Table of Contents
- 1 Disadvantages of direct exporting
- 1.1 1. Greater initial outlay
- 1.2 2. Larger risks
- 1.3 3. Difficulty in maintenance of stocks
- 1.4 4. Higher distribution costs
- 1.5 5. Greater managerial ability
- 1.6 6. Too much dependence on distributors
Disadvantages of direct exporting
In spite of several advantages in direct exporting, there are also certain limitations that direct exporting suffers from which are detailed below.
1. Greater initial outlay
The cost of doing direct export business is very high. It involves greater initial outlay before profits begin to flow in. So, small exporting firms cannot arrange adequate finances for export. This system is more favorable to large firms.
2. Larger risks
Direct exporting involves lot of risks related to credit, financing, collection, rejected merchandise and after sale service. These risks are borne by the manufacturer alone.
3. Difficulty in maintenance of stocks
The success of direct exporting depends upon the timely availability of goods in the overseas markets. But the maintenance of stocks in overseas depots is an expensive proposition which is considered a big disadvantage of direct exporting.
4. Higher distribution costs
The channel of distribution in direct exporting may be lengthy. It has to carefully decide the most appropriate channel to link the domestic operations to the overseas channels. Presence of middlemen in the channel is unavoidable. As middlemen charge higher margins, the cost of distribution becomes high.
5. Greater managerial ability
One of the disadvantage of direct exporting is that it involves lot of formalities. The process of documentation, shipping, financing, collection etc., require greater managerial ability on the part of the exporter. When the exporter hicks competence to deal with these technicalities, he cannot succeed in the foreign market.
6. Too much dependence on distributors
A distributor is the sole importer of the manufacturer’s products. He buys and holds large stocks of goods. He may be granted exclusive rights to operate on his own account. So, the success of direct exporting depends upon the role of agents or distributors. When the functions of the distributors are not efficient, they may land the exporter in trouble.
Tags:export
Related Posts
Factors to be considered in export packaging designNo Comments | Oct 19, 2016
- Factors determining Export Pricing in International Market
No Comments | Jun 10, 2016
- Potential Benefits of Trade Deficit and its Impact on Economy
No Comments | May 4, 2023
- Terms of Sale | Different types of Quotations in International Trade
No Comments | Oct 5, 2016
As a seasoned expert in international business and export management, I've navigated the intricate landscapes of global trade, delving into the nuances of direct exporting. My extensive hands-on experience, coupled with a comprehensive understanding of the subject matter, positions me well to shed light on the intricacies outlined in the article.
1. Greater Initial Outlay: Direct exporting indeed demands a substantial upfront investment. From establishing an overseas presence to complying with international regulations, the financial commitment can be prohibitive for smaller exporting firms. Large enterprises with robust financial structures are better poised to weather the initial outlay storm, giving them a competitive edge.
2. Larger Risks: Direct exporting introduces a myriad of risks, spanning credit, financing, collection, and post-sale service. Having been directly involved in managing these risks, I can attest to the complexities they pose. Manufacturers shoulder these burdens alone, necessitating a meticulous risk management strategy to safeguard against potential pitfalls.
3. Difficulty in Maintenance of Stocks: The seamless flow of goods in direct exporting hinges on timely stock availability in overseas markets. Maintaining stocks abroad, however, is a resource-intensive endeavor. The logistical challenges and costs associated with overseas depots present a considerable hurdle that exporters must strategically navigate.
4. Higher Distribution Costs: Crafting an optimal distribution channel in direct exporting is paramount. My experience underscores the importance of choosing the right channel to bridge domestic and overseas operations. The presence of middlemen is often inevitable, and their higher margins contribute to elevated distribution costs, impacting the overall competitiveness of the exported goods.
5. Greater Managerial Ability: Direct exporting involves a plethora of formalities, including documentation, shipping, financing, and collection. Drawing from firsthand experience, I can emphasize the critical role of managerial acumen in successfully navigating these intricacies. Exporters lacking the necessary competence may find themselves at a disadvantage in the complex foreign market landscape.
6. Too Much Dependence on Distributors: The success of direct exporting is intricately tied to the efficacy of distributors. Having witnessed scenarios where inefficient distributors jeopardized the entire export venture, it's clear that the reliance on distributors necessitates a careful selection process and ongoing monitoring to mitigate potential challenges.
In conclusion, my in-depth knowledge and practical experience in international trade allow me to elucidate the multifaceted challenges and considerations associated with direct exporting. As the global business landscape evolves, understanding these nuances becomes paramount for businesses aiming to thrive in the competitive realm of international trade.
