities and place marketing on a strong footing.
3. A company may employ traveling salesmen for the overseas market. These traveling salesmen may be home-based or may be attached to the foreign branches or subsidiaries.
4. Direct exporting may also be carried out by establishing contacts with foreign based distributors or agents. The distributors would buy the goods from the manufacturer and sell them in the overseas market, whereas the agents would sell on the manufacturerâ€™s behalf on commission basis.
Channel (s) for the distribution of a product may be different in different countries. A channel is effective in one country may not be effective or available in another country. For example, direct marketing has become very popular in the US but it is not significant in many other countries.
Before discussing the influence of marketing environment on the choice of the distribution channel, let us take a general look at the common distribution channels or channel levels.
The channel levels refer to the number of intermediaries involved in the channel. The following are the channel levels.
(i) Zero level channel which is also called direct marketing channel, is essentially characterized by the producer making a direct sale to the ultimate buyer. The three important ways of direct selling are: (1) Door to door; (2) Mail order; and (3) Manufacturer owned stores.
(ii) One level channel is characterized by one selling intermediary like the retailer or the agent.
(iii) Two level channel contains two intermediaries e.g. wholesaler /distributor and retailer.
(iv) Three level channel has three intermediaries i.e. agents, wholesalers and retailers.
There are also higher level channels. It should be noted that more than one channel is used by several companies (multi channel strategy). For example, a book publisher may sell direct to the ultimate buyer and at the same time, use one level (retailer) and two-level (distributor and retailer) channels. Similarly, textile companies like the Reliance and Bombay Dyeing make direct sales through their exclusive show rooms and at the same time use other channels.
In several cases, the distribution system is very complex and the extent of complexity may vary between markets.
Types of Foreign Intermediaries:
A brief account of the important foreign intermediaries is given below,
Although all the foreign customers who buy directly from the exporter are technically importers, here the term importer refers to one who imports the product in large quantities either as an agent for a foreign buyer or for resale. Such importers include, among others, large import houses and trading houses like the Japanese trading companies mentioned earlier.
The importers who buy on their own account may sell the product to the distributors, industrial and other institutional customers, wholesalers etc.
A distributor who buys directly from the exporter and holds large stocks of a product has an exclusive right to sell the product in a particular area or types of customers. The distributor may resell the product to the wholesalers, retailers or consumers.
Although wholesalers often buy from the importers or distributors, there are also wholesalers who buy directly from the exporter. They may sell the imported products to their customers buying their other goods or small retailers or customers (with good credit rating) who want ot buy on credit and well known to the wholesaler.