 Exporting

Exporting is the process of selling of goods and services produced in one country to other countries.[4]
There are two types of exporting: direct and indirect.
 Direct Exporting
Direct exports represent the most basic mode of exporting made by a (holding) company, capitalizing
on economies of scale in production concentrated in the home country and affording better control over
distribution. Direct export works the best if the volumes are small. Large volumes of export may
trigger protectionism. The main characteristic of direct exports entry model is that there are no
intermediaries.
Passive exports represent the treating and filling overseas orders like domestic orders.[5]
 Types
Sales representatives
Sales representatives represent foreign suppliers/manufacturers in their local markets for an established
commission on sales. Provide support services to a manufacturer regarding local advertising, local sales
presentations, customs clearance formalities, legal requirements. Manufacturers of highly technical services
or products such as production machinery, benefit the most from sales representation.
Importing distributors
Importing distributors purchase product in their own right and resell it in their local markets to wholesalers,
retailers, or both. Importing distributors are a good market entry strategy for products that are carried in
inventory, such as toys, appliances, prepared food.[6]
Advantages
 Control over a selection of foreign markets and choice of foreign representative company
 Good information feedback from target market, developing better relationships with the buyers
 Better protection of trademarks, patents, goodwill, and other intangible property
 Potentially greater sales, and therefore greater profit, than with indirect exporting.
Disadvantages
 Higher start-up costs and higher risks as opposed to indirect exporting
 Requires higher investments of time, resources and personnel and also organizational changes
 Greater information requirements
 Longer time-to-market as opposed to indirect exporting.

 Indirect exports
Indirect export is the process of exporting through domestically based export intermediaries. The exporter
has no control over its products in the foreign market.
Types
Export trading companies (ETCs)
These provide support services of the entire export process for one or more suppliers. Attractive to suppliers
that are not familiar with exporting as ETCs usually perform all the necessary work: locate overseas trading
partners, present the product, quote on specific enquiries, etc.
Export management companies (EMCs)
These are similar to ETCs in the way that they usually export for producers. Unlike ETCs, they rarely take
on export credit risks and carry one type of product, not representing competing ones. Usually, EMCs trade
on behalf of their suppliers as their export departments.[9]
Export merchants
Export merchants are wholesale companies that buy unpackaged products from suppliers/manufacturers for
resale overseas under their own brand names. The advantage of export merchants is promotion. One of the
disadvantages for using export merchants result in presence of identical products under different brand
names and pricing on the market, meaning that export merchant's activities may hinder manufacturer's
exporting efforts.
Confirming houses
These are intermediate sellers that work for foreign buyers. They receive the product requirements from
their clients, negotiate purchases, make delivery, and pay the suppliers/manufacturers. An opportunity here
arises in the fact that if the client likes the product it may become a trade representative. A potential
disadvantage includes supplier's unawareness and lack of control over what a confirming house does with
their product.
Nonconforming purchasing agents
These are similar to confirming houses with the exception that they do not pay the suppliers directly –
payments take place between a supplier/manufacturer and a foreign buyer.[10]
Advantages
 Fast market access
 Concentration of resources towards production
 Little or no financial commitment as the clients' exports usually covers most expenses associated with
international sales.
 Low risk exists for companies who consider their domestic market to be more important and for
companies that are still developing their R&D, marketing, and sales strategies.
 Export management is outsourced, alleviating pressure from management team
 No direct handle of export processes.
Disadvantages
 Little or no control over distribution, sales, marketing, etc. as opposed to direct exporting
 Wrong choice of distributor, and by effect, market, may lead to inadequate market feedback affecting the
international success of the company
 Potentially lower sales as compared to direct exporting (although low volume can be a key aspect of
successfully exporting directly). Export partners that incorrectly select a specific distributor/market may
hinder a firm's functional ability.[12]
 Companies that seriously consider international markets as a crucial part of their success would likely
consider direct exporting as the market entry tool. Indirect exporting is preferred by companies who
would want to avoid financial risk as a threat to their other goals.

 Licensing
An international licensing agreement allows foreign firms, either exclusively or non-exclusively to
manufacture a proprietor's product for a fixed term in a specific market.
In this foreign market entry mode, a licensor in the home country makes limited rights or resources available
to the licensee in the host country. The rights or resources may include patents, trademarks, managerial
skills, technology, and others that can make it possible for the licensee to manufacture and sell in the host
country a similar product to the one the licensor has already been producing and selling in the home country
without requiring the licensor to open a new operation overseas. The licensor earnings usually take forms of
one time payments, technical fees and royalty payments usually calculated as a percentage of sales.
As in this mode of entry the transference of knowledge between the parental company and the licensee is
strongly present, the decision of making an international license agreement depend on the respect the host
government show for intellectual property and on the ability of the licensor to choose the right partners and
avoid them to compete in each other market. Licensing is a relatively flexible work agreement that can be
customized to fit the needs and interests of both, licensor and licensee.
Advantages
 Obtain extra income for technical know-how and services
 Reach new markets not accessible by export from existing facilities
 Quickly expand without much risk and large capital investment
 Pave the way for future investments in the market
 Retain established markets closed by trade restrictions
 Political risk is minimized as the licensee is usually 100% locally owned
 Is highly attractive for companies that are new in international business.
Disadvantages
 Lower income than in other entry modes
 Loss of control of the licensee manufacture and marketing operations and practices leading to loss of
quality
 Risk of having the trademark and reputation ruined by an incompetent partner
 The foreign partner can also become a competitor by selling its production in places where the parental
company is already in.

 Franchising
The franchising system can be defined as: "A system in which semi-independent business owners
(franchisees) pay fees and royalties to a parent company (franchiser) in return for the right to become
identified with its trademark, to sell its products or services, and often to use its business format and
system." [13]
Compared to licensing, franchising agreements tends to be longer and the franchisor offers a broader
package of rights and resources which usually includes: equipment, managerial systems, operation manual,
initial trainings, site approval and all the support necessary for the franchisee to run its business in the same
way it is done by the franchisor. In addition to that, while a licensing agreement involves things such as
intellectual property, trade secrets and others while in franchising it is limited to trademarks and operating
know-how of the business.[14]
Advantages
 Low political risk
 Low cost
 Allows simultaneous expansion into different regions of the world
 Well selected partners bring financial investment as well as managerial capabilities to the operation.

Disadvantages of franchising to the franchisor

 Maintaining control over franchisee may be difficult
 Conflicts with franchisee are likely, including legal disputes
 Preserving franchisor's image in the foreign market may be challenging
 Requires monitoring and evaluating performance of franchisees, and providing ongoing assistance
 Franchisees may take advantage of acquired knowledge and become competitors in the future
Partnering
Partnering is almost a necessity when entering foreign markets and in some parts of the world (e.g. Asia) it
may be required. Partnering can take a variety of forms from a simple co-marketing arrangement to a
sophisticated strategic alliance for manufacturing. Partnering is a particularly useful strategy in those
markets where the culture, both business and social, is substantively different than your own as local
partners bring local market knowledge, contacts and if chosen wisely customers.
Joint Ventures
Joint ventures are a particular form of partnership that involves the creation of a third independently
managed company. It is the 1+1=3 process. Two companies agree to work together in a particular market,
either geographic or product, and create a third company to undertake this. Risks and profits are normally
shared equally. The best example of a joint venture is Sony/Ericsson Cell Phone.
Buying a Company
In some markets buying an existing local company may be the most appropriate entry strategy. This may be
because the company has substantial market share, are a direct competitor to you or due to government
regulations this is the only option for your firm to enter the market. It is certainly the most costly and
determining the true value of a firm in a foreign market will require substantial due diligence. On the plus
side this entry strategy will immediately provide you the status of being a local company and you will
receive the benefits of local market knowledge, an established customer base and be treated by the local
government as a local firm.
Piggybacking
Piggybacking is a particularly unique way of entering the international arena. If you have a particularly
interesting and unique product or service that you sell to large domestic firms that are currently involved in
foreign markets you may want to approach them to see if your product or service can be included in their
inventory for international markets. This reduces your risk and costs because you are essentially selling
domestically and the larger firm is marketing your product or service for you internationally.
Turnkey Projects
Turnkey projects are particular to companies that provide services such as environmental consulting,
architecture, construction and engineering. A turnkey project is where the facility is built from the ground up
and turned over to the client ready to go – turn the key and the plant is operational. This is a very good way
to enter foreign markets as the client is normally a government and often the project is being financed by an
international financial agency such as the World Bank so the risk of not being paid is eliminated.
Greenfield Investments
Greenfield investments require the greatest involvement in international business. A greenfield investment is
where you buy the land, build the facility and operate the business on an ongoing basis in a foreign market.
It is certainly the most costly and holds the highest risk but some markets may require you to undertake the
cost and risk due to government regulations, transportation costs, and the ability to access technology or
skilled labour.