The different indirect exporting options
We have said that indirect exporting is when you sell your products to local companies in South Africa as though they were local salesl; you are paid in rands and the sale, yet your products still end up crossing the border and being sold in other countries. There are several different indirect exporting options available to you. These are:
- Foreign buying offices located in the local market – Large international retailing organisations such as Walmart, Sears, Sainsburys, Carrefour and others may establish buying offices in various countries that they consider to be major sources of supply (such as the US, China, India, etc.). These buying offices then approach local firms to buy goods from them. For the local supplier, it is just another local sale. The buying office pays in rands and takes all the responsibility of distributing the product to their home base, wherever it may be. Occasionally, large industrial firms may also establish buying offices in countries that represent major suopplier to the firm. Are there many such buying offices in South Africa? The answer is no. Besides for an industry such as the fruit industry, South African is not such a major international supplier to warrant these retailers establishing buying offices in the country.
- International trading company (ITC, also called an international trading house (ITH)) – There are a number of companies around the world that specialising in buying and selling products internationally. They often establish branches in several countries around the world and each branch operates as a separate business unit buying from the local market and selling through its branches into other foreign markets and visa versa. The Japanese are well-known international traders and examples of Japanes companies active in South Africa include Mitsui and Itochu. Another (non-Japanese) example is the Gerber Goldschmidt Group, but there are many others. These trading companies may go beyond just buying and selling and may begin to become involved in operations by buying a stake in local companies or entering into joint ventures. Sometimes these operations may be referred to as export trading houses (ETH) or export trading companies (ETC), but there is a subtle difference. An ETC/ETH is a local company that buys and sells international for its own account, while an ITC is a overseas company with office or branch in the local market, that buys and sells goods internationally.
- Multinational purchases – South Africa has a few local companies that have grown to become major multinational (even global) firms. Companies such as Bell Equipment Co., Altron, Barlows and SABMiller are such examples. Also, there are global companies with operations in South Africa – consider BMW, Ford, Toyota, etc. It is quite common for these companies to buy raw materials and components from local suppliers and to use these inputs in their respective manufacturing processes. As these companies export their products around the world, so any component that you may have supplied them also finds its way overseas. Yet, for your company, it remains a local sale.
- Tourist purchases – Foreign travellers visiting South Africa are major consumers of certain products (curios, wines, fruits, clothing, gifts, etc.) that they take back home with them. Agin, for your company, such as purchase is nothing more than a local sale.
- Piggyback exporting – There may be export or multinational firms that sell their goods internationally and that have built up a comprehensive marketing network abroad. In order to maximise the power of these networks, these companies may seek complementary products to their existing range of products which they can then also sell through their networks to their foreign customer base. Consider Bell Equipment Co. that sells heavy earth-moving and forestry equipment into Europe. They could decide to take on additional industrial equipment (such as heavy-duty jackhammers or chainsaws) that they don’t manufacture but that complements their existing range of products, and then sell these products to their European customers through their European sales network. Often the companies that provide the piggybacking service (called the carriers) take responsibility for the marketing and distribution themselves and simply buy the products from the local supplier (known as the ‘rider’) as with a normal domestic purchase. For the supplier, it is just another local sale. In other instances, the rider and carrier may work toegther and share the cost and responsibility, perhaps with the rider paying a commission to the carrier for use of their network. In this latter instance, this is not considered a form indirect marketing, but is instead a type of direct exporting.
- Export management companies – EMCs are common in the US, but are unknown in South Africa. Usually, an EMC manages exports for another company. If the EMC takes full control and responsibility of the exports (including payments) for a management fee but with minimal invovlement on the part of the manufacturer, then this could be considered an indirect form of exporting. If, however, the EMC manages the export activities of a manufacturer with their involvement and cooperation and if the manufacturer receives payment from the overseas buyer, then this is a form of direct export which the manufacturer is simply using the EMC to provide a service.
- Export agents – Export agents are similar in function to EMCs and while EMCs are not common in SA, export agents are. Whereas EMCs normally take full control over a manufacturer’s exports, an agent provides a market and administrative function for a fee or commission. In most instances where export agents are involved, the manufacturer (the principle) still receives payment direct from the foreign buyer and as such this form of market entry is considered a direct market-entry method. If the export agent also handles the payment, then perhaps it could be considered an indirect form of exporting. In this latter case, there is little difference between the EMC and the export agent. Generally, however, using an export agent is not considered an indirect form of exporting (and should instead be discussed as part of the direct market-entry options).