Editor's note: This article was excerpted from our Import/Export Business start-up guide, available from the Entrepreneur Bookstore.
International trade is one of the hot industries of the new millennium. But it's not new. Think Marco Polo. Think the great caravans of the biblical age with their cargoes of silks and spices. Think even further back to prehistoric man trading shells and salt with distant tribes. Trade exists because one group or country has a supply of some commodity or merchandise that is in demand by another. And as the world becomes more and more technologically advanced, as we shift in subtle and not so subtle ways toward one-world modes of thought, international trade becomes more and more rewarding, both in terms of profit and personal satisfaction.
Importing is not just for those lone footloose adventurer types who survive by their wits and the skin of their teeth. It's big business these days--to the tune of an annual $1.2 trillion in goods, according to the U.S. Department of Commerce. Exporting is just as big. In one year alone, American companies exported $772 billion in merchandise to more than 150 foreign countries. Everything from beverages to commodes--and a staggering list of other products you might never imagine as global merchandise--are fair game for the savvy trader. And these products are bought, sold, represented and distributed somewhere in the world on a daily basis.
But the import/export field is not the sole purview of the conglomerate corporate trader, according to the U.S. Department of Commerce, the big guys make up only about 4 percent of all exporters. Which means that the other 96 percent of exporters--the lion's share are small outfits like yours wil be--when you're new, at least.
Champagne and Caviar
Why are imports such big business in the United States and around the world? There are lots of reasons, but the three main ones boil down to:
- Availability: There are some things you just can't grow or make in your home country. Bananas in Alaska, for example, mahogany lumber in Maine, or Ball Park franks in France.
- Cachet: A lot of things, like caviar and champagne, pack more cachet, more of an "image," if they're imported rather than home-grown. Think Scandinavian furniture, German beer, French perfume, Egyptian cotton. Even when you can make it at home, it all seems classier when it comes from distant shores.
- Price: Some products are cheaper when brought in from out of the country. Korean toys, Taiwanese electronics and Mexican clothing, to rattle off a few, can often be manufactured or assembled in foreign factories for far less money than if they were made on the domestic front.
Aside from cachet items, countries typically export goods and services that they can produce inexpensively and import those that are produced more efficiently somewhere else. What makes one product less expensive for a nation to manufacture than another? Two factors: resources and technology. A country with extensive oil resources and the technology of a refinery, for example, will export oil but may need to import clothing.
Types of Import/Export Businesses
First off, let's take a look at the players. While you've got your importers and your exporters, there are many variations on the main theme:
- Export management company (EMC): An EMC handles export operations for a domestic company that wants to sell its product overseas but doesn't know how (and perhaps doesn't want to know how). The EMC does it all--hiring dealers, distributors and representatives; handling advertising, marketing and promotions; overseeing marking and packaging; arranging shipping; and sometimes arranging financing. In some cases, the EMC even takes title to the goods, in essence becoming its own distributor. EMCs usually specialize by product, foreign market or both, and--unless they've taken title--are paid by commission, salary or retainer plus commission.
- Export trading company (ETC): While an EMC has merchandise to sell and is using its energies to seek out buyers, an ETC attacks the other side of the trading coin. It identifies what foreign buyers want to spend their money on and then hunts down domestic sources willing to export. An ETC sometimes takes title to the goods and sometimes works on a commission basis.
- Import/export merchant: This international entrepreneur is a sort of free agent. He has no specific client base, and he doesn't specialize in any one industry or line of products. Instead, he purchases goods directly from a domestic or foreign manufacturer and then packs, ships and resells the goods on his own. This means, of course, that unlike the EMC, he assumes all the risks (as well as all the profits).
Swimming the Trade Channel
Now that you're familiar with the players, you'll need to take a swim in the trade channel, the means by which the merchandise travels from manufacturer to end user. A manufacturer who uses a middleman who resells to the consumer is paddling around in a three-level channel of distribution. The middleman can be a merchant who purchases the goods and then resells them, or he can be an agent who acts as a broker but doesn't take title to the stuff.
Who your fellow swimmers are will depend on how you configure your trade channel, but they could include any of the following:
- Manufacturer's representative: a salesperson who specializes in a type of product or line of complementary products; for example, home electronics: televisions, radios, CD players and sound systems. He often provides additional product assistance, such as warehousing and technical service.
- Distributor or wholesale distributor: a company that buys the product you've imported and sells it to a retailer or other agent for further distribution until it gets to the end user
- Representative: a savvy salesperson who pitches your product to wholesale or retail buyers, then passes the sale on to you; differs from a manufacturer's representative in that he doesn't necessarily specialize in a particular product or group of products
- Retailer: the tail end of the trade channel where the merchandise smacks into the consumer; as yet another variation on a theme, if the end user is not Joan Q. Public but an original equipment manufacturer (OEM), then you don't need to worry about the retailer because the OEM becomes your end of the line. (Think Dell Computer purchasing a software program to pass along to its personal computer buyer as part of the goodie package.)
The Right Stuff
Not everybody is cut out to be an international trader. This is not, for example, a career for the sales-phobic. If you're one of those people who would rather work on a chain gang than sell Girl Scout cookies, or if you blanch at the thought of making a sales pitch, then you don't want to be in import/export. This is also not a career for the organizationally challenged. If you're one of those let-the-devil-handle-the-details types whose idea of follow-up is waiting to see what happens next, you should think twice about international trading.
If, on the other hand, you're an enthusiastic salesperson, a dynamo at tracking things like invoices and shipping receipts, and your idea of heaven is seeing where new ideas and new products will take you, and if, to top it off, you love the excitement of dealing with people from different cultures, then this is the career for you.
It also helps if you already have a background in import/export. Most of the traders we talked with were well-versed in the industry before launching their own businesses. Peter P., who founded a Russian trading company, segued directly from his college major in international business to an operations position with an international frozen-meat trading company in Atlanta, which landed him in the right place at the right time.
"I speak both Russian and Ukrainian fluently," Peter says. "I'm of Ukrainian descent. I took Russian as a minor in college, initially as an easy grade. Little did I know when I graduated back in '89 that Russia would open up to the West shortly thereafter."
The Trade Hit Parade
According to the U.S. Census Bureau, the top 10 countries with which America trades (in order of largest import and export dollars to smallest) are:
- United Kingdom
- Republic of Korea (South Korea)
You needn't, of course, confine yourself to trade deals with importers and exporters in these countries--there are scads of other intriguing possibilities available, including the member countries of the Caribbean Basin and Andean pacts and the new kids on the Eastern Bloc, the former Soviet Union countries. But as a newbie on the international scene, you should familiarize yourself with our biggest trading partners and see what they have to offer. Then take your best shot, with them or with another country.