Advantages and Disadvantages of Direct and Indirect Exports 5.00/5 (100.00%) 3 votes

exportsWith the opening of Eastern European markets exports and imports became the domain of not only large state-owned trade associations, but also production companies and trading firms.
Export as a whole should be distinguished between direct and indirect, because the mechanisms and tools of development are different. The simplest form of acts is indirect or mediated (oblique) export, where foreign trade activities are carried out through intermediaries, who buy products from manufacturers. In this case there are only indirect relationships between the domestic producers and foreign buyers. Often, the Belarusian production company is engaged in export of goods, attracting domestic and foreign trade companies or exporting firms, which are mostly independent and legally separate entities. At the same time as potential business partners within the framework of indirect export may take part in trade (purchasing) affiliates of the foreign company.

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Compared with other forms of access to foreign markets and their development, indirect exports require scarce resources. Therefore, small and medium enterprises will be happy to attract foreign trade intermediaries at the initial stage of export activity, as they do not have the necessary human and financial resources in their possession to promote their products in foreign markets by other means.
Foreign trade companies and export firms realize the production acquired from domestic enterprises at their own risk. In this case the production company is subject to only small dangers and risks involved in penetrating into foreign markets. One such risk is a short-term drop in the exchange rate, but even this does not have a negative impact on exporting enterprises – more on the export firm.
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Foreign trade companies and export firms tend to supply the goods to candy regions and countries where they have foreign trade partners. Indirect exports do not require a lot of organizational effort, staff workers. Even if the company operates an export department, it employs only a small number of employees, as the main work is carried out by foreign trade partners who have obtained an order.
Indirect export can stop relatively quickly if it turns out that it was goalless.
Indirect exports are characterized by some drawbacks. During its use not all the goods (services) can be sold on the international market. If, for example, it is technically complex goods and services, then indirect export is generally excluded.
Although in case of indirect export the exit to foreign markets demands small financial and human resources, but it isexport1 not always effective, because in the long run, leads to diminishing returns. Trading partners in most cases, try to get maximum profit from their service as mediators, thus a need arises to transfer goods or services to a reseller with a small profit for the enterprise. Besides, the latter cannot acquire its own experience in foreign markets, has no information on the wishes of clients, the behavior of competitors, general economic conditions in individual countries.
The main disadvantage of indirect exports is that not all brokers are using the optimum market potential and opportunities for marketing, allowing mistakes and miscalculations in their actions that affect the income of producers of export goods. For example, for certain foreign markets are selected “not optimal” goods from those that may be offered to exporters, the price can be set without taking into account the specifics of the market. The company, exporting indirectly, is deprived of direct communication with the end users. This hinders the transition to other forms of work in the markets.
In case of direct (immediate) export foreign trade activities are carried out without resellers. There are two variants of direct exports: direct export, without a mediator, direct export with a facilitator.
Direct export without a mediator is used if the export is directed at the end-user (enterprises, institutions and private clients), or the goods are received in the wholesale and retail trade in a foreign country. In this case, the domestic company sends its employees abroad for sales of goods and services to final consumers and trade agencies.
If sales representatives, agents or major importers abroad are involved in the process of export, there is a direct export through an intermediary. These brokers, unlike the staff of domestic exporting enterprises sent abroad, are legally independent, that is, they do not act as employees of the exporting company and are not affiliated with any directives, on the contrary, they are engaged in self-marketing.
As with all other options for entry into a foreign market, direct export also has its advantages and disadvantages. Thus, direct export is often carried out under an order, the initiator of which is not the manufacturing enterprise, but a foreign mediator. In most cases, foreign orders/requests are unpredictable, so the company, through exports, responds to them more or less randomly. Thus, while not the initiator of foreign trade activity, a specific business enterprise is becoming an exporter.
Through direct export target management and control of the sales become possible which is unrealistic in case of indirect export. The exporting company establishes a direct contact with a foreign trading partner, and not only operates through its own foreign trade companies abroad, but also has the best opportunities for direct participation in foreign transactions. The advantages of direct exports are especially apparent in the export and supply of complex products and services, the sales of which would not have been possible through foreign trade companies and export firms. This applies, above all, to those goods and services that have only a small degree of standardization and a high-line scheme. Direct export is applicable to a wider range of goods and services.
By directs export a larger number of financial and human resources is covered than in the case of indirect exports. However, compared to more complex forms of entry into the market, such as the creation of a personal commodity distribution network abroad, or affiliated organizations with a complete production cycle, the cost of direct exports is still not so significant. Certain financial resources are required for the contacts with clients or business partners, and in the case of direct export without intermediaries, personal human resources are required in the field.
While direct export is applicable to a wider range of goods and services, for certain goods and services direct export is considered inappropriate in the same way as indirect. This applies to goods that are due to a short work life and cannot or are unlikely to be exported; goods, the export of which may be associated with high transport costs, goods which require complex after-sale services, which cannot be granted by resellers. Direct export is fraught with difficulties for the enterprises of the economic kind, such as those associated with the deterioration of exchange rates. If the rate of domestic currency or currencies of third countries increases on the markets where the company carries out the export, it could cause the company to become relatively uncompetitive in overseas markets.

Data on the Belarusian industrial enterprises, which have direct or indirect export and direct import and barter deals, according to the results of annual surveys conducted by the Research Institute for Economic Ministry of Belarus, are as follows.
The data show that the majority of Belarusian industrial enterprises resorted to direct exports. Moreover, in 2003-2004 direct exports were preferred almost by the three-quarters of surveyed companies. To indirect exports resorted the third of those surveyed enterprises, so in 2002 for its organization 24% of companies have resorted to the services of domestic trade intermediaries, and only 12% have collaborated with foreign traders. In general, the dynamics of the development of direct exports suggest that more and more domestic enterprises will independently realize direct export expansion in overseas markets.
With regard to direct import, which has similar advantages with direct export, then it uses an increasing number of industrial enterprises. This is because the purchase of raw materials, components and products abroad without intermediaries are cheaper. Speaking about the barter as a form of coherent export-import operations, it should be noted that thanks to strong government action, its value is strictly decreasing.