How to Export Products to a Foreign Market?
Middlemen
in Indirect Exporting:
In indirect way of exporting, the
manufacturer is not directly involved in the export trade. The producer permits
an intermediary located in his own country to perform important trade. It is
almost equivalent to domestic sales. Two broad alternatives are available to
the manufacturer who wants to export indirectly.
I. Export Marketing Middlemen & II.
Cooperative Export Trading Organization
I. Export Marketing Middlemen:
There are various marketing middlemen who
are experts in export trade.
i. Merchant Exporter or Export Houses:
There are a number of merchant exporters
or/and export houses in India. These merchants or export-houses purchase goods
from the manufacturers at the lowest possible price available in the domestic
market keeping the requirements of the importer or quality of products in mind.
They process the goods purchased, pack and brand them and sell them in foreign
markets. They sell and buy goods on their own account and thus assume all risks
involved in exporting the goods and are responsible for whole of the profits or
losses.
Such merchant exporters or export houses
are financially sound. They maintain their own branches in foreign countries,
at main ports and in important trade centers of that country. They organize
their sales through different channels and use media for advertisement and
sales promotion. They maintain godowns, warehouses, and transportation
facilities at important business centers.
These export houses conduct market
researches and surveys, collect market information and keep a close watch on
market trends. They often specialize in certain specific commodities or in
certain areas.
In 1958, it was realized that to boost
exports, positive steps are necessary to build up a number of export houses,
which concentrate exclusively on exports. A scheme of recognition of Trading
Houses was introduced in 1981 to develop new products and new markets
particularly products from the small and cottage industry. With effect from
April 1988, Trading Houses having high volume of exports are eligible for
recognition as Star Trading Houses.
With effect from 1.4.94, another
category, Super Star Trading Houses, has also been introduced. As on 21-4-97,
the number of Super Star Trading Houses was 9, of Star Trading Houses 52, - that
of Trading Houses 464 and of Export Houses 3,027. Merchant Exporters including
export houses, etc., account for 78 per cent of India’s exports.
Following Export Promotion Councils are
working to promote export in India:
1. Engineering Export Promotion Council,
Kolkata.
2. Overseas Construction Council of
India, New Delhi.
3. Basic Chemical Pharmaceuticals and
Cosmetics Export Promotion Council, Mumbai.
4. Chemicals and Allied Product Export
Promotion Council, Kolkata.
5. Council for Leather Exports, Chennai.
6. Sports Goods Export Promotion Council,
New Delhi.
7. Gem and Jewellery Export Promotion
Council, Mumbai.
8. Shellac Export Promotion Council, New
Delhi.
9. Cashew Export Promotion Council,
Cochin.
10. Plastic Export Promotion Council,
Mumbai.
11. Apparel Export Promotion Council, New
Delhi.
12. Carpet Export Promotion Council, New
Delhi.
13. Cotton Textile Export Promotion
Council, Mumbai.
14. Export Promotion Council for
Handicrafts, New Delhi.
15. Handloom Export Promotion Council,
Chennai.
16. The Indian Silk Export Promotion
Council, Mumbai.
17. Synthetic and Rayon Textile Export
Promotion Council, Mumbai.
18. Wool and Woollens Export Promotion
Council, New Delhi.
19. Power-loom Development and Export
Promotion Council, Mumbai.
20. Electronics and Computer Software
Export Promotion Council, New Delhi.
Advantages:
The main advantages of export houses are
as under:
(i) The export houses undertake
documentation and shipping formalities necessary for exporting. The exporter
manufacturer is free from all worries about exporting.
(ii) They purchase and sell goods at
their own account after processing and packing and, therefore, bear all risks
involved in exporting the products.
(iii) Export Houses, in most of the
cases, provide finance to manufacturers who are ready to supply their products
to these merchants. In some cases, they advance a part of the consideration to
meet working capital needs.
(iv) As they maintain their own branches,
depots, godowns, warehouses, transportation and sales force in foreign markets
in order to maintain the supply of the goods, the manufacturer exporters need
not arrange such facilities. Selling to export houses is economical to them.
(v) Export houses can efficiently face
the price competition in foreign markets.
(vi) These merchants or export houses
provide necessary information to domestic manufacturers about the style,
fashion quality or price of the products required in foreign markets. It
facilitates the manufacturers to adapt their products accordingly. It may lead
to product improvement or product development.
Disadvantages:
The main disadvantages are as under:
(i) The manufacturer exporters remain
unaware of the technicalities of the export market even when they have been
exporting their product for a fairly long time. They cannot know about export
markets because they are fully dependent for export on these houses. They sell
goods to them as they sell them in the domestic markets.
(ii) The export merchants are interested
only in profits and not in promoting the products of the manufacturers. They
always try to purchase goods from the cheaper source, not necessarily from the
same manufacturers.
ii. Export Commission Houses or Overseas
Import Houses:
There exist import houses in some
countries, for example Japan, where entry through import trading houses is the
easiest and the cheapest. They act in exporting countries as an agent of
importers and maintain their offices in almost big cities of the world. These
houses have contacts with all important wholesalers in the importing country.
These are essentially, the buyers’ hired
purchasing agents, operating on the basis of orders or indent received from
these buyers. Selling through such import houses ensures that the goods will
reach the important distributors and through them down the distribution system.
Advantages:
Following are the main advantages:
(i) They charge commission and all
relevant expenses from the buyers as they act on their behalf.
(ii) The exporters come to know about the
demands of the foreign buyers through these houses. Generally, import houses
invite tenders from the manufacturers in the exporting country and give order
to supply the required quantity to the manufacturer. Thus, the exporter need
not collect the orders.
(iii) Small manufacturers who have no
experience of exporting, may be benefited from the services by such import
houses.
(iv) The exporter may earn a handsome
profit even by selling the goods to import houses at lower rates, because
importer has not to bear the export commission and expenses.
The import houses are criticized
on the ground that they charge commission from importer and exporter both
whereas in principle, they should charge commission from importer. Sometimes,
they act as an export agent on behalf of the exporters.
iii. Visiting or Resident Buyers:
A resident buyer is an independent agent
who is located near production centres. Resident buyers are retained by the
principal on a long-term basis to maintain continuous search for suitable new
products and these resident buyers are entrusted the job of procurement of
products for their principals.
Generally, resident buyers are local
people. Some companies regularly send buying teams to different countries for
the same purpose, i.e., for purchasing the goods for the importer.
Advantages:
Following are the main advantages:
(i) Such resident or visiting buyers are
generally specialists of the goods to be purchased. It is technically sound and
rational to appoint such persons on the team. Thus, qualitative purchases are
expected at competitively reasonable rates.
(ii) Such buyers are appointed or teams
are sent in those countries which are the major producers and suppliers of such
products. In these countries, they are able to purchase goods on favorable
terms and at competitive prices.
(iii) The resident buyer sees that the
goods are supplied in time and as such ensures the importer the timely supply
of goods.
Disadvantages:
They have no direct incentive from the
importer and get a fixed remuneration each month irrespective of the purchases
made. If opportunities in exporting countries are not exploited the system may
prove costly.
iv. Manufacturer’s Export Agent:
Export agents are individuals or firms
that assist manufacturers in exporting goods. Generally, export agents provide
limited services. Actually, it is an agent of manufacturer in the exporting
country. These agents focus more on sales and handling of goods. The advantage
of using an export agent is that the firm does not need to have an export
manager to handle export work, i.e., to handle all the documentation and
shipping of goods.
While the disadvantages arise from the
export agent’s limited market coverage, which may require the services of a
number of export agents to cover the different markets of the various
countries.
v. Export Broker:
The function of an export broker is to
bring buyers and sellers together. The broker may be assigned one or more
markets by the sellers. He is specialist in performing contractual functions.
He does not actually handle the products he sells or buys. The exporter permits
the terms and conditions of sale and the minimum price.
For his services, he is paid brokerage by
his principal exporter and importer. The broker generally specializes in
particular products or class of products.
Export broker is an experienced and
specialist person and helps the manufacturer in finding out the prospective
buyer (importer) at reasonable rates in ‘overseas’ markets. He is one of the
sources of information for the manufacturer.
The broker generally brings the buyer and
seller together and does not purchase goods from the manufacturer for onward
delivery to the importer. He does not undertake any type of risks involved in
exporting. As soon as the purchaser and seller come to an agreement, his job is
over and he becomes entitled to the brokerage.
vi. Buying Government Agency in Exporting
Country or Country Controlled Buying Agents:
It is a government agency manned by
government servants of importing country. The main function of this agency is
to purchase goods for its government in the exporting country. They work in the
same way as the resident buyers appointed by the private-owned organizations
do. Agency generally purchases goods at the instructions of the importing
government. Japan has established such agencies to purchase goods from foreign
countries.
vii. Government Buying Agency for Export:
In this system of indirect exporting, the
government of exporting country sets up such organizations in the country.
These agencies purchase goods from the producers and export them to foreign
markets. They deal in on their own account. In this way, they provide links
between importers and exporters. Their operations are similar to those of
export houses.
In India several such organizations have
been set up. State Trading Corporation (S.T.C), Minerals and Metals Trading
Corporation (MMTC) and other trading corporations, various Export Promotion
Councils and Commodity Boards are such government agencies that are directly
involved in purchasing the goods in the domestic market from the prospective
exporters, and exporting them to foreign markets.
They provide various other facilities
such as collecting foreign market information through researches and surveys
and participate in fairs and exhibitions.
The government offers certain incentives
to exporters who export their products through such agencies. They help small
manufacturers who feel difficulty in exporting the goods. Because these are
government agencies, the manufacturers sometimes suffer from the bureaucratic
way of working and red-tapism.
viii. Piggy-Backing:
Another form of indirect exporting is
piggy-backing. When a company does not find any channel-partner with sufficient
interest to pioneer new products, the practice of piggy-backing may offer a way
out of the situation. Piggybacking is an arrangement with another company,
which sells to the same customer- segment, to take on the new products as if it
were the manufacturer.
The products retain the name of the
manufacturer and both partners normally sign a long-term contract to provide
for continuity. The new company is, in essence, ‘piggy-backing’ its products on
the shoulders of the established company. Colgate/Palmolive Company has been
distributing Wilkinson blades in many countries. Sony Corporation serves as a
distributor in Japan for a number of European and US companies.
Under a piggy-back arrangement the
manufacturer retains control over a number of marketing decision areas,
particularly pricing, positioning and promotion.
II. Cooperative Export Trading Organization:
Under this type of exporting a number of
economically independent and sound manufacturing units voluntarily or under the
directions of the government, set up a joint organization for coordinating
their export activities. The actual form of cooperative export organization may
range between a loose agreement to a formally incorporated company.
Such organizations also function on
cooperative lines. The organization performs all activities relating to export
trading for and on behalf of the products manufactured by its members. All
members share the fruits of export trading on an agreed basis.
Advantages:
The following are the advantages of
cooperative exporting:
(i) Competitive advertising and price
cutting are obviated by price and sale agreements. These will have some effect
on reducing selling costs.
(ii) Combined sales have the salutary effects
of standardizing contracts, terms of sales and rebates.
(iii) The unnecessary and harmful trade
activities such as price-cutting, dumping at a very low price and extending
credit-terms are eliminated. Healthy trade practices are developed in foreign markets.
(iv) Such organizations have full control
over supply; hence they can balance the supply and demand position effectively.
It may lead to price stabilization.
(v) The promotional expenses can be
shared on an equitable basis. The best media of advertising and other sales
promotion activities can be employed in the foreign market at reasonable and
competitive prices.
Disadvantages:
Following are the main disadvantages:
(i) There is a problem of grouping of
exportable goods. In specialty goods, the loss of identity will injure the
sale-ability of the goods, and group selling may not be practicable.
(ii) This type of organization requires
cooperation. If it lacks cooperation it will not be possible to carry it on for
long.
(iii) Failure of individual manufacturing
concerns may constantly affect the cooperative trading organization.
In
short, there are many forms of indirect exporting and the exporter may choose
any one or more of them according to his needs and products.
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