CHAPTER 10 Export Modes

CHAPTER 10Export modes

Global MarketingSvend Hollensen

Fifth EditionA decision-oriented approach

IntroductionExporting is thus typically used in initial entry and

gradually evolves towards foreign-based operations. In somecases where there are substantial scale economies or a limitednumber of buyers in the market worldwide, production maybe concentrated in a single or a limited number of locations,and the goods then exported to other markets.

Exporting can be organized in a variety of ways,depending on the number and type of intermediaries, for thepurposes of simplicity three major types may be identified:

1. Indirect export,

2. Direct export and

3. Cooperative export marketing groups.

Export Modes

Indirect Export Modes

Indirect export occurs when the exportingmanufacturer uses independent organizationslocated in the producer’s country

There are five main entry modes of indirectexporting:1. export buying agent2. broker3. export management company/export house4. trading company5. piggyback

Export Buying Agent (export commission house)

A representative offoreign buyers who islocated in the exporter’shome country. The agentoffers services to theforeign buyers, such asidentifying potentialsellers and negotiatingprices.

Broker

The chief function of abroker is to bring a buyerand a seller together.Thus the broker is aspecialist in performingthe contractual function,and does not actuallyhandle the products soldor bought.

Export Management Company(export house)

Export houses or export managementcompanies (EMCs) are specialist companies setup to act as the ‘export department’ for a rangeof non-competing companies (Rosenbloom andAndras, 2008)

Trading Company

Trading companies play a central role in such diverseareas as shipping, warehousing, finance, technology transfer,planning resource development, construction and regionaldevelopment (e.g. turnkey projects), insurance, consulting, realestate and deal-making in general (including facilitatinginvestment and joint ventures.

These services include the guaranteeing of loans, thefinancing of both accounts receivable and payable, the issuingof promissory notes, major foreign exchange transactions,equity investment and even direct loans.

PiggybackIn piggybacking the export-inexperienced SME,

the ‘rider’, deals with a larger company (the carrier)which already operates in certain foreign markets andis willing to act on behalf of the rider that wishes toexport to those markets.

piggyback marketing provides an easy, low-riskway for a company to begin export marketingoperations. It is especially well suited to manufacturersthat are either too small to go directly into exports ordo not want to invest heavily in foreign marketing.

Direct Export Modes

The manufacturer sells directly to an importer,agent or distributor located in the foreign target market.

As exporters grow more confident they may decideto undertake their own exporting task. This will involvebuilding up overseas contacts, undertaking marketingresearch, handling documentation and transportation,and designing marketing mix strategies.

Direct export modes include export throughforeign-based agents and distributors (independentintermediaries).

Distributors (importers)

Distributors buy on their own accounts andhave substantial freedom to choose their owncustomers and to set the conditions of sale. Foreach country exporters deal with onedistributor, take one credit risk and ship to onedestination In many cases distributors own andoperate wholesale and retail establishments,warehouses and repair and service facilities.

Agents

Independent company thatsells on to customers on behalf ofthe manufacturer (exporter).Usually it will not see or stock theproduct. It profits from acommission (typically 5–10 percent) paid by the manufacturer ona pre-agreed basis.

An example of matchmaking between a manufacturer and two potential distribution partners

International distribution system of Fisherman’s Friend

Evaluating International Distribution Partners

Termination of contracts with distribution partners

Cancellation clauses indistribution partner agreementsusually involve rights underlocal legislation and it is bestthat a contract is scrutinized bya local lawyer before signature,ratherthan after a relationshiphas ended and a compensationcase is being fought in thecourts.