Import / Export Kit For Dummies. Capela John J.

situations offer pros and cons. When you’re operating as a full-service distributor, you have a greater level of control. On the downside, you have a greater level of risk and need for working capital because of the significant additional expenses.

       Understanding agents

An agent is similar to a distributor in that he’s a middleman. However, an agent does not take title to the goods and provides fewer services than a distributor does. The agent’s role is to get orders and (usually) earn a commission for his services. Figure 2-2 illustrates the relationship among the agent, the supplier, and the buyer.

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       Figure 2-2: An agent is similar to a distributor but hasfewer responsibilities.

      For example, suppose CADE International is an import/export agent headquartered in New York. CADE is aware that XYZ International is a manufacturer of quality women’s sweaters in Japan and that Big-Name Department Store is interested in acquiring sweaters to sell to its customers. CADE is a middleman, bringing the seller and buyer together but not taking title to the goods and not providing any of the services that a distributor may perform.

      

An agent

      ✔ Is independently owned

      ✔ Does not take title to the products being purchased and sold

      ✔ Is actively involved in the negotiations for either the sale or purchase of the products

       Understanding types of agents

      The import/export business has two main types of agents:

      ✔ Traditional import/export agents: An export agent works in the country where the product is produced. For example, you may identify a producer in the U.S. and work toward representing that producer (the seller) in foreign markets as the export agent. Or you may work as an import agent based in the country where the product will be sold, in which case you represent the buyers. For example, you may know a company in the U.S. that’s looking to buy a certain kind of product overseas. You’d identify sellers of that product overseas and represent the buyer in foreign markets as the import agent.

      ✔ Brokers: A broker is an independent agent who brings buyers and sellers together. For the most part, brokers work for sellers, although some brokers do represent buyers. A broker differs from the traditional import/export agent in that she doesn’t usually represent a company. Instead, she’s traditionally hired to bring together one-of-a-kind or nonrecurring deals.

      For example, a broker is contacted and advised that Company A in New York has an excess inventory of a soon-to-be-discontinued product. This is a one-time deal, because as soon as the goods are purchased, they’ll no longer be available. The broker identifies Singapore Electronics, a potential customer in Singapore, for these items. So the broker brings Company A and Singapore Electronics together for this one-time deal, and in return, the broker receives a commission from Company A.

       Looking at the benefits and challenges of being an agent

      Some of the benefits of the agent option are the reduced start-up costs and the limited working capital you need. The initial investment and costs of doing business as an agent are significantly lower than those that come along with operating as a distributor.

      On the downside, when you’re doing business as an agent, you run the risk that the parties will bypass your firm and deal directly with each other on any future transactions.

      

To minimize the risk of being eliminated from future transactions, remember that an agent is not someone who makes a call and brings people together just to earn a commission. The key is to develop a sound relationship with your connection and continually work toward increasing sales and improving the relationship.

       Representing clients and getting commissions

      The rate of commission when working as an agent depends on the nature and type of product, the nature of the market you’re selling to, and the level of competition. (See “Pondering Profit Potential,” later in this chapter, for info on typical commission rates.)

      If you bring a buyer from one country together with a seller from another country, can you earn a commission from both parties? The answer is no. Why? Because as an agent, you’re representing someone. If you represent the seller, you have an obligation to sell that company’s products at the highest possible price. On the other hand, if you’re representing the buyer, you have an obligation to secure the products for the buyer at the lowest possible price. Obviously, drawing a commission from both parties would create an ethical dilemma. Think of an import/export agent like a real estate agent: The buyer has an agent, and the seller has an agent, but the same agent doesn’t represent both the buyer and the seller.

      

If you choose to set up your business working as an agent, decide who you’re going to represent and then work at nurturing that relationship. The greater the effort you make in developing that relationship and representing the company, the more likely that company will be to maintain the relationship.

       Analyzing Start-Up Costs

      Capital is the money that you need to start and run your import/export business. Here are three types of capital:

      ✔ Initial/fixed capital: This is the money you use to purchase fixed (permanent) assets, such as office space, equipment, machinery, furniture, and so on, plus any money you need to start the business. You need funds to cover initial legal fees, deposits with public utility companies, licenses, permits, office equipment, advances for rental of premises, and so on. Finally, you need to allocate funds for your opening promotion, which are sometimes referred to as promotional capital.

      ✔ Operating/working capital: This is your business’s temporary funds. It’s the money you use to support the business’s day-to-day operations, such as salaries, office supplies, utility expenses, and so on.

      ✔ Growth/reserve capital: This is the money you need, as an existing business, in order to expand or change the primary direction of the business as well as to cover your personal living expenses.