When it comes to understanding the different modes of international business in detail, things get pretty confusing in terms of Export options the companies have. This is especially in the case of Indirect Exporting. Right?
So, in this blog, I will be providing you with a clear understanding of the same by showing how some big companies have successfully implemented this concept.
So, what is Indirect Exporting?
Indirect Exporting is a process used by the seller to sell its goods and services in other markets using intermediaries. So actually, in the case, the company does not serve its products and services directly to customers in other markets as done in direct Exporting.
The indirect Exporting approach, the company due to limitations on costs and resources uses the services of intermediaries. This not only helps the company to focus on their core business processes such as manufacturing but also helps it to use readily available distribution channels to sell the products and services in the market where does not operate.
Many companies around the globe use Indirect Exporting as an option to increase their reach to new customers to boost their sales and profits. The development of the overseas market is crucial for any company to make it survive and grow for a longer period.
Modes of Indirect Exporting
The companies use different modes of Indirect Exporting depending on their operations, profit plans and product and services. Indirect Exporting methods include using Merchants and Agents, Trading Houses, Trading Companies and Export Drop Shippers, etc.
A majority of companies using the Indirect Exporting for sales of their product overseas belong to small and medium-size business category.
Business organizations such as Galley Support, a US-based manufacturer of high-end latches, use Indirect Exporting to sell its products into the market of the Asia Pacific region. The company produces components for the transportation industry. The main components made at Galley Support include hinges, bolts, and latches.
The company uses multiple channels of distribution for reaching to the global clientele. The products made for the aerospace industry are bought by the company’s customers such as Gulfstream and other manufacturers of the aerospace industry and exported around the globe.
Galley Support also uses services of Trading companies such as Mercury Sales, which buys the products from the company and sells to various markets of the world. Especially in Malaysia, Mercury Sales is the biggest exporter of the products manufactured by Galley Support.
You can see in the above case how a company uses multiple modes of Indirect Exporting to sell its products around the world by avoiding huge investments in the development ow own distribution channels that could be too costly and risky.
This takes us to the question of the advantages and disadvantages related to the Indirect Exporting method.
Some advantages of Indirect Exporting include:
- A company requires less investment in terms of capital to use this method of exporting.
- The company can focus more on its core business and get less distracted by the export processes.
- It provides the market-related data on how and where the product is in more demand, this helps in planning for the future.
- This method is less risky in comparison to the direct export method.
Some disadvantages of Indirect Exporting include:
- A higher share of margins is lost with the intermediary’s commissions.
- Customers are not directly related to the brand which can increase the value.
- Sometimes the same intermediaries might provide the customers with alternatives that are cheaper that may result in loss of sales and market.
With both advantages and disadvantages at hand, you must be probably thinking about how do the companies make the decision to implement the Indirect or Direct Exporting method in their sales channels?
The answer lies in the business strategy of the different businesses. The decision related to the use of the export mode is generally based on the needs of the businesses. If they have limited resources, they opt for a well-built and stable channel of distribution to increase sales, which is provided by the Indirect Exporting. While on the other hand, if the business has the ability to develop its own export method it uses Direct Exporting.
Take for example the Evergreen UV company, it is a US-based which produces Ultraviolet Germicidal Irradiation products that are used by medical institutions around the world to cure the airborne respiratory diseases.
You will be surprised to know that the company while its products are used all over the world, only uses direct exporting for the customers in Hong Kong. While the rest of the customers around the world get the products of the company through indirect export partners of the company.
Evergreen UV sells its products through its connections in international health symposiums, where different health organizations purchase the products of the company and sell them to the hospitals and clinics that are located worldwide.
The ease of export for Evergreen UV can be seen from the fact that the exporter it uses for Indirect Exporting collects the products from the company premises itself, which takes out all the burden of handling products from the company.
It can be seen from the above cases that the Indirect Exporting has its own share of benefits for the organizations especially the smaller and the middle size businesses. The company that needs to expand in the international market can take advantage of the less costly and almost risk-free mode of internationalization of business by using Indirect Exporting.
The method of export is not only limited to a particular industry, it can be used by any company that needs to export its products but does not want to get involves in the complex process of export by itself.
In the era of globalization, Indirect Exporting has provided many companies the chance to take the share of international demand which was earlier limited to big companies only.
By – James (Contributing Author) Politics & Business Blog Expert