United Nations Reform for Indirect Exporting
An Indirect Exporter is when a firm”s product is sold in foreign markets with no special activity for this purpose occurs within the firm. Others carry a firm”s product overseas. Although exporting this way can open up new markets quickly a firm will have limited control over distribution of its product.
A firm likes to have a buyer; thus products are sold in a domestic market then resold overseas in different ways.
-Foreign wholesale and retail organisations that have purchasing agents in a firm”s home country may find the firm”s product good for their market.
-Manufacturers and firms have U.S. offices obtain equipment and supplies to their foreign operations. Companies have an advantage by selling to the U.S. firms because they are using export routes already supplying their domestic operations via the U.S.
-With multinational operations buy equipment and supplies for them through their regular domestic purchasing. Equipment is shipped and installed in foreign plant. Foreign producers take note of the equipment. Then orders for the equipment will follow. Thus, an active exporting involvement by the supplying firm. This has befitted the supplying firm with a free introduction to the foreign market.
International trading companies are very important for some markets. Some of these companies handle the majority of the imports into the country. The size and market coverage of these trading companies makes them excellent distributors, especially with their credit reliability. They cover their markets and provide service for the products they sell. Using these trading companies has negative factors. These companies have a tendency to carry competing products and the latest product may not receive the attention its producers desired.
The sales from these kinds of indirect exporting are as good as domestic sales and, show that they are less stable. Since being so far from the main market a firm has little control. Even though new sales is helpful the disadvantage of not having more control of foreign sales a company may look for a more suitable arrangements in the long-run.
Some companies work with an export management to have increased control over its product. There are some advantages of using an export management company:
-The manufacture receives instant foreign market knowledge and contacts via the operations and the experience of the EMC.
-The manufacture saves the cost of developing the in-house expertise in exporting. An EMC cost is spread over the sales of several manufacturers.
-EMC offer clients consolidated shipments for savings.
-Lines of complementary products can better foreign representation than the products of just one manufacturing.
Also, EMC”s accept foreign credit responsibility.
There are also some disadvantages to using an EMC:
-Some EMC”s handled too many lines to give the proper attention to a new exporter.
-Many tend to be market specialist rather than product specialist, thus product expertise is weak.
-Some EMC”s coverage is only regional rather than global.
A ETC acts as the export arm of a number of manufactures. ETC”s allow U.S. companies or banks to form a trading company with the size, resources, sophistication, and international network comparable to the Japanese companies. Unfortunately U.S ETC”s have not really worked out. Most of them are small or they have failed.
One manufacture uses it overseas distribution to sell other companies” product with their own. One party is called the carrier; the carrier is the firm that does the exporting. With the export of the new non-competitive product may help ease the cost of exporting. Piggybacking can be attractive because a company can fill up its exporting capacity or fill out their product line. Also, piggybacking can help in a lost cost way for the carrier to export and save on investment in R&D, production facilities, and market testing for a new product. There are also some negatives, quality control and warranty.
The rider may not maintain the quality of the products sold by the other company. Concerns of supply, a carrier can develop a large market abroad, the rider firm may favor its own marketing needs it tight demand conditions. The party called the rider has a great advantage. By using another company a company can get its product to foreign markets. This offers the riders and established export and distribution facilities and shared expenses, and benefits close to an EMC and a ETC.
The difference between direct exporting and indirect exporting is that the task of market contact, market research, physical distribution, export documentation, pricing, is bestowed on the company.
Another producer under contract produces a firm”s product in a foreign market with the firm. This is feasible when a firm can locate a foreign producers with the ability to manufacture the product in satisfactory quality and quality. The advantages are the company can reduce the risk of failure in a foreign market by simply terminating the contract. Other saving include transportation. The drawback is to this is that the manufacturing profit goes to the local firm rather than to the international firm. Also, finding a suitable manufacturer may be difficult.