How to Become an Import or Export Middleman
American products are in high demand. How do I know? Consumers worldwide have spoken with their dollars. Total U.S. exports for 2013 reached $2.3 trillion (source: http://blog.trade.gov/2014/02/06/another-year-another-export-record/). Further, Americans love a good bargain and want to choose a vast array of quality products from around the world. Either of these scenarios create the perfect business model: becoming an import-export middleman.
What’s a middleman (or middlewoman), what do they do and how do they work? Below you’ll find out.
A middleman, or middlewoman if you bring it to the 21st century, is a firm that buys a product and in turn sells it directly to customers in his or her market. Oftentimes, middlemen are referred to as intermediaries. They typically do three things really well:
1. Specialize in a specific product line or industry (agricultural products or consumer product goods, for example)
2. Sell to a designated geographic market (Southeast Asia or the Middle East, for instance)
3. Sell to buyers in a particular industry (discount chains, independent health and beauty outlets, for example).
Middlemen know their lay of the land: They have a lot of know-how, numerous connections to the right people to get things done and excellent distribution channels to transport product efficiently to customers.
In the case of an export, middlemen represent a manufacturer in their own market, buy product in volume from them and then mark it up to make their profit.
For how to approach the manufacturer, read, Where Do I Start with an Import-Export Business, Point No. 2. The scenario might go like this: My company represents a cheesecake (as shown) company. We place an order for 1,000 cheesecakes, and export the cheesecakes directly to a customer in South Africa.
The supplier doesn’t know who our customer is. When we complete the transaction, our profit is $4,500. We expect repeat business every month on the same volume throughout the year. Hence our gross profit for the year is expected to be $54,000. Note: This is only one manufacturer that we represent. Many companies represent at least a half dozen different manufacturers.
In the case of an import, middlemen represent an overseas supplier, buy product made to specification from them and then mark it up to make their profit when they sell to a customer in their market. The scenario goes like this: My company contacts a supplier in Vietnam, and we place an order for 500 decorative woven baskets, import them to our warehouse in Boston, repackage them with our own company’s label and then reship directly to our customer in Boston. When we complete the transaction, our profit is $800. The customer in Boston doesn’t know who the supplier is, and we expect repeat business twice a month throughout the year. Our gross profit for the year is expected to be $19,200.
A question I am always asked: How do I protect my interest and hard work should the supplier or customer want to go direct? Get a contract.
Start with a template (refer here: http://www.intracen.org/itc/exporters/contract-templates/), consult with an international attorney to make sure the contract serves all of your needs and double check that the contract is enforceable should something go wrong. For additional information, read Reader Question About Importing a Product and Selling It Locally.
Whether you serve as an import or export middleman, some of the questions asked of you can be found here. For example, what’s your game plan for building a brand in a market? Have you represented other companies? Explain what you did. It can’t hurt to have answers for a few of these questions to build your case with a supplier or manufacturer.
A lot of manufacturers and suppliers do not have the capacity or experience to grow their product lines outside their own borders.
By making your case that you can do it for them and by following some of these suggestions, you can expand your business globally and theirs too.