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What is Exporting?

The term export is derived from the conceptual meaning as to ship goods and services out of the port of a country. The seller of such goods and services is referred to as an “exporter” who is based in the country of export whereas the overseas-based buyer is referred to as an “importer’.

In international trade, “exports” refers to selling goods and services produced in the home country to other markets. Any good or commodity is transported from one country to another country in a legitimate fashion, typically for use in trade.

Export goods or services are provided to foreign consumers by domestic producers. The export of commercial quantities of goods normally requires the involvement of the customs authorities in both the country of export and the country of import.

The advent of small trades over the internet such as through Amazon and eBay has largely bypassed the involvement of Customs in many countries because of the low individual values of these trades.

Nonetheless, these small exports are still subject to legal restrictions applied by the country of export. An export’s counterpart is an import.

Types of Exporting

The following are two types of exporting:

1. Indirect Exporting
2. Direct Exporting

Indirect Exporting

The indirect way of exporting is almost equivalent to domestic sales. The firm sells its products in its country to another party, which takes the responsibility for actual export. This can be done by:

1. Selling to Merchant Exporter
2. Selling to Visiting

Selling to Merchant Exporter

There are many merchant exporters and or recognized export houses in India, which are willing to buy goods from Indian manufacturers and sell them abroad. Merchant exporters or export houses sell and buy on their account and thus assume the risks involved in exporting.

A merchant exporter is free to decide what he will buy, where he will buy it, and at what price. Merchant exporters are usually well-financed and maintain their branches in port towns and in important centers abroad.

They usually have a system of gathering market information and keeping a close watch on market trends. This method of exportation is useful when the company is small, and therefore, not in a position to start an export department to like export sales.

Selling to Visiting

Many big foreign companies have their resident buying representatives in India and other countries who are entrusted with the job of procurement. Some other companies regularly send buying teams for the same purpose.

The amount of business that is conducted by such buying operations is substantial. The advantage of selling in this way is similar to what had been mentioned for exporting through export houses.

Advantages of Indirect Exporting

These are the following advantages of indirect exporting:

1. It involves little time or effort because the merchant exporter takes care of all the difficulties involved and assumes all the sales and credit risks.
   
   
2. It requires less investment and the firm’s capital is not tied up.
   
   
3. It carries less risk, and the firm does not have to spend money on market research or on setting up branches abroad.
   
   
4. It makes possible the utilization of the know-how and experience of middlemen.
   
   
5. The manufacturing firm is free to concentrate on production.

Disadvantages of Indirect Exporting

These are the following disadvantages of indirect exporting:

1. For practical purposes, the manufacturer cannot be called an exporter, and he cannot claim or avail of export incentives given on a fairly liberal scale.
   
   
2. Indirect exporting provides little control over the operations of middlemen.
   
   
3. Export merchants may concentrate on the products, which offer them the greatest profit. The small manufacturer’s products may be ignored.
   
   
4. The middleman, particularly the agent on a commission basis, may not be aggressive, with the result that sales may suffer.
   
   
5. Export merchant middlemen may not be available for all the markets.

Direct Exporting

In case the firm decides not to operate through any of the intermediaries described in the earlier paragraphs and opts for direct exporting, it will have to choose most carefully between one or the other kind of export sales organization to be created.

If its export plans are ambitious and the prospects of selling in a number of markets are promising, it may make a modest start – appoint an export manager plus a clerk. Depending upon the firm’s export sales turnover, existing and potential, it may create/set up a separate export department or even a separate export company.

Direct Exporting may also be undertaken by:

Setting up a sales branch or a subsidiary sales organization in a foreign country, which may be a substitute for or a supplement to the home organization.

Appointing home-based sales representatives, who would travel abroad and book orders.

Selecting suitable distributors in a foreign country who would buy his product and sell it there, or suitable agents in that country who would sell it on a commission basis without taking any title to it.

Advantages of Direct Exporting

These are the following advantages of direct exporting:

1. The manufacturer will have better knowledge of customers’ requirements and market conditions.
   
   
2. He will have direct control over the marketing operations.
   
   
3. He can enjoy full returns on exports. His profits will be more than selling the goods through middlemen.
   
   
4. Direct exporting is the only choice for certain products and not an alternative to getting success, especially in the following cases:
   • If the product is technically unique.
     
   • If middlemen decline.
     
   • If importers want only direct export.
     
   • If costs increase because of tariffs.
     
   • If after-sales service is a must.

Disadvantages of Direct Exporting

These are the following disadvantages of indirect exporting:

1. Large financial resources are needed.
   
2. Managerial ability is essential and more staff is required.
   
3. Increased distribution cost.
   
4. More risk.
   
5. Greater initial outlay before profit begins to flow in.

Licensing

Licensing refers to the contractual agreement between two business entities in which the licensor permits the licensee to use a brand name, patent, or another proprietary right, in exchange for a fee or royalty. Licensing enables the licensor to profit from the skills, expansion capital, or another capacity of the licensee.

Licensing is often used by manufacturers to enter foreign markets in which they have no expertise. The creators of popular comic strip and movie characters often license the use of a character’s likeness to manufacturers of lunch boxes, clothing, toys, and other children’s products.

The popularity or familiarity of the character helps otherwise undistinguished products to stand out from their competitors. The licensee benefits from the name recognition and creativity of the licensor.

Licensing fees range from 5% to 25% of the wholesale price.

1. Licensing Agreement
2. Advantages of licensing

Licensing Agreement

Licensing Agreement is a written contract under which the owner of a copyright, know-how, patent, service mark, trademark, or other intellectual property, allows a licensee to use, make, or sell copies of the original.

Such agreements usually limit the scope or field of the licensee and specify whether the license is exclusive or non-exclusive and whether the licensee will pay royalties or some other consideration in exchange.

While licensing agreements are mainly used in the commercialization of technology, they are also used by franchisers to promote sales of goods and services.

Advantages of licensing

These are the following advantages of licensing:-

1. Licensing is a quick and easy entry tool with little capital investment in foreign markets.
   
   
2. Some countries offer licensing as the only means of tapping the market.
   
   
3. Licensing is also considered to be an effective tool for the life extension of products during their stage of maturity in order of their life cycle.
   
   
4. Licensing is a good alternative to start foreign production and marketing activity in a destination country that has economic inflation, shortages of skilled labour, increasing domestic and foreign governmental regulation and restrictions and severe international competition.
   
   
5. Under the licensing arrangement, periodic royalties are guaranteed, whereas shared income from investment fluctuates and remains risky.
   
   
6. A company that has a strong domestic base can benefit through a licensing arrangement to develop customized products without expensive research.
   
   
7. Licensing provides an alternative when exports are no longer profitable because of intense competition.
   
   
8. Licensing can reduce transportation costs and help promote exports in non-competitive markets.
   
   
9. One of the major advantages of licensing is the immunity over stringent political intervention such as expropriation.

FAQ Related to Exporting