Portion Control

How It Works

Let's walk through a practical example of how you'd go about importing an item that has a quota assigned to it. Let's assume you've designed a cardigan sweater, only to find it will be too expensive to make locally. Market research has discovered that similar cardigan sweaters have been imported from India and the cost to manufacture them there is significantly lower than what your local company charges. However, India has an assigned quota on these sweaters. So what's your first step?

The first thing you should do is find a buying agent, a representative who lives in the exporting country and has a relationship with various factories in that country. He or she also has the know-how to procure quota visas for your goods. The agent will contact the different factories to find the one best suited to make your sweaters at the most reasonable price and with the level of quality you specify. In return, the agent takes a percentage of the cost of your goods. Finding a good buying agent can be a long, drawn-out process, but a good place to start is the U.S. embassy or consulate for the country in which you intend to manufacture your product.

Before a quota visa can be purchased for your sweaters, you have to decide on the quantity of sweaters and the number of shipments to be made per year. Say you plan to import two shipments of 5,000 cardigan sweaters for a total of 10,000. Armed with this information, the buying agent will now acquire two quota visas issued by the government of India for 5,000 sweaters each. Because a quota visa must accompany each shipment accepted by U.S. Customs, two quota visas must be procured.

Keep in mind that once a quota visa is arranged, it's usually final. If you change your mind at the last minute and want to increase the quantity of each shipment to 5,500 sweaters but have already purchased quota visas for 5,000, you're probably out of luck.

The price for quota visas fluctuates constantly--the higher the demand for one, the more expensive it will be. In general, visa costs tend to go up toward the end of the year when their availability becomes more scarce due to the increase in demand for products during the U.S. holiday season.

To help with the receipt of your sweater shipments into the United States, you'll also need a customs broker. These brokers live in the United States and know how to handle the mountains of paperwork (including the quota visas) that accompany imported shipments. A customs broker is an expert at avoiding those "gotchas" (like missing or incorrect paperwork) that can keep your shipment held up in U.S. Customs indefinitely. Since the customs broker receives all paperwork prior to the receipt of a shipment, he or she can check to make sure your quota visas are legitimate, which will save you time and hassles. You can get a list of licensed customs brokers from your local U.S. Customs office.

The sweater example illustrates the importance of finding reliable and honest buying agents and customs brokers. Jack Wasserman, an international trade lawyer and senior partner with Wasserman, Schneider, Babb & Reed in New York City, offers examples of just a few of the potential problems that could throw a monkey wrench into your shipment, some of which can be avoided by hiring a reputable agent and broker:

  • The factory is late with your production.
  • The raw materials have the incorrect fiber content.
  • The manufacturing quality is poor.
  • The country's entire quota is used up by the time your shipment is ready. (A quota visa can't be purchased until the product has been manufactured.)
  • The visa is deficient; for instance, it's issued for the wrong category of a particular product.
  • The classification of your merchandise is wrong. (For example, U.S. Customs finds your cotton sweater line to be a wool sweater line.)
  • U.S. Customs questions the country of origin.

Wasserman advises checking references before hiring a buying agent and then creating a written agreement to guard against potential problems. Also, don't pay him or her in advance; reliable agents won't request this. And when paying an agent with a letter of credit, make sure it's written carefully so payment isn't made before you have a chance to review the production situation.

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This article was originally published in the December 1998 print edition of Entrepreneur with the headline: Portion Control.

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