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.
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 textiles 1 .
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.
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.
Direct exports are often less expensive than intermediaries since it eliminates the need to pay additional fees to agents or distributors.
By selling directly to customers, a business can capture a large share of profits from selling its products.
A business can customize its marketing and sales efforts to better meet the needs and preferences of its customers.
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.
Without the assistance of intermediaries, a business may have limited knowledge of foreign markets and may not be aware of cultural or regulatory differences.
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.
Working directly with foreign customers or distributors can be challenging if there are language or cultural barriers to overcome.
Without the assistance of intermediaries, a business may not access the same support and expertise in navigating foreign markets.
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:
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.
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.
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.
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.
Requiring a business to have staff and infrastructure to handle sales and distribution in foreign markets can be resource-intensive.
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.
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.
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.
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.
By relying on a domestic intermediary, a company may have less control over the marketing and distribution of its products in the foreign market.
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.
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.
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.
Indirect exporting can be a good option for businesses new to international trade and looking to test the waters in the global market.
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.
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.
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.
Sellers looking to export their products globally must understand how direct and indirect exports are different from each other.
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.
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.
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.
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.
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.
Amazon Global Selling is an e-commerce exports program that enables Indian sellers to take their businesses from India to global markets across 200+ countries and territories. With over 300 million customers across the globe, businesses can reach international customers in marketplaces like Amazon USA, UK, UAE, Australia and more.
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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*Map not to scale. The map has been used for design and representational purpose only, it does not depict the geographical boundaries of the country. These do not conform to the external boundaries of India recognized by the Survey of India.
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