A channel that leaves stock, payment or after-sales support with nobody costs the shipment once the goods are packed. Small manufacturers build international sales channels by assigning, in each market, who finds the buyer, who owns the goods, who collects payment and who supports the product, then using direct sales, an agent, a distributor, a trading house, a fulfilment house, or a larger customer’s exports to cover that assignment. Duty rates, price lists and transit times belong in the contract and the forwarder’s quote.
Assign those four jobs before comparing channels. Direct sales keep them at the factory, and the U.S. International Trade Administration (ITA) says that takes a significant commitment of management time. In UK guidance, a commission agent sells on the manufacturer’s behalf, holds no stock, and leaves fulfilment and after-sales with the manufacturer. A distributor buys, stocks and resells, and often provides local service. A trading house may buy outright or sell on commission. A fulfilment house only stores and dispatches. Supplying a larger exporter is a domestic sale whose goods can still leave the country inside that customer’s shipment. Use the route that covers the jobs the factory cannot do in that market.
| Channel | Typical split of the work | Why it matters |
|---|---|---|
| Direct sale | The manufacturer sells to the foreign customer and runs the export | ITA: significant management time. Canada’s Trade Commissioner Service (TCS) lists a higher return than through an agent or distributor, and scope to set lower prices. Neither source gives a percentage. |
| Commission agent | Finds the buyer for a commission. Holds no stock. The sale is with the end user | UK: promotions, fulfilment and after-sales usually stay with the manufacturer |
| Distributor | Buys, usually in bulk at a discount, holds local stock, resells | UK: may expect discounts and credit, and the factory loses direct contact with end customers. TCS: often sets the resale price, finances buyers, and handles warranty |
| Trading house, EMC or ETC | Domestic firm that finds buyers, ships and collects payment | ITA. TCS: some buy outright, others sell on commission |
| Fulfilment house | Stores the goods and dispatches orders | UK: sales, marketing and after-sales stay with the seller. Aimed at direct or marketplace sales to the end customer |
| Supplying an exporter | The factory’s customer exports the goods | OECD (2019), using 2014 data: counting only a small firm’s own export invoices understates foreign-market participation |
What each channel fails at
The routes differ in who signs with the end customer, who owns the goods, and who is left holding a failed job.
Direct sales. ITA says the producer handles the export and deals with the buyer. A website that takes payment can be a direct export. The same page says cash-in-advance has no credit risk for the seller and is the least attractive option for the buyer, so a factory that offers only that term can lose the order to a competitor with other terms.
Commission agents. UK guidance: the agent sets up the sale, earns commission, and holds none of the stock. Transactions are between the business and the end user. TCS says an agent secures orders for a commission, and that agents and representatives may be authorised to sign sales contracts. ITA says that in some countries the word “agent” implies power of attorney, so the contract has to say whether the representative can bind the firm.
Distributors. UK guidance: they buy, usually in bulk at a discount, hold stock, and handle logistics. They may expect large discounts and credit terms. TCS adds that they often set the selling price, provide buyer financing, and look after warranty and service. The factory gives up day-to-day contact with the end customer.
Trading houses and other export intermediaries. ITA describes an export management company or export trading company as a firm that takes on finding overseas buyers, shipping, and getting paid. TCS uses “trading house” for a domestic intermediary. Some buy the goods outright. Others sell on commission, which is an agent relationship under another name.
Fulfilment houses. UK guidance limits the role to holding stock and dispatching orders. Sales, marketing and after-sales stay with the seller. The page points to this route when the firm already sells to the end customer through its own site or a marketplace, and away from it when the buyer is a wholesaler or retailer. It also says the route may not pay when volumes are low. No volume threshold is stated.
Supplying a larger exporter. The OECD SME and Entrepreneurship Outlook 2019 says that, in OECD countries, counting only SMEs’ direct exports under-represents their role in gross exports. The factory’s invoice can be domestic. The goods still reach a foreign buyer inside someone else’s product.
| Channel | Failure mode | Prevention |
|---|---|---|
| Direct sale | Every export step, and the credit risk of the chosen payment term, sits at the factory | Limit the market to what the factory can ship and support. Offer a payment method the buyer will accept and the factory can carry (ITA) |
| Commission agent | Stock, fulfilment and after-sales stay with the factory. In some countries “agent” means power of attorney | Write whether the representative can bind the firm. Pay separately for any stock or service the contract adds (UK, ITA) |
| Distributor | End-customer contact is lost. Discounts and credit are expected. Exclusivity can go to a firm that cannot cover the territory, or that wants the product kept off the market | Check territory, competing lines, customers, service equipment and repair parts. Grant exclusivity after a sales record, or for a limited period (ITA, TCS) |
| Trading house | The factory assumes the intermediary owns the goods when the deal is commission only, or the reverse | Name in the agreement whether the house buys outright or sells on commission (ITA, TCS) |
| Fulfilment house | Treated as a seller or a service partner. Weak when the buyer is a wholesaler or when volume is low | Use it beside a direct sale to the end customer. Keep sales and after-sales at the factory (UK) |
| Supplying an exporter | Foreign sales never appear on the factory’s own export invoices, so the path is easy to ignore | Count it when the goal is volume through a customer’s exports. It does not create the factory’s own foreign buyer (OECD) |
Common mistake: Assuming a commission agent or a fulfilment house will hold spare parts, install equipment, or own the customer relationship. UK guidance leaves those jobs with the manufacturer unless a different contract assigns them.
Takeaway: Write down who sells, who owns the stock, and who services the product before you compare fees.
Which label answers which question
Three labels describe foreign sales at different levels.
Sales channel. ITA calls it direct selling when the producer handles the export and deals with the buyer. Agents, distributors, wholesalers, export intermediaries and eCommerce platforms count as indirect. TCS treats a sale to a foreign distributor, or through a foreign agent who does not buy the goods, as indirect.
Market-entry mode. TCS sorts entry into direct exports, indirect exports, partnerships, and acquisitions or investments. Partnerships include licensing, franchising, co-marketing and joint ventures. Licensing grants rights to use technology or other intellectual property. It can move rights without a shipment of the manufacturer’s goods. ITA treats finding and supporting a master franchiser abroad as direct exporting. An acquisition, TCS says, buys a local presence. That is a different decision from appointing an agent.
Supply-chain participation. The OECD outlook’s point is that a component maker can be in a foreign market while its own books show a domestic sale.
Worked example. The outlook gives this identity for the Slovak Republic, using 2014 figures in Figure 1.16:
Gap in export share (percentage points) = SME share of value added in exports − SME share of gross exports
= 56 - 34 = 22
SMEs were 34% of Slovak gross exports and 56% of the value added in those exports. The 22 point gap is the indirect contribution the gross-export count misses. The source year is 2014, published in the 2019 outlook. It is a country snapshot, not a target for any one factory.
The same chapter gives a second pair for independent micro SMEs in Norway (Figure 1.17): 4% of their value added is exported directly, and a further 23% is embodied in other firms’ exports.
Share of that exported value added moving through other firms = 23 / (4 + 23) = 23/27
In U.S. transport equipment, the outlook says SMEs accounted for over 40% of value added exported, and nearly all of that share was upstream components and services. That is one sector, not a share to paste onto every product line.
Takeaway: “Direct” can mean who invoices the foreign buyer, which entry mode TCS is using, or whether the goods leave under the factory’s own export declaration. Ask which one the sentence means.
Pick the route by the job the factory cannot do
ITA’s list of considerations is the size of the firm, risk tolerance, resources, opportunity cost, the product, prior export experience, and conditions in the market. TCS adds how business is done there, financial capacity, how much after-sales customers need, and which trade barriers apply. Several routes can run at once. ITA says some firms move toward more direct involvement as sales grow.
Rule of thumb. If the first exclusivity term exceeds 1 year before that representative has a sales record with you, use ITA’s example instead: grant exclusivity only after the representative has shown it can sell, or for a limited period such as one year, with renewal if the record supports it. TCS gives the commercial reason for a trial: some firms ask for exclusivity to keep the product out of the market.
A second cut is service. ITA’s checklist asks, where repair parts are necessary and customary, whether the representative will inventory them. If the answer is no, an agent or a distributor has not taken the parts job. The factory still ships them, or it writes a separate stocking duty into the contract. When the product line involves commercial computing or plant terminals, an IT hardware distributor evaluation checklist adds OEM franchise verification, ISO/IEC 20243 serial chain-of-custody tracking, and local RMA spare-parts pool sizing to that due-diligence screen.
TCS suggests an intermediary can be the practical way in for many new exporters, and it suggests a short-term trial contract. It does not define “short-term” in days.
Online selling sits across these routes. ITA says some eCommerce platforms store and deliver abroad for fees, and others leave shipping to the seller. That platform’s terms set the fee and who ships.
Names of possible partners come from sector lists, local trade associations, and search in the local language as well as English (UK). ITA points to trade shows, trade missions, state trade offices, freight forwarders, shipping companies and banks, plus U.S. Commercial Service matchmaking, which has its own eligibility and fees. TCS says to talk to several firms, then do due diligence, and that a trade commissioner can be asked for a bona fide check. Treat every name as a lead.
Other explainers on how a smaller firm carries cost and supply are in the Business section.
Takeaway: Choose the route that fills a named gap. Expect more than one route if the gaps are different.
Payment, stock and the costs that are not a posted fee
The channel’s cost is a stack of jobs, not a single posted price. This page has no discount, duty rate, freight rate or transit time.
ITA lists five payment methods. For the exporter, a sale is unpaid until the money arrives. For the importer, a payment is exposed until the goods arrive. The methods, in the order on that page:
Cash in advance, by wire or card, removes the exporter’s credit risk and is the least attractive term for the buyer. A letter of credit is a bank commitment to pay if the stated documents match. A documentary collection has the banks release documents against payment or acceptance. ITA says it is generally less expensive than a letter of credit, with no verification step and limited recourse if the buyer does not pay. Open account ships the goods first. Consignment pays the exporter only after the foreign distributor sells to the end customer, and the exporter keeps title until that sale. ITA calls consignment very risky and says insurance should cover the goods in transit and while a distributor holds them.
Worked example. ITA says open account in international sales is typically 30, 60 or 90 days. The spread between the ends of that list is:
Window spread (days) = 90 - 30 = 60
Those 60 days are the gap between the shortest and longest window ITA calls typical. They are not a lead time, not a credit term for any named factory, and not a reason to pick 90 days. The contract writes the window. Export credit insurance is one tool ITA names for keeping open-account risk in bounds. This page does not compare insurers.
The rest of the account, still without amounts:
- A distributor discount and any credit terms, which UK guidance says the distributor may expect. The figure is whatever the agreement states.
- Jobs that stay at the factory on an agent or fulfilment route: promotion, dispatch, training, and repair parts.
- Freight, insurance, duties, taxes, customs clearance and documents. ITA says Incoterms state which party handles each of those. A freight forwarder can quote freight, port charges, documentation, insurance and its own fee. Put that fee in the price charged to the customer. The quote is the source of the numbers.
- Management time. ITA calls the direct route a significant commitment. No hour count is published.
When the factory still ships, why port and logistics infrastructure matters to smaller exporters is the account of waiting after the goods leave the plant: inland legs, yard time, transshipment and release. When the product is industrial equipment, the buyer’s record from the supplier quote through installation is a different sheet. Industrial equipment import costs, from quote to ready to use marks freight, duty and installation as included, separate or unknown, and it does not fill in rates.
Channel choice also leaves the factory’s own parts supply untouched. The supply chain concentration worksheet traces, for a critical component, whether suppliers share an upstream source, a place or a transport handoff.
Takeaway: Price the channel from the agreement, the payment window and the forwarder’s quote. A missing owner for parts, credit or dispatch is a cost even when no fee is written down.
What to check before you appoint anyone
ITA says the important factors vary with the product and the country, and that the checklist should be tailored. For a manufacturer, start with these. TCS publishes a closely related questionnaire and says to meet several firms before a limited-term trial.
| Area | What to ask | Why it matters |
|---|---|---|
| Territory | Which area does it cover, and where are the offices? | Coverage has to match where the buyers are. ITA also asks whether it would expand |
| Product lines | Do any lines compete with yours? | A rival line can take the sales time. ITA asks about a conflict of interest |
| Customers | What kinds of customers does it call on? | Shows whether it already reaches your buyers |
| Service | If the product needs service, is it equipped and qualified, or willing to train? Who pays for the training? | Support has to exist where the product is sold |
| Repair parts | Where it is necessary and customary, will it stock them? | Otherwise the factory keeps shipping parts |
| Volume | What sales volume would justify adding your line? | ITA asks this so a line is not added on a projection the territory cannot support. No universal minimum is stated |
| Warehouse | Does it have warehouse space and a stock method? | A distributor that cannot store the goods cannot do the job UK guidance describes |
ITA’s agreement notes say to give the representative the pricing structure, payment terms, product regulations, training and an honest account of delivery capability. The delivery date comes from the factory’s own schedule.
On the representative’s side, ITA says to consider a minimum sales volume and an expected rate of increase, a defined territory, and whether the appointment is exclusive. Its example term is usually one year, renewing unless a party gives written notice. For ending the agreement, its notice examples are 30, 60 or 90 days, and it says three months satisfy the requirements of many countries. A registered letter may be needed to show when notice was served. Compensation on exit can be required. ITA ties that to the length of the relationship, the market the representative built, and whether termination is for just cause under the foreign country’s law. No compensation amount is stated. The contract should also require return of patents, trademarks, name registrations and customer records, and ITA says it should usually be drafted in English and in the official language of the other country. Many firms, ITA says, name the UN Convention on Contracts for the International Sale of Goods, or ICC arbitration, for disputes. Laws in the representative’s country may refuse a waiver of local jurisdiction. Have counsel in that country read the draft.
Takeaway: Ask for evidence on your product and your territory. A general company profile does not answer the checklist.
Where this does not hold
- The line is too small for a partner. ITA asks what volume would justify the representative adding it. UK guidance says a fulfilment house may not be cost effective at low volumes. Neither source gives the cutoff.
- The product needs installation and parts. An agent agreement that only pays commission does not staff a service van or a parts bin.
- Cash is thin. Distributor credit, open account and consignment all delay cash. Cash in advance protects the factory and can lose the buyer.
- The “channel” is a licence. TCS licensing can place technology in a market with no export shipment. Judge it on the rights granted, not on a crate count.
- Local law sets the exit. Agency, exclusivity and termination rules differ by country. The one-year and 30/60/90-day figures above are ITA’s examples, not a statute quoted here.
Takeaway: If volume, cash or service capacity is missing, fix that gap before adding a partner. A contract cannot supply a warehouse the firm does not have.
How this page was checked
Sources were the ITA export pages, the UK Department for Business and Trade page on agents and distributors, TCS Step 6 of the Step-by-Step Guide to Exporting, and the OECD SME and Entrepreneurship Outlook 2019. The OECD shares are historical 2014 figures, with the transport-equipment point attributed by OECD to a 2017 paper. No source in that set ranks channels by profit. Standards of practice for this site are on the editorial policy.
