How to Save Money by Indirect Exporting

Indirect Exporters Enjoy Cost Savings but Lose Control of Business

Nov 7, 2008
Daniel Workman

: Expensive Direct Exporting Can Lead To Cash Burn - Dr. Mark (morguefile.com 234372)

Commissioned agents, export management houses, piggyback marketing & foreign government buying agents afford opportunities to save costs of traditional direct exporting.

Increasingly cost-conscious small and medium-size enterprises are much more likely to choose indirect exporting as a way to enter foreign markets.

This is partially because many smaller companies lack the global trade expertise, financial resources and developed business processes to effectively handle the complicated and risky challenges of international trade.

Another reason for contracting out exporting tasks to international trade specialists is that entrepreneurs then have more time to focus on the core competencies of their business operations.

Commissioned Agents

Commissioned agents top the list of indirect exporting methods that smaller firms use. Commissioned agents are buyers who reside in the exporting country and who act on behalf of foreign clients. Suppliers pay a percentage fee to those commissioned agents who procure products for export to other countries.

Export Management Houses

Export management houses represent another cost-saving method for indirect exporting. Export management houses provide an array of export services on contract, thus acting as the export department for companies that can’t afford to set up their own in-house exporting operations.

Trading Houses

Trading houses are local firms or domestic offices of foreign trading offices. Trading houses buy products from a company in its home country, then export those goods for resale at a profit on international markets. Small or medium-size companies complete their sales in their own jurisdictions, while the purchasing trading house is responsible for paying all costs for packaging, shipping, insurance and other charges incurred in exporting the suppliers’ products to another country.

Piggyback Marketing

Also known as piggyback marketing, co-marketing refers to a scenario where a company makes products that are used as part of another manufacturer’s product line which is then exported. One example is a small graphics card specialist whose goods are part of a large personal computer maker’s export shipments. The large personal computer manufacturer incurs all charges as a direct exporter, while as an indirect exporter the small graphics card firm is insulated from these exporting costs.

Foreign Government Agents

Savvy indirect exporters also approach local embassies to find buying agents for foreign governments. Some governments employ buying agents to do international purchasing on the government’s behalf. Establishing a relationship with a foreign government buying agent helps to overcome market entry and regulatory hurdles in the importing country.

Indirect Exporting Industries

Automobile and other transportation equipment makers are among the top industries that use indirect exporting. Many of these companies supply parts or components to other companies for integration into products destined for export. Other industries that rely heavily on indirect exporting include computers, software systems and telecommunications equipment.

Indirect Export Advantages

Indirect exporting is virtually risk free, since indirect exporters don’t have to worry about:

Market entry barriers
Managing product distribution in a foreign country
Complexities to sell products in other countries ranging from clashing cultures to volatile exchange rates
Ongoing end-user relationships.

In indirect exporting, the legal relationship exists between the originating supplier and its immediate client buyer. Questions of jurisdiction in international lawsuits become less of an issue for indirect exporters.

Indirect Export Disadvantages

While indirect exporters can save a lot of money in the short and medium-term, this type of supplier has little or no control over the business that takes place on international markets.

In addition, indirect exporters like the above-mentioned small graphics card specialist lack recognition from end users who are much more familiar with final products than internal components.

Brand-name recognition and loyalty on international markets thus becomes the domain of larger companies like Dell Computer. These multinationals can better afford more expensive direct exporting methods, leaving indirect marketing the method of choice for small and medium-size companies.