Export Functions and Facilitating Intermediaries
Export Functions and Facilitating Intermediaries
A company engaged in exportation or planning to export must decide whether certain essential activities are to be handled by its own staff or through contracts with other firms. The following functions must be carried out:
1. stimulate sales, obtain orders, and do market research;
2. make credit investigations and perform payment-collection activities;
3. handle foreign traffic and shipping functions; and
4. function as support for the overall sales, distribution, and advertising staff of the firm.
Nearly all firms can benefit at one time or another from using the services
0f an intermediary organization that will assume some or all of these func-
tions. A variety of different intermediaries can facilitate exports. Some of them act as agents on behalf of the exporter, and others actually take title to the goods and sell them abroad. In addition, some of them are involved in certain specialized aspects of the export process, such as the freight forwarder who is responsible for moving the products from the domestic to the foreign market.
Because of the cost of these different services and the expertise required, most firms tend to use specialists initially. They may develop in-house capability later on, but external specialists are useful at first to perform functions such as the preparation of export documents, the preparation of customs documents in the importing country, the identification of the best mode of export transportation, and the like. When a firm is deciding whether to market a product directly through its own staff or indirectly through external organizations, it needs to consider the size of the firm, the nature of the products, previous export experience and expertise, and business conditions in the selected overseas markets.29
Direct Selling Direct selling is undertaken to give the exporter greater control over the marketing function and to earn higher profits. When selling direct, the manufacturer normally sells directly to the foreign market. The manufacturer may sell to a sales representative or agent who operates on a commission basis or to a foreign distributor who takes title to the product and earns a profit on the final sale to the consumer. Foreign retailers are outlets for consumer goods primarily and can be serviced by company traveling salespeople or by catalogs or trade fairs. Sales of products manufactured to specification, however, are made directly to the end user. This is a more common practice in industrial marketing than in consumer marketing.
If a firm decides to export directly rather than work through an intermediary, it must set up a solid organization. Firms can organize in a number of ways, from setting up a separate international division, to a separate international company, to a full integration of international and domestic activities. Whatever the form, there is commonly an international sales force separate from the domestic force. In the case of Sunset Flowers, John Robertson eventually became the sales force in the United States and sold the product to a wholesaler, who performed the role of a distributor.
Indirect Selling Indirect selling implies that the manufacturer deals through another domestic firm before entering the international marketplace. The domestic firm may act as a commission agent for the manufacturer and not take title. The commission agent usually acts in behalf of the foreign buyer and tries to find an export product at the cheapest price. The agent is paid a commission by the foreign purchasing agent. The exporter may also choose to purchase the product from the manufacturer and sell the merchandise abroad. The latter option is common for the export management company (EMC).
Although EMCs originally operated on a commission basis and assumed no risks, they now operate largely on a buy-and-sell basis and provide financing for export shipments. The primary function of the EMC is to obtain orders for its clients' products through the selection of appropriate markets, distribution channels, and promotion campaigns. The EMC collects, analyzes, and furnishes credit information and advice regarding foreign accounts and payment terms. Other services the EMC may handle include documentation; arrangement of transportation (including the consolidation of shipments to reduce costs); arrangement of patent and trademark protection in foreign countries; and counseling and assistance in establishing alternative forms of doing business, such as licensing or joint ventures.30
EMCs, which can deal in imports as well as exports, operate on a contractual basis, usually for two to five years, and provide exclusive representation in a well-defined overseas territory. The contract specifies pricing, credit and financial policies, promotional services, and the payment basis. EMCs usually concentrate on complementary and noncompetitive products so that they can present a more complete product line to a limited number of importers. There are over 2000 EMCs in the United States, and most of them are small operations. As a result, they tend to specialize by product, function, or market area. Although EMCs perform an important function for firms that need the export expertise, the manufacturer may lose control over foreign sales. Thus the manufacturer needs to balance the desire for control with the cost of performing the export functions directly.31 Sunset Flowers initially worked through an EMC that apparently took title to the flowers and paid Pratt and Robertson a return based on the prevailing market price and the volume sold.
A company engaged in exportation or planning to export must decide whether certain essential activities are to be handled by its own staff or through contracts with other firms. The following functions must be carried out:
1. stimulate sales, obtain orders, and do market research;
2. make credit investigations and perform payment-collection activities;
3. handle foreign traffic and shipping functions; and
4. function as support for the overall sales, distribution, and advertising staff of the firm.
Nearly all firms can benefit at one time or another from using the services
0f an intermediary organization that will assume some or all of these func-
tions. A variety of different intermediaries can facilitate exports. Some of them act as agents on behalf of the exporter, and others actually take title to the goods and sell them abroad. In addition, some of them are involved in certain specialized aspects of the export process, such as the freight forwarder who is responsible for moving the products from the domestic to the foreign market.
Because of the cost of these different services and the expertise required, most firms tend to use specialists initially. They may develop in-house capability later on, but external specialists are useful at first to perform functions such as the preparation of export documents, the preparation of customs documents in the importing country, the identification of the best mode of export transportation, and the like. When a firm is deciding whether to market a product directly through its own staff or indirectly through external organizations, it needs to consider the size of the firm, the nature of the products, previous export experience and expertise, and business conditions in the selected overseas markets.29
Direct Selling Direct selling is undertaken to give the exporter greater control over the marketing function and to earn higher profits. When selling direct, the manufacturer normally sells directly to the foreign market. The manufacturer may sell to a sales representative or agent who operates on a commission basis or to a foreign distributor who takes title to the product and earns a profit on the final sale to the consumer. Foreign retailers are outlets for consumer goods primarily and can be serviced by company traveling salespeople or by catalogs or trade fairs. Sales of products manufactured to specification, however, are made directly to the end user. This is a more common practice in industrial marketing than in consumer marketing.
If a firm decides to export directly rather than work through an intermediary, it must set up a solid organization. Firms can organize in a number of ways, from setting up a separate international division, to a separate international company, to a full integration of international and domestic activities. Whatever the form, there is commonly an international sales force separate from the domestic force. In the case of Sunset Flowers, John Robertson eventually became the sales force in the United States and sold the product to a wholesaler, who performed the role of a distributor.
Indirect Selling Indirect selling implies that the manufacturer deals through another domestic firm before entering the international marketplace. The domestic firm may act as a commission agent for the manufacturer and not take title. The commission agent usually acts in behalf of the foreign buyer and tries to find an export product at the cheapest price. The agent is paid a commission by the foreign purchasing agent. The exporter may also choose to purchase the product from the manufacturer and sell the merchandise abroad. The latter option is common for the export management company (EMC).
Although EMCs originally operated on a commission basis and assumed no risks, they now operate largely on a buy-and-sell basis and provide financing for export shipments. The primary function of the EMC is to obtain orders for its clients' products through the selection of appropriate markets, distribution channels, and promotion campaigns. The EMC collects, analyzes, and furnishes credit information and advice regarding foreign accounts and payment terms. Other services the EMC may handle include documentation; arrangement of transportation (including the consolidation of shipments to reduce costs); arrangement of patent and trademark protection in foreign countries; and counseling and assistance in establishing alternative forms of doing business, such as licensing or joint ventures.30
EMCs, which can deal in imports as well as exports, operate on a contractual basis, usually for two to five years, and provide exclusive representation in a well-defined overseas territory. The contract specifies pricing, credit and financial policies, promotional services, and the payment basis. EMCs usually concentrate on complementary and noncompetitive products so that they can present a more complete product line to a limited number of importers. There are over 2000 EMCs in the United States, and most of them are small operations. As a result, they tend to specialize by product, function, or market area. Although EMCs perform an important function for firms that need the export expertise, the manufacturer may lose control over foreign sales. Thus the manufacturer needs to balance the desire for control with the cost of performing the export functions directly.31 Sunset Flowers initially worked through an EMC that apparently took title to the flowers and paid Pratt and Robertson a return based on the prevailing market price and the volume sold.
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