Some businesses might think that exporting is not worth the hassle, the expense or the paperwork. However, tapping markets abroad could increase sales to remarkable levels almost overnight, and exporting is not as difficult as one might think. This article discusses a few of the turnkey options available to companies wanting to export their products without worrying about the hassle.
Export Management Company (EMC)
These firms handle 100% of the export function. They either buy from the manufacturer at wholesale prices and resell themselves, or they act as an agent. Either way, the EMC handles packing, shipping, customs, and sales, or anything else that might arise.
An EMC acting like an agent will earn a commission on sales of at least 10% or more. Expect the commission schedule to reflect what you would pay an agent or salesperson in the home country of the good. An EMC acting like a distributor will buy the product and resell at their markup, however the EMC will usually pay less than a domestic wholesaler because the EMC has additional expenses to consider like shipping and customs.
The benefit of using an EMC is that the exporting manufacturer has instant access to a knowledgeable resource and an established network. The EMC should have extensive market knowledge of the destination country and be aware of the customs requirements and other bureaucratic considerations. Of course, never forget to extensively research an EMC that you are considering.
If you are inexperienced in the destination market and do not have the recourses to locate and staff someone who does, then a EMC might be the right solution for you. Think of it as outsourcing your own exporting function.
When not to use an EMC
The market you intend upon entering might be so complex that a joint venture could make more sense. An example could be a high threat of political uncertainty. Having a foreign partner in the destination country could help mitigate the threat of unfair government treatment. In such a case you would use a customs broker to get your products to your partner, and your partner would handle the distribution. Such an arrangement would probably cost much more than an ECM because of the revenue split with the foreign partner.
Export Trading Company (ETC)
ETCs operate by finding underserved markets in foreign countries and then finding global sources to fill the need. The U.S. is replete with ETCs looking to supply its markets with inexpensive foreign imports. Therefore, ETCs in the U.S. might specialize in finding manufacturers in China and India to make products for the U.S. marketplace.
Like an EMC, the ETC will assist the exporter in shipping, warehousing and of course selling their shipment. ETCs can operate like an agent or a distributor, taking either a commission or outright buying the merchandise at wholesale. One potential downside of an ETC is that they are hungry for opportunities. Should it be that at a later time, a more lucrative opportunity comes along, they may not provide the level of effort you need to meet your goals.
These are independent business whom exist only to profit from international trade. These firms do not necessarily specialize in any one good or industry. They simply seek out the best opportunities and commit to purchasing a good in one country and selling it in another. Merchants could be thought of as international distributors and could be a great way to capture some quick sales and begin building an international presence.
These are useful for exporters electing not to go with an agent such as an EMC, ETC, or merchant. For businesses that decide to ship and distribute their own product, the customs broker is an inexpensive way to outsource the bureaucratic elements of the transaction.
Many international shippers, freight companies, will be able to provide this service. Expect to pay between $100 to $350 per 40-foot container (ImportGenius.com, Ezine Articles). If your shipment will not require a 40-foot container, you can see that customs broker fees would be negligible.
How to Decide which is Right for You
A business must first determine that it is ready to export. There is the capacity to do so and the business can accommodate the growth. The following steps should help outline the consideration process:
1) Determine the type of exporting method you want to pursue. It could be that exporting the merchandise yourself or entering a joint venture with an established firm in the destination country makes the most sense. If one of the intermediary choices covered in this article seems reasonable then continue to step 2.
3) Once you have a list of potential EMCs or ETCs you should consider the following important criteria as established by the Small Business and Technology Center of North Carolina
- Experience in exporting similar products
- Size of the ETC/EMC
- Quality of the personnel
- Range of services provided
- Creditworthiness and reputation
A great way to support your research is to verify the intermediary’s reputation with the Better Business Bureau. You can also ask for direction with the U.S. Department of Commerce.