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Direct vs. indirect exporting: What is best for your business?

Learn about the difference between direct and indirect exporting including advantages and disadvantages of each method, and what to choose.

Through e-commerce, exporting products to international markets has become easier than ever, helping local sellers increase their sales. The thriving exports ecosystem in India and simplified government policies has made international trade more accessible beyond national boundaries. Local sellers can choose between direct and indirect exporting – depending on many factors including their experience and business type.

What is direct exporting?

Direct exporting refers to selling products directly to a foreign customer or distributor – for instance, in India, local businesses sell their products directly to customers or distributors in other countries. There are several ways that businesses can engage in direct exporting – website, participation in trade shows and other marketing events, and direct contact with importers.

According to the Government of India’s Ministry of Commerce and Industry, India’s top export destinations in 2021 were the USA, China, UAE, Singapore, and UK. The top exports from India included petroleum products, precious stones and metals, pharmaceuticals, engineering goods, and textiles¹.

Advantages and disadvantages of direct exporting

Advantages of direct exporting

Some of the advantages of direct exporting are:

More control over sales process

By selling directly to foreign customers or distributors, businesses have more control over the sales process and can easily adapt to changing market conditions. This can be particularly important in highly competitive markets where a business needs to be able to respond quickly to changes in demand or supply.

Ability to establish direct relationships

It allows a business to establish direct relationships with foreign customers or distributors, which can be beneficial in terms of building trust and loyalty. This can be important in industries where trust is critical in building long-term business relationships.

Potential to save money

Direct exports are often less expensive than intermediaries since it eliminates the need to pay additional fees to agents or distributors.

Greater potential for profits

By selling directly to customers, a business can capture a large share of profits from selling its products.

Scope to tailor-made marketing and sales efforts

A business can customize its marketing and sales efforts to better meet the needs and preferences of its customers.

Disadvantages of direct exporting

Some of the disadvantages of direct exporting are:

Complexity

Direct exporting can be complex as it involves working with foreign customers or distributors and navigating regulations and logistics of exporting goods internationally. This can be challenging for businesses with limited experience in international trade.

Limited knowledge of foreign markets

Without the assistance of intermediaries, a business may have limited knowledge of foreign markets and may not be aware of cultural or regulatory differences.

Limited resources

Direct exporting can be resource-intensive since it requires a business to have staff and infrastructure in place to handle sales and distribution in foreign markets. This can be a challenge for small companies with limited resources.

Language and cultural barriers

Working directly with foreign customers or distributors can be challenging if there are language or cultural barriers to overcome.

Lack of support

Without the assistance of intermediaries, a business may not access the same support and expertise in navigating foreign markets.

When to choose direct exporting?

The type of exporting chosen by sellers can impact export cost, control over export procedure, market fit and specific expertise required for exporting. Sellers must choose the right option for exporting their products and services. Some of the situations where direct exports can be a suitable best option are:

When a business has a unique or high-demand product

If a business has a unique or in-demand product, it may be able to sell directly to foreign customers or distributors without the need for intermediaries.

When a business has experience in international trade

If a business has experience in international trade and is familiar with regulations and logistics of exporting goods, it may be well-suited to handle direct exporting.

When a business is looking to establish long-term relationships

This exporting allows a business to establish direct relationships with foreign customers or distributors, which can be beneficial in terms of building trust and loyalty.

When a business is looking to save money

It can often be less expensive than using intermediaries as it eliminates the need to pay additional fees to agents or distributors. Direct exporting may be suitable if a business is looking to save money on the cost of exporting its products.

When a business has resources to handle this type of exporting

Requiring a business to have staff and infrastructure to handle sales and distribution in foreign markets can be resource-intensive.

What is indirect exporting?

Indirect exporting refers to selling products to a domestic company that resells those products in foreign markets. This approach involves working with a domestic intermediary, such as a distributor or trading company, to reach international markets. Indirect exports is often a good option for businesses that is just starting to enter the international market, as it allows them to develop expertise and establish a network. This method is similar to a dropshipping business.

Indirect exporting examples include:
· A small clothing business in India sells its products to a domestic distributor, reselling them to a retailer in Japan. in
· A software company in India sells its products to a domestic trading company, then exports them to customers in the United States of America and Europe.

Advantages and disadvantages of direct exporting

Advantages of indirect exporting

Some of the advantages of indirect exporting are:

Reduced risk

It can be a less risky way for a business to enter the international market as it allows the company to leverage expertise and establish networks with domestic intermediaries.

Reduced costs

It can be less expensive than direct exporting as it eliminates the need for a business to set up its sales and distribution infrastructure in a foreign market.

Access to expertise

Working with a domestic intermediary can give a business access to expertise and resources that it may not have internally such as knowledge of local regulations, cultural differences, and customer preferences.

Disadvantages of indirect exporting

Some of the disadvantages of indirect exporting are:

Limited control

By relying on a domestic intermediary, a company may have less control over the marketing and distribution of its products in the foreign market.

Reduced profits

It typically involves sharing the profits from the sale of a company's products with the domestic intermediary, which can reduce the overall profitability of the export venture.

Dependence on the intermediary

A company that uses this type of exporting may become dependent on the domestic intermediary for access to the foreign market. This can limit the company's ability to build direct relationships with foreign customers or distributors.

Potential for conflict

There is a risk of conflict with the domestic intermediary if the interests of the company and the intermediary do not align. This can be particularly problematic if the company and the intermediary have different goals or priorities.

When to choose indirect exporting?

There are a few situations in which indirect exporting may be the best option for a company:

When a business is just starting to enter the international market

Indirect exporting can be a good option for businesses new to international trade and looking to test the waters in the global market.

When a business has limited resources

It can be less resource-intensive than direct exporting as it eliminates the need for a business to set up its sales and distribution infrastructure in the foreign market. This can be a good option for small businesses with limited resources.

When a business is looking to reduce risks

Indirect exporting can be less risky for a business when entering an international market. This can be important for businesses uncertain about their products’ potential success in a foreign market.

When a business is looking for support

Working with a domestic intermediary can provide a business access to expertise and resources that it may not have internally such as knowledge of local regulations, cultural differences, and customer preferences.

Direct exporting vs. indirect exporting

Sellers looking to export their products globally must understand how direct and indirect exports are different from each other.

Control

With this type of exporting, a business has more control over the sales process and can easily adapt to changing market conditions. With indirect exporting, the company may have less control, as it relies on the domestic intermediary to handle the marketing and distribution of its products in the foreign market.

Cost

It can often be less expensive than indirect exporting, as it eliminates the need to pay additional fees to intermediaries. However, indirect exporting can be less resource-intensive.

Expertise

Direct exporting requires a business to have its own expertise and resources to handle international trade complexities. Indirect exporting allows a company to leverage the expertise and resources of the domestic intermediary.

Relationship building

A company can establish direct relationships with foreign customers or distributors through direct exporting. With indirect exporting, the company may not have the same level of contact with foreign customers, as it relies on the domestic intermediary to handle the sales process.

Market fit

Different types of exporting suit different products and markets. Direct exporting may be more suitable for products with strong demand in the foreign market, while indirect exporting is often recommended for products with less demand.

Both direct and indirect exporting can be effective ways for a business to enter international markets. An exporter can choose what’s best for their business depending on factors like the nature of the product, company’s experience and resources, its goals, and market conditions. Many exporters are opting for a simple way to sell globally through e-commerce.

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Frequently Asked Questions

Is indirect exporting cheap?

Indirect exporting can often be less expensive than direct exporting as it eliminates the need for a business to set up its sales and distribution infrastructure in foreign markets. The domestic intermediary typically handles these tasks and takes a commission or fee for its services.

Is direct exporting low risk?

Direct exporting can be a low risk option for businesses that are experienced in international trade and have necessary expertise and resources to handle the complexities of the export process. In these cases, direct exporting allows a business to control sales and earn more profits.

Which method is the best for an exporter: direct or indirect?

There is no one-size-fits-all answer to this as the best method for an exporter depends on several factors. Some of the key considerations are:
· Nature of the product
· Company’s experience and resources
· Company’s goals
· Market conditions

Published on December 30, 2022.

Sources:
1. https://commerce.gov.in/wp-content/uploads/2022/02/English-Annual-Report-2021-22-Department-of-Commerce.pdf
2. https://wise.com/us/blog/direct-exporting
3. https://www.tradeready.ca/2017/topics/market-entry-strategies/direct-indirect-exporting-best-fit-business/
4. https://seller.alibaba.com/businessblogs/pxv07iu6-direct-vs-indirect-exporting-which-is-best-for-your-business
5. https://www.tradeready.ca/2017/topics/market-entry-strategies/direct-indirect-exporting-best-fit-business/
6. https://bank.caknowledge.com/difference-direct-indirect-exporting/
7. https://blogs.iadb.org/integration-trade/en/indirect-exports-a-simple-route-to-internationalization-for-smes/
8. https://howtoexportimport.com/Disadvantages-of-Direct-Exporting-4565.aspx

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Direct vs. indirect exporting: What is best for your business?

What is direct exporting?

Advantages and disadvantages of direct exporting

Advantages of direct exporting

More control over sales process

Ability to establish direct relationships

Potential to save money

Greater potential for profits

Scope to tailor-made marketing and sales efforts

Disadvantages of direct exporting

Complexity

Limited knowledge of foreign markets

Limited resources

Language and cultural barriers

Lack of support

When to choose direct exporting?

When a business has a unique or high-demand product

When a business has experience in international trade

When a business is looking to establish long-term relationships

When a business is looking to save money

When a business has resources to handle this type of exporting

What is indirect exporting?

Advantages and disadvantages of direct exporting

Advantages of indirect exporting

Reduced risk

Reduced costs

Access to expertise

Disadvantages of indirect exporting

Limited control

Reduced profits

Dependence on the intermediary

Potential for conflict

When to choose indirect exporting?

When a business is just starting to enter the international market

When a business has limited resources

When a business is looking to reduce risks

When a business is looking for support

Direct exporting vs. indirect exporting

Control

Cost

Expertise

Relationship building

Market fit

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Frequently Asked Questions

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Easy e-commerce exports with Amazon
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