Indirect Channels in International Marketing

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This presentation is about indirect channels in international marketing . This channels is divided into two broad categories Firstly Agents & Secondly Merchants

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Types of IntermediariesINDIRECT CHANNEL : 

Types of IntermediariesINDIRECT CHANNEL Faculty : Group Members Prof. Pragya Kesri Rohan Sankhla Simranjeet S. Bhatia Sumit Shukla Anubhav Aditya

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In Indirect channels a manufacturer does not have to correspond with foreign parties in foreign countries, instead they deal with middle man who in turn sell the product to final users. Although there are many intermediaries, all can be grouped under two broad categories : INDIRECT CHANNELS Domestic Agents Domestic Merchants

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Basic differences B/W the two

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DOMESTIC AGENTS

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The function of export broker is to bring a buyer and seller together. He may be assigned some or all foreign markets in seeking potential buyers. He can negotiate the best deal for the seller (i.e., manufacturer) but cant conclude the transaction without prior approval of the seller. May operate at its own name or of the manufacturer. For any action performed he gets fee or commision. He doesn’t take the title of the goods. He has no financial resposiblities. Export Broker

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Useful because of his extensive knowledge of the market’s supply, demand & foreign customers. Due to this - can negotiate best terms for the seller. Valuable associate for highly specialized goods & seasonal products. Is used by small manufacturer’s with limited financial resources, selling their goods in broad markets. Advantages (Export Broker)

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Is a independent businessperson who retains his or her own identity by not using the manufacture’s name. Have freedom to select when, where & how to work within the assigned territory. Like export brokers, he also works for commission. But, unlike export broker he has continuous and more permanent relationship with the manufacturer. He works under contract which defines territory, term of sale, methods of compensation & is renewable by mutual agreement. He may take possession but not the title of the goods, thus risk of loss remains to the manufacturer. He carries several product lines i.e. he may represent manufacturer of related products. Manufacturer’s Export Agent (Sales Representative)

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Manufacturer can avoid fixed cost associated with having own sales & distribution organization, because commission is paid when sales are made. Have extensive knowledge of specific foreign market. As he carries several product lines in his bag so the expense of doing business is shared by other manufacturers. Allows manufacturer to capitalize his time, money, and expertise on production rather than marketing aspect. Advantages (Manufacturer’s Export Agent / Sales Representative)

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Manages entire export program under contract. Also known as combination export manager (CEM), because it may function as export department for several allied but non-competing manufacturers. In this regard those export broker & export agents who represent combination of clients can also be called as EMC’s. They have greater freedom and considerable authority. But unlike export brokers & agents, they provide extensive services, ranging from promotion to shipping arrangement & documentation. Export Management Company

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Foreign buyers usually prefer to deal directly with the manufacturer rather than through a third party. Therefore, an EMC usually solicits business in the name of the manufacturer and may even use the manufacturer’s letterhead. EMC requires at least a one-year contract to handle a manufactured products. More often it is three year contract. They get compensated in the form of salary, or commission or both.

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Many EMC are also traders (i.e. export merchants). As they are both agents & merchants, EMC are engaged more in sell-buy method than commission arrangement. In that case EMC takes the title of the good (i.e. ownership). They are compensated by discounts on purchased goods, & such discounts are many greater than what other middleman receive for domestic market.

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It has international marketing expertise and distribution contacts overseas. For many service provided an EMC’s cost are relatively low because of efficiency of scale (i.e. cost can be spread over the products of several clients. In addition provide shipping efficiency because it can consolidate many manufacturer product in one shipment. From this company can get better freight rates. It also provide financial services, by guaranteeing payments and collecting from overseas buyers It allows manufacturer to concentrate on internal efforts and its domestic market. Advantages (EMC)

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A cooperative exporter is manufacturer with its own export organization that is retained by other manufacturer to sell in some or all foreign markets. It works like an export agent, & sometimes act as a broker. Cooperative exporter’s motive in representing other manufacturers primary involves its financial intrest. Having fixed cost for the marketing of its own product, the cooperative exporters desires to share its expenses and expertise. Because of these activities it is often referred as “mother hen”, piggyback exporter” Ex/ GE, Singer, Borg-Warner. Cooperative exporter

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Relationship b/w cooperative exporter and its principal is very long one. This arrangement provides easy & low-risk way for the principal to start marketing overseas &relation continues as long as unrelated & non-competative products are involved. Advantages (Cooperative Exporters)

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This association is formed when two or more firms, usually in the same industry join together to market their product overseas. It provides information to member firms, set prices, allocate orders & sell products. It arranges shipping, frieght consolidation, rate negotitation This association takes possesion of the goods but not the title. As cooperative organization it tends to work on non-profit or expenses basis. Webb-Pomerene Association

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As we seen earlier , an export agent represents a seller ; the purchasing/buyer agent represent the foreign buyers. They seek a product that matches his principal’s (i.e. buyer’s) preferences & requirement. He acts on the behalf of buyers seeking the best possible price. Also known as commission agent, buyer for export, export commission house, export buying agent. Since the agent operates on an order basis, the relationship with buyer or seller is not continuous. This arrangement does not offer steady bolume of business neither reduces financial risk. Purchasing/Buying Agent

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This type of agents perform exactly the same functions as the purchasing/buyer agent, the only difference is that this agent are actually a foreign government agency. They are empowered to locate & purchase goods for its country. This type of agents have permanent office in the suppliers country or make a formal visit when the demand arises. Country-Controlled Buying Agent

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This intermediary also perform the same function as by purchasing agent But it is usually located near highly centralized production industries. It is different from the P.A because it is retained by the principal on a continuous basis to maintain a search for new products that may be suitable . It also maintain continuous relationship with the suppliers . Resident Buyer

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DOMESTIC MERCHANTS

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It seeks out needs in the foreign market and purchases from manufacturer in its own country to fill all those needs. Goods they generally deals are staple goods, undifferentiated products or unbranded products. They resells this products in foreign markets in its own name. It assumes all risks associated with ownership It works for profit motive They may or may not have a steady relationship with their suppliers. Export Merchant

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Export Drop Shipper also known as desk jobber or cable merchants is a special type of Export Merchant. In this case, the export drop shipper takes the order from overseas in turn places the order with a manufacturer, directing him to deliver the product directly to foreign buyer. The manufacturer collects his payments from the drop shipper, who in turn is paid by the foreign buyer. It is common for marketing of bulky products of low unit value( e.g. coal, lumber, construction materials). Relationship is not continuous. Export Drop Shipper

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Unlike Export Merchant & Export Drop Shipper , an Export Distributor has a continuous relationship with the manufacturer. Have exclusive rights to represent manufacturer & sell in some or all foreign markets. Located in manufacturers own country Export distributor operates in its own name or that of the manufacturer. Export Distributor usually sells the manufacturer’s product abroad at manufacturer list price & gets agreed percentage as remuneration. Export Distributor is either paid by commission or allowed a discount for its purchase. Export Distributor

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Sometimes those who want to buy & those who want to sell have no knowledge of each other or no knowledge of how to contact each other, Trading Companies came into existence to fill this gap. Trading company may buy and sell as a merchant. Handle goods and consignments and act as a commission house for some buyers. By representing several clients it looks like an EMC except for the fact that it Has more diverse product line Offer many more services Is larger and better financed Takes title that is ownership to merchandise Is not exclusively restricted to engaging in export trade Goes beyond the role of an intermediatry by engaging directly in production, physical distribution channel development, financing and resources development Trading Company

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