Export Trading Company (ETC)
Provides support services to firms that specialize in exporting
What is an Export Trading Company (ETC)?
An export trading company (ETC) provides support services to firms that specialize in exporting. From the client’s perspective, it would include warehousing, shipping, insuring, and more. In addition, export trading companies also handle the legal requirements involved throughout the exporting process for various goods. An example would be an export trading company helping a company that operates in one of the following services above by finding an international buyer, thereby expanding market presence across the globe.
Summary
- An export trading company (ETC) provides services such as information extraction regarding foreign policies in regulation and legal aspects to domestic companies for them to export their goods internationally.
- An ETC can be local or located within a foreign country where they are importing goods.
- It can be used to help reduce training and recruitment costs, along with strategizing different ways to minimize exchange rate risk.
Understanding Export Trading Companies (ETC)
Generally, export trading companies are not as popular as before due to conglomerate e-commerce companies that allow business owners to drop ship their products directly using one channel from supplier to end-user. There are a variety of reasons to use an export trading company:
1. Provides governmental laws and regulations in foreign countries for domestic companies
For example, an ETC may be able to provide information about a country’s taxation and copyright laws to the domestic provider. They may also include some contact that one can be connected with inside the international markets, including manufacturers and distributors; it may help domestic companies outsource more easily or enter new markets. In addition, if a domestic company is trying to break into another space, an ETC can facilitate the interaction between both groups.
2. Reduces training costs
Even though the ETC charges a fee for its services, it is far less expensive than hiring staff internationally or formulating a training program. Export trading companies have a network of individuals that are experts in their fields and can answer the appropriate questions to assist companies in the recruitment or training process.
3. Currency hedging strategies
Export trading companies can advise others about the available hedging strategies that reduce exchange rate risk. For example, if a company earns the majority of its revenues from a foreign buyer, the recommendation may be to utilize forward contracts to lock in the price of a good in the present-day for the future, to the exposure of currency exchange risk between the time the contract is established to when it is fulfilled.
Downside of Export Trading Companies
1. Lack of control over operations
As export trading companies can be used to handle critical functions with different businesses, the client itself may begin to lose control of various operations, such as logistics and communicating between foreign parties within the supply chain.
2. Lack of knowledge
If an ETC undergoes financial troubles and switches to receivership, for example, the company that hired the ETC to maintain specific functions of their company may be unaware of the different processes implemented by the ETC.
3. Bad reputation
ETCs may also possess a bad reputation. If a company affiliates itself with the ETC, it may also be at risk for being perceived in a negative light.
How Export Trading Companies Operate
Export trading companies operate in two ways:
- As separate entities that conduct the exporting as simply another client of the company, where they charge a fee for their services, either through a flat rate or commission.
- Formed by the producers of the exported products: the products can be formed to focus on one particular industry depending on the type of business that is being focused on.
Export Trading Company and Export Management Company
Although the export trading company and export management company appear to sound similar, they are different in a few ways, which ultimately stems from their functions. Export trading companies are associated with the operations of the client, such as the process/logistics of moving and storing products.
On the other hand, export management companies tend to handle more of the marketing duties. Otherwise, the two are considered interchangeable, as they tend to operate fairly similarly.
Additional Resources
CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:
Financial Analyst Certification
Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes!
