Channels and Methods
Indirect and direct selling are the two most popular techniques of exporting. An export middleman, such as an export management company (EMC) or an export trading business (ETC), is responsible for locating foreign customers, transporting items, and collecting payment in indirect selling. Another variant of this strategy is to hire a commission-based agent to find a buyer for you. Wholesalers in the United States can act as a middleman, purchasing items from the manufacturer and selling them to a customer outside the country. The items are legally transferred to the wholesaler. The producers gain since their obligation ends at the delivery pier. The disadvantage is that the wholesaler may earn a higher profit margin and gain useful experience by selling to various foreign markets. For example, if the wholesaler only sells to wholesalers in Canada, but your product has a higher demand in Mexico, you'll never know, and potential sales will be lost. The use of huge online markets like eBay, Amazon, and Alibaba is another common method of indirect selling. These and other major firms now offer distribution hubs in various countries, allowing your items to be closer to buyers. Major merchants would charge a fee to handle all the paperwork, customs, and logistics in such circumstances.
When a U.S. producer sells directly to a foreign customer, this is known as direct selling. When determining whether to advertise indirectly or directly, the amount of resources your company is willing to invest in your overseas marketing campaign is the most significant issue to consider. Other considerations to weigh when considering whether to sell indirectly or directly are:
• The size of your company
• Your tolerance for risk
• Resources available to develop the market
• Opportunity costs
• The nature of your products or services
• Previous export experience and expertise
• Business conditions in the selected overseas markets
On the subject of whether the approach is better for you, we are undecided. Selling directly to end-users through your website, selling on a major B2B or B2C e-commerce platform, hiring an agent to find customers in a certain geographic area of the world, and selling to an EMC are all options. There is no single "best" method.
Exporting Methodologies
The method or methods you use to export your goods can have a big impact on your export strategy and marketing tactics. The different techniques to exporting are based on how involved your firm is in the export process. Four main ways can be utilized separately or in combination:
1. Passively fulfilling orders from domestic buyers who then export the goods.
These transactions are indistinguishable from other domestic sales in the eyes of the original seller. However, another party has determined that the goods in question are in high demand internationally. That party takes on all of the risks and handles all of the exporting specifics, sometimes even without the knowledge of the original seller. (Many businesses become more interested in exporting after learning that their product is already being marketed elsewhere.) A little-known fact is that the majority of exporting enterprises do not manufacture the items that are shipped.
2. Locating domestic buyers who represent overseas end-users or customers.
Many domestic and international firms, general contractors, foreign trade organizations, foreign government agencies, foreign distributors, merchants, and others acquire export in the United States. These purchasers represent a sizable market for a diverse range of goods and services. Your firm may be aware that its product is being exported in this method, but the local customer still bears the risks and manages the logistics of exporting.
3. Exporting indirectly through middlemen.
With this strategy, your company hires the services of an intermediary firm capable of locating overseas markets and purchasers for your goods. Although EMCs, ETCs, international trade consultants, and other intermediaries can provide you with well-established expertise and trade contacts, you retain significant control over the process. You can take advantage of some of the other advantages of exporting, such as learning more about foreign competitors, new technologies, and other market opportunities. The usage of e-commerce platforms, such as those outlined above, is a variant of this route. In exchange for payments, they promise to handle the logistics. You are notified to replenish when your goods sell on their e-commerce site, and they provide you cash. Another alternative is for them to sell through the website and you to handle the shipment. Another example of indirect exporting is when you pay a fee to an agent who then sells your items in other nations using their relationships.
4. Direct exporting This strategy is the most ambitious and difficult since your organization is in charge of all steps of the exporting process, from market research and planning to international distribution and payment collection. To obtain good outcomes, management must devote a large amount of time and attention. However, this strategy may be the most effective for maximizing profitability and long-term growth. You may do straight exporting if you have a website that accepts payment cards. Direct exporting is the act of selecting and supporting a master franchiser in another nation if you wish to franchise your firm. Suppose you acquire a contract from the U.S. government or another national government agency. In that case, you're exporting straight to another country and perhaps creating relationships that might lead to more sales independent of the government contract that brought you there in the first place. Today's exporting procedure is simpler and involves fewer stages than ever before. Those unable to make that commitment may benefit greatly from the services of an EMC, ETC, trade consultant, or other skilled intermediaries.
If your company's aims and resources dictate that an indirect method of exporting is the best option, no further planning may be required. The key objective in this instance is to either identify a good intermediate business that can handle most export specifics or wait for them to find you. Companies who are new to exporting or unable to devote people and resources to more complicated export activities may find indirect exporting methods to be more suitable.
However, using an EMC or another middleman does not rule out the option of your organization exporting directly. For example, your firm may attempt exporting directly to close markets like the Bahamas, Canada, or Mexico, while entrusting more difficult sales to Egypt or Japan to an EMC. You can also opt to progressively raise your direct exporting once you've accumulated enough expertise and sales volume to justify the additional expense. As documented in the exporter profiles in this blog, this method is widespread and may lead to substantial sales growth, with overseas sales exceeding local sales.
Before making a decision, you should seek advice from trade experts such as those in the U.S. Commercial Service. They can assist you in identifying the optimal strategy or combination of strategies for you and your organization.
Considerations for Distribution
Below are things to think about when it comes to distributing your product:
- What distribution channels should your organization employ to advertise its products internationally?
- Where should your company's products be manufactured, and how should they be distributed in the international market?
- Is there a warehouse facility in the foreign market that can reduce supply lines, save money on freight, and get items to customers faster?
- Should you work with reps, brokers, wholesalers, dealers, distributors, or end-user customers?
- What are the qualities and capacities of the intermediates that are now available?
- Should you enlist the help of an EMC or an ETC?
Exporting Through Indirect Routes
The main benefit of indirect exporting for a small U.S. firm is that it allows them to reach overseas markets without the complications and hazards associated with direct exporting. Several types of intermediate organizations offer various export services, and each form can give unique benefits to your company.
Confirming Residences
Foreign corporations who desire to acquire your items are represented by confirmation houses or buying agents. Their international clients pay them a commission to obtain the needed commodities at the lowest feasible price. In some situations, they might be a foreign government agency or quasi-governmental enterprises with the authority to locate and acquire required items. A foreign government purchasing expedition is an example. Foreign government embassies and diplomatic websites, as well as the U.S. Commercial Services are good places to look for these agents.
Companies that specialize in export management
A corporation specializing in export management might serve as the export department for a company that produces goods and services.
Some EMCs offer fast payment for the producer's items by providing financing or acquiring them immediately for resale. Only bigger EMCs can usually afford to buy or finance exports. EMCs generally specialize in either a product or a foreign market, or both. Because of their specialty, the greatest EMCs are extremely knowledgeable about their goods and the industries they serve, and they typically have well-established networks of international distributors.
One drawback of hiring an EMC is that you can lose control over international sales. Most exporters are naturally worried about the image of their product and firm in international markets. Selecting an EMC that can satisfy your organization's needs and keep a close connection with you is one way your firm maintains appropriate control in such an arrangement. For example, your organization may demand the permission of specific marketing initiatives, such as advertising campaigns or service arrangements, and may want frequent updates on such efforts. If your firm wants to keep this relationship with an EMC, you should work out any issues before signing a contract.
Companies that deal with exports
With the assistance of an export trade business, exporting products and services from the United States may be made easier. An ETC, like an EMC, can function as a producer's export department or assume ownership of the goods. A producer-led ETC is a type of ETC that is organized and run by producers. These ETCs might be arranged along multi-industry or single-industry lines, and they can also represent competitors.
For some export activities, a certificate of review gives limited antitrust protection. Contact your local U.S. Commercial Service office for additional information.
Export agents, merchants, or marketers are all terms used to describe people who work in the export industry.
Export agents, merchants, and marketers buy items from manufacturers directly and pack and label them according to their criteria. They then market these items in their names overseas through their contacts, taking full responsibility for any dangers.
When dealing with export agents, merchants, or marketers, your organization relinquishes control over your product's marketing and promotion. If your product is underpriced or wrongly positioned in the market or after-sales support is disregarded, this situation might harm future sales abroad. However, the manufacturer's effort to sell the goods internationally is minimal, resulting in sales that would otherwise be difficult to achieve.
Marketing on the Backs of Others
Piggyback marketing is a business agreement in which one manufacturer or service provider distributes the goods or services. When a U.S. corporation has a contract with a foreign customer to deliver a wide variety of products or services, this is known as piggybacking.
Frequently, the first firm does not create all of the items for which it is contracted, and it must rely on other American companies to fill the gaps. The second American firm then piggybacks its products onto the worldwide market, avoiding the marketing and distribution expenditures of exporting. Product lines must be complementary and appeal to the same clientele for a deal to work.
Exporting Directly
The second American firm then piggybacks its products onto the worldwide market, avoiding the marketing and distribution expenditures of exporting. Product lines must be complementary and appeal to the same clientele for a deal to work.
If your firm decides to export directly to international markets, it will almost certainly need to adapt its internal organizational structure to accommodate more sophisticated activities. For example, as a direct exporter, you'll typically determine the countries you want to enter, the best distribution methods for each country, and then develop particular contacts with international customers to offer your goods.
Organizing Yourself for Exporting
A firm that is new to exporting treats its export sales the same way it manages its domestic sales, utilizing existing employees and organizational structures. However, as foreign sales and inquiries grow, your organization may segregate export management from domestic sales management.
Separating foreign and domestic operations has several advantages, including the centralization of specialist skills required to deal with overseas markets and the benefits of a more concentrated marketing effort that is more likely to improve export sales.
Segmentation, on the other hand, is not always the most effective use of firm resources.
At different levels of the organization, your firm might segregate foreign and domestic operations. For example, when you initially start exporting, you may set up an export department with a full-time or part-time manager reporting to the head of domestic sales and marketing. In the future, your company may decide to delegate greater responsibility to the export department, maybe even developing an international division that reports directly to the president. Many small businesses include export sales into existing activities; this arrangement works well until export sales dramatically increase—a pleasant challenge to look forward to. The objective is to make the marketer's job easier, regardless of how your firm organizes its exporting efforts. Good marketing abilities might aid your company's ability to function in an unknown market.
Representatives of the Sales Force
A manufacturer's representative in the United States is the equivalent of an overseas sales representative. To demonstrate the goods to potential buyers, the representative utilizes your company's product documentation and samples. In most cases, a representative is responsible for a number of complementing lines that do not conflict. The sales representative is normally paid on commission, has no risk or obligation, and is employed for a certain amount of time (which can be extended by mutual agreement). Territory, conditions of sale, mode of remuneration, reasons and processes for canceling the agreement, and other elements are all defined in the contract. It is possible for the sales representative to work on an exclusive or nonexclusive basis.
Representatives or Agents
The term "agent" is sometimes misconstrued to refer to a person who has the authority—perhaps even a power of attorney—to make promises on behalf of the corporation he or she represents. Because an agent can imply a power of attorney, companies in the United States and other industrialized nations have avoided using it. Instead, they refer to themselves as representatives. It's critical that the contract specifies whether or not the representative or agent has legal authorization to bind your business.
Distributors
A foreign distributor is a businessperson who buys items from a US exporter (typically at a discount) and resells them for a profit. The product is typically supported and serviced by the overseas distributor, which relieves the U.S. exporter of such obligations. The distributor typically maintains appropriate facilities and employees for routine service activities, as well as an inventory of goods and a suitable supply of replacement parts. Distributors often handle a variety of complementary, non-competing items. End-users seldom purchase through distributors; instead, they purchase from merchants or dealers.
A contract establishes the terms and duration of your company's relationship with the international distributor. Some American businesses choose to start with a brief trial term and then extend the contract if the partnership proves to be mutually beneficial. The US Commercial Service may assist you in identifying and selecting distributors as well as providing basic contract structure guidance. It's a good idea to seek legal guidance from an expert in the market where the agreement will be implemented. Some nations have complicated labor regulations that may influence your ability to cancel agreements, and you may wish to specify how a disagreement will be addressed, such as through arbitration or in a United States court rather than a foreign court.
Retailers from other countries
You can also sell directly to overseas merchants, albeit items are often confined to consumer lines in such transactions. In places like Canada and Japan, the emergence of huge retail chains has opened up new prospects for this form of direct selling.
The strategy mostly depends on traveling sales people who contact overseas shops directly, while results might also be obtained through mailing catalogs, brochures, or other publications.
Direct mail provides the advantages of removing commissions, lowering travel costs, and reaching a larger audience.
A firm that employs direct mail to target international merchants should supplement it with other marketing initiatives for best results. Contact the Direct Marketing Association at the-dma.org or the United States Postal Service at usps.com for further information. Manufacturers in the United States having relationships with large domestic merchants may be able to leverage them to sell internationally as well. Many big U.S. merchants have foreign buying offices, which they employ to sell internationally when possible.
What is the most common and consistent avenue for smaller U.S. exporters to achieve the desired result? Distributors are the answer.
Direct-to-consumer sales
You may sell your products or services to end-users in other countries directly.
Foreign government entities, enterprises, or ultimate consumers may be the buyers through internet transactions. Buyers can be found at trade exhibitions, in foreign magazines, at US Commercial Service abroad postings, or via search engine results, which you can influence or not through search engine positioning techniques, online ad purchases, keyword auctions, and other means.
You should be aware that unless other agreements are made, your firm is responsible for shipment, money collection, and product maintenance if a product is sold in this manner. If the cost of delivering these services isn't factored into the export price, you can make less money than you expected. You can meet foreign representatives during overseas business visits or at domestic or international trade fairs if you wish to employ them. Export.gov/tradeevents has a complete list of forthcoming trade exhibits. E-commerce platforms are another efficient way you may employ without leaving the United States.
You may need to fly abroad in the end to find, assess, and sign up foreign agents; but, you may save time by doing preliminary research in the nation you're interested in. The United States Commercial Service can do market research and connect you with buyers in more than 125 countries.
Foreign Representatives: Contacting and Evaluating
You should write, e-mail, or fax each possible representative or distributor in the chosen market after your organization has identified a number of them. Your firm is interested in learning more about the foreign representative, and the representative is interested in learning more about your company's corporate and product information. The potential representative may want more information than your organization would ordinarily supply to a casual buyer. Your business should give detailed information about its history, resources, people, product line, prior export activity (if any), and other pertinent information. You might want to add a photo or two of your plant's facilities and goods, as well as product samples if possible. You can also wish to invite the international representative to come to your company's headquarters. You should avoid distributing product samples that might be readily replicated if the risk of intellectual property theft is high.
Before signing a contract with a possible agent or distributor, your organization should thoroughly evaluate them. You'll also need the following information about the distributor or representative:
• Current status and history, as well as information on the major officers
• Data on whether your company's particular requirements can be satisfied
• Methods of bringing new items into the sales zone
• Trade and bank references
You should also inquire about the potential in-country market for your company's products from the prospective agent or distributor. This information is important in determining how knowledgeable the person is about your sector, as well as providing vital market research.
Much of this information may be obtained via business colleagues who work with foreign representatives. However, you should not be afraid to ask precise and specific questions to possible reps or distributors. Suppliers have the right to investigate the credentials of people who want to represent them abroad. Representatives that are well-qualified would readily answer queries that will assist them to stand out from less qualified rivals. For credit checks on possible business partners, your organization should look into additional private-sector and government sources.
In addition, to guarantee that the distributor or salesperson is reliable, your organization may want to get at least two supporting business and credit reports. You may be able to obtain fresh or more comprehensive information by obtaining a second credit report from a different provider. Commercial firms and the US Commercial Service's International Company Profiles provide reports from a variety of companies. Credit information about abroad representatives can also be obtained from commercial businesses and banks. They can give information either directly or through their correspondent banks or foreign branches. Credit information about overseas corporations may also be found in international company directories.
You may desire to travel to a foreign nation once your firm has prequalified certain foreign representatives to inspect the size, condition, and placement of their offices and warehouses. In addition, your organization should meet with each sales force and examine its market strength. If getting to each distributor or agent is challenging, you may meet them all at trade events in the United States or throughout the world. The US Commercial Service can set up meetings, and it also offers videoconferencing, which can eliminate the need for travel in many cases.
Negotiating with a Foreign Representative on a Contract
The next stage is to negotiate a foreign sales agreement if your firm has discovered a prospective representative who fits your organization's needs. Companies considering such a move might seek help from US Commercial Service offices. Also helpful are the guidelines provided by the International Chamber of Commerce (iccwbo.org).
The price structure of your firm and the earning potential of your products are of primary concern to most reps. They're also interested in payment terms, product regulation, rivals and their market shares, the quantity of assistance your company provides, such as sales aids, promotional materials, and advertising, sales and service personnel training, and your organization's capacity to produce on time.
Provisions in the agreement may specify the actions of the foreign representative, such as:
• Not doing business with competitors (this item may pose issues in several European nations due to antitrust regulations)
• Not disclosing any sensitive information in a way that would be harmful, destructive, or competitive to your organization
• Not getting into any agreements with third parties that might bind your business.
• Referring any outside-of-the-designated-sales-territory queries to your organization for action
To guarantee that the foreign representative makes a serious sales effort, the agreement should include a demand that the representative use his or her best skill and aptitude to sell the product for the remuneration specified in the contract. Performance standards, such as a minimum sales volume and an estimated rate of growth, may be suitable.
When creating the agreement, you must ensure that your company's interests are protected in the event that the representative proves to be unsatisfactory. If the representative fails to meet your expectations, it is critical to include an escape clause in the agreement that allows you to leave the partnership securely and cleanly. Some contracts provide that any party may cancel the agreement with a 30-day, 60-day, or 90-day written notice. The contract may also specify what constitutes "just cause" for the agreement to be terminated (for example, failing to reach defined performance criteria). Other contracts contain a certain agreement duration (typically one year), but provide for automatic yearly renewal unless either party gives written notice of its determination not to renew.
In all circumstances, the laws of the nation where the representative is situated may prohibit escape clauses and other safeguards to protect your organization. As a result, you should study everything you can about the representative's country's legal requirements and get skilled legal advice while drafting the contract. Here are a few legal issues to think about:
• How long in advance must you notify the representative of your decision to terminate the contract? Many nations need three months, however, a registered letter may be required to verify when the notification was issued.
• What constitutes "just reason" for a representative's dismissal? In most cases, stating the reasons for termination in the written contract improves your position.
• A contract dispute is governed by which country's laws (or international conventions)? The representative company's country's laws may prohibit it from renouncing its country's legal jurisdiction.
Selecting an International Representative or Distributor
A checklist should be tailored to the specific demands of each firm. The importance of key elements varies greatly depending on the products and nations involved.
Size of the Sales Team
• Does the representative or distributor has a large number of field salespeople?
• What, if any, short- and long-term expansion ambitions do you have?
• Is it possible that the representative firm may need to expand in order to adequately service your account?
Is it willing to go along with it?
Record-breaking sales
• Has the representative company's sales growth been consistent? Why not, if not?
Try to figure out how much it has sold in the last five years.
• How much money does an outside salesperson make on average?
• What are the representative's or distributor's sales goals for the coming year?
What criteria were used to choose them?
Analysis of the Territories
• What is the representative company's current sales territory?
• Is the sales territory in line with the coverage you're looking for? Is the agent or distributor able and willing to extend the region if this is not the case?
• Is there a branch office of the representative firm in the territory to be covered? If so, are they at a location where you have the best chance of selling?
• Are there any intentions to expand the company's operations?
Combination of Products
• How many different product lines does the representative firm represent?
• Do these product lines work well with your own?
• Is there any potential for a conflict of interest?
• Does it represent any other firms based in the United States? If so, which ones (names and addresses) are you looking for?
• Is the representative firm willing to change its current product mix to meet yours?
• What is the minimum sales volume required for the agent or distributor to be able to handle your lines? Is that statistic reflected in the company's sales projections? Is the forecast feasible based on what you know about the region and the potential representative or distributor?
Equipment and Facilities
• Does the representative firm have sufficient warehousing space?
• What is the stock control method?
• Is it computer-based? Are they a good match for yours?
• Does it have any communication capabilities (fax, modem, e-mail)?
• Is the representative firm equipped and qualified to service your product if it has to be serviced? Is it willing to purchase the necessary equipment and arrange for training if not? How much of the training expense will you have to share? Are there any other options for servicing the product on the market?
• Is the agent or distributor willing to stock repair parts and replacement products if necessary and customary?
Marketing Strategies
• How does the sales team get paid?
• Is there a specific reward or motivation program offered by the representative company?
• Does it hire product managers to help with sales for certain product lines?
• How does it keep track of sales results?
• How does the sales personnel of the representative or distributor receive training?
• Would it cover or split the costs of sending its salespeople to factory-sponsored seminars?
Profile of the client.
• Who are the customers that the representative firm is now contacting?
• Is it consistent with your product range in terms of interests?
• What are the most important accounts?
• How much of the overall gross receipts are accounted for by those major accounts?
Represented Principals
• How many principals does the distributor or representative now represent?
• Would you be the company's main supplier?
• If not, how much of the overall business would you represent? How does this percentage compare to those offered by other vendors?
Thrust for Promotion
• Can the representative firm assist you in compiling market research data for forecasting purposes?
• What, if any, media does it employ to promote sales?
• What percentage of the money is set up for advertising? What is the distribution of the money among the several principals?
• Will you be required to make a financial contribution for promotional purposes?
• How will the sum be calculated?
• How many prospects are on the mailing list if the representative or distributor employs direct mail?
• What kind of brochure is used to describe the businesses and goods it represents?
• Can it, if necessary, translate your ad copy?
• Is there a website where the salesperson may market the product?
• Is it able to give product demonstrations and training in the event that it is required?