If you’re interested in starting an import/export business, there are lots of considerations you need to make. Indeed, this is true for starting a business in any industry. For an import/export business, specifically, it’s helpful to have a background in business, international relations, or global finance. This should give you an understanding of the myriad hoops one must jump through to sell or buy a product from an overseas supplier.
“The compliances make it so complex that even if you did know how to do it, you’re still going to have to keep in mind a lot of random considerations,” says Selena Cuffe, co-founder of Heritage Link Brands, a company that imports, exports, and produces wine, and other high-end products like tea and honey.
Cuffe worked for years in brand management for Procter & Gamble, among other trade-related positions, before starting her company in 2005. She was inspired after going to South Africa, where she attended the first Soweto Wine Festival.
“At that festival were literally the first black winemakers and vineyard owners post-apartheid, showcasing their products for the first time to the world,” says Cuffe. “It was serendipity and enlightenment when I had my first glass. That’s how I got into the wine business—when I found there was no distribution into the U.S. market, and they were barely distributing in their own country.”
Heritage Link Brands now operates within the wine industry in different ways: It imports wine from South Africa into the U.S. wine market, and it exports grapes from its own South African vineyard to the U.S. as well as the Philippines and Hong Kong. It also exports wine to airlines for use on international flights
Before we Go into the main topic let’s checkout types of Import/Export Businesses.
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, invoicing customers, distributors and representatives; handling advertising, marketing and promotions; overseeing marking and packaging; arranging shipping; and sometimes arranging financing or contracting out for a developing a credit card app. 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.)
How to Start An Import/Export Business
1. Get Your Business Basics in Order
Anyone starting a business in the 21st century needs to cover certain bases, like creating a website as well as social media channels like Facebook, Twitter, and a host of others.
So here’s your first step: Get the basics in order. This means registering your business with the state in which your headquarters will be located, registering a domain name, getting any business licenses you need to legally operate, and so on.
You’ll need a business plan, too. Part of that business plan needs to cover how to handle the rules and regulations of the markets you want to work in. For example, to bring alcohol and tobacco products into the U.S., you need an Alcohol and Tobacco Trade and Tax Bureau permit, which is free but can take months to acquire. Similar research needs to be done when doing business with other countries, taking into account everything from various legal back label requirements in each nation to insurance.
Perhaps most importantly, you need access to capital. Startup costs can vary greatly depending on the type of imports/exports business you start. Everyone knows it takes money to make money, so it’s helpful to have capital on hand when you’re getting started.
“The first thing I recommend for anyone is to have your capital upfront,” says Cuffe. “That’s so you can protect your business from not only a legal standpoint but also the equity of the brand that you create and to make sure you invest in the quality of whatever you launch. Test a market, or test a city, then a state, then a region. Then I think that there are greater chances for success and sustainability long term.”
The ratio that Cuffe cited for success in the wine industry—”In order to make $1 million, you need to invest $7 million”—demonstrates the kind of capital needed to start a business comfortably (if one can ever be “comfortable” as an entrepreneur) and be prepared for whatever occurs, from issues with sourcing to changes in trade regulations.
2. Pick a Product to Import or Export
The next step in starting an import/export business is to find a product or industry you are passionate about and that you think could sell in international markets.
For Cuffe, that product turned out to be wine. She felt a connection to the product not just from a quality and taste standpoint but from a social justice standpoint as well.
“When I first entered the industry in 2005, there was just one black winemaker and five black-owned brands,” she says. “Today there are 17 black winemakers and 31 black-owned brands.”
Though the South African wine industry still deals with injustices like poor working conditions and unequal access to capital, Cuffe says things have improved since the previous decade thanks to the increased sales and notoriety of South African wines worldwide.
“The biggest thing that we’ve enabled is the financing of black businesses. When we first got started, in order for even these brands to create their own wine, they had to source it from existing white wineries, because they didn’t own any land,” Cuffe says.
Once you find your product, you also need to identify the right market for it. After all, you need someone to sell it to! This is where your trend-spotting skills come into play. The best products for an import/export business are products that are just starting to become popular, or show some promise to being so in the future.
You can conduct research with resources like GlobalEDGE’s Market Potential Index or by checking with local government officials and websites, such as the Department of Commerce International Trade Administration’s Data and Analysis. You can also find reports on the state of the imports/exports industry with the Census Bureau Foreign Trade.
From there, it’s best to start “slow and steady.”
“Test your ideas,” says Cuffe. “Don’t assume that what you think will sell because you love it will catch fire in the market. What catches fire in the market is more than just the way it tastes—it’s who you know, and the packaging and serendipity of timing, and all of the indirect soft stuff that makes the difference.”
3. Source Your Suppliers
Once you have a product you’d like to trade internationally, you need to find a local manufacturer or other producer that makes your product and can lead to a strong partnership. A good relationship with a supplier is crucial to long-running success in an imports/exports business.
Generally, you can find suppliers through companies like Alibaba, Global Sources, and Thomas Register. You will need to convince the supplier of the benefits of entering the U.S. market (or another market you wish to sell to), and figure out the logistics of taking their product from their local warehouse or production facility to another one, potentially on the other side of the globe.
You might also be your own supplier—in some cases, as Cuffe occasionally is for herself.
“We own an interest in a vineyard in South Africa called Silkbush,” she says. “My orientation when I do business to them is, 80% of the grapes that we pick we send off to domestic wineries who use our grapes to produce their own proprietary high-end wine. The remaining 20% is used to create our proprietary label Silkbush, which we export to foreign markets.”
4. Price Your Product
You know what product you want to work with and you’ve identified your target market. Next up, figuring out how much to charge.
Typically, the business model on an imports/exports business includes two key understandings: The volume of units sold, and the commission made on that volume.
Be sure to price your product such that your markup on the product (what ends up being your commission) doesn’t exceed what a customer is willing to pay. But you don’t want to make it too low such that you aren’t ever going to make a profit.
In the imports/exports industry, importers and exporters typically take 10% to 15% markup above what the manufacturer charges you when you buy the raw product.
5. Find Your Customers
Next up on how to start an imports/exports business? Finding customers to sell to.
Deciding on a market is not the same as finding your customers. You can’t just send your products to the Port of New York and start selling your wares on the docks to whoever walks by. You usually need to find distributors and clients who will take on your product and sell to others.
If you have a quality website that includes digital marketing campaigns, your customers may end up finding you. But to get started, Cuffe suggests doing things the old-fashioned way—by cold-calling. Check with any local contacts you have in the area, contact the area’s Chamber of Commerce, trade consulates, embassies, and so on. These entities might be able to give you a local contact list that could be vital help in starting a imports/exports business.
“I cold-called the local Cambridge, Massachusetts, Whole Foods store, and they gave me a chance. And now we do display programs and regional programs with Whole Foods,” says Cuffe. “A lot of what I did in the beginning and even today involves cold calls.”
6. Get the Logistics Down
Perhaps the most complex aspect of importing and exporting is the logistics of taking a product created somewhere and selling it somewhere else. How does the product make the trip from the vineyard of South Africa to the wine glasses of drinkers in California, for example?
“When you are operating within a supply chain where your customer is different than your client, which is different than your consumer, it requires an extraordinary amount of coordination,” says Cuffe. “I use a freight forwarder that on my behalf reaches out to shipping lines, like Maersk.”
Hiring a global freight forwarder is generally a good idea for all imports/exports businesses, as they’ll serve as a transport agent for moving cargo—saving you a lot of time and worry about getting your products from the factory to a warehouse. Essentially, you’ll give them information about your business and your intentions for the product, and they’ll arrange the shipping agreements, insurance, and oftentimes the licenses, permits, tariffs, and quotas of working within another country. This can remove a lot of the headache associated with starting an imports/exports business in an international trade market.