Direct exporting is the process whereby firms engage in direct exchange of goods and service in international markets without using intermediaries. In this case, the firms will cater for all the expenses and logistics to export their products or services. Indirect exporting on the other hand is the process of exchanging goods and services to international markets through the use of intermediaries (Keller W. 2009).
According to Fryges and Wagner (2010), firms find it difficult to make a choice whether to export directly or indirectly when entering global market. This is because there are shortcomings of each choice. Therefore, it takes a more experienced and financially stable company to choose direct exporting. While for startup firms, they will opt for indirect exporting which is also a disadvantage when it comes to profit maximization. From the research, firm’s ability to engage in direct export has been associated with three aspects which are the size of the firm, the experience with international markets and quantity of resources considered intangible in the firm. We are going to analyze the advantages and disadvantages of direct and indirect exporting.
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Benefits of direct exporting
Direct interaction with potential customers will establish strong global partnership relations which is an advantage to the firm. This will, therefore, improve the amounts of export and it will ease entry into global market since there will be prospects. Firsthand information is important in any business; direct export, therefore, gives a chance for the firm to obtain first-hand information about the global market environment which will be used in making production and distribution decision.
Direct export offers flexibility in global market. It is because the firm has acquired all the necessary information, and hence they have the knowledge and experience to redirect their markets and penetrate deeper into global markets. A direct exporting firm will experience high profits because of the direct link with the customers.
Disadvantages of direct exporting
It is costly in terms of logistics and transaction costs involved to manage the export. The process has to involve a lot of transactions, the power, and efforts of the firm-time and research on the best means of ensuring that the products are availed to the customers. The firm exporting is responsible for anything that emerges in the event of exporting. An example is when exporting agricultural produce directly, the exporter will have to account for perishability; it is difficult since agricultural produce are perishable. In other words timing is of essence when it comes to direct exporting.
Benefits of indirect exporting
It is not risky because it involves a chain of partners who represent the firm; indirect export involve the use of intermediaries or export managing companies and export traders. Therefore, the firm will have minimal rates of risks compared to direct exporting. They have an established market for their exports globally. The use of intermediaries is a better way of penetrating to markets that are already established and this will reduce the cost of market research since these intermediaries have their global markets ready.
Established channel of distribution makes indirect exporting more preferable especially when handling agri-food chain of exports (Fischer 2010).
Disadvantages
Low profit making is evident when using indirect export because it entails along chain of intermediaries which lowers the amounts of profits to be made
There is no direct interaction with the customers since intermediaries will represent the firm and this is a disadvantage because the firm will lack a sense of belonging or participation in the export process.
Reference
European Commission. (2010). A griculture in the EU; Statistical and economic information . Report 2010. Publications. Office of the European Union 2011, Luxembour
Fischer, C. (2010). Food quality and product export performance—An empirical investigation of the EU situation. Journal of International Food and Agribusiness Marketing , 22(2/3), 210–233.
Fryges, H., and Wagner, J. (2010). Exports and Profitability: First Evidence for German Manufacturing Firms. World Economy , 33(3): 399–423.
Keller W. (2009). International trade, foreign direct investment and technology spillovers . Working Paper, NBER.
