I am really interested to share you some findings of what is export-import business is and how effectively anyone can start this business.
I am not a business consultant or expert. I am an exporter who is doing this export-import business from the last year and thaught I should share my personal knowledge and experience that will help you to start your own export-import business easily.
I have learned a lot of things about international trading and what was my expectation before starting the business and now the reality is on my hand.
Nowadays, in this 20th century. Import Export is trending topic around the world that everyone is excited to learn about foreign trade.
In this post, I will share with you everything from Export-Import fundamentals to startup capital and profit margins.
This post will help you to understand the whole procedure of the Export-Import International business, often called Foreign Trade.
So let me get to the main point. here is the pre-requirement of starting a lucrative Export-Import Business.
Understand the system of Export-Import.
The No. 1 thing is to know…
- What is the export import business?
- How its work?
- How the process flow from start to the next level?
So what is Export-Import?
Export is what a product or commodities which produce in a couontry at a huge quantity and supply that product to a country whare the products not produced or at a low volume and has a huge requirement.
And the import is the opposite term of it. That a product or commodities which is not produced in a country or at a low volume and has a very huge requirement of it, when the country bring that product called import.
Export is sending the product to another country while import is bringing the product to its own country
The person or company who export called exporter and who import it called Importer.
How does the Export-Import business works?
Firstly the exporter connects with the importer( I will tell you how to find buyers for your products) through any medium.
Then the exporter offers his product to the importer and telling him its price.
If the importer found his(exporter’s) product as profitable for him in terms of quality and price, they both get a contract which describes in below terms
- How much quantity of the product importer wants to buy?
- What will be its payment method?
- How does the product need to be packaged and shipped?
- In how many days Exporter can supply the product to the Importer
And after the contract has been signed up by both parties, the exporter gets to the next level, He sources the product, packaged it, and send it to the importer.
Understand the payment method.
Now the big point of foreign trade is Payment. How the payment flow in this business. What are the payment methods used in Export Business? How will you get paid for your exported product or commodities?
People often get nervous about what if they will not get paid for their export.
Well, there is a several way you can bring the money from abroad for your commodities. Exporter declared it in his contract paper that how he wants to get paid.
The methods used in Foreign Trades are,
- Letter of Credit (LC)
- TT or Telegraphic Transfer often call Wired Transfer
- Documentary Collection(Payment by Documents)
These are the three type of common payment method that functions on foreign trade.
Now I am describing you a brief of each of them.
#1 L/C or Letter of Credit.
The most popular payment method of export-import business is “Letter of Credit”. LC is the most secure payment method in international trade for both parties.
An LC is a commitment by a bank on behalf of the buyer. And the payment will be made to the exporter when all the terms and conditions stated in the LC have been fulfilled and verified by the bank through the presentation of all required documents.
That means when an exporter got signed up the contract paper by mentioning some terms and condition, and after he sent the product to the Importer through logistic service, Exporter provides some documents mentioned in the LC to his bank. And Bank will check and verified all of the documents and sent it to the Importer’s Bank.
The importer’s Bank received and checked all documents matched with the condition then said to the importer to clear the payment to get the documents.
Without these documents, the Importer couldn’t get the exported product from the customs clearance office.
So after the buyer makes the full payment to the bank, he gets the product from custom by the documents.
The exporter received the amount through the buyer’s bank in a few days.
There are various types of letters of credits like Revocable LC, Irrevocable LC, Confirmed and Unconfirmed LC, Transferable LC, Back to Back LC, etc. The Most common and safe LC is Irrevocable Letter of Credit. I will demonstrate all types of LC in another post.
#2 TT Telegraphic Transfer or wired transfer.
A Telegraphic Transfer is a payment method that transfers the amount from the buyer’s bank to the exporter’s bank before the shipment. It’s often used in international trading for advance payment option.
An exporter can avoid the credit risk because the payment received before the shipment. However, it involves a credit risk for the importer if the exporter wouldn’t send the product after the advance payment.
Advance payment opted by an importer only when he is well known about the exporter in details on genuineness as a Trader.
An exporter who prefers an advance payment method in their contract paper may lose his customer due to there are many competitors who offer much attractive payment method to the buyer.
#3 Documentary Collection.
A documentary collection is a payment method against some documents specified in contract paper. Credits are received from the buyer and sent to the exporter through the banks in exchange for those documents.
I will elaborate on this in another post.
Type of export Business
Before you going to plan or building an Export business, you should have to know that there is some type of Foreign Trading.
#1 Direct Exporting
Direct exporting means an exporting system of the company-owned export department, where a manufacturer export directly to the importer in foreign countries without a middle person.
A company manufactured its product and control the price, packaging, shipping, documentation by themselves and export to the foreign countries with no help of any local agent or buying house.
Most of the exporter, however, don’t utilize this system to their business.
The example of this type of exporter are manufacturers, producers, assemblers, etc.
#2 Indirect Export.
Indirect export means an exporting system where a merchant or company don’t export product directly but through a middle person or a buying house agent. This type of exporting raises the lowest amount of risk and cost because it is almost easy to start up the business rather than become a direct exporter and require a small amount of capital investment.
Indirect agents function as a middleman between the exporter and buyer and facilitate the flow of goods.
Example of this type to exporter are a Marchent, Supplier, Wholesaler, Export Management Company(EMC), Export Commission Agent, etc.
#3 Service Exporter
Service exporter is provided various type of service to exporter and importer. Service-exporters involve the banks, logistic companies, insurance companies, freight forwarders, Custom House Agent(CHA), consulting firms, and miscellaneous service companies.
The difference between direct and indirect exporting is that a manufacturer performs the task by himself in case of direct exporting and a manufacturer uses an intermediary person to make the export in case of indirect exporting.
So now you learned the basic information and main function and the culture of an International Business.
Now we will discuss how should you proceed to the next level to actually get started an EXIM(Export-Import) business.
we will cover here about
- How much money do you need for starting out?
- Which product or commodities should you export?
- Where you can find the buyers?
- What Documents do you need for the payment?
- How to ship the goods?
How much capital do you need to just start out the export-import business?
Most people tend to know about how much money do they need to just start an export business. there is a myth that if you are planning to foreign trade, loads of money could play a big role in just landing the business.
This is actually not true. You can just start the business as low as $2000. It depends on which product or commodities and how much quantity you are planning to export.
If you got an order which is crossed your funding level, you can ask the buyer for an advance payment to proceed the order.
These days it’s very easy to get intense funding for your export business.
Which Product should you export?
Choosing a product impact your International business very much.
There are millions of products are exporting and importing in the EXIM world.
The most important step in starting an import/export business is to find products or commodities which you want to sell in foreign markets. You may choose only one type of products or multiple types of products in your export business plan.
You must know all about your product. If you can’t provide the right information or providing an illusion of information, your buyer may treat you as an inexperienced trader and quit you to make a deal.
Think of the products you are planning to export. Think of this about whether you will manufacture the products yourself or purchase the goods from a supplier.
Your product should be different, higher quality, and reasonable-priced than your competitor’s products to beat the foreign market.
Find the target Market. How to find the buyer?
Once you find your product, now you need to search for the right market for it and a buyer to sell it to!
Do research for your product in which country has the most requirements of it.
And find the buyers if they are interested to import your products in their country. You can search buyer through a various channel like, online digital marketing, or online trading site, through the chamber of commerce in your states, Trade shows, or through your friends who live in abroad.
Create a seller profile on Alibaba.com, Aliexpress.com, DHGate.com, Globalsources.com and many other online marketplaces that allow an exporter to enlist and show their product to connect with customers acroos the globe.
You can also find buyers by visiting trade shows, trade conferences, or have a connection with your chamber of commerce. These will allow you to meet prospective buyers or partners.
Visiting in trade shows not just give you a prospective buyer, but also shows you a clear vision on your competitors too that what and how they are doing the foreign trade.
And if you are able to host a booth on there with your product presentation, buyer or importer will identify you as a verified authentic supplier.
How to make the documents for proceeding?
From registering your business in your local area to deliver your goods to the importer, there are a lot of documents you have to obtain to make a clear trade.
These criteria can differ from a country to another, you will have to check all rules and regulation with the country that you want to intend to trade with.
There are also several types of commodities that require specific paperwork for export or import
Feeling it like a challenge, right?
Well, you actually don’t need to concern all about this.
A CHA(Customs House Agent) do all of your paperwork with a just small amount of fees. From making the agreement paper to shipping bill, everything they will arrange on behalf of you.
Get to transportation. How to ship the products in Export Business?
Now we will discuss the last step of export business is Shipping your product to the destination country. Shipping your goods can be one of the most complicated aspects of export-import for a newcomer international trader.
Maybe the most difficult line of Export-Import business is the logistics service. Some goods or products are exported or imported better by the sea while others are shipping by airways.
Airways shipping is much faster but a little bit expensive and shipping through sea vessel is cheaper but a much slower to deliver the goods. For example, you can’t be shipped perishable products through the vessel because it takes more time to reach destination country rather than the airways.
And some of the countries use by road transportation services.
So ask your buyer through where he wants his goods to be shipped. Then hire a freight forwarder to do all of the things of shipping.
A freight forwarder is a service provider who serves as a transport agent. from moving cargo from your godown to seaport, they take care of all shipping arrangements, handling documentation, arranging insurance, and necessary licenses, permits, quotas, and tariffs, etc.
Hiring a Freight Forwarder is a really good idea as this can save you a lot of time, effort and remove the worry and headaches for a very inexpensive fee.
How I get insurance for my payment? what if buyer denies paying after the shipment.
So there is a question about what happened with your money if the importer is not willing to pay for the goods that I have delivered to them?
These are a difficult time with those type of buyers. not everyone is a real buyer, that’s why you need to analyze the buyer’s trading profile before you execute the order with him.
Well, there are many options to insure your money by taking an export credit insurance to protect your payment.
This insurance cover can purchase from any commercial insurance provider or by your bank.
Let people know about your Export Business. Make a Company Website.
Now its time to be alive. in these days if are willing to be a well-known person or company into international clients, you need a Website of your company. Nowadays this is very crucial to have a website to exist in the export-import world.
Your website should be designed with your product’s information, good quality picture of your product, price and your contact address.
It also needs to be included with valuable content of your export-import business that people understand your business term.
Do you need an office to start the business?
There is no obligation to have an office to start the business. You can operate the whole business just from your living room in front of your computer.
But if you are a large scale company and wants to store the products, then you might need a warehouse or a storage space. Otherwise, as a merchant exporter, you can start from home without any worry.
The export-import trade is a wide area and it needs a few time to understand the whole system of it.
From your living room to the seaport, you will experience a lot which you can’t find over the internet. This post is telling you the basic concept of foreign trade and clear your mind about its difficultness.
Export-import business is always an encourageable business. many people started their journey from their home and become the most successful business owner.
Congratulation to you for your first step in this export journey.