Exporting in the current global marketplace has become essential. For many companies exporting is a critical part of their marketing plan. However, exporting products to international market costs a lot of money especially when middlemen are involved. Therefore, it is important for firms to decide when it is feasible to begin exporting. Direct exporting requires market research to locate markets for the product and to create links to the consumers.
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What is Direct Exporting
Direct exporting is when a company sells its goods directly to a customer in another country without using an importer, distributor or anyone else. In direct exporting the manufacturer directly supplies his/her products to the foreign customer or through his agent in the foreign country. Usually companies with a high turnover, export their products directly. Companies that sell their products directly in other countries through mail, air transport or courier instead of using independent retailers, wholesalers or merchants are examples of direct exporters.
Forms of Direct Exporting
- Separate Export Company
A company can set up a subsidiary in the foreign country. This is often done by large companies that have built and established a good reputation for their products or services.
- Self-contained export department
Another way a company can export directly is through setting up an export department under its company that can be located in port towns. This department can be self-contained and independent with staff that function independently. That way there is no conflict with other departments within the organisation. Such an arrangement is ideal for foreign buyers who may find visiting the port locations more convenient.
- Built In export departments
Unlike setting up a subsidiary or a self-contained export department, setting up a built-in export department is cheaper. Also, setting up an export team is easier within the organisation. Such a department will be headed by an export manager who procures the orders that may then be handled by other departments in the organisation. The effectiveness and efficiency of the procurement manager is critical in this scenario.
- Setting Up a Plant
An exporting company can establish its own branch or plant in another country. This enables the company to directly study the market and provide effective after sales service. Enough stock can be kept at the plant to ensure timely delivery. Setting up a plant in foreign countries can enhance the reputation of a firm locally and internationally.
- Combination Export Managers
Smaller companies can make use of a combination export manager who may be appointed by various other manufacturers. A combination export manager uses letterheads and signs off exports as an export manager of the exporting firm. That way consumers feel as if they are dealing with the producer directly. Combination export managers act as agents representing a number of producers in the foreign country.
- Joint Marketing Groups
A group of companies can come together and tap into the foreign markets jointly. Such firms normally produce similar or related products. They do this by sharing costs at an international trade fair or by publishing a catalogue of products and distributing it abroad. This coming together can be done informally.
- Joint Ventures
2 or more companies can merge into one company; thus, a local company can partner with a foreign firm. In such a scenario the local firm takes advantage of the foreign company’s skills and distribution network. Since the two company’s become on entity direct exporting is made possible.
- Exclusive Agents
It is more cost effective for local firms to appoint exclusive agents who sell their products on their behalf in foreign countries. The exclusive agent becomes the company’s representative and obtains a commission for his services. Appointing exclusive agents for direct exporting is cost effective.
Advantages and Disadvantages of Direct Exporting
Advantages of Direct Exporting
- Direct exporters are in direct contact with their customers; thus, they are in a position to get first-hand information about their products or services. Such information can be quickly applied to improve a company’s products or services.
- There is a higher chance of making greater profits through competitive pricing since middlemen are eliminated.
- Direct exporters have control over export packaging, pricing, advertising, aftersales service and other marketing activities. This reduces unnecessary expenses since every transaction and activity is in the hands of the exporting company.
- Depending with the country, direct exporters benefit a hundred percent from the export incentives given by the country’s government. In the case of indirect exporters, the incentives are shared amongst the middlemen.
- Direct exporting allows the company to study the export market in depth as well as their buying behaviour.
- The possibility of increasing the export market share is high for direct exporters since the customers are directly linked to them. Hence, the goodwill and reputation of the firm will be promoted at an international level.
- Direct exporting allows for efficient and fast feedback from customers about a company’s product, therefore, a firm can make necessary improvements in a timely manner.
Disadvantages of Direct Exporting
- One of the major obstacles of direct exporting are the costs involved. Often, large companies that generate large sums of revenue can incur such costs. The returns that can be obtained through direct exporting take time to be realised and that may not be practical for small firms.
- Direct exporting is risky, companies face credit and finance risks as well the risk of rejected merchandise which are borne by the manufacturer alone.
- Maintaining stock can be a challenge for direct exporters. This may be detrimental for any business since the success of direct exporting depends on the timely availability of stocks in the foreign markets. Also, the cost of storage is high in other countries and this creates another challenge for exporting firms.
- Distributing merchandise in the local market is already challenging, this is even worse in other countries apart from the transportation costs. Costs increase with distance and insurance.
- Companies that export directly deal with lengthy formalities such as documentation, shipping, financing and collection. Such procedures require greater managerial abilities on the part of the exporter.