Imports and exports are a competitive and challenging business. There is always going to be a market for import/export businesses and starting one up is costly and can even be home-based. However, to ensure your business is successful, you need to be aware of government regulations, including any clearances by the Australian Government and additional taxes. Moreover, you need to understand the logistics and the administration required in the setup of a prosperous import/export business.
TYPES OF BUSINESSES
Firstly, there are three basic types of import/export business. When starting out it is a good idea to model your business on one of these types.
1. Export management company
An EMC handles export operations for domestic companies that want to sell its products overseas but don’t have the means to do it. An EMC will handle all of the details for the company to ship goods overseas such as hiring dealers, invoicing customers, distributors and representatives; handling advertising, marketing and promotions; overseeing marking and packaging and arranging shipping.
2. Export trading company
An ETC identifies what foreign buyers want to spend their money on and then finds domestic sources willing to export. While EMCs have their own merchandise and rely on their own means and resources in order to locate potential buyers, ETCs are doing it the other way around; spending their resources searching for domestic sources.
3. Import/export merchant
Import/export merchants are like a free agent as they purchase goods directly from a foreign or domestic manufacturer then packs, ships and resells the goods around the world on his own accord. Indeed, operating as a free agent means you assume all of the risks and rewards of selling that product overseas. If you are an import/export merchant, you may want to get in touch with a global freight forwarder to serve as a transport agent for moving cargo. This is more time efficient as they will arrange the shipping agreements, insurances, licenses, permits and tariffs.
Regardless of what business type you are planning to adopt, there are some steps that every import/export business must take.
Cover the business basics
Import/export businesses can be particularly attractive due to the low-cost start up. However, they require high organisation and administrative work in order to operate successfully.
Firstly, you must register your business with the state where your headquarters will be. It is recommended that you incorporate your business as an LLC. Benefits of incorporating as an LLC:
- Separation of personal and business assets
- Expense deduction
- Enhanced credibility
In addition, you will need a company website, so you should register a domain name.
Ensure you have obtained any business license you need to legally operate. Be aware of government regulations, including clearance by the Australian Department of Immigration and Border Protection. Note the product type you are planning to import or export may require a specific license such as tobacco and alcohol. Also, complete research on the other countries you will be dealing with as they may require special licenses.
Define your product and market
Identifying your product and defining what market you can best serve, is essential when set up and import/export business. Thus, you will need undertake some market research and ask yourself these basic fundamental questions:
- What are the types of goods you want to offer?
- Who is your target market or end-user?
- What country or countries will you import from or export to?
- Who will be your trade partners?
Determining your trade partner will configure your trade channel. Your trade channel refers to the means by which your merchandise travels from manufacturer to end-user. Your trade panther could be any of the following:
- Manufacturer’s representative: a salesperson who specializes in a type of product or line of complementary products
- Distributor: a company that buys the product you’ve imported and sells it to a retailer or other agent for further distribution
- Representative: a salesperson who pitches your product to wholesale or retail buyers, then passes the sale on to you
- Retailer: a business that sells goods to the public in relatively small quantities for use or consumption rather than for resale.Typically at the end of the trade channel.
Pricing
Finally, you will need to determine your service pricing. Generally, an import/export business charges based on commission or retainer. You would choose one method or the other based on how merchantable you believe the product to be.
Indeed, If you think the product is highly saleable, you will benefit more using the commission method. Charging based on commission means you paid a percentage of any trade deal you close. Usually being between 10% to 15%.
Otherwise, if you feel it’s going to be difficult selling the good in question and will require a lot of market research, adopting a retainer model will likely be better. On a retainer model, your client pays you a monthly fee to be on call when they need your services. Finding the most appropriate amount for your retainer should involve considering costs spent on labour, supplies and overhead.
An alternative third method is to simply purchase the product outright and sell it on your own accord. In this case, your revenue will not come from commission but rather directly from the profit generated by sales. Be sure to price your product such that your markup doesn’t exceed what a customer is willing to pay but you don’t want to make it too low that you won’t be making profit. Consider your overhead and the specific of what you’re importing or exporting such as its price, cachet and availability. These factors will play a huge role in dictating the price.
Phil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.
Raymond is a legal intern at OpenLegal, working with our legal content team. He is currently a penultimate student at the University of Technology Sydney, studying a Juris Doctor degree with an undergraduate Bachelor of Global Studies. He is particularly interested in Intellectual Property law and the increasing internationalisation of that area of business.
