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In Indirect channels a manufacturer does not have toIn Indirect channels a manufacturer does not have to

correspond with foreign parties in foreign countries,correspond with foreign parties in foreign countries,instead they deal with middle man who in turn sell theinstead they deal with middle man who in turn sell the

product to final users.product to final users.

Although there are many intermediaries, all can beAlthough there are many intermediaries, all can be

grouped under two broad categories :grouped under two broad categories :

INDIRECT CHANNELS

Domestic

Agents

Domestic

Merchants

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Basic differences B/W the two

DOMESTIC AGENTSDOMESTIC AGENTS DOMESTIC MERCHANTSDOMESTIC MERCHANTSTITLE OFTITLE OF

THE GOODSTHE GOODS

NEVERNEVER ALWAYSALWAYS

POSSESIONPOSSESION

MAYO

R MAY NO

TMAYO

R MAY NO

T MAYO

R MAY NO

TMAYO

R MAY NO

TREPRESENTREPRESENT--

ATIVE OFATIVE OFMANUFACTURERMANUFACTURER MANUFACURERSMANUFACURERS

PRODUCTPRODUCT

DECISIONDECISION

MAKINGMAKING HAVE PO

WERSHAVE PO

WERS NO

PO

WERSNO

PO

WERSWORK FORWORK FOR COMMISION ORCOMMISION OR

FEEFEE

PROFITPROFIT

RISKRISK

UNDERTAKEUNDERTAKE

NONO YESYES

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DOMESTICAGENTS

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The function of export broker is toThe function of export broker is to bring a buyer andbring a buyer and

seller togetherseller together..

He may beHe may be assigned some or all foreign marketsassigned some or all foreign markets inin

seeking potential buyers.seeking potential buyers.

He can negotiate the best deal for the seller (i.e.,He can negotiate the best deal for the seller (i.e.,

manufacturer) butmanufacturer) but cant conclude the transactioncant conclude the transaction withoutwithout

prior approval of the sellerprior approval of the seller..

May operate atMay operate at itsits own nameown name oror of theof the manufacturermanufacturer..

For any action performed heFor any action performed he gets fee or commisiongets fee or commision..

HeHe doesnt takedoesnt take thethe title of the goodstitle of the goods..

He hasHe has no financial resposiblitiesno financial resposiblities..

Export BrokerExport Broker

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Useful because of hisUseful because of his extensive knowledgeextensive knowledge of theof the

markets supply, demand & foreign customersmarkets supply, demand & foreign customers..

Due to thisD

ue to this -- can negotiate best terms for the seller.can negotiate best terms for the seller. Valuable associate forValuable associate forhighly specialized goods &highly specialized goods &

seasonal productsseasonal products..

IsIsu

sedb

y small manu

fac

tu

rersu

sedb

y small manu

fac

tu

rersw

ith limitedw

ith limitedfinancial resources, selling their goods in broadfinancial resources, selling their goods in broad

markets.markets.

Advantages (Export Broker)Advantages (Export Broker)

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Is aIs a independent businesspersonindependent businessperson whowho retains his or her ownretains his or her ownidentityidentity byby not using the manufactures namenot using the manufactures name..

HaveHave freedom to select when, where & how to workfreedom to select when, where & how to work within thewithin theassigned territory.assigned territory.

Like export brokers, he alsoLike export brokers, he also works for commissionworks for commission..

But, unlike export broker heBut, unlike export broker he has continuous and morehas continuous and morepermanent relationship with the manufacturerpermanent relationship with the manufacturer..

He works under contract which definesHe works under contract which defines territory, term of sale,territory, term of sale,

methods of compensationmethods of compensation & is renewable by mutual& is renewable by mutualagreement.agreement.

HeHe may take possessionmay take possession but not the title of the goodsbut not the title of the goods, thus, thusrisk of loss remains to the manufacturer.risk of loss remains to the manufacturer.

He carriesHe carries several product linesseveral product lines i.e. he may representi.e. he may representmanufacturer of related products.manufacturer of related products.

Manufacturers Export Agent

(Sales Representative)

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Manufacturer canManufacturer can avoid fixed cost associated withavoid fixed cost associated withhaving own sales & distribution organizationhaving own sales & distribution organization,,because commission is paid when sales are made.because commission is paid when sales are made.

HaveHave extensive knowledge of specific foreignextensive knowledge of specific foreignmarketmarket..

As he carries several product lines in his bag so theAs he carries several product lines in his bag so the

expense of doingbu

siness is sharedb

y otherexpense of doingbu

siness is sharedb

y othermanufacturersmanufacturers..

Allows manufacturer to capitalize his time,Allows manufacturer to capitalize his time,money, and expertise on productionmoney, and expertise on production rather thanrather than

marketing aspect.marketing aspect.

Advantages (Manufacturers Export AgentAdvantages (Manufacturers Export Agent

/ Sales Representative)/ Sales Representative)

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Manages entire export program under contract.Manages entire export program under contract.

Also known as combination export manager (CEM),Also known as combination export manager (CEM),

because it may function as export department for severalbecause it may function as export department for several

allied but nonallied but non--competing manufacturers.competing manufacturers.

In this regard those export broker & export agentswhoIn this regard those export broker & export agentswho

represent combination of clients can also be called asrepresent combination of clients can also be called as

EMCs.EMCs.

They have greater freedom and considerable authority.They have greater freedom and considerable authority.

But unlike export brokers & agents, they provide extensiveBut unlike export brokers & agents, they provide extensive

services, ranging from promotion to shipping arrangementservices, ranging from promotion to shipping arrangement

& documentation.& documentation.

ExportManagementCompanyExportManagementCompany

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Foreign buyers usually prefer to deal directly withForeign buyers usually prefer to deal directly with

the manufacturer rather than through a third party.the manufacturer rather than through a third party.

Therefore, an EMC usually solicits business in theTherefore, an EMC usually solicits business in thename of the manufacturer and may even use thename of the manufacturer and may even use the

manufacturers letterhead.manufacturers letterhead.

EMC requires at least a oneEMC requires at least a one--year contract to handleyear contract to handle

a manufactured products. More often it is three yeara manufactured products. More often it is three year

contract.contract.

They get compensated in the form of salary, orThey get compensated in the form of salary, or

commission or both.commission or both.

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Many EMC are also traders (i.e. export merchants).Many EMC are also traders (i.e. export merchants).

As they are both agents & merchants, EMC areAs they are both agents & merchants, EMC are

engaged more in sellengaged more in sell--buy method than commissionbuy method than commissionarrangement. In that case EMC takes the title of thearrangement. In that case EMC takes the title of the

good (i.e. ownership). They are compensated bygood (i.e. ownership). They are compensated by

discounts on purchased goods, & such discounts arediscounts on purchased goods, & such discounts are

many greater than what other middleman receivemany greater than what other middleman receivefor domestic market.for domestic market.

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It has international marketing expertise and distributionIt has international marketing expertise and distributioncontacts overseas.contacts overseas.

For many service provided an EMCs cost are relativelyFor many service provided an EMCs cost are relatively

low because of efficiency of scale (i.e. cost can be spreadlow because of efficiency of scale (i.e. cost can be spreadover the products of several clients.over the products of several clients.

In addition provide shipping efficiency because it canIn addition provide shipping efficiency because it canconsolidate many manufacturer product in one shipment.consolidate many manufacturer product in one shipment.

From this company can get better freight rates.From this company can get better freight rates. It also provide financial services, by guaranteeing paymentsIt also provide financial services, by guaranteeing payments

and collecting from overseas buyersand collecting from overseas buyers

It allows manufacturer to concentrate on internal effortsIt allows manufacturer to concentrate on internal efforts

and its domestic market.and its domestic market.

Advantages (EMC)Advantages (EMC)

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A cooperative exporter is manufacturerwith its own exportA cooperative exporter is manufacturerwith its own exportorganization that is retained by other manufacturer to sell inorganization that is retained by other manufacturer to sell insome or all foreign markets.some or all foreign markets.

It works like an export agent, & sometimes act as a broker.It works like an export agent, & sometimes act as a broker.

Cooperative exporters motive in representing otherCooperative exporters motive in representing othermanufacturers primary involves its financial intrest.manufacturers primary involves its financial intrest.

Having fixed cost for the marketing of its own product, theHaving fixed cost for the marketing of its own product, thecooperative exporters desires to share its expenses andcooperative exporters desires to share its expenses and

expertise.expertise. Because of these activities it is often referred as motherBecause of these activities it is often referred as mother

hen, piggyback exporterhen, piggyback exporter

Ex/ GE, Singer, BorgEx/ GE, Singer, Borg--Warner.Warner.

Cooperative exporterCooperative exporter

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Relationship b/w cooperative exporter and itsRelationship b/w cooperative exporter and its

principal is very long one.principal is very long one.

This arrangement provides easy & low

This arrangement provides easy & low

--riskw

ay forriskw

ay forthe principal to start marketing overseas &relationthe principal to start marketing overseas &relation

continues as long as unrelated & noncontinues as long as unrelated & non--competativecompetative

products are involved.products are involved.

Advantages (Cooperative Exporters)Advantages (Cooperative Exporters)

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This association is formed when two or more firms, usuallyThis association is formed when two or more firms, usually

in the same industry join together to market their productin the same industry join together to market their product

overseas.overseas.

It provides information to member firms, set prices, allocateIt provides information to member firms, set prices, allocate

orders & sell products.orders & sell products.

It arranges shipping, frieght consolidation, rate negotitationIt arranges shipping, frieght consolidation, rate negotitation

This association takes possesion of the goods but not theThis association takes possesion of the goods but not thetitle.title.

As cooperative organization it tends to work on nonAs cooperative organization it tends to work on non--profitprofit

or expenses basis.or expenses basis.

WebbWebb--Pomerene AssociationPomerene Association

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As we seen earlier , an export agent represents a seller ; theAs we seen earlier , an export agent represents a seller ; the

purchasing/buyer agent represent the foreign buyers.purchasing/buyer agent represent the foreign buyers.

They seek a product that matches his principals (i.e. buyers)They seek a product that matches his principals (i.e. buyers)

preferences & requirement.preferences & requirement.

He acts on the behalf of buyers seeking the best possibleHe acts on the behalf of buyers seeking the best possible

price.price.

Also known asAlso known as commission agent, buyer for export, exportcommission agent, buyer for export, exportcommission house, export buying agentcommission house, export buying agent..

Since the agent operates on an order basis, the relationshipSince the agent operates on an order basis, the relationship

with buyer or seller is not continuous.with buyer or seller is not continuous.

This arrangement does not offer steady bolume of businessThis arrangement does not offer steady bolume of business

Purchasing/Buying Agent

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This type of agents perform exactly the sameThis type of agents perform exactly the same

functions as the purchasing/buyer agent, the onlyfunctions as the purchasing/buyer agent, the only

difference is that this agent are actually a foreigndifference is that this agent are actually a foreign

government agency.government agency.

They are empowered to locate & purchase goods forThey are empowered to locate & purchase goods for

its country.its country.

This type of agents have permanent office in theThis type of agents have permanent office in the

suppliers country or make a formal visit when thesuppliers country or make a formal visit when the

demand arises.demand arises.

Country-Controlled Buying Agent

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This intermediary also perform the same function asThis intermediary also perform the same function as

by purchasing agentby purchasing agent

But it is usually located near highly centralizedBut it is usually located near highly centralizedproduction industries.production industries.

It is different from the P.A because it is retained byIt is different from the P.A because it is retained by

the principal on a continuous basis to maintain athe principal on a continuous basis to maintain a

search for new products that may be suitable .search for new products that may be suitable .

It also maintain continuous relationship with theIt also maintain continuous relationship with the

suppliers .suppliers .

Resident Buyer

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DOMESTICMERCHANTS

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It seeks out needs in the foreign market and purchases fromIt seeks out needs in the foreign market and purchases from

manufacturer in its own country to fill all those needs.manufacturer in its own country to fill all those needs.

Goods they generally deals are staple goods, undifferentiatedGoods they generally deals are staple goods, undifferentiated

products or unbranded products.products or unbranded products.

They resells this products in foreign markets in its own name.They resells this products in foreign markets in its own name.

It assumes all risks associated with ownershipIt assumes all risks associated with ownership

It works for profit motiveIt works for profit motive They may or may not have a steady relationship with theirThey may or may not have a steady relationship with their

suppliers.suppliers.

ExportMerchant

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Export Drop Shipper also known as desk jobber or cableExport Drop Shipper also known as desk jobber or cable

merchants is a special type ofExport Merchant.merchants is a special type ofExport Merchant.

In this case, the export drop shipper takes the order fromIn this case, the export drop shipper takes the order from

overseas in turn places the order with a manufacturer,overseas in turn places the order with a manufacturer,directing him to deliver the product directly to foreign buyer.directing him to deliver the product directly to foreign buyer.

The manufacturer collects his payments from the dropThe manufacturer collects his payments from the drop

shipper, who in turn is paid by the foreign buyer.shipper, who in turn is paid by the foreign buyer.

It is common for marketing of bulky products of low unitIt is common for marketing of bulky products of low unit

value( e.g. coal, lumber, construction materials).value( e.g. coal, lumber, construction materials).

Relationship is not continuous.Relationship is not continuous.

ExportDropShipper

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Unlike Export Merchant & Export Drop Shipper , an ExportUnlike Export Merchant & Export Drop Shipper , an ExportDistributor has a continuous relationship with theDistributor has a continuous relationship with themanufacturer.manufacturer.

Have exclusive rights to represent manufacturer & sell inHave exclusive rights to represent manufacturer & sell insome or all foreign markets.some or all foreign markets.

Located in manufacturers own countryLocated in manufacturers own country

Export distributor operates in its own name or that of theExport distributor operates in its own name or that of the

manufacturer.manufacturer. Export Distributor usually sells the manufacturers productExport Distributor usually sells the manufacturers product

abroad at manufacturer list price & gets agreed percentage asabroad at manufacturer list price & gets agreed percentage asremuneration.remuneration.

Export Distributor is either paid by commission or allowed aExport Distributor is either paid by commission or allowed a

ExportDistributor

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Sometimes those who want to buy & those who want to sell have noSometimes those who want to buy & those who want to sell have noknowledge of each other or no knowledge of how to contact each other,knowledge of each other or no knowledge of how to contact each other,Trading Companies came into existence to fill this gap.Trading Companies came into existence to fill this gap.

Trading company may buy and sell as a merchant.Trading company may buy and sell as a merchant.

Handle goods and consignments and act as a commission house forHandle goods and consignments and act as a commission house forsome buyers.some buyers.

By representing several clients it looks like an EMC except for the factBy representing several clients it looks like an EMC except for the factthat itthat it

Has more diverse product lineHas more diverse product line

Offer many more servicesOffer many more services Is larger and better financedIs larger and better financed

Takes title that is ownership to merchandiseTakes title that is ownership to merchandise

Is not exclusively restricted to engaging in export tradeIs not exclusively restricted to engaging in export trade

Goes beyond the role of an intermediatry by engaging directly inGoes beyond the role of an intermediatry by engaging directly in

production, physical distribution channel development, financing andproduction, physical distribution channel development, financing and

Trading Company

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