Most small businesses do not have the buying power to buy direct from overseas suppliers of raw materials, components, or finished products. Nor can they afford the overhead of maintaining an import department that would be required to manage the importation of goods from many suppliers in multiple countries.
Small businesses generally rely upon local manufacturers, wholesalers, or distributors to source their raw material or product needs. Many of these organizations are importers or representatives of foreign companies. In addition, most multi-national corporations have operations in the U.S. and have sales organizations seeking orders from businesses large and small.
However, under certain circumstances, it may be necessary, more practical, or desirable for a small business to seek supplies direct from an overseas supplier.
Reasons to import directly may be:
- Item is not available in the US
- Item can be sourced overseas for lower cost
- Overseas supplier has no representation in the US
- Item is unique to a particular area and importer has a special link through friends or relatives to local suppliers in that area
- Item needs special construction to the importer’s design and can be sourced overseas at a low cost
How to find an overseas supplier? The importer needs to research possible sources of supply.
- If a raw material is needed, e.g. pink marble, red granite, teak wood, etc. the buyer should research through encyclopedias at the local library to find out which countries have these raw materials occurring naturally.
- Does the item require precision engineering? Research countries that have a reputation for such skills – Switzerland, Germany, Japan, etc.
- Is the item electronic in nature? There are innumerable countries with an established electronic component and assembly industries. Open any electronic appliance and observe that the components may come from 6 – 8 named countries
- Examine competitive or similar products and determine where they were assembled or manufactured.
Once a number of potential source countries have been identified, conduct more detailed research by accessing the official Government web site of the foreign country, and by contacting the Commerce/Trade Commissioner at their embassy in Washington D.C. Once you have expressed your needs to the embassy officials, they will be eager to propose a number of potential suppliers in their country.
What attributes to expect of a supplier
- Can they supply the item(s) according to your quality and reliability specifications?
- Can they supply the item within your cost structure? Including shipping and insurance costs
- Can they supply the quantities required within your timetable?
- Can the supplier provide a sample of the item?
- Are they financially stable? Can they meet any investment required in supplying your orders?
- If the item is technical in nature, can they supply necessary documentation in English?
- Do they have adequate communication links for you? Fax, email, etc. Be aware of time difference between USA and the foreign country. Pacific Rim countries are 12 – 18 hours ahead of USA EST. Many businesses in Middle East countries close Thursday and Friday for the week-end.
Once a supplier has been selected you will have a contract/agreement or exchange of letters detailing how your orders will be processed, including shipping details and method of payment.
The most common method of payment is by letter of credit which guarantees payment to the supplier, and protects the buyer from paying and not receiving the goods. The process is as follows:
- Buyer places an order with the supplier.
- Supplier advises the buyer the order value including the insurance and shipping cost. (cif value)
- Buyer opens a letter of credit in the name of the supplier with a US bank having a correspondent bank in the foreign country
- When the goods are shipped, supplier delivers documentation, certified invoice and certificate of origin, to the correspondent bank in the foreign country that in turn send it to the buyer’s bank in the US
- Buyer pays the US bank in order to get the documents necessary to clear the goods through US customs
- US bank sends funds to their correspondent bank in the foreign country who in turn deposits the same amount in the supplier’s bank account.
Once a high level of trust has been established between the supplier and the buyer, the supplier may extend open account facilities to the buyer. In this case the shipping documents are sent directly to the buyer, and the buyer pays the supplier according to pre-established terms: cash on invoice, 30 days, etc.
The reader should be aware that trading with a supplier in a foreign country is more complex than with a supplier within your home country. There are many new factors to be considered which can be summarized as follows:
- Is it legal to trade with the country selected? Some countries are on a US embargo list. Check with US Department of Commerce
- Can the product be legally imported to the US? See US Customs regulations
- Is an import license required for the items being imported? See US Customs regulations
- Does the product meet all US safety regulations? UL, FDA, etc.
- If the product is packaged, does the product description on the package meet US requirements?
- Will US Customs levy customs duty on the item being imported? Has this been factored into the cost structure?
International Trade Resources: See Brief 13.06 for a list of valuable resources.
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