How to Start an Import/Export Business

           

#Business

In today's blog, I'm going to discuss on how someone can start up a mini-Import or Export business. Therefore, for the benefit of my readers who may have interest in Importation and Exportation, this post will serve as a guide for you to get started.

 

Every business needs consumers for its products and services to, as the Vulcans so eloquently put it, live long and prosper. Now that you know what running an import/export business entails, you need to plan, or target, your market, and determine who your potential clients will be, which geographic areas you'll draw from, and what specific products or services you'll offer to draw them in.

This is a very important phase in the mega-trader building project. The proper market research can help boost your trading company into a true profit center, and the more research you do, the better prepared you are before you officially open your doors, the less floundering you're likely to do.

Who Are Your Customers?

Any manufacturer, supplier, crafter, artisan, importer, exporter or retailer is fair game. You can go after companies that deal in heavy construction equipment or delicate jewelry, gourmet goodies or pet food, telecommunications or toys. The only essential requirement is that they want to sell their merchandise or buy someone else's.

This doesn't mean, however, that your best technique is standing at manufacturers' gates, tripping them as they walk to their cars after work each evening. Targeting by definition means homing in on a specific group.

If you have previous experience in a particular field, for example, you should seriously consider targeting that market first.

What's My Niche?

OK. You've narrowed the list of products you'll target. Now you'll want to find your niche, the unique angle that will set your business apart from--and above--the competition. This is where you can really let your creativity shine through.

You may decide to start as an export management company (EMC, remember?), seeking out buyers for domestic manufacturing firms, or as an export trading company (ETC), finding domestic sources willing to export. Or you might want to stick with the original Trader Sam formula, importing and exporting on your own as an import/export merchant.

Market Research

Here's a rapid-fire overview of your market research tasks. You'll want to do some in-depth investigation into each of these areas: The product or service you'll sell

• The end user you'll aim for (mass-market consumer, heavy industry, light industry, medical or hospital use, government, business or professional)
• The country or countries you'll export to or import from
• The trade channel you'll use (direct sales, representative, distributor or commission representative).

Start up cost

One of the catch-22s of being in business for yourself is that you need money to make money--in other words, you need startup funds. These costs range from less than $5,000 to more than $25,000 for the import/export business. You can start out home based, which means you won't need to worry about leasing office space. You don't need to purchase a lot of inventory, and you probably won't need employees.

But let's take it from the top. The following is a breakdown of everything--from heavy investment pieces to flyweight items--you'll need to get up and running:

• Computer system with modem and printer
• Fax machine
• Internet/e-mail service
• Software
• Market research and/or trade leads
• Phone
• Voice mail or answering machine
• Stationery and office supplies
• Postage
• Travel expenses for conducting market research on foreign turf.

You can add all kinds of goodies of varying degrees of necessity to this list. For example, a copier is a plus. It's also nice to have bona fide office furniture: a tweedy upholstered chair with lumbar support that swivels and rolls, gleaming file cabinets that really lock, real oak bookshelves.

Income & Billing

 

What can you expect to make as an international trader? The amount's entirely up to you, depending only on how serious you are and how willing you are to expand. Annual gross revenues for the industry range from $30,000 to $200,000 and beyond, with an average of about $75,000. Some traders work from home, supplementing 9-to-5 incomes with their trading expertise. Others have launched thriving full-time businesses that demand constant care and feeding. Wahib W.'s export company has a staff of five that oversees multimillion-dollar contracts.

Pricing Yourself

As an international trader, you're an intermediary in the buying and selling, or importing and exporting, transaction. Therefore, you have to determine not just the price of the product, but the price of your services as well. These two figures are separate yet interactive. Because you're a swimmer in the trade channel, the price of your services has to be added on to the product price, and that can affect its competitiveness in the marketplace.

Since the fee for your services will impact the success of the product, you may ultimately decide to change your pricing structure. You don't want to undercharge your client so that you can't cover your expenses and make a profit, but you don't want to overcharge and reduce the competitiveness of your company and the merchandise you represent.

Import/export management companies use two basic methods to price their services: commission and retainer. Normally, you choose one method or the other based on how salable you feel the product is. If you think it's an easy sell, you'll want to work on the commission method. If you feel it's going to be an upstream swim, difficult to sell and require a lot of market research, you'll ask for a retainer.

A third method is to purchase the product outright and sell it abroad. This is a common scenario when you're dealing with manufacturers who would rather use you as a distributor than as a representative. You'll still market the product under the manufacturer's name, but your income will come from the profit generated by sales rather than by commission.

The Commish

Import/export management companies usually operate on a commission basis of about 10 percent. These fees are based on the product cost from the manufacturer.

Let's say you're working with English lawn chairs, which cost you $110 each. Here's what you do: First, take the price the manufacturer is charging for the product: $110. Now multiply $110 by 10 percent, which gives you a commission of $11 per chair.

So your product price at this point is $121 per chair ($110 + $11). To come up with the final price, you'll need to add other costs to this figure: any special marking or packaging, shipping, insurance and any representative or distributor commissions that you'll pay to others in the trade channel, which we'll go over a little later. Once you've arrived at a final price, you'll check it against your competitors' prices (you did do your market research, right?). If your product's price is comparatively low, you can bump up your commission percentage.

For now, however, you can see that for every chair you or your trade channelers sell, you'll get $11. If you sell a thousand chairs, that's $11,000 for you!

Biting the Retainer

If the manufacturer can't discount her price sufficiently or if you feel that the product will be a tough sell, you'll want to ask for a flat retainer (the monetary kind, not the dental appliance kind). You'll pass all the costs of market research along to the manufacturer. By taking a retainer, you guarantee yourself a set income rather than one tied by commission to a "problem" product.

To determine what your retainer should be, you'll need to consider three variables associated with the performance of your services:

• Labor and materials or supplies: This usually includes your salary or estimated salary on an hourly basis plus the wages and benefits you pay any employees involved in the performance of the job. To determine labor costs, estimate the amount of time it will take to finish a job and multiply it by the hourly rate of your salary and that of any employees you might use. You can compute materials as a percentage of labor, but until you have past records to use as a guide, you should use 2 to 6 percent.
• Overhead: This variable comprises all the non-labour, indirect expenses required to operate your business. To determine your overhead rate, add up all your expenses for one year, except for labor and materials. Divide this figure by your total cost of labor and materials to determine your overhead rate. Or use a rate of 35 percent to 42 percent of your labor and materials.

Profit: And the end result is: After all labor, materials and overhead expenses are deducted, profit can be determined by applying a percentage profit factor to the combined costs of labor and materials and overhead. Operations

What you will be doing during your peak hours and beyond will depend upon how you've structured your services. Some traders act only as sales representatives, finding buyers and taking commissions, but steer clear of the shipping, documentation and financing aspects of the deal. Others are happier offering a full line of services, buying directly from the manufacturer and taking on all the responsibilities of transactions from shipping to marketing. These traders often specialize in either import or export and stick to the merchandise industry they know best.

The Export Path

OK, exporter--you've found a buyer for your merchandise. You're a player. You're ready to roll. So now what do you do? Follow the export path:

Generate the pro forma invoice--give the importer a quote on your merchandise; negotiate if necessary.

1. Receive the letter of credit from your bank.
2. Fulfill terms of the letter of credit: Have the merchandise manufactured if necessary; make shipping and insurance arrangements; pack the merchandise; and have the merchandise transported.
3. Collect shipping documents.
4. Present shipping documents to your bank.

The Import Path

OK, importer. You've found the merchandise you want to buy and then resell. You're a player. You're ready to roll. So now what do you do? Follow the import path:

 

Receive the pro forma invoice, the exporter's quote on the merchandise; negotiate if necessary.

1. Open a letter of credit at your bank.
 
2. Verify that the merchandise has been shipped.
3. Receive documents from the exporter.
 
4. See merchandise through customs.
 
5. Collect your merchandise.
 

A Day in the Life

What does a trader's day really look like? What does he do in between preparing pro forma invoices, requests for letters of credit and shipping documents? Here's a behind-the-scenes peek, courtesy of Michael R., the international trade consultant in Germany:

First hour: Read statistics printed overnight by the computer to see if each representative/agent has fulfilled his plans, and initiate changes if necessary.

1. Work on the internet for one to two hours to see what inquiries have come in, then answer them personally or forward them to past or present clients who may be interested.
2. Have short meeting with colleagues to see if assistance is needed, then support them or trouble-shoot.
3. Look at the day's newspapers to see whether there's any movement within my industry where I should act fast.
4. Take a coffee break.
5. Look at the mail and handle or forward items.
6. After lunch, take time to reflect on what has and what should have happened.
7. Discuss problems and/or chances for the future with prospects and/or business partners.
8. Look again at e-mail and the Web for news and new opportunities.
9. At the end of the day, there should be about an hour to discuss again with colleagues how the day went and/or problems that came up.
10. One or two evenings a week, attend business events or meetings with partners for discussion.

On the Road

A trader isn't always at home behind his desk. What does he do when he's out on the road? Here's another behind-the-scenes peek, courtesy of Jan H., a Belgian tire trader:

Note that Jan's day, in typical European fashion, evolves through a 24-hour clock, or what we think of as military time.

Day in Belgium:
07.00 - 09.00 Office work, e-mail, fax offers, mail, etc.
09.00 - 12.00 Drive to airport, meet customer from Finland; back to warehouse, customer chooses products
12.00 - 13.00 Lunch with customer, general discussions
13.00 - 18.00 Visit with a customer from Nigeria; long discussion, haggling over prices, payment terms, etc.; supervise loading of containers bound for the United States; phone calls, fax, e-mail; arrival of a customer from France, discussions
18.00 Quick trip home to change and shower
19.00 - ?? Pick up French customer at hotel, have cocktails and dinner, more negotiations.

 Day on the road in Germany:
05.00 Leave home for 400 km drive
08.00 Arrive at first supplier; discussions and purchase of goods
10.00 Leave for next supplier
11.00 Next supplier; discussions without any result
12.00 Visit customer; make a sale
13.30 Visit another supplier; more discussions
15.00 Leave for another 300-odd km drive
18.00 Arrive at hotel; check e-mail on laptop, phone calls
19.30 Sauna and swim at hotel pool
20.30 Dinner with supplier, then to bed!

Marketing

As an international trader, your mission is sales--in two different but overlapping arenas: a) selling yourself and your company to clients as an import/export manager for their products, and b) selling the products themselves to representatives and distributors. Success in one of these arenas will contribute to your success in another. Once you've established a favorable sales record with one client's goods, you'll have a track record with which to entice other clients. And, of course, each success will contribute to your own self-confidence, which will, in turn, lend that air of confidence to your negotiations with new prospects.

Hunting for Exports

A surprisingly small percentage of domestic producers export their wares. So your marketing goal is to convince the huge remainder that they can increase profits by exporting--with your guidance--to specific target countries. You can accomplish this with direct mail and cold calls. If you're starting with imports, don't ignore this section--you'll work in basically the same manner.

Before you initiate contact with any manufacturer, you'll need to do some basic market research:

What products are hot sellers in the domestic marketplace? Focus your attention on products that you know well or use yourself, or that are bestsellers in their market niches.

• Are these products hot sellers in your target countries?
• If not, are there situations or markets that would put these products in great demand if the products were available?
• Who manufactures these products?
• What is the selling price of each product--and of competing products or brands--domestically and in your target countries?

 Direct-Mail Dazzle

Now you're ready to begin your direct-mail campaign. Choose one manufacturer of one of the products you've researched. Then call the company and ask for the name of the person to whom you'll want to write. If the company is small, you'll probably want the president or owner. If it's a larger concern, you might want to direct your letter to the vice president in charge of sales, the sales manager or the president or owner.

Armed with a name and title, write your letter, taking care to address the following points.

•  Introduce yourself and your company.
• Briefly outline the potential of the overseas market.
• Outline the product's potential within that market.
• If possible, explain why and how your company, out of all others, will be able to position the product best. For example, if you have experience with like products, be sure to say so.
• If you already have contacts with foreign distributors, explain that you have foreign representatives for overseas sales.
 
• Ask for a personal meeting to further discuss the possibilities.

(Cold)-Calling All Clients

Cold-calling, so-called because you call a potential client "cold" without any warming up by prior contact, is an alternative to the direct-mail approach. The good news is that, if you're calling locally, it's usually cheaper than direct mail. The bad news is that it requires much more perseverance to be effective. The other good news, however, is that, done properly, a cold call can be much more effective than direct mail.

Before you make your first call, be sure you know what you want to say and how you want to say it. Some experts recommend writing out a sort of "script" that you can follow during the course of your call. This is a good starting-off exercise to help plan your spiel, but be aware of the fact that following a script has its drawbacks. The main one is that the person you're calling doesn't know he's supposed to be following the script, too, and when he gets off track, so do you.

 Desperately Seeking Imports

How do you go about finding goods to bring stateside? You have several options:

 

 1.Travel abroad on an import search mission.

2.Wait for foreign manufacturers to contact you.

3.Attend trade shows.

4.Contact foreign embassies' trade development offices.

5.Contact the U.S. Department of Commerce's International Trade Association.

6.Track down leads on the Internet and in trade publications.

 

Selling Yourself

You've located foreign manufacturers or suppliers whose products have U.S. sales potential. Now you have to sell them on the idea of entering the U.S. marketplace and convince them that you're the person to usher them in. How do you do this? Basically, the same way you'll pitch domestic manufacturers, with a direct-mail campaign. Only in this case, you'll do better to think of it as a direct fax letter. Although many traders rely on international mail, unless you're sending to regions or countries with highly developed infrastructures, such as Canada or Western Europe, you'll be much more assured of your missive reaching its destination if you send it by fax.

In your letter, outline the various opportunities available in the United States for the product and highlight that you'll handle all import logistics with little cost to the manufacturer. It's very similar to the export letter, with two exceptions:

You should address the letter recipient. For example, use Monsieur (abbreviated M.) instead of "Mr." if the recipient is French. Even though your letter is in English, this little touch shows that you do know something about the French language and that you've taken the care and courtesy to address the recipient in his own tongue.

 

check to make sure you've eliminated any slang that may be confusing to non-natives.

International Call

Follow up in a few days with another fax. Think of the follow-up as a firm but gentle nudge, an opportunity to strengthen your position and demonstrate real interest in importing the merchandise. Remember that part of your task is to convince the potential client that your company is the best one for the job, so you have to supply a reason for this. If you can't claim that you're experienced in interior design (or mulch or whatever) sales in the United States and Europe (or wherever), then come up with something else. Maybe you're only experienced in the United States so far. That's fine! That's where you'll be selling. Maybe you're not experienced yet, but you've done a great deal of research. Fill that in instead. Use your creativity!

Marketing Plan

Whether you're planning on exporting or importing, be prepared to present your prospective client with a marketing plan. If the manufacturer is close to home, you'll naturally present it in person. If she's overseas, you may still have to (make that get to) arrange a personal visit to close the deal. If you feel strongly enough about the product's U.S. potential, the trip will be worth the time and expense.

To prepare your marketing plan, you'll need the information you've already asked for: pricing, product brochures or literature, and samples. If your prospect balks at supplying these materials, tell her that you'll need them to further explore the market potential and develop a presentation for her, outlining the market strategy you plan to pursue.

Once you have the materials in your office, sit down and figure out every possible expense you'll have so you can arrive at your sales price. Then, if you've already been in contact with distributors or representatives, find out if this price will sell in their market. If you don't have any representatives yet, you'll need to locate one and determine if he can work with that price. Assuming the answer is yes, you've got a viable product.

Now write out your marketing plan, which should include the following elements:

Target: Which country or countries will you or your representative’s sell in? Why are these markets viable? Include positive market research information and be sure to assemble it in a clear, concise, easy-to-digest format. This is where your desktop publishing programs will shine--you can make charts, graphs and tables interspersed with facts, figures and text.

 

Sales: Explain at what price you'll sell the product, give your annual sales forecast, your fee structure and the profits the manufacturer can expect.

 

Marketing: Briefly touch on any special marketing or promotions for the product; for example, foreign or domestic trade shows or any local advertising your reps will do.
 

Helpful Government Agencies

 Bureau of Industry and Security

Business Information Service for the Newly Independent States (BISNIS)

Commercial Service, Canada

Commercial Service, Mexico

Country Commercial Guides

The Export Legal Assistance Network

Foreign Agricultural Service

International Trade Administration

Overseas Private Investment Corporation (OPIC)

Showcase Europe

Ex-Im Bank, Small-Business Programs

U.S. Census Bureau, Foreign Trade

#Import #Export