EXPORT ENTRY MODES
Choice between direct and indirect exporting
organizational forms involves:
1. cost of performing functions,
2. transaction costs of organizing activities or
contracting with others.
Figure 7.1 shows how a foreign manufacturer
may use both direct and indirect forms of export.
Figure 7.1 Indirect and direct export of consumer goods
Figure 7.2 Direct and indirect exporting
EXPORT ENTRY MODES
INDIRECT EXPORT DIRECT EXPORT
Exporter/manufacturer uses independent
organization (IO) located in the
In some cases, exporters may works together
with IO & coordinates the export activities.
In other words, exporter uses “middleman” in
They do not export on their own but instead
relies on the middleman/IO.
Two (2) alternatives:
1. International Marketing Organizations
a. Merchants (3)
b. Agents (6)
2. Cooperative Organization
a. Piggyback Marketing
b. Export Combinations.
BASED MERCHANTS BASED AGENTS
◦ Take ownership
◦ Doesn’t take title.
EXPORT MERCHANT TRADING COMPANY
(i) Export Merchants
Are domestic wholesalers who do business in foreign
Buys and sells on its own account.
Handled international marketing task (except:
modification of products, packaging, etc.).
Export merchants often carry competing lines, which
means they have little loyalty to suppliers.
Most export merchants specialize in particular
industries and well known of certain localities or even
Thus, not available in all markets.
(ii) Trading Companies
Usually large and do more functions.
Few types of TC (refer Table 7.1)
Large TC = heavily involved in domestic
Small TC = limited foreign trade activities.
Play central role in diverse areas as shipping,
warehousing, finance, technology transfer, etc.
Things that differentiate GTC with others TC is GTC
offers financial services.
(iii) Export Desk Jobber (EDJ)
Also known as export drop shipper/cable
Usually involved in international sales of raw
EDJ never see/physically acquire the goods they
sell & buy.
Goods are typically owned in very short time.
Exporter handle the physical movement of the
goods to the EDJ customer.
Responsibility: negotiation of sales.
(i) Export Commission House (ECH)
A representative of foreign buyers who resides in
the exporter’s home country.
In other words, ECH is an overseas customer’s
hired purchase agents.
Responsible on order made by importer &
“indents” (purchase offer including price to be
Received commissions from buyer (importer).
Scans the market for the merchandise that it has
been requested to buy.
Sends out specifications to manufacturers.
(ii) Confirming House (CH)
Assists overseas buyers by confirming, as a
Exporter will get payment from CH once good are
Alike commission house because performing some
of the ECH functions.
- making arrangements for the shipper
- all contract between buyer & exporter would go
(iii) Resident Buyer
Operation same like ECH.
Represent all types of foreign buyers and are
domiciled in the exporter’s home market.
Represent foreign concerns that want to have close
and continues contact with their overseas sources
Can be expatriate or local people.
E. g.: usually used by large retailers.
Foreign buyer responsible for the rest exporting
Advantages: Reduce language barriers, cultural &
Primarily finds buyers for sellers and vice versa.
Function: to “bring” buyer & seller together
“Specialist” in performing the contractual function.
Does not involve/handle the products sold/bought.
Received commission from principal.
Usually specializes in particular products.
- act as an agent for either exporter/ buyer.
- negotiate price and handle quotation.
(v) Export Management Company (EMC)
Defined as international sales specialist who acts as
exclusive export department for several allied but
not competing exporters.
Act as domestic export sales agent for exporter.
EMC conduct business in the name of each
exporter that it represents.
Business negotiated under exporter’s name and all
quotation and order are subject to confirmation by
EMC takes all risks and problems of export while
the manufacturer/exporter only filling the orders.
Situation required the uses of EMCs - an important
channel of foreign distribution for small companies
just getting started in international trade or for
those lacking the resources to assign their own
people to foreign markets.
Most EMCs are merchant intermediaries, working
on a buy-and-sell arrangement with non-
competing domestic small companies.
Advantages: low-cost & efficient.
The greatest benefits EMCs offer small companies
are ready access to global markets and an
extensive knowledge base on foreign trade.
(vi) Manufacturer's Export Agent (MEA)
o Act as international sales representatives in a
limited number of markets for various non-
competing domestic companies.
o In contrast with EMC, MEA operates used its own
o MEA typically operates on a commission basis.
o Does not engaged in buy-and-sell arrangements
with the manufacturers represents.
o With these basic differences, MEA does not offer all
services than EMC does.
o Especially advertising and financing assistance.
o Conditions required the use of MEA:
- Small order from foreign buyer.
- Wants to enter new market.
- Sell product that relatively new to foreign
(i) Piggyback Marketing
Occurs when one manufacturer (called “carrier”)
uses its foreign distribution facilities to sell another
company’s (called “supplier”) products alongside its
Used for products from different companies, that
are noncompetitive (but related), complementarily
(allied) or unrelated.
Products use private labels – never their own.
Used by manufacturers to broadening the product
lines that can offer to foreign market.
Also to bolster the decreasing export sales.
Easy, low-risks for beginner.
Well suited to small manufacturers which do not
want to invest heavily in foreign market.
Transaction are domestic in nature.
For larger firm, they can provide export
department to smaller firm.
But for smaller firm, piggybacking means that
control over the marketing products is passed to
(ii) Exporting Combinations
Associations to promote exports of member's
products or to serve as export cartels.
Export cartels: A combination of independent
business organizations formed to regulate
production, pricing, and marketing of goods by
Cartels may be for market domination,
international commodity agreements to stabilize
prices, or to promote exports (sometimes under
special laws allowing cooperation).