Starting an Import Business

Last Updated Oct 29, 2007 5:36 PM EDT

Importing is pretty basic: You simply purchase goods from one country to sell in another. The rationale for importing is twofold:

  • to obtain goods or materials from a source who either offers the lowest available price, or who provides the best quality for cost
  • to obtain raw materials, components, or finished goods that are not available in your own country

This article explains why you might consider importing, how to go about it, and some of the common pitfalls to avoid. If your business is unfamiliar with import procedures, it's a good idea to employ a third-party expert who understands the procedures required and can attend to them on the business's behalf.

What You Need to KnowWhere are the sources of supply?

One way is to respond to advertisements placed by would-be suppliers. You'll find them in various business and professional magazines, on the Internet, and in selected newspapers like The Wall Street Journal or The New York Times. If you need a supplier for particular items, advertise in the appropriate overseas publications and on your own business's Web site. Research possible sources thoroughly and make a personal visit to each supplier on your shortlist.

There are numerous search directories of products and services, too; the best known being Kompass (www.kompass.com). Kompass research reports on some 70 countries including leading trading nations. If direct access to information about suppliers in a given country proves problematic, that country's embassy in the United States may also be able to help. Moreover, there may be a joint Chamber of Commerce that encourages trade between the United States and your country of interest.

Should I retain an agent?

It's often a good idea to at least consider aligning with an individual or organization overseas to act as your agent and manage deals with suppliers on your behalf. However, expect to pay a fee or commission for such services unless the individual or organization works for an export program run by the foreign government. As with any decision to hire an agent, proceed with care and know what you're buying.

What to DoDecide How to Import

The simplest way to import is to do it indirectly: Let someone else manage the importing process for you and simply purchase the goods from that third party. These importers can be:

  • Wholesalers or import merchants
  • Commission agents or distributors working for the overseas manufacturer
  • A U.S. subsidiary of the overseas business

Indirect importing can be less risky since it usually involves buying from a U.S.-registered business operating under U.S. corporate laws and paying for goods in U.S. dollars. This option usually costs more than direct importing, however.

Direct importing is just what the term suggests; you will be contacting the overseas suppliers. It gives a business more control over the process and may even prove to be more profitable. However, it will be necessary to find the right overseas suppliers and to personally handle negotiations, regulations and paperwork.

Understand the Potential Pitfalls
  • Language. As an importer often holds the linguistic advantage over a buyer, language can be a significant barrier. Specify that any correspondence—particularly quotations and contracts—be in English. Making initial contact overseas will be easier if the manager or an employee of the business can speak the other language.
  • Risk of delay. The physical distance of moving goods increases the risk of delays and likely means that client-customer services will be more expensive. These risks need to be built into planning, especially if the business is run on a "just-in-time" basis.
  • Additional costs. The total cost of the goods bought has the potential to be much higher than the price agreed on for the actual items. Additional costs may include packing, transport, insurance, and customs duty. Any importer will therefore need to be sure to incorporate such costs in budgets or reflect them in the total contract price that will be paid.
  • Exchange rate fluctuations. It is essential to determine the currency to be used in the transaction. A foreign supplier is often much more comfortable dealing in its own currency and may be able to quote a more competitive price. However, you will need to pay for that exchange, and money may be lost if the exchange rate fluctuates between placing the order and paying for it—and fluctuations are common. If the transaction is in U.S. dollars, it will be easier to understand prices; but a supplier may propose a higher price for the privilege. The longer the time frame of the transaction, the greater the uncertainty and the more likely the cost will rise. If you anticipate large and frequent orders, buying in the foreign currency may be preferable, then hedging any risk by agreeing to a forward exchange contract with a bank.
  • Import Controls. Import sanctions, quotas, and other controls are an inherent risk, in part because they can be imposed by the U.S. government or be reflected in the export regulations of a supplier's country. All importers should check with their suppliers to find out if a home country requires an export license, for instance. The range of goods subject to controls can be extensive, and you should check with appropriate regulatory bodies to avoid last-minute surprises and problems. This many be time-consuming, but it's mandatory. Customs and Border Protection, part of the U.S. Department of Homeland Security, collects duties and can also provide details of the responsibilities expected of an importer. For example, the "Harmonized System" is an internationally recognized means of coding imports so they can be recognized in trade statistics and for charging duties. Both importer and supplier should agree on the full code number to be listed on all documents.
Ensure That Quotations and Orders are Clear and Consistent

State your requirements clearly and consistently when requesting proposals ("RFPs") so you can easily compare responses. Be sure to specify quantity, desired order date, shipping date and expected payment terms—form of payment, currency, and payment date. Be clear about such details as packaging, labeling, and transportation requirements that should include terms and responsibility for delivery. Also, cite any quality, technical or safety standards the goods must meet—as well as any legal requirements that must be satisfied. Before signing any deal, it's also important to first agree on whose laws will govern the sales contract.

The more professional your RFP looks, the more willing a company will be to do business with you. Naturally, it should include name and title of the person to whom responses are to be sent, the company's full address, phone and fax numbers, and e-mail addresses.

Agreeing to payment terms can be difficult until credit checks have been assured and verified. Signify good intentions by giving the chosen supplier the name of your company's bank and inviting it to ask for a reference (first inform the bank, though).

There are a number of ways to pay, ranging from cash in advance to cash on delivery. Two of the safest methods for all parties are letters of credit and bills of exchange. Your bank will be able to provide advice on how to manage such financial instruments.

Once you have chosen a supplier, the orders you place should include the same details as the quotation, plus any agreed amendments. It is also important to specify any purchase conditions. To avoid contract disputes, the supplier must agree to all such terms (and in writing).

Agree Transport and Delivery Terms

It's not unusual to see terms of delivery expressed with abbreviations that come from an internationally recognized list, known as "Incoterms." In some cases, though, definitions of terms vary by country. Here again, seek advice, this time from the International Chamber of Commerce.

Delivery terms, too, always should be included in RFPs and orders. They affect prices, where goods are to be delivered, and where possession passes from the exporter to the importer. These points are important in their own right, but also affect the final cost of what you're buying and insurance responsibility. What's being imported, its cost, quantity and urgency will all influence how you ship; and air, sea, rail or road options all have advantages and disadvantages. For some goods, the U.S. Postal Service may be another option.

If importing for the first time, it is often a good idea to use the services of a freight forwarding company. It usually has agents overseas and therefore can conveniently arrange most details of overseas transportation and insurance.

What to AvoidYou Don't Take an Exporter's Point Of View

As an importer, your business may be requested by its overseas contacts to research goods or services in the U.S.; they may want to start exporting specific goods through your business. A willingness to fulfill such reciprocal requests will help to build a good working relationship. There's a second benefit: You also will gain an expanded knowledge of the supplier.

You Don't Consider All Costs Early On

If price is a key factor, carefully consider whether importing really is cheaper, especially in cases where you also will be paying duties, transportation costs and agent's commission. Other factors, such as reliability of supply, may also be worth examining, too.

You Don't Inspect Goods Received

It is essential that any goods received be inspected promptly, should it be necessary to reject them or make an insurance claim. If so, do it now, not later!

Where to Learn MoreBooks:

Scarlett, Robert H. and Lawrence E. Koslow. Global Business: 308 Tips to Take Your Company Worldwide. Gulf Professional Publishing, 2006.

U. S. Customs Service. A Basic Guide to Importing. McGraw-Hill, 1996.

Web Sites:

Kompass (Table of Contents): www.kompass.com/kinl/static/en/about/index.html

U. S. Customs and Border Protection: www.cbp.gov

Office of the U.S. Trade Representative: www.ustr.gov

U.S. International Trade Administration: http://trade.gov/index.asp