U.S. Small Business Administration

Taking into consideration the advantages of both approaches, most small businesses still find it simpler to export.  Once you have decided which way you want to go, the next decision is method of distribution.  Two channels are available; the indirect and the direct.

Under the indirect method, you hire a foreign sales representative who acts as your intermediary.  This company or individual is responsible for doing the actual exporting, thus you have no contact with the overseas buyer. Plus, you usually assume no responsibility for transporting the product to its destined market.

Indirect Method

The direct method, however, requires you to arrange your own overseas sales, which means you are also responsible for shipping the product.

When using the indirect method, you have a choice of channels. 

• Export merchants/brokers are usually based domestically and specialize in a particular type of product.  Because they own the merchandise, they usually control pricing and marketing policy.  They also assume the credit risks.
• Export management companies (EMCs) serve as the export department for several manufacturers of non-competing products, offering services that would not be economical for individual companies to handle on their own.

Their services include researching foreign markets, choosing overseas distributors, exhibiting your products at trade shows, handling the routine shipping details, preparing advertising and sales materials and advising on overseas patent and trademark requirements.

In choosing an EMC, you should consider the number of clients it serves and sales volume, the type of clients, the reputation and quality of its management, its financial status and its coverage of world markets.

• Trading companies combine some of the qualities of both merchants/brokers and EMCs.  Trading companies purchase merchandise outright, handle goods on consignment or act as commission agents for buyers.  Trading companies generally pay cash for their purchases and extend credit to their customers. 

You can choose from foreign trading companies such as European, Korean or Japanese or, as a result of the 1982 Export Trading Company Act, from the newly developed American trading companies established by some of the major U.S. banks and corporations.

Direct Method

Direct selling to overseas markets is more difficult and involves either direct mail, where you send catalogs, brochures or other collateral materials to foreign retailers; or selling direct to the customer via advertising and promotion in magazines with overseas circulation, local publications and other media (billboards, for example).

Sales Reps or Distributors

Or there's another route.  Many exporters prefer to sell their merchandise abroad using foreign sales representatives or distributors.  These individuals usually work on commission, assume no risk or responsibility and are under contract for a certain period of time.  The foreign distributor purchases goods at a significant discount, acquires title and then markets the products.  The sales representative, on the other hand, does not purchase goods but places orders.

Working with sales distributors or representatives has distinct advantages.  They can often provide the initial contacts you need in a foreign country; they have already established relationships with buyers of related items; and they have knowledge of the local market, which is important in any marketing effort.

* Excerpted or reprinted with permission from Small Business Success, Volume 1, produced by Pacific Bell Directory in partnership with the U.S. Small  Business Administration.