American products seem to be in perpetually high demand, as evidenced by consumers worldwide who have spoken with their dollars; total U.S. exports for 2017 reached $2.3 trillion.
On the flip side, Americans love a good bargain and want to choose a vast array of quality products from around the world, which led the U.S. to import $2.9 trillion worth of goods and services in 2017. These scenarios take place because of the existence of many import-export middlemen.
Defining the Middleman
So, what’s a middleman, what do they do, and how do they work? 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 their market. Oftentimes, middlemen are referred to as intermediaries. They typically fulfill three functions:
- Specialize in a specific product line or industry (agricultural products or consumer product goods, for example)
- Sell to a designated geographic market (Southeast Asia or the Middle East, for instance)
- Sell to buyers in a particular industry (discount chains, independent health and beauty outlets, for example).
Middlemen have a lot of know-how, numerous connections to the right people to get things done, and excellent distribution channels to transport products efficiently to customers.
In the case of an export, middlemen represent a manufacturer in their own market, buy a product in volume from them, and then mark it up to sell and make their profit. For example, an export scenario might work like this: Say your company represents a cheesecake company. You place an order for 1,000 cheesecakes and export the cheesecakes directly to a customer in South Africa.
Your cheesecake supplier doesn’t know who your end customer is. When you complete the transaction, your profit is $4,500. You and your South African customer expect to repeat the order every month with the same volume throughout the year. Your gross profit for the year from this customer is expected to be $54,000. This scenario covers only one manufacturer that your company represents. In reality, many companies represent at least a half dozen different manufacturers.
On the Import Side
In the case of an import, middlemen represent an overseas supplier, buy a product made to specification from them and then mark it up to make their profit when they sell to a customer in the U.S, market, for example.
Say your company contacts a supplier in Vietnam, and places an order for 500 decorative woven baskets, imports them to your warehouse in Boston, repackages them with your own company’s label and then reships them directly to your customer in Boston.
When you complete the transaction, your profit is $800. The customer in Boston doesn’t know who your supplier is, and you expect to repeat business twice a month throughout the year. Your gross profit for the year is expected to be $19,200.
Safeguard Your Business
A logical question is, how do you protect your interest and hard work should the supplier or customer find out about each other and want to go direct? The simple answer is to get a contract.
Start with a contract template to make sure you don't leave out any important details, 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.
Whether you serve as an import or export middleman, you can ask questions of potential distributors by conducting a prescreening interview. 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 country borders. By making a case that you can do it for them and by following some of these suggestions, you can expand your business globally and theirs as well.