Export merchant

From CEOpedia | Management online

Export merchant describes international business model of company who buys goods from foreign (or domestic) manufactures, packages the goods and sells them under its own brand. By doing this export merchant takes all risks which stems from legal uncertainties, taxes and tariffs, customer needs, competition on the international market. This model is used by companies which have broad competencies and knowledge of international trade to exploit less knowledgeable companies which are afraid of entering international markets. Export played a very important role of United States economic expansion.

Advantages of export merchanting

Main goal of export merchanting is to exploit opportunities of foreign markets to maximize profit of company, those opportunities are in most cases impossible in domestic market. There are various options of merchanting. As example firm can focus on importing obsolete electronics gadgets like phones, TV sets, or computers from highly developed countries, and then sold abroad for higher price, since there will be higher demand for not newest electronics than in manufacturer country. Similarly, when product in domestic market begins to be saturated, and its price starts to decrease, or it is decreased enough to draw benefit from it, there is great opportunity for export merchants, manufacturers are able to keep achieving steady sales by exporting their product abroad. Also broker gets his profit, providing to benefit of both sides. Along with the increase of the deals quantities merchant gets more recognizable, improving merchant's competitiveness, and knowledge of both foreign and domestic markets.
(Alan E. Branch,2006)

Barriers of export merchanting

It's easy to trade inside European Union. There are simple procedures and taxes of intra-Community trades. The real problems starts when you trade There are wide array of barriers, developed by countries to avoid troubles provided by import-export mechanisms. It's necessary to protect domestic market of dumping, protecting specific industries, not allowing for increase of unemployment rate. Most important instruments are taxes, in destination country. Government in that country should protect market from goods much cheaper than substitutes in domestic market, government is imposing a duty, and taxes to make price between imported and local goods equal. It makes dumping almost impossible. As well duty is way to penalize other country for various expensive deals, making them not profitable to enter your country with some products, It is also response for too high taxes and tariffs applied to other sides products. There can be also more restrictive way of fighting export merchanting, one of unavoidable is applying the embargo (it mainly deals with the arms trade). Other can be requirements of some documents and different entry fees. Various standards of how the imported goods should look like, packaging, or quality specs. Miscellaneous documents such as confirmations between contractors, export formal agreements, and invoices.
(Alan E. Branch,2006)

Examples of Export merchant

  • Amazon: Amazon is a well-known e-commerce company that serves as an export merchant. Amazon is able to source goods from manufacturers in various countries and then sell them under their own brand. Amazon takes on all the risks associated with this model by taking responsibility for the legal and tax duties, customer service, and competition on the global market.
  • Alibaba: Alibaba is a Chinese e-commerce company that follows the export merchant model. They source goods from manufacturers in China and around the world and then package and sell them under their own brand. They take on all the risks associated with international trade, including legal, tax, customer service, and competition on the global market.
  • Walmart: Walmart is an American retail corporation that follows the export merchant model. They source goods from manufacturers around the world and package and sell them under their own brand. Walmart takes on all the risks associated with international trade, including legal, tax, customer service, and competition on the global market.

Limitations of Export merchant

  • Inability to control quality of the goods - Export merchants do not have control over the quality of the goods they are buying from foreign manufacturers and thus, they cannot guarantee the quality of the product they are selling.
  • Limited knowledge of foreign markets - Export merchants lack knowledge of foreign markets, which can lead to weak marketing campaigns and low sales.
  • Risk of currency fluctuation - Export merchants bear the risk of currency fluctuations in foreign markets. This can lead to unexpected losses.
  • Difficulties in finding reliable suppliers - Export merchants have to find reliable suppliers in foreign countries, which is a difficult and time-consuming task.
  • High transaction costs - Export merchants have to bear the high costs of international transactions such as shipping and taxes.
  • Legal and customs risks - Export merchants must bear the risk of legal and customs issues in different countries, which can lead to unexpected delays and losses.

Other approaches related to Export merchant

One of the other approaches related to export merchant is to act as an intermediary between the manufacturer and the international customer. In this role, an export merchant will purchase goods from the manufacturer, package them according to customer requirements, and export them to the customer. This approach allows the export merchant to capitalize on the lower costs of manufacturing in the home country while providing a higher quality product and service to the international customers.

Other approaches include:

  • Reverse importing: This approach involves purchasing products from foreign companies and reselling them in the domestic market. This approach reduces the risk of entering the international market and allows for higher profits to be generated from the sales of foreign products.
  • Franchising: Franchising allows the export merchant to establish a network of international partners who can sell the merchant's products or services. This approach allows the merchant to expand their reach without needing to invest in the international market.
  • Licensing: This approach involves granting the rights to manufacture and sell the merchant's product to a foreign licensee. This approach allows for the merchant to access the foreign market without needing to invest in production and sales.

In summary, export merchant plays an important role in international business by acting as an intermediary between manufacturers and customers, reverse importing, franchising, and licensing foreign products, services, and rights. These approaches allow the merchant to reduce risk, increase profits, and expand their reach in the international market.


Export merchant — recommended articles
Indirect exports — Free trade zone — Parallel importing — Resale price maintenance — Sole distributor — Negotiated Sale — Certificate of free sale — Barriers to exit — Cartel

References

Author: Michał Rogóż

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