Starting an export trading company

There are various types of export intermediaries-those individuals or companies that assume responsibility for different combinations of finding overseas buyers, sourcing and shipping products, and getting paid on the behalf of a manufacturer. The export intermediary may be a commissioned agent, an export management company (EMC), an export trading company (ETC), an export agent, or a re-marketer. Note that EMC and ETC are sometimes used interchangeably.

See Chapter 4 from A Basic Guide to Exporting (http://www.unzco.com/basicguide/c4.html#indirect) for definitions of various arrangements that export intermediaries may have with a producer. Another source for information on export trading companies is the Office of Export Trading Company Affairs (OETCA), part of the US Department of Commerce (USDOC). Their website at http://www.ita.doc.gov/td/oetca/emcs.html provides another description of export intermediaries.

If you are starting a business as an export intermediary or export trading company, you face the usual challenges of any business owner, such as developing a market, sourcing product, and managing cash flow. Because you are a start-up, you must develop a sales track record and, at the same time, develop a relationship with a manufacturer to represent. You will be competing with other established trading companies for the manufacturer's business.

When you are considering ways to market your services, look at your competitiveness from the manufacturer's point of view: why would a manufacturer hire you to represents its products? An older handout from the US Department of Commerce targeted to manufacturers entitled "Want to Export?" lists the five most important factors in choosing an ETC/EMC. These factors are:

• Experience in exporting similar products
• Size of the ETC/EMC
• Quality of the personnel
• Range of services provided
• Creditworthiness and reputation

Read the USDOC article, "Ask the ITA - Using An Export Management Company" at http://www.export.gov/exportamerica/TechnicalAdvice/ta_EMCs_0303.html from Export America (March 2003) for insights on how to approach a manufacturer about representing its product in overseas markets. You will need to convince a manufacturer that you have the five attributes listed above and can sell enough volume to justify an exclusive arrangement. Another Export America article, "Ask the TIC- Starting an Export Company” (from October 2002) at http://web.ita.doc.gov/ticwebsite/FAQs.nsf/6683dce2e5871df9852565bc00785ddf/bb02a748987424b885256c530064cf75!OpenDocument) provides information on assistance available to establish an export business.

Look to your past product experience in determining what product line(s) to handle. Consider ways to advertise your services such as placing an ad in a trade publication. You will probably need to develop relationships with manufacturers not just in North Carolina. Another business development option would be to list your name in directories such as: the Thomas Global Register at http://www.thomasglobalregister.com/ or others at websites such as http://www.anywho.com/international.html, at www.infobel.com, at http://yellowpages.myexports.com/, etc.

If you plan on developing a viable business as an export intermediary with a full-time income, you will have to approach it as a full-time business. Travel will be required to develop markets, establish distribution networks, maintain overseas relationships, or attend trade shows. You will need adequate cash up-front to sustain these efforts, since it may require six to twelve months or more to produce returns from your efforts. A Business America article, "EMCs/ETCs: What They Are, How They Work" (see http://www.sbtdc.org/pdf/emc_etc.pdf), although dated (1992, NFEA no longer exists), still addresses important items such as length of contracts, characteristics of intermediaries, relationships with manufacturers, and examples of trading companies. You may view and download a .pdf copy of this article.

Put your plans on paper by writing a business plan and preparing a cash flow projection sheet. For an outline, see the NC Small Business and Technology Development Center website at www.sbtdc.org/pdf/startup.pdf. The SBTDC provides business counseling and also conducts pre-venture orientation sessions at no charge. See the website again for the location of the SBTDC office nearest you. SBTDC business counselors will also critique your plan once completed and refer you to small-business-friendly banks and other professionals.

John Jagoe in his Export Sales and Marketing Manual lists the following as functions the intermediary or trading company may perform:

• possesses knowledge of products and/or export markets
• appoints local sales representatives
• promotes exporter's products and services
• places orders with exporter on behalf of buyers
• pays exporter for orders (usually purchases at US distributor price, less a "special trade discount")
• takes physical possession and title to goods
• arranges for transportation of goods
• pays all advertising and promotional costs
• delivers products to customers
• offers customer credit
• provides direct warranty and repair service
• probably does not maintain extensive product category

(note that Jagoe also offers on-line international training and FAQs).

Here is a short checklist of some start-up success factors for trading companies:

• adequate financing for operations for 12-18 months, plus overseas travel (minimum two trips per year, very roughly $10,000)
• industry experience
• overseas contacts
• international business experience and cultural awareness
• foreign language
• sales and marketing experience
• tenacity
• correct pricing of products
• sticking to your chosen product line
• proper screening of potential buyers

Problems we have observed with start-up traders often involve sourcing and financial strength. Some situations include:

• The start-up may experience difficulty in finding a source for the product needed by the foreign buyer, especially without industry experience. Searching broad categories in such directories as the ThomasNet.com at http://www.thomasnet.com or The Harris Book of Business Lists at http://www.harrisinfo.com/ can be very time consuming.
• The manufacturer may not want to deal with a start-up company that has no track record. The company's position can be weakened also by a lack of business cards, a poor presentation, and an expectation that the manufacturer will bear all the company's up-front expenses.
• Often the manufacturer won't sell to a start-up at a low enough price to allow the trader to make enough money for the risk involved. Potential intermediaries have complained that their final cost in the overseas market is higher than similar products already sold in the market, once all other transaction costs are calculated into the final price.
• A corollary is the intermediary's financial inability to purchase in large volumes so as to obtain an attractive discount from the manufacturer, if he/she wants to take title to the goods.
• The intermediary may fail to negotiate a longer-term contract with the manufacturer. Developing the market will take time and may involve much expense for the trader. A one-year agreement may not be enough to develop a market. The company may be eliminated from the transaction if the buyer and seller choose to go direct at the end of the year. Avoid being cut out of the deal by:
• establishing a long-term relationship with the seller (vs. brokering individual deals)
• clarifying the relationship via a signed agreement
• educating the manufacturer regarding services provided
• setting up the trading company as the sole link between the seller and buyer, meaning that the trader takes title and pays for the goods
• The trading company may lack an adequate capital base to start the business or may lack financial staying power to develop the business. Up-front promotional efforts may take 12-18 months. Becoming truly profitable may take 3-5 years.
• A related problem is lack of a business plan and unrealistic financial goals given the time required to develop a full-time, viable business. It is also difficult to develop the business by working evenings and week-ends while working full-time at another job.
• The start-up may lack experience in the product line chosen or lack focus on a reasonable sampling of products to represent. Representing too many industries may dilute efforts and limit in-depth product/industry expertise.

Other recommendations we can make:

• Operate as a corporation, due to the risks and liabilities involved.
• Get industry experience if you don't have it, in both exporting and the product line. Consider a job with an existing trading company or a freight forwarder to gain such experience.
• Read as much as possible on the export process, and research your markets. A good basic text is "A Basic Guide to Exporting" mentioned above, and also located at www.unzco.com/basicguide/index.html. Other useful internet sites to start learning about exporting are: http://www.ita.doc.gov/; http://www.export.gov/tic, and http://www.tradeport.org(see the International Trade Tutorial’s export strategy section for advantages and disadvantages to manufacturers of using an EMT/ETC.) Check your local library for books available on international trade, (e.g., the Charlotte library has Entrepreneur’s start-up guides (in particular, for import/export businesses). See also the SBTDC’s export overview for more information on the exporting process.
• Go slowly, develop relationships, and increase your experience and credibility. One large order improperly handled may wipe you out.
• Realistically estimate your potential income based on the number of shipments you can make given the size of the market and the competition. Determine if this is enough to support your business.
• After consulting secondary sources and doing your research/homework, focus on finding an actual need that is substantiated by primary market data and then source for it. Make sure it is more than a one-time opportunity.
• Be sure your business plan includes your marketing strategies.
• Attend training events/seminars. The NC Department of Commerce's International Trade Division sponsors "Export Ready" seminars on the fundamentals of exporting via the Community College system. See their webpage at http://www.exportnc.com/ for more information. You can also research other courses available such as those taught by the Global Training Center (www.globaltrainingcenter.com) or investigate on-line training as mentioned above under the Export Institute.

Points of consideration in export trading company agreements as adapted by Jean Marsh from a presentation, Understanding the Legal Environment and Risks of Doing Business in Latin America: Distributorship and Sales Agreements, by Ernest W. Reigel, Moore and Van Allen (June 24, 1993-dated but still valid).

1. Products to be covered by the agreement
2. Authorization for exclusive representation in market areas
3. Market areas (specific countries) included in agreement
4. Term of agreement (need 2-3 years to develop a market)
5. Outright purchase of goods by the ETC (recommended)
6. Prices, discounts offered to the ETC
7. Price changes — 60 days prior notice
8. Any repackaging of product needed for overseas sales
9. Any minimum annual purchase or order amounts
10. Returns, repairs, and spare parts — how handled
11. Trademarks and patent coverage — how handled
12. Regular meeting of supplier and ETC for market planning

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