Types of IntermediariesTypes of Intermediaries

INDIRECT CHANNELINDIRECT CHANNEL

Group Members Group Members Anil Khatik Anil Khatik

In Indirect channels a manufacturer does not have to In 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 the instead 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 be Although there are many intermediaries, all can be grouped under two broad categories : grouped under two broad categories :

INDIRECT CHANNELS

DomesticAgents

DomesticMerchants

Basic differences B/W the twoDOMESTIC AGENTSDOMESTIC AGENTS DOMESTIC MERCHANTSDOMESTIC MERCHANTS

TITLE OF TITLE OF THE GOODS THE GOODS

NEVERNEVER ALWAYSALWAYSPOSSESION POSSESION MAY OR MAY NOTMAY OR MAY NOT MAY OR MAY NOTMAY OR MAY NOT

REPRESENT-REPRESENT-ATIVE OF ATIVE OF

MANUFACTURERMANUFACTURER MANUFACURER’SMANUFACURER’S

PRODUCTPRODUCTDECISION DECISION MAKINGMAKING

HAVE POWERSHAVE POWERS NO POWERSNO POWERS

WORK FORWORK FOR COMMISION OR COMMISION OR FEEFEE

PROFITPROFIT

RISK RISK UNDERTAKEUNDERTAKEN N

NONO YESYES

DOMESTIC AGENTS

The function of export broker is to The function of export broker is to bring a buyer and bring a buyer and seller togetherseller together..

He may be He may be assigned some or all foreign marketsassigned some or all foreign markets in in 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) but manufacturer) but cant conclude the transactioncant conclude the transaction without without prior approval of the sellerprior approval of the seller..

May operate atMay operate at its its own nameown name oror of the of the manufacturermanufacturer.. For any action performed he For any action performed he gets fee or commisiongets fee or commision.. He He doesn’t takedoesn’t take the the title of the goodstitle of the goods.. He has He has no financial resposiblitiesno financial resposiblities..

Export BrokerExport Broker

Useful because of his Useful because of his extensive knowledgeextensive knowledge of the of the market’s supply, demand & foreign customersmarket’s supply, demand & foreign customers..

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

seasonal productsseasonal products.. Is Is used by small manufacturer’sused by small manufacturer’s with limited with limited

financial resources, selling their goods in broad financial resources, selling their goods in broad markets. markets.

Advantages (Export Broker)Advantages (Export Broker)

Is a Is a independent businesspersonindependent businessperson who who retains his or her own retains his or her own identityidentity by by not using the manufacture’s namenot using the manufacture’s name..

Have Have freedom to select when, where & how to workfreedom to select when, where & how to work within the within the assigned territory.assigned territory.

Like export brokers, he also Like export brokers, he also works for commissionworks for commission.. But, unlike export broker he But, unlike export broker he has continuous and more has continuous and more

permanent relationship with the manufacturerpermanent relationship with the manufacturer.. He works under contract which defines He works under contract which defines territory, term of sale, territory, term of sale,

methods of compensationmethods of compensation & is renewable by mutual agreement. & is renewable by mutual agreement. He He may take possessionmay take possession but not the title of the goodsbut not the title of the goods, thus , thus

risk of loss remains to the manufacturer.risk of loss remains to the manufacturer. He carries He carries several product linesseveral product lines i.e. he may represent i.e. he may represent

manufacturer of related products.manufacturer of related products.

Manufacturer’s Export Agent (Sales Representative)

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

Have Have extensive knowledge of specific foreign extensive knowledge of specific foreign marketmarket..

As he carries several product lines in his bag so the As he carries several product lines in his bag so the expense of doing business is shared by other expense of doing business is shared by other manufacturersmanufacturers..

Allows manufacturer to capitalize his time, Allows manufacturer to capitalize his time, money, and expertise on productionmoney, and expertise on production rather than rather than marketing aspect. marketing aspect.

Advantages (Manufacturer’s Export AgentAdvantages (Manufacturer’s Export Agent / Sales Representative)/ Sales Representative)

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 several because it may function as export department for several allied but non-competing manufacturers.allied but non-competing manufacturers.

In this regard those export broker & export agents who In this regard those export broker & export agents who represent combination of clients can also be called as represent combination of clients can also be called as EMC’s.EMC’s.

They have greater freedom and considerable authority.They have greater freedom and considerable authority. But unlike export brokers & agents, they provide extensive But unlike export brokers & agents, they provide extensive

services, ranging from promotion to shipping arrangement services, ranging from promotion to shipping arrangement & documentation.& documentation.

Export Management CompanyExport Management Company

Foreign buyers usually prefer to deal directly with Foreign 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 the Therefore, an EMC usually solicits business in the name of the manufacturer and may even use the name of the manufacturer and may even use the manufacturer’s letterhead.manufacturer’s letterhead.

EMC requires at least a one-year contract to handle EMC requires at least a one-year contract to handle a manufactured products. More often it is three year a manufactured products. More often it is three year contract.contract.

They get compensated in the form of salary, or They get compensated in the form of salary, or commission or both.commission or both.

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 are As they are both agents & merchants, EMC are engaged more in sell-buy method than commission engaged more in sell-buy method than commission arrangement. In that case EMC takes the title of the arrangement. In that case EMC takes the title of the good (i.e. ownership). They are compensated by good (i.e. ownership). They are compensated by discounts on purchased goods, & such discounts are discounts on purchased goods, & such discounts are many greater than what other middleman receive many greater than what other middleman receive for domestic market. for domestic market.

It has international marketing expertise and distribution It has international marketing expertise and distribution contacts overseas. contacts overseas.

For many service provided an EMC’s cost are relatively For many service provided an EMC’s cost are relatively low because of efficiency of scale (i.e. cost can be spread low because of efficiency of scale (i.e. cost can be spread over the products of several clients.over the products of several clients.

In addition provide shipping efficiency because it can In addition provide shipping efficiency because it can consolidate 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 payments It also provide financial services, by guaranteeing payments and collecting from overseas buyersand collecting from overseas buyers

It allows manufacturer to concentrate on internal efforts It allows manufacturer to concentrate on internal efforts and its domestic market.and its domestic market.

Advantages (EMC)Advantages (EMC)

A cooperative exporter is manufacturer with its own export A cooperative exporter is manufacturer with its own export organization that is retained by other manufacturer to sell in organization that is retained by other manufacturer to sell in some 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 exporter’s motive in representing other Cooperative exporter’s motive in representing other

manufacturers primary involves its financial intrest.manufacturers primary involves its financial intrest. Having fixed cost for the marketing of its own product, the Having fixed cost for the marketing of its own product, the

cooperative exporters desires to share its expenses and cooperative exporters desires to share its expenses and expertise.expertise.

Because of these activities it is often referred as “mother Because of these activities it is often referred as “mother hen”, piggyback exporter”hen”, piggyback exporter”

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

Cooperative exporterCooperative exporter

Relationship b/w cooperative exporter and its Relationship b/w cooperative exporter and its principal is very long one.principal is very long one.

This arrangement provides easy & low-risk way for This arrangement provides easy & low-risk way for the principal to start marketing overseas &relation the principal to start marketing overseas &relation continues as long as unrelated & non-competative continues as long as unrelated & non-competative products are involved.products are involved.

Advantages (Cooperative Exporters)Advantages (Cooperative Exporters)

This association is formed when two or more firms, usually This association is formed when two or more firms, usually in the same industry join together to market their product in the same industry join together to market their product overseas.overseas.

It provides information to member firms, set prices, allocate It provides information to member firms, set prices, allocate orders & sell products. orders & sell products.

It arranges shipping, frieght consolidation, rate negotitation It arranges shipping, frieght consolidation, rate negotitation This association takes possesion of the goods but not the This association takes possesion of the goods but not the

title.title. As cooperative organization it tends to work on non-profit As cooperative organization it tends to work on non-profit

or expenses basis.or expenses basis.

Webb-Pomerene AssociationWebb-Pomerene Association

As we seen earlier , an export agent represents a seller ; the As 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 principal’s (i.e. buyer’s) They seek a product that matches his principal’s (i.e. buyer’s) preferences & requirement.preferences & requirement.

He acts on the behalf of buyers seeking the best possible price.He acts on the behalf of buyers seeking the best possible price. Also known as Also known as commission agent, buyer for export, export commission agent, buyer for export, export

commission house, export buying agentcommission house, export buying agent. . Since the agent operates on an order basis, the relationship with Since the agent operates on an order basis, the relationship with

buyer or seller is not continuous.buyer or seller is not continuous. This arrangement does not offer steady bolume of business This arrangement does not offer steady bolume of business

neither reduces financial risk. neither reduces financial risk.

Purchasing/Buying Agent

This type of agents perform exactly the same functions as This type of agents perform exactly the same functions as the purchasing/buyer agent, the only difference is that this the purchasing/buyer agent, the only difference is that this agent are actually a foreign government agency.agent are actually a foreign government agency.

They are empowered to locate & purchase goods for its They are empowered to locate & purchase goods for its country.country.

This type of agents have permanent office in the suppliers This type of agents have permanent office in the suppliers country or make a formal visit when the demand arises.country or make a formal visit when the demand arises.

Country-Controlled Buying Agent

This intermediary also perform the same function as by This intermediary also perform the same function as by purchasing agent purchasing agent

But it is usually located near highly centralized production But it is usually located near highly centralized production industries.industries.

It is different from the P.A because it is retained by the It is different from the P.A because it is retained by the principal on a continuous basis to maintain a search for principal on a continuous basis to maintain a search for new products that may be suitable .new products that may be suitable .

It also maintain continuous relationship with the It also maintain continuous relationship with the suppliers .suppliers .

Resident Buyer

DOMESTIC MERCHANTS

It seeks out needs in the foreign market and purchases from It 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, undifferentiated Goods 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 motive It works for profit motive They may or may not have a steady relationship with their They may or may not have a steady relationship with their

suppliers.suppliers.

Export Merchant

Export Drop Shipper also known as desk jobber or cable Export Drop Shipper also known as desk jobber or cable merchants is a special type of Export Merchant.merchants is a special type of Export Merchant.

In this case, the export drop shipper takes the order from overseas In this case, the export drop shipper takes the order from overseas in turn places the order with a manufacturer, directing him to in turn places the order with a manufacturer, directing him to deliver the product directly to foreign buyer. deliver the product directly to foreign buyer.

The manufacturer collects his payments from the drop shipper, The manufacturer collects his payments from the drop shipper, who in turn is paid by the foreign buyer.who in turn is paid by the foreign buyer.

It is common for marketing of bulky products of low unit value( e.g. It is common for marketing of bulky products of low unit value( e.g. coal, lumber, construction materials).coal, lumber, construction materials).

Relationship is not continuous. Relationship is not continuous.

Export Drop Shipper

Unlike Export Merchant & Export Drop Shipper , an Export Unlike Export Merchant & Export Drop Shipper , an Export Distributor has a continuous relationship with the manufacturer.Distributor has a continuous relationship with the manufacturer.

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

Located in manufacturers own country Located in manufacturers own country Export distributor operates in its own name or that of the Export distributor operates in its own name or that of the

manufacturer.manufacturer. Export Distributor usually sells the manufacturer’s product abroad Export Distributor usually sells the manufacturer’s product abroad

at manufacturer list price & gets agreed percentage as at manufacturer list price & gets agreed percentage as remuneration.remuneration.

Export Distributor is either paid by commission or allowed a Export Distributor is either paid by commission or allowed a discount for its purchase. discount for its purchase.

Export Distributor

Sometimes those who want to buy & those who want to sell have no Sometimes those who want to buy & those who want to sell have no knowledge 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 for some Handle goods and consignments and act as a commission house for some

buyers.buyers. By representing several clients it looks like an EMC except for the fact that itBy representing several clients it looks like an EMC except for the fact that 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 in production, Goes beyond the role of an intermediatry by engaging directly in production,

physical distribution channel development, financing and resources physical distribution channel development, financing and resources developmentdevelopment

Trading Company