Direct vs indirect exporting: which is best for your business

Breaking down the borders on your business and exporting to foreign markets is a great way to take your business to the next level. It helps you to widen your pool of prospective customers and build brand recognition all over the globe.

There are two major types of exporting that help businesses go global: direct and indirect exporting.

In this post, we’re going to compare direct and indirect exporting so that you can determine which model will work best for your business. We will take a look at the advantages, disadvantages, and best use cases of each.

To wrap things up, we will talk about how eCommerce platforms like Alibaba.com can help you streamline your global expansion.

Exporting: the basics

Exporting is the act of selling something to a buyer in another country. It is also commonly referred to as “international trade.”

In general, exporting comes with a wide range of benefits for businesses of any size. The biggest benefit is expanding your customer base by tapping into foreign demand. This helps you multiply your potential earnings while reducing your dependence on your local market.

As we mentioned, there are two different business models that exporters use. One is direct exporting and the other is indirect exporting.

What is direct exporting?

Direct exporting is when a business sells directly to buyers in other countries. There is no middleman, which means that as a seller, you don’t have to worry about a third-party company taking a cut. Some businesses also open a foreign branch of their companies in the country where they plan to expand into or have a business representative on the ground.

With direct exporting, the export company will handle all client communication and negotiations with international business. This includes being solely responsible for acquiring new customers, setting up contracts, marketing activities, selling items, and dealing with international logistics and payment. You’re also in control of every transaction, which means you can represent your brand the way that makes the most sense. When you have the resources for this sort of task, it can work in your favor.

While direct exporting has many perks, it can be a bit difficult, especially for sellers that are just starting to introduce their products to foreign markets. Sellers need to forge their own partnerships and relationships.

In the event that things are not going as planned and you decide to pull out of the foreign market, you don’t have to worry about losing excessive amounts of money since direct exporting doesn’t use a contract with a middleman.

😃Advantages of direct exporting

Here are some top advantages of direct exporting:

• Greater degree of control over all stages of the trading and transaction process
• Eliminate intermediaries and own higher profit margins of your own
• You own your client relationships
• Greater flexibility to redirect or pull off your marketing activities
• Hands-on experience gives you more insights into the market to boost your competitiveness
• Working directly with buyers helps build brand loyalty

🤔Disadvantages of direct exporting

Although you can certainly gain a lot from running a direct export business, there are also a couple of cons to be aware of:

• Difficult for sellers with limited experience and resources
• Higher financial investment is required to carry out all the exporting efforts
• Requires specialized teams with specialized knowledge, which means bringing on new hires
• More responsibilities and a higher degree of risks
• You must find buyers and cultivate a customer base of your own

For small manufacturers and start-ups who do not have adequate infrastructure and knowledge about exporting into foreign markets, they may feel that the intermediary is worth the cost and thus opt for the indirect model of exporting.

Direct exporting best use case

Direct exporting is best suited for larger companies that have the resources to invest in specialized teams to break into foreign markets.

If you are considering direct exporting, it is wise to check if the countries that you intend to export to have similar guidelines on products, products, and selling. This will make it easier for you to sell in that foreign market.

It is also a good idea to assess profitability based on the physical distance between your warehouse and the places that you will be selling in. If it is too expensive to ship the products to a specific destination, you may be better off not selling in that country or selling through a third-party company to cut costs.

What is indirect exporting?

Indirect exporting means you make the sale to a third-party company that subsequently sells directly to international buyers or importers. Since indirect exporting involves middlemen to handle nearly all the export operations, it is the least expensive and the quickest approach to enter foreign markets for smaller companies.

Two types of companies that take on the intermediary role are Export Trading Companies (ETC) and Export Management Companies (EMC). ETCs are companies that will buy your products on behalf of their clients whereas EMCs will simply manage your transactions. The difference between the two is that ETCs assume some sort of risk by purchasing stock, whereas EMCs don’t typically hold any stock of their own.

In simple terms, ETCs generally work on behalf of buyers and EMCs work on behalf of sellers. Both of these third-party companies generally operate in the same country as the seller. Since sellers generally choose ETCs and EMCs are in the same country, they can still sell to far-off countries without having to worry about compromising profits.

😃Advantages of indirect exporting

Choosing an indirect approach to exporting, a business can often reduce the risks associated with trading internationally. Below are some of the indirect exporting benefits:

• The brunt of the work is handled by the intermediary, from international shipping to legal and financial aspects of the global trade, so you don’t need to worry about it.
• No exporting experience or knowledge is required, and no or very few extra hires is needed.
• ETCs and ECMs can tap into existing partnerships, helping you expand globally faster and increase your sales volume.
• Fewer limits on where you can sell.
• You don’t have to invest time and budget to find your own buyers.

🤔Disadvantages of indirect exporting

While there are benefits of indirect exporting, the following are the considerations to keep in mind because of your lack of control over the entire process:

• You own fewer profit margins, as profits will be shared with the export house or agents.
• You have less control over the prices of your products and how your brands and products are represented internationally.
• Too much dependence on the commitment of the partner and if the middleman you work with is less competent, it may hinder the overall exporting activities and sales of your company.
• You don’t own relationships with clients and can’t provide value-added services.
• You are unable to learn about the market hands-on and can’t develop communication with and understanding of the market trend and consumers.

Indirect exporting best use case

Indirect exporting is best suited for small businesses that are new to exporting and international trade or do not have the resources to build a specialized exporting team.

Direct vs. indirect exporting: a side-by-side comparison

Now that you know what each of these exporting business models entails, let’s take a look at direct and indirect exporting side-by-side.

To decide which type of export business to start, you can think through the following questions and carry out initial research:

• the size of your company
• the demand for your products oversea and your unique selling point
• whether the market is already saturated
• how much time, resources, and money you can invest and your expected ROI
• your exporting experience and knowledge
• your tolerance for risks

How to use Alibaba.com for global expansion

Whether you choose to use the direct or indirect approach to exporting should depend on your exporting goals and what sort of resources you have access to. However, if your end goal is to take more profits home and effectively scale your business globally, transitioning to eCommerce and online selling is the way to go for businesses of any size. And Alibaba.com, the world’s leading online B2B trade platform, has everything you need to reach your global sales potentials.

Our platform has an existing pool of 10+ million buyers your business can tap into. It also provides auto-translation, communication tools, CRM tools, Request for Quotation marketplace, logistics solutions, and many other tools and support.

Additionally, the Alibaba.com platform offers onboarding support and other professional services which makes it a great option for sellers who has zero exporting or online selling experience. Our support team can help you customize your online storefront, add your products, access market analytics, determine demand trends, and more.

Of course, Alibaba.com is just one of many B2B marketplaces, but it is one of the leaders that has helped the eCommerce industry to grow to the magnitude that it is today.

How Crimark, a small family coffee company, expand into exporting for the 1st time with help from Alibaba.com

Crimark is a small coffee business with 20 years’ experience in the industry but never exported to sell their award-winning coffee products abroad. Claudio Trenta, the owner of the company, is very excited about the good results and clientele they gained from selling on Alibaba.com.

“Before Alibaba.com we never exported. We are only a small family-run coffee company but Alibaba.com has helped us to understand how to export and enabled us to realize our export dream.”

Find out more about Crimark’s inspiring story here.