Your success in the trading business will greatly depend on the strength of your initial groundwork. Just like any endeavor, your trading business can be blown away by a small error. It is necessary to develop the proper foundation right from the beginning, as everything will come relatively easy if the business is properly set up.
Many people think that trading is simply a matter of matching the buyer and seller and collecting commissions in the process. In reality, however, it is not as easy as it sounds. Trading involves a complex set of activities that requires an astute business sense, good interpersonal skills and an incredible attention to details. For a start-up, you will be concerned with the following questions:
- Where do you find the seller and the buyers?
- When you find them, how do you communicate to them and offer your service?
- When you are able to talk to them, how do convince them to trust you and work with you?
- If they give you the chance, how do you make sure that you will not fail them?
- If your supplier fails to deliver on time, or deliver wrong or defective items, what do you do?
- If your buyer fails to open the Letter of Credit, what happens?
All these questions and more await the international business trader.
Trading is full of uncertainties. You measure your success if the item you sold finally reaches the hands of your buyer and the seller pays you your commission.
There will be a lot of obstacles, frustrations and some failures along the way. Trading is not for people with weak hearts and sensitive stomachs. However, you can be a winner if you follow these simple guidelines.
Selecting the Product
In selecting a product, the cardinal rule is to deal with products you know best. For example, if you are familiar with food items, then focus on them. The more you know about the product, the better you can run your trading operations.
Once you have identified your main product area, the next step is to define which category you want to get into. A main product category often contains a number of sub-categories. Start-up businesses will have a higher chance of success if they concentrate on a more focused product line.
For example, if you want to trade food products, determine what specific food item you would like to deal with. Food is a very sellable commodity; however, the field is overwhelmingly wide with over a hundred sub-categories. Even if you narrow down your choice to frozen food for manufacturing purposes as your main product line, this category still contains a number of other products. Frozen food may include frozen beef for manufacturing of corned beef; pork for manufacturing of bacon, sausages, and hotdogs, etc; dressed chicken; and turkey, and so on. You should decide on one or two main products and concentrate your trading efforts on these items.
Be Open to New Possibilities
While concentrating on a few product lines, you should always leave yourself open to options and new possibilities.
Sometimes, your prospects may not have an immediate need for your main product, but they are willing to give you the opportunity to make an offer for an item that they presently need. You must always be ready for any new opportunities, as the needs of your buyers change. As you go along the international trading business, there will be times when you will be closing a deal on a product that you never even thought of. If you leave your options open, it only takes a simple checking of your list of suppliers and buyers – a list that you must always keep handy and readily accessible.
Gathering Data and Information
Research is crucial to a successful trading business. Your business direction and decisions will be based on the kind of information and data that you have. The more effort you put in research, the better your chances of success in international trading.
Your first step is to gather as much information as you can about the country that you will be dealing with. (One bit of advice: it is much easier to work with your country first.) In particular, study the import and export statistics or reports of the country where you want to work in.
The export statistics provides general and industry-specific trade statistics for potential markets worldwide, as well as export trends and analysis. These reports also provide an overview of what products are being imported and exported, where from and where to, the annual volumes and total dollar values per country that a transaction has been undertaken. These data will help you plan your trading operations accordingly.
The export statistics will be your main source of information while you are in the trading business. Read it, study it and find ways on how you can make the data you see work for you. It should be your best friend.
Almost all countries have trade information readily available in their embassy’s trade bureaus or commercial attaches. There are some countries where you can access its international trade statistics on the Internet. If you are U.S.-based entrepreneur or interested in finding suppliers/buyers in the US, the U.S. International Trade Information ( http://www.ita.doc.gov) offers searchable databases of suppliers and the export statistics online. Your next step is to list down the top five or ten main supplying countries for your product. Going back to our example, list the countries most actively engaged in the trading of frozen beef, pork, chicken, turkey, etc. for manufacturing. Be as specific as possible when looking for data.
In line with my earlier advice to keep your eye open for new opportunities, you may also want to look into data of closely related and complementary products. While focused on frozen foods for manufacturing, you will find suppliers of frozen food dealing with choice cuts for restaurants/hotels and retail reselling.
Identifying Potential Contacts
After getting your list of supplier countries, the next step is to get the specific names of suppliers in that country.
You can find the names of suppliers in Trade Directories available at embassies and commercial attaches. One word of caution, though: many of the listings carried by the Trade offices are outdated. Some companies listed are already well represented. Others may have changed names, or even folded up. You can seek additional information for new listings by actually talking to a trade representative or attaché. These people will always be willing to help you and may give you new names that may not be found in the directories.
The shipping manifests from your country’s Bureau of Customs (if available) are another extremely useful resource. In some countries, these data are not available to the public.
An alternative is to look for companies who gather information on shipments that come in from abroad or from local ports and sell the information as trade leads. These leads contain the shipper, the buyer, the merchandise and the volume of shipment — enough information for you to initiate the first contact.
The Internet is also full of trade leads. The U.S. Department of Commerce operates TradeNet (http://www.tradenet.gov) that contains government, university and private sources of trade leads. Some of the leads are free, but some are membership-based and requires payment of subscription fees. Exercise prudence and caution in dealing with trade leads on the Internet: many of them are outdated listings, some of which are erroneous.
As soon as you get the shipping information, the next step will be to check the actual contact addresses of the shippers. Keep the names of the buyers because they will be your prospects, too. You can oftentimes get the complete contact addresses in the embassy or trade offices. Another way is to use the Internet or search engines to get the actual contract addresses, if available.
However, getting the contact names and addresses is only the first step. Always remember that the companies in your list are already shipping its merchandise into the country. Chances are, somebody else is already representing them.
One way to get around this is to list the names of those companies in the trade directories that are not in the shipping manifests. These are your prospective suppliers whom you will offer your services. You may also attempt to send the same offer to companies who are already shipping their products to your country (but this is more of a long shot), to at least inform them of your presence.
A word of caution: it is to your advantage to deal with companies listed in trade directories of their respective countries. A company listed in a country’s trade directory can give you the peace of mind. It implies that you are dealing with a legitimate and reliable company recognized by their Trade Departments. Of course, you still need to do your own research about the company.
These directories contain several hundreds of company names — from big to obscure companies. Though for our purposes, it is advisable to gather all of these company names. Big names are normally well represented in the market, while the obscure and smaller companies are often easier to deal with. To you, however, the important consideration is to find the company who will give you the opportunity to represent them – whether that company is big, small or obscure.
Making the Initial Contact
Once you have a good number of lists, you are ready to make your first contact. Prepare a letter, a fax message or email, whichever is available and where you feel most comfortable, and offer your services to represent them as an agent in the country where you want work.
Include in your letter the following information: your qualifications, your experience and background, your familiarity with the market, and one good reason why they should give you the privilege of representing them.
Difficulties of a Trading Start-Up
As a new trading company and working as an individual to boot, expect some difficulties in getting the exclusive agency agreement. Nonetheless, you can still find companies that will be willing to work with you on a case-to-case basis. This means that the supplying company will give you their offers, normally subject to their final confirmation, but without any long-term commitment. In other words, you will be working on a transaction-to-transaction basis. You will have to watch over your clientele, always hoping that they give you their next orders.
New traders always worry about this situation. Before they have made the first sale, they are already worrying about the possibility that the client or the supplier will not involve him in the next transaction. Worse, the buyer may directly contact the supplier and eliminate the middle man (you) in the process. This insecurity is usually inherent to businessmen who are new in the trade. Nevertheless, this is a risk you will have to take as a beginner who is still groping his way to make the right contacts.
While trading is a very competitive field, the above fears oftentimes do not materialize. Trading companies usually operate on a word-of-honor system. Trust is a big word in the trading business: sellers trust you to put on the market their products while buyers expect you to deliver what they need all the while meeting the expectations of both parties. Even if you have doubts about your next transaction, trading companies will normally inform you if ever your client attempts to make a direct contact. This is where you must build a strong relationship with your suppliers.
Once you have made your contacts and have some received positive responses from potential suppliers, our next mission will be to lay down the groundwork for our buyers. That will be our subject for the next issue. In the meantime, get those emails and letters out and start your international trading business.
Recommended Books on Starting an International Trading Business:
- How Small Business Trades Worldwide: Your Guide to Starting or Expanding a Small Business International Trade Company Now
- The Handbook of International Trade and Finance: The Complete Guide to Risk Management, International Payments and Currency Management, Bonds and Guarantees, Credit Insurance and Trade Finance
- International Trade: An Essential Guide to the Principles and Practice of Export
- International Logistics: Management of International Trade Operations (with Make the Grade Printed Access Card)
- Import / Export Kit For Dummies
- Understanding Global Trade
- Export/Import Procedures and Documentation