Import Export Institute Indirect Versus Direct Exporting
How does a company decide the best way to enter a foreign market? By careful analysis of course. There are two main methods for international market entry – indirect and direct exporting. Indirect market entry means turning over international sales to a third party. Generally speaking, this third party “manages” the exporting for the manufacturer. By utilizing indirect exporting, this is outsourcing the export efforts. Typically this means a company will be utilizing the services of an Export Management Company – meaning distributors, or commissioned agents or brokers.
The services vary, so a careful analysis is always needed to determine if the manufacturer needs a distributor or an agent. There are pros and cons of each. Either way, the manufacturer is placing their international expansion in the hands of a third party, so have meetings and discussions to make sure that this new relationship will be beneficial.
In Direct Entry, the manufacturer has more options for directly entering the foreign market. The choices include distributors, agents, selling directly to a retailer (or end-user), contract manufacturing, joint ventures, licensing deals, or foreign direct investment. Because options are so vast the manufacturer may be very involved and thus making decisions about the entire export process – from market and distribution, sales fulfillment, and payment.
How to decide which method is best? Each company must evaluate their own circumstance and goals, both short term and long term. This is not an all or nothing proposition – a company can choose indirect entry in one market and direct in another. A company can use indirect to test the waters so to speak then shift to direct once they determine their initial results.
This topic is extensively reviewed in the International Trade education program provided by the Import Export Institute. All businesses engaged in importing and exporting need to be aware of all options that are available when it comes to foreign market entry.
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