Necessity creates the means. As many of us are painfully aware, the earnings that we derive from our regular paying jobs never seem to be enough. Thus, we continuously open our minds for possibilities to increase our income and look for ways to earn money other than working double jobs. It is human nature, however, to search for something easy; yet earns as much profits with the least investment.
Here is one ideal business that you can operate from home: very minimal start-up funding, no inventory, no shipping costs, and if you’re lucky, can be highly profitable. It takes a lot of hard work, though, in the beginning, but becomes easier, lighter and profitable as time goes on.
What is an International Trading Business?
Trading, as it is popularly known, is the business of matching buyers and sellers. You call it International trading when you deal with people from different countries. Basically, international trading is acting as a middleman between the two entities located in different countries. Since we’re talking about international trade, keep foreign exchange rates in mind (click here for an explanation on what is forex).
It is actually exporting-importing, but without the hassles. You don’t carry inventory, you don’t maintain a warehouse, you don’t handle shipping, you don’t prepare the shipping documents, you don’t care about insurance, etc. All you will do is coordinate the functions of both the exporter and the importer. And the best part is — you get paid for it!
- Setting Up Suppliers and Buyers for Your International Trading Business
- Starting a Home-Based International Trading Business
- How to Find and Use an Export Management Company
- Starting a Home-Based Exporting Business
- Getting Leads to be Used for Starting An International Trading Business
- How to Become a Customs Broker
The hard work stems from overcoming the difficulty of establishing yourself as a bonafide international trader and be identified and recognized as such. If you are starting your trading activity from scratch, you will have to work hard on getting your company recognized as reliable trading outfit, be seen as credible and worthy of the trust of buyers and sellers.
In the stock market, the buyers and the sellers work very closely with their brokers. The same thing happens in trading. You need to earn the trust of both parties before you can begin.
How to Start an International Trading Business
Before you get excited, you should bear in mind that the business of trading is not easy. Since you will be negotiating business for companies separately located across the globe, it is but natural for these companies to be wary in transacting business with you at the start. With transactions involving hundreds of thousand of dollars, a company cannot leave the outcome to chance.
To be successful in an international trading business, it is imperative that you start on the right foot. Communications is a vital part of the operation. It is important that you should put a little investment in computers, telephone and a fax machine. Even if you have no Web site, you can conduct your negotiations by email. The fax machine comes in handy when you need a copy of a signature before you receive actual signed documents or a signed contract. You might also need a copy of a contract before signatures are affixed into it.
Credibility is a very important requisite in this endeavor. It is necessary that you are 100 % reliable. You must show an image of 100 percent reliability.
For a beginner, the best way to achieve this is to check out the companies who are selling the product that you intend to sell. Select a product that you are most familiar with. Good prospects are food, toys, electronics, electrical appliances, garments, etc. Try to contact any one of these companies and find out if they are already represented in the country where you want to sell. There are cases where their present or previous business relationships are non-exclusive, so you must check on that, too. You can also ask if there is any particular country that they can accommodate you as their representative.
For a company to accommodate your application to represent them in some countries, you may have to show them your credentials. Credentials include your experience, companies you have previously dealt with, merchandise you traded and even a bank reference. As much as possible, try to avoid presenting yourself as a newly formed company. Instead, try to project an image that you have been around and that you know the ropes. They will know it by the questions you ask and the answers you give.
It is therefore important that you have substantial understanding of trading activities before you even attempt to contact any company. When the company is not represented in a particular country, they will allow you to find a buyer for them on a case to case basis. However, in most cases. you have to take care of all the contacting process and expenses to bring an interested buyer to the exporter. Very often, most of these transactions become a “one-shot” deal because; either the buyer goes directly to the suppliers or vice versa on the second order, if there is any.
It is wise to make sure that you are formally appointed and your appointment papers as representative or agent is properly documented. The contract period must also be stipulated in your appointment (one year, renewable) including your compensation-in percentages of the value. In some cases, a company might agree to reimburse your expenses or provide you with an extra fixed amount to take care of your communications and other miscellaneous expenses. Embodied in this appointment are the responsibilities that you are supposed to take care at your end and the responsibilities of your supplier. You must do this with all the companies that you get involved with even if the deal is good for only one transaction.
For your compensation, most companies agree to share three to five per cent of the gross Freight-on-Board (FOB) value of the goods shipped. For bulk products, like grains and feedstuff, commissions may range from twenty-five cents to a dollar per metric ton. With non-volume products, the commission is slightly higher, reaching up to ten percent of the FOB value. Others also allow commission on CandF (Cost and Freight) or CIF (Cost+Insurance+Freight) value but this is rare. This important item must always be stipulated in the “offer” submitted to you by the supplying company.
Without the proper appointment from the supplier, the risk that you will no longer be a part of subsequent shipments is greater. Whether there will be future transactions or not, it is better that you have the proper appointment to be assured of your commissions, if there are any; and of course, display your credibility to your buyers.
Conversely, you must also make sure that the company you are representing is credible as well as reliable. You must also check their history. Get as much information as you can — how and where they source their supply including fulfillment history. You don’t want to represent a company that will disappear after you close a deal or will be unable to deliver. Don’t take this aspect for granted as it can jeopardize your future or cost you so much, just in case your supplier fails to deliver a vital commodity. Even delayed deliveries can cost so much money in penalties.
Furthermore, you should also make sure that your buyer has the financial capability to import. Check out their bank references and make sure that they are capable of making good any payment terms that you agree upon. If a Letter of Credit is required, make sure that they can open one with their bank. There are many cases that a trader loses his face (with his pants) and later disappear from the trading scene because of the failure of one of his buyers to open a letter of credit.
A letter of credit is a form of payment used in import-export activities. The buyer opens a letter of credit in his bank and the bank guarantees payment upon submission of pertinent documents that the bank will require. These documents normally consist of the Bill of Lading, the Packing List, Invoice, and Inspection and Customs Certificates as required. These are stipulated in the Letter of Credit and you must submit each one of them promptly, if your supplier wants to be paid by the bank faster. As a trader, however, your responsibility is to make sure that the Letter of Credit is opened on time. After that, all you do is wait for the shipment to come in – and your commission checks from your supplier.
Initially, try to concentrate on one product line. Show to your supplier that you dedicate more time promoting their product. Send them inquiries, request for price quotes as often as you can. In time, they will automatically protect you and consider you part of their operation in your own part of the world.
As you expand your product line, you follow the same process. Look for the supplier, find the buyer and negotiate. Eventually, as you become familiar with suppliers and buyers, you will find new product requirements for new suppliers and new buyers. Slowly, you develop your image as an international trader and before you know it, you will start receiving inquiries from buyers and offers from suppliers.
All these from the comforts of your home!
Originally published on April 2003
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
- Setting Up Suppliers and Buyers for Your International Trading Business
- Starting a Home-Based International Trading Business (Part 2)
- Steps to Start an International Trading Business
- Starting an International Trading Business: How to Get Leads
- Why Use Freight Forwarders in Your Export-Import Business