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Types of Export: Direct, Indirect and Consortium

As a way of overcoming the instabilities of the domestic market, there is the possibility of a company becoming an exporter and entering the international market.

However, many companies do not have experience or do not know how to start their activities in foreign trade, needing intermediary agents in the operation that will assist or take care of some specific activities for the conclusion of the export.

In foreign trade, there are several intervening partners who specialize in each stage of the operation or who prefer to coordinate all stages from beginning to end of the process for strategic reasons.

The division of responsibilities in the operation between the actors increases the focus on each company according to its specialty, but the responsibility for the proper functioning of the operation is also shared, being necessary to study the operation in advance and define well the steps to be taken, always in the expectation of that the customer will return for more orders.

To better understand the different scenarios, here we quote and separate the three types of exports that an exporter can fit in. They are: direct, indirect and consortium exports.

What is direct export?

Direct export occurs when the manufacturer of the product to be exported is also directly responsible for the foreign trade procedures to send the goods outside the national territory.

This type of export has a verticalization of services, in which the manufacturer is responsible for the export, commercialization, price negotiation and maintenance of the brand in the international market.

How does direct export work?

The manufacture and availability of the product is the first step in defining the production and logistical costs to be offset in the price calculation and the company's profit estimate.

After that, if there is no consolidated foreign market with frequent orders, it is necessary to work on product marketing to prospect new customers.

With the incoterm and price defined with payment terms negotiated with the importer, the exporter will need to issue the shipping documents for the product exportation procedures and receive the commercialization values.

In these stages, it is possible to have the support of cargo agents and forwarding agents for international transport and customs clearance respectively.

Depending on the type of product or service exported, it will be necessary to provide after-sales service to the importer, and the exporter must comply accordingly.

Advantages and disadvantages

The maintenance of product quality stands out as a great advantage, both in its manufacture and in the logistics movement according to the necessary conditions for the exported product.

As it is solely responsible for exports, it is possible to keep the market price table stable with free definition of the price with the importer. In view of this responsibility, it must also bear all extraordinary and fixed costs for the maintenance of the operation.

It drives the company to obtain the know-how of exportation, maintaining a team of employees with the necessary experience to carry out the operation.

On the other hand, if the costs for maintaining the team exceed expectations and directly impact the cost of the operation, this can impact the price of the product and make the operation commercially unfeasible. 

What is indirect export?

Indirect export is a horizontal export system in which at least two intermediary agents are present in the operation: a manufacturer, who is responsible for supplying the product, and a commercial exporter (Trading Company), which operates the export.

In this modality, each agent is responsible for a stage of the process, from the handling of the product to the actual departure of the cargo from the country of origin. 

How does indirect export work?

The manufacturer will only be responsible for the manufacture and disposal of the product. Once ready to be exported, you must sell the goods to an exporting commercial company, which will follow up with the export procedures.

The exporting commercial company will negotiate the price with the interested importer, and may also be responsible for attracting new customers, given that they are the most interested in maintaining the business relationship with the product made available to the partnership.

The entire clearance process, contact with cargo agents and importers is carried out by the exporting commercial, which is responsible for making the export documents available and paying the logistical costs for the execution of the export.  

Advantages and disadvantages

It is a great advantage for each intermediary agent to be able to focus their know-how only to the extent that it is up to you. This cooperation provides the generation of knowledge through the sharing of services, bringing familiarity to the manufacturer about the export procedures. 

The price maintenance can be done by commercial agreements, however, since costs related to raw material and among others can be unpredictable, the exporting commercial does not have great control over the price.

As it does not need to bear the cost of maintaining a team of experienced employees with foreign trade, the manufacturer can focus its financial and strategic objectives on what it does best.

The commercial exporter, since it does not have in its scope the manufacture of the product, manages to have the opportunity to share the advice with the client and profit from the operation, stimulating sales in the market and balancing the trade balance.

What is consortium export?

In this type of modality, there is the presence of more intermediary agents in the operation. The manufacturer is not unique and consolidates merchandise in cooperation with other manufacturers to fulfill specific orders.

This occurs when the manufacturer alone does not have the capability or service level to fulfill the requested order.

How does consortium export work?

From the order placed, companies from the same territory get together in local productive arrangements to benefit and stimulate their sales.

Each company will be responsible for the manufacture and availability of the merchandise under its responsibility, in accordance with the negotiated terms.

Advantages and disadvantages

If the company does not have any experience with foreign trade, it is possible to acquire know-how through this contact, strengthening the possibilities of flexibility between the other export modalities.

This option may provide the possibility to meet larger export orders and increase negotiation power with those involved in the operation.

As there are many agents involved in the operation, the responsibility and the level of trust in suppliers need to be greater.

As there are many agents involved in the operation, the responsibility and the level of trust in suppliers need to be greater. 

There is an opportunity to promote the product in the international market. This also strengthens the product in the domestic market, as it gains the status of an internationalizable product, that is, with a proven level of quality in the foreign market.

This modality should be chosen with great caution due to the levels of dependence among those involved. 

Therefore, the ideal is to have an exporting commercial company for foreign trade consultancy. Thus, your business will be carried out with the best expectations. Count on us whenever you need, we are available to talk about your projects.

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