Gone are the days when “selling internationally” meant brick and mortar companies packaging up and shipping their physical widgets across borders. Increasingly, what we are seeing is that there is another contender on the international playing field: the indirect exporter.
Interestingly enough, most companies don’t realize that when they’re serving as an integral part of a domestic supply chain, where goods or services are destined for export, they’re exporting…indirectly. By understanding whether your company is a direct or indirect exporter, you can use the tips and examples below to help guide your own journey to global growth.
What is direct exporting?
To better understand what it means to be an indirect exporter, it helps to first understand what a direct exporter is. As markets become increasingly intertwined, the undertaking of exporting is no walk in the park. Often, direct exporters sell directly to a consumer (B2C), a business (B2B), or to a distributor in a foreign country. More than 48,000 Canadian companies, most of them small businesses, exported goods directly in 2017 with a total value of $484 billion.
Whether selling B2C or B2B, direct exporters may be faced with challenges as they expand their operations abroad. Business activities that direct exporters have to grapple with and overcome include identifying a market to penetrate, finding customers, navigating foreign market regulations, dealing with customs, understanding tax implications, conducting due diligence, managing foreign exchange risk, delivering goods, protecting intellectual property (IP)—just to name a few! If not managed methodically and diligently, these risks could detrimentally impact their business and endeavors to grow.
Imprimerie Gauvin, a Gatineau-based company, has been in the business of commercial printing since 1892 and shipped their first international order to the United States in 2010. Since then, they’ve increased production capacity with new digital presses, as well as adding a print-on-demand service and an interface designed for book publishers called the GoLibroTM. Expanding beyond Canadian borders through direct exporting has helped Imprimerie Gauvin remain relevant in their industry and continue their legacy of success.
Finding international distributors
Fortunately, there are plenty of resources to help direct exporters make a smooth transition into new markets. One is EDC’s free download, Finding and Keeping International Customers, which discusses how to find partners and why selling internationally is a winning strategy.
Working with intermediaries such as distributors can be a beneficial way for a Canadian company to facilitate their entry into a new international market. Using a distributor’s insight and existing network, as well as their knowledge of the regulations and market requirements can give your products a quick and efficient path into a new market.
Tornado Spectral Systems, a Toronto-based chemical analysis and measurement company, knew that their target industries were located mostly outside of Canada, so they decided to pursue international opportunities. Today, they sell to key global markets within Europe, the Middle East, Asia, and the United States. In Japan, they identified their best route to success was using distributors who sell their products on their behalf to manufacturers and R&D groups. Read more about their success story.
To learn more about selling to distributors, check out Finding, Training and Managing International Agents and Distributors, which provides guidance on how to target potential partners abroad.
Indirect exporting, or how to become a key component of a Canadian supply chain
Now, with this better understanding of what direct exporting is, we can move on to explain indirect exporting. Typically, indirect exporting involves a Canadian company that sells to another Canadian company that, in turn, incorporates those products or services into their own value chain for export. Alternatively, indirect exporting can also involve a Canadian company selling domestically to a larger company, which then exports the goods internationally, such as an export house or a trading house (see below for more on these).
It’s important to understand that the most significant success factor will be your ability to build your network and integrate into a strong supply chain—or better yet, several! Some benefits of being in an international supply chain include:
- You can control how your product or service is positioned to your customer, maintaining a consistent brand.
- Your products can still reach international waters, without the international risk.
- Your profit margins may be better protected than when dealing with an intermediary or distributor directly.
- Companies with significant domestic success in Canadian supply chains are often better positioned for success if they decide to export directly into international supply chains.
When looking to integrate your company into a larger supply chain, try to identify the key industry players who would find your solution most attractive. Your solution could, for example, benefit their end user by reducing their operational costs, enabling efficiencies, increasing their top line revenues, or giving them an advantage over their direct competitors. In Canada, the major supply chains may include oil and gas, timber, mining and extraction, agriculture and fishing, as well as the automotive industry. Check out EDC’s guide on How to qualify as a preferred vendor, which covers steps to help you select, approach, and impress the partners that are right for your business.
To illustrate: Calgary-based Advanced Safety Paramedics specializes in providing worksite safety solutions. Their operations department oversees industrial safety solutions in many different types of environments all over Western Canada, and they found particular success in the construction and the oil and gas drilling sectors. That success and their track record for performance has enabled them to build solid business relationships and a strong industry reputation—both key factors in helping them prepare for their recent expansion in the U.S. market and beyond.
Working with an export house or trader
Working with an export house or with a trader is another option for Canadian companies that want to expand the markets for their products, but don’t have resources or time to export directly. Here’s why:
- You don’t necessarily have to endure additional operating costs associated with foreign market entry.
- You don’t necessarily need to spend resources investigating buyers and conducting due diligence.
- You can stick to what you know and be an expert in the field you know best.
- You can potentially increase your gross revenue by moving product through an intermediary who is deeply connected in the international marketplace.
In Canada, using a trader or export house to export your goods is particularly prevalent in the agri-food industry. One way to find a trader or export house is to refer to industry associations. Industry and trade associations often have access to lists of companies through their members' directory, companies that can become your potential partners in the target market. For example, companies selling crops, grains, or pulses can consult the Canadian Special Crops Association—they have a Member/Partner Search that can allow you to filter for partners.
As an example, Surrey-based Adroit Overseas Enterprises Limited is an agro-commodities processor and exporter who sources grains, pulses, oil seeds, and feed in Canada and exports their products worldwide. Canadian companies can leverage Adroit as a channel for for exporting or as an international sales arm while maintaining their focus on their business. Adroit is also one of the partners you can find in Canadian Special Crops Association’s member tool.
While there are many benefits of working with an export house or trader, the following are some considerations to keep in mind:
- It can have an impact profit margin, as profits may be shared with the export house or trader.
- Focusing exclusively on one trading house may create a higher concentration of risk for your own accounts receivable.
- You may have less control over how your product is positioned internationally, as the trader could decide this for you.
Let’s keep in touch: EDC’s export advisors are here to help
Like many exporters, both direct and indirect, there will come a time when you need answers about clearing customs, choosing an international market, navigating tax requirements, conducting due diligence, or other export-related questions. Not to worry! We have a team of export advisors who can help you quickly and easily find the answers to your export questions, and at no cost. They can also point you in the right direction by providing targeted advice for your needs, no matter how specialized they might be. We can refer you to resources and guides that will provide depth to your research, plus referrals to partners in the trade ecosystem, both public and private. So let’s stay in touch!