Market Entry Strategies - How to

Export (Modes of Overseas Selling)

A
Presentation
By
Dr. Pawan K. Chugan
Institute of Management
Nirma University
Ahmedabad
 Modes of Overseas Selling
Methods of Overseas Selling
Basically there are two methods of overseas selling

Direct and Indirect.

For direct exporting, the firm makes its own

arrangements either within the existing
selling apparatus or by setting up a separate
and different department/ company to
handle export transactions. Here, the
responsibility for performing international
selling rests on the producers themselves. 2
 Modes of Overseas Selling

Indirect

In case of indirect exporting, the firm sells

through an intermediary like Merchant-
Exporters, Export Houses, Export
Consortia/ Marketing Groups and Trading
Corporations – central and state.
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 Modes of Overseas Selling
Thus, when a manufacturer, exports indirectly, he
transfers the responsibility for the selling job to
some other organization and utilizes the services
of independent international marketing
middlemen or co-operative organizations.

This method is more popular with the firms just

beginning their exporting activities and those
whose export business is not considerable.

Here, the firm does not have to build up an overseas

marketing infrastructure and the risk involved is
also less. 4
 Modes of Overseas Selling

Choice between the two methods of

selling depends upon considerations
such as:
• Amount of money and effort one wants to
put in.
• It may, sometimes, be obligatory to operate
through agencies like State Trading
Corporations (for instance canalized items).
• There may also be cases where
simultaneously both methods are employed.
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 Modes of Overseas Selling
Indirect Exporting
Because of complexities of export operations and till such
time one gets equipped, it might be worthwhile to operate
through one or more the following types of intermediaries:
• Merchant Exporters
• Status Holders such as - Export Houses, Trading Houses,
Star Trading Houses and Super Star Trading Houses
(Renamed subsequently as one star, two star, three star,
four star and five star export houses, further renamed as
shown on slide no 14).
(See slide no. 13 for latest definition of status holders)

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 Modes of Overseas Selling
• State Trading Enterprises
• State Corporations
• Export Marketing Groups, Co-operative
organizations or Export Consortia
• Agents
Merchant Exporters
There are several merchandising houses as
distinct from Registered Export/Trading
Houses specializing in export of different
product groups mostly operating in
metropolitan cities and in major trading and
industrial centers. 7
 Modes of Overseas Selling

They usually make an outright purchase

of the product and sell under
manufacturers label or even some
times also put their own labels as
agreed between the parties.

Advantages and Disadvantages of

exporting through Merchant Exporters
are as follows:
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 Modes of Overseas Selling
Advantages
• Merchant assumes all the sales and credit risk.
• No expenses on setting up an export organisation,
training and selecting agents abroad.
• Good way of finding demand for the products i. e.
test marketing in foreign markets
• MEs are invaluable for selling to distant and
difficult markets, where know-how is all that
important.
• For ‘package markets’ the ME can combine
several shipments from various firms into one and,
thereby, improving the chances of selling.
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 Modes of Overseas Selling
• Manufacture is free to concentrate on production
and for packing, etc. and he merely has to follows
the ME’s instructions.
• Merchant-exporter has its own sales organizations
in various countries and system for gathering
marketing information to assure continued
marketing prospects.
• The benefit available under various export
promotion scheme may continued to be enjoyed by
the manufacture.

10
 Modes of Overseas Selling
Disadvantages
• No direct contact with foreign buyer.
• No goodwill of its own as product is sold under
merchant’s label and brand.
• The net return of sales is lower as Merchant too
has to make profit .
• Product might be less competitive due to addition
of merchant’s profit and mark up and may not
create long term market.
• No national honors and prestige that direct
exporters are entitled to. 11
 Modes of Overseas Selling
Status Holders such as :
Export Houses/ Trading Houses/ Star Trading Houses/ Super
Star Trading Houses
Now renamed as one to Five Star Export Houses

Merchandising and manufacturing companies fulfilling

certain criteria are registered by the Government of India
for:
• Strengthening their negotiation capacity for sales abroad,
• Building up more enduring relationship between them
and their supporting manufacturers,

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 Modes of Overseas Selling
Export Houses/ Trading Houses/ Star Trading Houses/ Super
Star Trading Houses
One to Five Star Export Houses
Now

US $ Million

Export House (One Star Export House) 3

Star Export House (Two Star Export House) 25
Trading House (Three Star Export House) 100
Star Trading House (Four Star Export House) 500
Premium Trading House (Five Star Export House) 2000

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 Modes of Overseas Selling
• Enabling them to keep their manufacturers of
export product supplied with imported raw
materials from ready stocks, and
• To develop cooperative relations with their
counterparts in overseas markets.
The list of Registered Export/Trading Houses
also known as status holders, can be
obtained from the Federation of Indian
Export Organisations (FIEO)
Advantages and Disadvantages for exporting
through them are as follows:
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 Modes of Overseas Selling
The advantages and disadvantages of
operating through status holders are, by
and large, similar to those of merchant
exporters. There are, however, some
additional benefits available to
manufacturers by exporting through these
status holders. These are:
Advantages
• Availability of imported raw materials in advance,
as EHs/THs may be maintaining stocks due to
policy of grant of additional import authorizations
to them.
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 Modes of Overseas Selling
• Benefit of import replenishment authorisations
as the manufacture can continue to utilize the
benefit of import replenishment authorisations as
EHs/THs may nominate him being their
supporting manufacturer.
• Many of EHs/THs are very well organised and
provide technical guidance for manufacturing the
product.
• On account of their large scale organisation, they
are in better position than MEs to collect
marketing information resulting greater business
turnover. 16
 Modes of Overseas Selling

• Better after sales service products

requiring after sales service should better
be routed through large EHs/THs having
foreign offices. After sales service is a costly
affair which is, by and large, beyond the
scope of MEs and small manufacturers
themselves.

17
 Modes of Overseas Selling
Export Marketing Groups, Co-operative
Organizations and Export Consortia
The co-operative exporting organization, which
represents a cross between indirect and direct
export, carries on exporting activities on behalf of
several producers, and is partly under the
administrative control of the manufacturers.
There are two distinct types of co-operative
international marketing organizations:
• Piggyback marketing: and
• Exporting combinations
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 Modes of Overseas Selling
Piggyback marketing:
These are also know as “Mother-henning or allied
company arrangement”, where one manufacturer
uses its overseas distribution facilities to sell the
products of one or more other company /
companies.

Exporting combination:
It is more or less a formal association of independent
and competitive business firms which are
organized for the purpose of export marketing for
the mutual benefit.
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 Modes of Overseas Selling
Export Consortia
An export consortium is a voluntary alliance
of firms with the objective of promoting the
goods and services of its members abroad
and facilitating the export of these products
through joint actions.

Members of a consortium realize that

cooperation must prevail over competition
in order to access key markets and the latest
technology.
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 Modes of Overseas Selling
SMEs often have considerable difficulties to
enter foreign markets. Export consortia not
only assist their members to achieve an
export presence, but can also entail
significant additional benefits.

Case Analysis
Consortia in the Machine Tool Cluster of
Bangalore

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 Modes of Overseas Selling
Direct Exporting
It refers to the sale in the foreign markets
directly by the manufacturer.The
manufacturer may sell directly to a foreign
customer or through a middleman located
in the overseas market. In both the cases
exports is direct.
Firms with considerable export business
usually resort to direct exporting.
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 Modes of Overseas Selling
The investment and risk involved in direct exporting are
great, but so are the potential gains.

So, in case a firm decides not to operate through any of the

middleman/intermediaries (located in his own country) as
described above, it may opt for direct exporting.

Normally, these firms have ambitious export plans and

prospects for selling their products to a number of
promising markets.

Thus, these firms need a more elaborate set up or

organizational arrangements pertaining to direct exporting
such as: 23
 Modes of Overseas Selling
Direct Exporting
Without Overseas With Overseas
Production Production

Built in export section or cell

Separate export import department

Export Company

Establishing an overseas sales

branch or subsidiary
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 Modes of Overseas Selling
Built in export section or cell
This is a kind of added responsibility to
existing sales personnel. The firms wishing
to export just give the added responsibility
to existing marketing manager to handle the
exports along with the domestic market.
The arrangements are very simple and are
applicable to small firms dealing one or two
markets or buyers for specific products.
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 Modes of Overseas Selling
Separate export import department
Here, a firm has to create or set up a separate Export
department which also looks after the requirement of
import inputs if used in export production. This
department is usually put under the overall supervision of
the head of firms such as the Proprietor, MD, Chairman,
etc. and is normally headed by the President / Vice
President International Trade/ Business / Exports or Sr.
Manager / Manager Exports/Intl Marketing, etc. He is
assisted by the export/import executives or assistants and
other supportive staff.

The expenses incurred on the export department are

directly charged to exports which is not the case of
built in export sections/cells, where responsibility
of export is given to the existing sales personnel. 26
 Modes of Overseas Selling
Export Company :
Depending upon the expansion in international
trade and export turnover the firm may now
decide to establish a separate export or trading
company such as the Export House or Trading
House, which may deal not only with its own
products but the products of other manufactures
as well and also avail of the benefits available to
such status holders. Most of these companies buy
the products of its parent units and subsequently
pay them on the same lines as to any other local
manufacturers. Thus, for all accounting purposes
they are separate form the parent units.
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 Modes of Overseas Selling
In case a firm decides to overseas selling with
overseas production, it may opt the following
modes:
• Licensing
• Franchising
• Contract Manufacturing
• Management Contracting
• Manufacturing Establishments
• Assembly Operation Units
• Joint Ventures, etc.
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Modes of Overseas Selling

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 Modes of Overseas Selling
One to Five Star Export Houses

US $ Million

One Star Export House) 3

Two Star Export House) 25
Three Star Export House) 100
Four Star Export House) 500
Five Star Export House) 2000 30
 Status Category
Applicant shall be categorized depending upon his
total FOB (FOR for deemed exports)
performance during the current and previous
two financial years (taken together) upon
exceeding limit as given above.

Merchant as well as Manufacturer Exporter,

Service Providers, EOUs and Units located in
SEZs, Agri Export Zones (AEZs), Electronic
Hardware Technology Parks (EHTPs), Software
Technology Parks (STPs) and Bio-Technology
Parks (BTPs) shall be eligible for status.
31
 Privileges to Status Holders
• Authorization and Customs clearances for both imports
and exports on self declaration basis
• Fixation of input output norms on priority within 60
days
• Exemption from compulsory negotiation of documents
through banks. Remittances / Receipts, however, would
be received through banking channels.
• 100% retention of foreign exchange in EEFC account.
• Enhancement in normal repatriation period from 180
days to 360 days.
• Exemption from furnishing BG in schemes under FTP
• Two Star and above Export Houses shall be permitted
to establish Export Warehouses, as per DoR guidelines.

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 Privileges to Status Holders
• The status holders would be entitled to preferential
treatment and priority in handling of their
consignments by the concerned agencies

• Manufacturers who are also status holders (Three

Star/Four Star/Five Star) will be enabled to self-
certify their manufactured goods as originating
from India with a view to qualify for preferential
treatment under different preferential trading
agreements (PTA), Free Trade Agreements
(FTAs), Comprehensive Economic Cooperation
Agreements (CECA) and Comprehensive
Economic Partnership Agreements (CEPA).
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 Modes of Overseas Selling
• Manufacturer exporters who are also Status Holders
shall be eligible to self-certify their goods as
originating from India as per para 2.108 (d) of Hand
Book of Procedures.

• Status holders shall be entitled to export freely

exportable items on free of cost basis for export
promotion subject to an annual limit of Rs 10 lakh or
2% of average annual export realization during
preceding three licencing years whichever is higher.

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Modes of Overseas Selling

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 Modes of Overseas Selling
State Trading Enterprises
Government and other State Trading Enterprises
like the State Trading Corporation (STC) and its
subsidiary Project and Equipment Corporation
(PEC), Minerals and Metal Trading Corporation
(MMTC) besides exporting specialized canalized
items also undertake overseas selling of other
products.
Since, many of these agencies are also registered as
Export Houses/Trading Houses, the
advantages/disadvantage of exporting through
them are more or less are same as have been
stated above.
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 Modes of Overseas Selling
State Corporations
In some states, separate agencies like Gujarat
Export Corporation, U.P. Export
Corporation, etc. have been established
while in other places, States Small industries
Corporation have been simultaneously
entrusted with development of export as
well. These state corporations are entrusted
with the work of export promotion and
marketing particularly for those items
manufactured in the small scale sector. 37
 Modes of Overseas Selling
These Corporations, by and large, follow the
pattern of STC in all matters connected with
exports, i.e. in relation to enrolment of
manufacturers as their Business Associates (BA)
and providing facilities etc.

Some of them have also entered into agreements

with STC, etc. for taking advantage of the
expertise gained and contacts established by the
latter in regard to marketing of Indian products
abroad.
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 Modes of Overseas Selling
General Terms and Conditions
• Exports on Corporation’s Account Export of
all products will be affected ‘on account’ of the
Corporation. The invoices and relative bill of
lading shall contain a reference to the name of the
Corporation.
• Copies of export order shall be endorsed to
the corporation.
• Indication in the Proforma Invoice that
exports shall be ‘on account’ Corporation.
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 Modes of Overseas Selling

• EH/TH registration benefits to Corporation

Exports affected ‘on account’ Corporation shall

be to the entire benefit of the Corporation for
the purpose of registration as an ‘Export
House/Trading House’. The Business
Associates (BA) shall not apply for such
registration on the basis of exports made ‘on
account’ Corporation.
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 Modes of Overseas Selling

Facilities and Incentives

• Incentives Available to Business Associates
All incentives whatsoever admissible on
exports of items shall be enjoyed by the
Business Associates (BAs). The corporation
shall issue ‘No Objection’ certificate to the
Associate as soon as the goods are shipped and
bills negotiated to that affect that it has no
claim on these incentives.
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 Modes of Overseas Selling
• Corporation's Assistance to avail incentives
The corporation will assist the
Associates in getting incentives from
various sources but it is not responsible if
any claim is rejected.
Quality and Standards
• Business Associates (BAs) shall export the
best quality products and be responsible for
any claim made by the foreign buyer for
defective quality or late delivery.
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 Modes of Overseas Selling

• Right to Check The corporation

shall have the right to check quality,
standards and packing, etc. of all the goods
exported on its account.
• The inspection of goods by the Corporation
shall not absolve the Business
Associates from any claim whatsoever made
by the foreign buyers.

43
 Modes of Overseas Selling

Termination
• Either party may terminate the agreement
as to the future business by giving three
months notice to other party.
• Any dispute or difference arising between
the parties shall be referred to sole
arbitrator (Director of Industries or his
nominee in case of Punjab)
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 Modes of Overseas Selling

Agents
The basic distinction between the merchant and the
agent is that the merchant takes title to the
product he sell, while the agent does not.
Unlike the merchant middleman, the agent does not
take the title to the goods: he simply seeks
overseas buyers for a commission. In this case
manufacturer assumes all the financial risks.
There are different types of agent middlemen in
international marketing field such as:
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 Modes of Overseas Selling
• Export commission houses or
• Importers’ buying agents
These are the representatives of foreign buyers
residing in the exporter’s home country. They are
also called as buying agents.
• Brokers – Their chief function is to bring the
buyer and seller together, for which they are paid
commission.
• Manufacturer’s export agents, who represents
several exporters whose interests are non-
competing, and who offer selling and other
services. 46
 Modes of Overseas Selling
Overseas Production
A company may decide to establish the production
facilities, assembly lines, joint ventures, licensing,
similar activities in foreign countries to sell its
products because of number of factors such as:
• To overcome the customs barriers, tariff or non-
tariff, erected by a foreign country.
• To avail of the benefits given by the import
country for speeding up her industrialization.
• To overcome the foreign exchange policy of
conserving the hard currencies in import country.
• To get the advantages of lower cost of production
in importing countries. 47
 Modes of Overseas Selling
• To avail of the advantages of local raw materials,
natural resources, cheap labour or any other
resources and technology.
• To make possible savings on international
transport cost, resulting in product
competitiveness.
• To manufacture the product in local climate of
import country as to give it regional flavor, taste,
etc. as per the requirement of local consumers.
• Part of goods produced in one country may also be
marketed in many other countries, preferably in
the region and sometimes may even be brought
into the firms own country for local consumption.
• To get the advantage of Free Trade Areas (FTAs) 48