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Lahore School of Economics

Export Marke=ng

Introduction

Choice between using direct and indirect exporting

organizational forms involves:

Export entry modes

(1) cost of performing functions,

(2) transaction costs of organizing activities or contracting with
others.

Indirect export

Home-country based merchants

Uses independent organizations, either

Export merchants: do all steps except product and package

modification; not available in all markets; deal primarily in
staple commodities; may be more powerful than client
companies.

Trading companies: a type of export merchant, usually also

involved in importing and often in a wide range of commercial
and financial activities.

(1) international marketing organizations or

(2) a cooperative organization.

A given company may both use indirect export and also have a
dependent organization (e.g. export department) in the company
working with independent marketing organizations.

Export desk jobbers

Home-country based agents

Export desk jobbers, also known as export drop shippers or

cable merchants, are another type of export merchant

Often of use to manufacturers

Primarily buy and sell raw materials

Do take title but not physical possession.

Export commission house:

Essentially becomes a domestic buyer; easy but exporter

has little control; not usually long term.

Resident buyer: can build up long-term relationships.

Brokers primarily find buyers for sellers and vice versa.

Export management company (EMC): acts as exclusive export

department for several allied but non-competing manufacturers;
function like part of manufacturer for overseas buyers; uses
manufacturer's letterhead; some act more like distributors (merchants),
others like agents.

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Cooperative organizations

Evaluation of independent marketing organizations

Advantages: inexpensive to start, have foreign expertise, build

up volume quickly, good for out- of-the-way markets.

Potential drawbacks: may not provide enough marketing effort;

take some of profit; may drop a manufacturer.

Conflict may arise from:

differences in goals and objectives, desired target customers,
desired product lines, interpersonal relations;
differences in desired channel design and policies.

A cooperative exporter is a manufacture with its own export organization that is retained by
other manufacturers to sell some or all of their products in some or all foreign markets.

For the user, a sort of cross between indirect and direct export.

Types: (1) piggyback marketing and (2) exporting combinations.

Piggyback marketing: Company A marketing the product of Company B through Company

A's channels; may use the brand of B or A, or a private label; easy, low risk way to begin
exporting.

Exporting combinations: associations to promote exports of member's products or to serve

as export cartels.

Cartels may be for market domination, international commodity agreements to stabilize

prices, or to promote exports (sometimes under special laws allowing cooperation).

Direct export

Direct exporting occurs when a manufacturer or exporter sells

directly to an importer or buyer located in a foreign market.

A manufacturer may use more than one of the alternative

methods of direct export.

Home-country-based department

Manufacturers who decide to engage in direct export usually need to establish some type of
export department of division in the home country.

Built-in export department: does actual seeing or directing of selling, but support functions
(advertising, logistics, credit) done by other departments; easiest to establish; may have
problems getting support from other units and in carrying out technical functions.

Best for companies that are small in size, relatively new to exporting, expect small foreign
sales volume, lack management drive for growth of foreign business, has marketing
resources available in house and/or is unable to acquire additional marketing resources.

Separate export department: self-contained and largely self-sufficient in advertising,

logistics, etc.; little conflict in daily operations but may be competition for resources.

Export sales subsidiary: provides unified control; profit centre; can more easily allocate
orders and supervise traffic management; ease of financing; wider product line; tax
advantages in some countries.

Foreign sales branch

Storage or warehouse facilities

Provides greater control in a particular market, better service,

dedicated staff for your products, costly.

Used when inventory in foreign markets is necessary or

profitable.

Handles all of sales distribution and promotion in a designated

market area.

May be for one country or regional.

May be able to set aside space for display of products.

Used by most direct sales companies.

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Foreign sales subsidiary

Travelling salespersons

Has greater autonomy because of foreign incorporation and

domicile.

Functions: selling activities, customer relations, information

gathering.

May have tax and business practices advantages (but taxes are
not the only reasons for establishment).

May act as demonstrator or tutor.

Balance costs versus benefits; consider required volume to

support costs.

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Foreign-based distributors and agents/representatives;

and relations with foreign-based distributors and agents

Evaluation of dependent organizations

Benefits:

full return on sales,

protection from neglect,
gain knowledge, permanency,
protect goodwill,
per unit costs decrease with volume.

Potential drawbacks:

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costs and risks,

may be difficult to obtain specialized knowledge,
volume may be slow to build.

A distributor is a merchant who takes title (ownership of goods).

An agent is a representative who does not take title.

Unfortunately, terms are often incorrectly used interchangeably.

In direct exporting, use of exclusive agents or distributors is easiest and least costly; also has

potential for development.

Steps in process of selecting a foreign representative: draw up a profile of what is needed, locate and
evaluate prospects, choose the distributor or agent.

Six important selection criteria that are relevant for selecting foreign distributors are shown in the text
(see six bullets), and

Table 8.3 shows Elements in profiles of potential distributor or agent that should be considered.

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Franchise

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The Internet and e-commerce

A franchise gives the holder (the franchisee):

the right to use the franchisors brand name and trademark under certain conditions;

may also include rights to manufacture products using the franchisors;

trademark is always given for a specific territory(ies).

Foreign representative legal agreements are extremely important:

Table 8.4 shows important Provisions of foreign representative agreement

Need for agreements on exclusive rights, competitive limits and termination are particularly important.

From the standpoint of the franchise provider, there is a need to somehow assure quality of the product/service if manufactured/performed by
the franchise holder.

From the standpoint of a franchise holder who obtains some or all of his/her supplies from the franchisor, there is a need to be assured of the
quality and availability on time of the supplies.

The end of this section provides a summary list of 10 important factors to be considered in Selecting a foreign representative.

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The Internet and World Wide Web impact all phases of business.

Used as a source of information and as a place to buy.

Communication is immediate; distance does not impact cost.

May be able to reach potential customers not otherwise

accessible.

Advantages: low capital investment; small size of company not a

problem; updates are easy and immediate; translation may be
less expensive; more reliable; provides audit trail.
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The Internet and e-commerce

The Internet and e-commerce

The Internet is the base for international e-commerce, which refers to trade that actually takes place
over the Internet, usually through a buyer visiting a sellers website and making a transaction there.

Business functions that can be performed on the Internet, as discussed in the text under bullet headings, include:

Market research

Expanding representation

Cellular telephone ownership and access is an important indicator of future Internet behaviour in many
countries as advancing technology is providing an increasing number of applications for wireless access
to the Internet.

Customer and marketing support

Advertising

Exhibit 8.7 discusses China: the growth market of Internet use, including the effects of government
control.

Trade leads

Logistics

Some problems with B2B: there is no substitute for face-to-face contact; varying levels of access; possible imposters
and misuse.

Government regulations vary widely from country to country; a number of examples are given in the text.

In e-commerce, value of B2B is greater the value of B2C, but B2C is growing rapidly, particularly in
Web auctions such as eBay, Yahoo! and, in China, Tao Bao.

China has a vast number of rules restricting what companies can do and censoring what they say on the
Internet.
In China, one problem is that relatively few customers have credit cards.

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Gray market exporting

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SUMMARY

Gray market channels are those not authorized by the exporter.

They are, however, legal to use in importing genuine goods in most countries.

Also called parallel imports.

Parallel imports between EU countries are legal, but such imports from
outside the EU are banned.

Undercut authorized dealers, may not provide service, may not retain brand
image or reputation, may create conflict/problems between manufacturer and
authorized dealers, may disrupt manufacturers global strategy.

Both reactive and proactive actions manufacturers may take are listed in the
text.
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Whether exporting directly or indirectly, relationships must be

built with foreign customers.

Ten guidelines to creating supportive relationships are given in

bullets in the text.

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