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- Learn about different ways to export products and services
There are a number of different ways to export products and service
A direct strategy is when products are sold directly to buyers in target markets either through local sales representatives or distributors where:
- local sales representatives promote their company's products and do not take title to the merchandise.
- distributors take ownership of the goods (and the accompanying risk) and usually on-sell through wholesalers and retailers to end-users.
An indirect strategy is when products are sold through intermediaries such as agents and trading companies. Selling through an agent is the most common form of indirect exporting.
Agents may represent one or more indirect exporters in return for commission on sales. There is a danger that an agent may focus their efforts on exporters who pay the highest rates of commission. International Victorian Government Business Offices (VGBOs) and Austrade can advise you on agent selection.
An indirect strategy may involve:
- export management companies who export products on behalf of indirect exporters, operating either as an agent or distributor. They also gather market information, provide promotional advice, arrange shipping and documentation; or
- export trading companies whose export services may include distribution and storage facilities, investment and countertrade.
An export management company simplifies the business of exporting. But by taking on the administration and risk associated with exporting, they may hinder the development of your own international expertise.
Countertrade is a less common but still practised form of export where exported goods and services are paid for by other goods and services. Common forms of countertrade include barter, paymentin kind or promises to make future purchases. Whilecountertrade is unlikely to be an attractive option for the first-time exporter, it can provide valuable access to markets that may otherwise be off-limits. Traditionally this system is used by countries which lack reserves of convertible currency.
Licensing is when a business gives an overseas company permission to use its property for a specific time. Common licensed property may include patents, copyright, formulae, designs, trademarks and brand names. Licensing is frequently used in the manufacturing sector where companies are granted the right to use process technologies in return for royalty payments.
Licensing can be an effective way for companies to finance international expansion. It can reduce risk and reduce the likelihood of products appearing on the black market. Licensing agreements must be carefully examined because they have the potential to restrict your future activities, reduce global consistency of your product and can reveal details of strategically important property to a potential future competitor.
Franchising is when one company supplies another with intangible property and assistance for a set time. Franchising is common in the service sector for example, hotels, car rental companies and restaurant chains.
Franchising can be a low-cost, low-risk entry mode that allows for rapid geographic expansion. However, if expansion is too rapid, franchisors can loose organisational flexibility. Intangible property and assistance are usually provided to franchisees over an extended time and the franchisee pays fees or royalties.
Strategic alliances involves two or more businesses working together to achieve strategic objectives. The alliance may be short, medium or long-term and can be established between a company, its suppliers, buyers and even competitors.
Joint ventures (JVs) are when the partners form a jointly-owned separate company to achieve specific business objectives. JVs can reduce the cost and risk of international expansion and may enable you to enter markets that may otherwise be closed.
Types of JVs include:
- forward integration, where parties invest in ‘downstream’ business activities, such as computer companies establishing retail outlets
- backward integration, where parties invest in ‘upstream’ activities, such as steel companies investing in raw materials suppliers
- buyback, where inputs are provided by each partner and outputs absorbed by them
- multistage, where one partner integrates downstream and the other invests upstream.
Wholly owned subsidiary
A wholly owned subsidiary is where a facility is fully owned and controlled by a single parent company through foreign direct investment. These may be established by purchasing an existing facility or developing an entirely new greenfield investment.
While establishing a wholly owned subsidiary allows you to retain complete control of operations in your target market, and to acquire valuable processes and technologies, the cost may be prohibitive for small to medium companies.
Risk exposure is high with wholly owned subsidiaries because of the substantial costs involved.