Advantages and Disadvantages to Direct Exporting
Developing a Foreign Market Entry Strategy
Direct exporting involves exporting directly to a customer interested in buying your product (rather than to a third party distributor). You are responsible for handling the market research, foreign distribution, logistics of shipment, and invoicing.
Direct Exporting Advantages
Direct exporting, in general, avoids all the costs and confusion of a "middleman." It also allows you to have greater control over sales and to interact directly with your clients.
Here are some of the top advantages to direct export:
- Your potential profits are greater because you are eliminating intermediaries.
- You have a greater degree of control over all aspects of the transaction.
- You know who your customers are.
- Your customers know who you are, and thus they feel more secure in doing business directly with you.
- Your business trips are much more efficient and effective because you can meet directly with the customer responsible for selling your product.
- You know whom to contact if something isn't working.
- Your customers provide faster and more direct feedback on your product and its performance in the marketplace.
- You get slightly better protection for your trademarks, patents, and copyrights.
- You present yourself as fully committed and engaged in the export process.
- You develop a better understanding of the marketplace.
- As your business develops in the foreign market, you have greater flexibility to improve or redirect your marketing efforts.
Direct Exporting Disadvantages
While there are real advantages to direct exporting, in some cases you may feel that the intermediary is worth the cost. Here's why you may choose not to manage exports yourself:
- It takes more time, energy and money than you may be able to afford.
- It requires more "people power" to cultivate a customer base.
- Servicing the business will demand more responsibility from every level of your organization.
- You are held accountable for whatever happens. There is no buffer zone.
- You may not be able to respond to customer communications as quickly as a local agent can.
- You have to handle all the logistics of the transaction.
- If you have a technological product, you must be prepared to respond to technical questions and to provide on-site start-up training and ongoing support services.
How Corporations Manage Direct Exports
Direct exporting requires dedicated personnel, a great deal of knowledge, and quite a bit of time and energy. Even so, however, corporations of all sizes manage to make it work. Here are some models that make work for your business.
- Hire an export sales manager. A small company can hire a single export sales manager with some administrative help and support. The export sales manager leads and directs all export sales activities.
- Establish a separate export department. An export sales department is largely self-contained and typically operates independently of domestic operations.
- Setup an export sales subsidiary. Some businesses prefer to set up an export sales subsidiary instead of an export department in order to keep export activities separate from the rest of the firm.
- Form a foreign sales branch (FSB). Instead of a foreign sales subsidiary, a firm can also form an FSB. An FSB is not a separate legal entity. An FSB handles sales, distribution and promotional efforts throughout a specific overseas geographic area and sells to a firm's target customers: agents, wholesalers, and distributors, for example.
Should you decide to export directly, make sure you have a company-wide commitment, which includes your import/export dream team to ensure the initiative is fully supported.