Determining Your Place in the Food Chain: Import, Export, or Both?
You know you’re ready for international trade, but do you know whether you want to import or export? The answer that’s right for you depends, in large part, on why you want to go global in the first place.
Importing makes sense when
✔ The value of the U.S. dollar is strong – the stronger the dollar, the cheaper purchasing goods overseas is.
✔ You’re faced with increased competition, and the only way to remain competitive is to source goods at lower costs for suppliers overseas.
✔ You want to identify new products or expand your existing product line.
✔ You can’t access products or technologies from domestic suppliers.
✔ Another country can produce a product more efficiently because of available resources.
✔ You’re a good negotiator and enjoy selling.
Exporting makes sense when
✔ The value of the dollar is weak – the weaker the dollar, the cheaper your U.S. – manufactured products are.
✔ You want to increase sales and profits. Rising income levels in many developing countries are creating opportunities for more people to purchase goods.
✔ You want to serve a market that has nonexistent or limited production facilities.
✔ Before your business invests in a production facility overseas, you want to test whether the foreign market accepts your product.
✔ You want to use your excess production capacity to lower per-unit fixed costs.
✔ You want to extend your product’s life cycle by exporting to markets that are currently not being served.
✔ You enjoy selling and dealing with people from other countries and cultures.
Being both an importer and an exporter makes sense when
✔ Countries have negotiated preferential trading arrangements.
✔ You want to remain price-competitive at home. Many businesses import labor-intensive components produced in foreign countries or export components for assembly in countries where labor is less expensive and then import the finished product.
✔ You enjoy buying and selling, dealing with people from different cultures, and traveling.
✔ You’re comfortable dealing with the numerous uncontrollable environmental forces involved in importing and exporting. (See Chapter 1 for details on these factors.)
Deciding Whether to Become a Distributor or an Agent
After you’ve decided to get into the import/export business, you have to decide how you want to set up your business. You have two options:
✔ Be a distributor (an intermediary who purchases and takes title to the goods). For example, you purchase sweaters from a manufacturer in Japan and import them into the U.S. If you’re a distributor, you take title to the sweaters, store them, and then look for customers, eventually selling them to Macy’s, Bloomingdale’s, Nordstrom, and so on.
✔ Be an agent (a firm that brings two parties together but doesn’t take title to the goods). For example, you know the sweater manufacturer in Japan, and you know that Macy’s, Bloomingdale’s, and Nordstrom are interested in buying the sweaters. You can bring the sweater manufacturer and the U.S. department stores together, without ever taking title to the goods.
In both cases, you’re involved in setting up an import/export business. The choice that’s right for you depends on how much money you have to invest and the amount that you hope to earn. A distributor has higher risks and greater expenses than an agent has, but a distributor also has more control over the process.
In this section, I explain what distributors and agents are and help you decide which path is right for you.
Understanding distributors
A distributor is an independently owned business that is primarily involved in wholesaling and takes title to the goods that it’s distributing. A distributor is a middleman who handles consumer or business goods that may be manufactured or not manufactured (such as agricultural products), imported or exported, and then sold. Figure 2-1 illustrates the distributor’s relationship to the seller and buyer.
© John Wiley & Sons, Inc.
Figure 2-1: The distributor is a middleman, working with the supplier and buyer.
Distributors typically purchase goods on their own account and resell them at a higher price, accepting the risks and the rights that come with ownership of the goods. For example, ABC Importing in New York imports women’s sweaters from XYZ International in Japan. If ABC Importing is acting as a distributor, it purchases the goods from XYZ in Japan and arranges to have the goods transported to New York and cleared through Customs. After the goods are cleared, ABC stores the goods in its warehouse and makes arrangements to sell and deliver them to its customers, including Big-Name Department Store.
✔ Is independently owned
✔ Takes title to the goods it’s distributing (ownership passes from the seller to the buyer upon purchase)
✔ Is often classified by product line (such as medical, hardware, or electronics products)
In the import/export business, there are two main types of distributors:
✔ Full-service distributors: A full-service distributor provides the following services to its customers and suppliers:
• Buying: The distributor acts as a purchasing intermediary for its customers.
• Creating assortments: The distributor purchases goods from a variety of suppliers and maintains an inventory that meets the needs of its customers.
• Breaking bulk: The distributor purchases in large quantities and resells to its customers in smaller quantities.
• Selling: The distributor provides a sales force to its suppliers.
• Storing: The distributor serves in a warehousing capacity for its customers, delivering the goods to its customers at the customers’ request.
• Transporting: The distributor arranges for delivery of goods to its customers.
• Financing: The distributor provides credit terms to its customers.
✔ Drop-shipping distributors: A drop shipper is a distributor who sells merchandise for delivery directly from the supplier to the customer and does not physically handle the product. The distributor does take title to the goods before delivery to its customer, however.
If you’re an importer and you’ve received a significant order from one of your customers, shipping the goods to the client directly from the overseas supplier may be more efficient because of the size of the order. In this case, you’re acting as a drop shipper. For example, ABC Importing in New York receives an order for 300 dozen sweaters from its customer Big-Name Department Store. ABC Importing purchases the sweaters from XYZ International in Japan. The 300 dozen sweaters will be enough product to fill a complete 20-foot shipping container. When ABC places the order, it provides shipping instructions to XYZ International, telling XYZ that when the goods are ready for shipment, they should be placed into the container, invoiced to ABC Importing, and shipped directly to Big-Name Department Store.
