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.
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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.
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.
Here are some top advantages 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:
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 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.
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.
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:
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:
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.
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:
Read our guide for exporting: How to start exporting: the ultimate guide
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.
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.
Want to know more about how Alibaba.com can help you expand your business globally and get more orders? Speak to an expert now.