Piggybacking as a method of international market entry. Difference between direct exporting and indirect exporting. The main drawbacks of indirect exporting is too much dependence of the exporter producer on the middlemen operating in the channel the development of the overseas market depends a lot on middlemen and not on the company that produces the goods that are expor. The advantages and disadvantages of exporting to the above named organizations are. What are the disadvantages of indirect production answers. Nov 25, 2016 the advantages of indirect export are its reduced amount of resources and attention needed. When applied to any business firm, internationalization can be defined as a the end result, b a process and or c simply, a way of thinking albaum et al, 1998.
The following are the advantages of indirect exporting. Advantages and disadvantages of exporting 1614 words bartleby. Advantages and disadvantages of the different modes. Indirect paths to internationalization are those whereby small firms are involved in exporting, sourcing or distribution agreements with intermediary companies who manage, on their behalf, the transaction, sale or service with overseas companies fletcher, 2004. Analysis of the advantages and disadvantages of exporting. Indirect exporting offers small manufacturers the advantages of entering foreign markets without being subjected to the risks and complexities of direct exporting. Direct exporting requires the manufacturer to make decisions about the entire export process, such as marketing, distribution, sales, fulfillment and payment. The exporter is able to diversify the customer base, reducing dependence on home markets. The advantages of indirect export are its reduced amount of resources and attention needed.
Further, many states levy an entry tax on the entry of goods in local areas. Disadvantages of indirect exporting firms gain little experience from doing this. But one may still wonder whether it is a good option. It can also be detrimental if a license is overextended or one of the parties acts in bad faith. The middlemen perform all the functions of export trading. Discuss the advantages and disadvantages of the main export modes. Indirect exporters are prone to comparatively less risks as the risk of marketing gets transferred to export market intermediaries. Today we come with another video about indirect export as a entry mode. The firm does not have to build up an overseas marketing infrastructure. Direct exporting means you export directly to a customer interested in buying your product. Free marketing essays essay uk essay and dissertation. Direct exporting involves delivering a product directly to an interested customer. It helps to engage the reader more than reported speech does.
The advantages and disadvantages of licensing can be managed when due diligence by both parties is performed before agreeing to anything. Indirect export can stop relatively quickly if it turns out that it was goalless. Customers often effectively belong to the channel partner, not to you. Main disadvantages of indirect exporting are as under. Disadvantages or limitations of indirect exporting. Let us now take a look at the advantages and disadvantages of direct and indirect reported speech. Direct speech helps to show what a character is really like. Advantages and disadvantages of direct and indirect exports.
The advantages and disadvantages of indirect exporting. Describe and understand the five main entry modes of indirect exporting. No need for own market research by the exporter in indirect exporting. Indirect exporting means selling to an intermediary, who in turn sells your products either directly to customers or to importing wholesalers.
Hence, you are solely in charge of the various processes such as market. Even if the company operates an export department, it employs only a small number of employees, as the main work is carried out by foreign trade partners who have obtained an order. You are responsible for handling the market research, foreign distribution, logistics of shipment and for collecting payment. Indirect export means you appoint third parties, like agents or distributors, to represent your company and your products abroad.
Here are the methods of indirect exporting, including the distinction between an export management and export trading company. Government, but collected and retained by the exporting states. Well, here is a detailed description that offers you the pros and cons of direct exporting to help you make up your mind. Indirect exporting is the cheapest entry strategy available to an organization. The indirect method of reporting cash flows is useful for simplifying your operational activities to investors. Sep 05, 2016 indirect and direct exporting indirect exporting when businesses export indirectly, they rely on either an export trading company or an export management company in order to find international customers and market their goods. The easiest method of indirect exporting is to sell to an intermediary in your own country. Indirect exports are characterized by some drawbacks. H200712 sme choice of direct and indirect export modes. Indirect and direct exporting and advantages sreeramtraders. The disadvantages of indirect taxes are that they are hidden from the taxpayer. Exporting is the process of selling of goods and services produced in one country to other countries direct exports indirect exports a brief discussion on the advantages and disadvantages and the legalities involved in the export process.
Methods of exporting, and their pros and cons tcii. The main drawbacks of indirect exporting is too much dependence of the exporter producer on the middlemen operating in the channel. Exporting can increase profitability and has proven successful as shown by the european union who exported over 90 billion in 2010 in just the agrifood industry fernandezolmos et. Its greatest advantage is that the intermediary organizations handle all the exporting activities. When selling by this method, you normally are not responsible for collecting payment from the overseas customer. When a company engages in direct exporting, it takes the goods that it makes and sells them to firms in other countries. Countertrade is a reciprocal form of international trade in which goods or services are exchanged for other goods or services, rather than for hard currency. At the same time, these intermediaries are specialised in their own field. In this line, according to the seminal paper by melitz 2003 firms have to pay a. Indirect exports allow companies and nations to constantly export. Evaluate the advantages and disadvantages of export as a mode of international operation. Direct exporting as a market entry strategy has its advantages. During its use not all the goods services can be sold on the international market. If, for example, it is technically complex goods and services, then indirect export is generally excluded.
You still need to provide sales support if you want growth to continue. You may not have direct control over branding or marketing. Indirect exporting allows entry to foreign markets free from risks associated with direct exporting. It also allows you to have greater control over sales and to interact directly with your clients. Direct exporting, as the name describes, is when you directly export products to a client. The advantages of indirect taxes accrue only to the politicians who implement them. Advantages and disadvantages international marketing. An overview a distribution channel is a chain of businesses or intermediaries through which a good or service passes until it reaches the end consumer. What is the difference between direct and indirect exports. What are the major advantages of the indirect method of. When the export activity is directly carried out by the manufacturer of the goods, it is called as direct exporting and in indirect exporting the manufacturer hires the services of an export intermediary agency to export his goods through the.
This can be either delivering to a regional or overseas customer upon making an order of the item. May 10, 2020 difference between direct exporting and indirect exporting. Indirect exporting is more suitable for a small manufacturer who is totally inexperienced in export trade and does not possess the adequate financial and managerial resources required for making the successful entry in a foreign market. Indirect exporting is the other strategy that can be used by firms to export it products and or services. Advantages of indirect exporting indirect exporting are free from risks. Pdf market entry modes for international businesses. Advantages and disadvantages of indirect exporting. Indirect exporting is best understood in contrast to direct exporting. Furthermore, there were questions on the market entry mode, target groups, distribution channels and challenges they have faced when expanding to south korea.
Channel partners can include agents or distributors based in your target export market. The following are the disadvantages of indirect exporting. Your potential profits are greater because you are eliminating intermediaries. Advantages and disadvantages of exporting exporting outside northern ireland can change your business. A theoretical approach to the methods introduction to.
The development of the overseas market depends a lot on middlemen and not on the company that produces the goods that are exported. Indirect exporting may seem to be the better option to other businesses through using intermediaries may be a better alternative looking at the complex tasks and risks involved in direct exporting. Like any fundamental change to the way you trade, there are risks as well as benefits you should consider. Pdf the direct or indirect exporting decision in agrifood firms. Since indirect exporters are not in direct contact with the foreign consumers, they have to depend on marketing intermediaries for information regarding the overseas markets.
You can hire a foreign agent who may be paid by commission, retainer or a combination of the two for their knowledge of business practices, language, laws and culture in the overseas market. It is flexible, and exporting activities can cease immediately if required. Pdf selecting an export channel is one of the most important strategic. This is the most common approach for many new zealand companies doing business internationally. So, the financial resources committed are minimum which is a big advantage in indirect exporting. Advantages and disadvantages of indirect export video lecture from international trade chapter of organization of commerce and management subject for class 11 commerce students. Jul 19, 2019 direct exporting, in general, avoid all the costs and confusion of a middleman. Indirect exporting this option involves selling goods and services through various types of intermediary. Indirect exports allow companies and nations to constantly export products and services with minimal effort. Indirect exporting by selling to, or through, a channel partner is a relatively cheap and straightforward way to enter a new market. Direct exporting, in general, avoid all the costs and confusion of a middleman. Advantages and challenges of exporting a free business.
Although a direct exporting operation requires a larger degree of expertise, this method of market entry does provide the company with a greater degree of control over its distribution channels than would indirect exporting akkaya, 2002. It can also be used to present investing and financial activities. A first strand of papers focused on studying the determinants of the choice between exporting or not, without paying attention to the choice between direct and indirect exporting. Advantages and disadvantages of direct and indirect speech. The above is a brief explanation of what direct and indirect speeches are. Both direct and indirect approaches have their own benefits and drawbacks depending on what youre selling, and how. Brown direct and indirect exporting exporting has heavily impacted and increased globalization over the years. A licensing agreement can be beneficial because both parties get the chance to earn profits. Pros and cons of different market entry modes theseus. Indirect exporting is a rapidly growing form of foreign market entry since it involves less financial outlay for the manufacturer. Whether it is unintentional or a deliberate move companies need to evaluate and carefully assess the advantages and challenges of exporting before committing resources. Indirect exports do not require a lot of organizational effort, staff workers. This multiplicity of taxes at the state and central levels has resulted in a complex indirect tax structure in the country that is ridden with hidden costs for the trade and industry. Any company, before committing its resources to venture in the export business, must carefully assess the advantages and disadvantages of exporting into a new market.