Be honest. The main reason is price. While there are numerous variations between nations, U.S. labor costs including benefits is at a minimum $10-$20 per hour. China, on the other hand, is $1-2 per hour. The disparity in price is obvious. China exported over $500 billion to the U.S. in 2012 compared to about $20 billion ten years ago. The wage difference between the U.S. and China and other developing countries can pay for a lot of freight and inefficiency. The talk of products moving back to the states and consumers wanting U.S made products may be true. The reality is it’s an insignificant part of most markets.
There are other reasons. The infrastructure of many industries has simply moved overseas such as supplies, trained labor, and materials etc. In addition, efficiency, automation, support systems, technology, professionalism and even quality overseas continues to improve dramatically. For example, my experience is largely in apparel, home furnishings and textiles. They (China and countries like China) frequently do 100% inspection at every stage to ensure quality, while U.S plants generally used statistical testing inspections. The digital age has also made designs, communication and even language nearly instantaneous. Most important, these companies generally do not fit our old stereotype of little huts making a few items. Rather, they can be huge factories and organizations that worry about their brand, image and reliability as much as we do.
There are still some real and ongoing concerns. Overseas plants can have environmental and safety issues that should be concerning. Paperwork, laws, duties, transportation, and lead times that require extra organization and management can be demanding. Many overseas plants are making products for you and competitors. This means the level of direct competitiveness and the possibility of copying can be worrisome. To complicate matters, the majority of overseas plants are typically built for large quantities, minimums can be an issue and the economies of scale generally come from higher volumes.
How to Import
The most important issue to determine is what, how and how many you want. For example, I get clients who say, “I want to import apparel”, which is about as useful as I want to go out to dinner. The more information you have, the easier it is to develop relationships, find suppliers, and get reliable information.
Information you might need includes:
- specs; and
all the above are minimum requirements to receive reliable bids.
Interim Steps Prior to Importing
There are some interim steps to shortcut this process. You can provide competitors or similar samples, research other products made in the factories, and attend fairs overseas and in the United States. I also recommend researching Alibaba, a major international website exchange for potential suppliers. While you still need to eventually qualify each supplier, they can identify resources that should provide initial samples, prices and quantities. They are also useful to give you a few resources in a category to compare.
Get a Broker, Agent & Shipper
In general, you need a broker, an agent and a shipper. Some manufacturers where you have an established relationship can provide these services as a package. Even in this circumstance, it is likely you want to control your own destiny. Do you really want an agent recommended by the factory doing quality control or not searching alternative suppliers?
Foreign agents generally know factories and what they produce. With an agent it may be possible to set up contacts with a foreign manufacturer without having to visit the country. The agent acts on behalf of the domestic marketer to arrange shipment schedules, quality control testing and adjustments for disputed shipments.
Individuals or companies can clear their own imports through Customs, if the goods are for their business or personal use. No permit or license generally is required, although other government agencies may require these, especially for goods regulated by law such as alcoholic beverages, drugs and firearms. For convenience, most companies use a customs broker, since the cost is minimal. You and your broker need to ensure there are no special restrictions for your products or the country of origin. Brokers are also useful in tracking, communicating and resolving delays such as special inspections by customs officials.
First, remember you are shipping from the factory overseas to the plane, boat or other form of transportation. Second, you are shipping from the overseas location to the U.S. Third, you need to ship from the U.S port or plane to where it lands to you or your customer’s location. (Hint: Shipping from the Far East to the west coast is a lot less expensive and faster than the east coast.)
- A freight forwarder is your shipping agent for international locations. He/she provides the necessary delivery services of your goods. He/she gets your goods out of the country from the port of export to the named port of import, and perhaps onward, and will be familiar with all the export documentation required. Freight forwarders can also provide for export packing, insurance and trucking, in addition to ocean and transshipment services.
- A freight forwarder can also consolidate your shipment with other shipments going to the same or nearby international locations. For example: if your shipment only takes up half of a 20' or 40' container, the forwarder can consolidate your shipment with one or more other shipments to fill up the container. This will save you money.
- Freight forwarders can arrange for your goods to be shipped by air, by rail, by ocean going vessel, and by truck. He can also review all shipping related documents to make sure they comply with letter of credit documentary requirements.
- Freight forwarders can also make arrangements with overseas customs brokers to clear your goods through the port of import and onward if necessary.
- IMPORTANT: Do not try to do freight forwarding yourself. Firms like UPS and FED EX are starting to provide these services for initial and sample orders but beyond the samples they can be too expensive to employ.
The U.S. Foreign Corrupt Practices Act: A WARNING
If you are an American and do business in a foreign country (yes, this would include your exports to a foreign country and foreign client) you are subject to the provisions of the US Foreign Corrupt Practices Act of 1977, 15 U.S.C. §§ 78dd-1, et seq. (FCPA).The FCPA prohibits corrupt payments to foreign officials for the purposes of obtaining or keeping business. This is considered bribery under the statute. If convicted, criminal penalties can apply up to US$2,000,000 and five years imprisonment. Civil penalties can also apply up to $100,000. If you have a foreign agent or representative, and he bribes an official to obtain business for you, you can be penalized under the FCPA if it is determined this happened. Just because your agent or representative bribes a government official, doesn't mean you can avoid the provisions of the FCPA.
If you need to have an agent or representative in a foreign country, you must do a serious due diligence on that individual or firm; get some good written references and written background info on several individuals or firms. Don’t assume. When in doubt contact the US Justice Department in Washington, DC and request a Foreign Practices Opinion Procedure to get an opinion of what specific type of payment constitutes a facilitating payment.
Paying for Imports
There are number options available for business to pay for imports.
- The goods are shipped to you. An invoice is sent stating the payment terms and payment is expected according to the previously agreed upon terms of your order. (Open credit is unlikely for most import purchases.)
- You transfer the funds for the payment via your bank to another bank.
The most common, letter of credit.
- The conditions of the sale are stated on the letter of credit. The importer’s bank guarantees the exporter that payment will be made if the conditions of the sale are met.
The letter of credit has information about the:
- nature of the transaction,
- the amount to be paid,
- a description of the merchandise,
- what documents the beneficiary (exporter) must present to receive payment, and an
- expiration date.
- Most import letters of credit are irrevocable.
A security is established with the letter of credit by virtue of the fact that it’s a transaction between two banks - the importer’s and the exporter's. While the importer and exporter may not know each other and may not be able to establish credit worthiness, banks generally know each other, have open lines of communication, and can assess each other's credit worthiness readily. The issuing banks end the importer's letter of credit to the exporter's bank, which delivers it to the exporter. Drafts drawn by the exporter under the letter of credit are charged to the importer's bank for payment upon satisfaction of the stated conditions.
For safety and utility, imported merchandise must meet the same legal requirements that regulate domestic goods. Imports may be restricted because of import quotas, or because they are illegal For example, Foreign Assets Control Regulations prohibit the unlicensed exporting to or importing of goods originating from North Korea, Cuba and in certain circumstances Iran.
Importing and exporting offer huge opportunities for savings, efficiency, reduced investment and innovation. In many cases, despite the volume requirements that may be necessary to be competitive. However, they also require understanding, experience and details to do things right. In most cases, this involves competitive bids, going there yourself and hiring appropriate resources like agents and brokers. In particular, you must have a keen awareness of what can possibly go wrong, and make sure to specify as many details as possible in writing to be sure to avoid problems.
Other Information Sources
You can find freight forwarders near you at the National Customs Brokers and Forwarders Association of America's website: http://ncbfaa.org/
You can find customs brokers near you at the National Customs Brokers and Forwarders Association of America’s website: http://ncbfaa.org/
General guidance on the FCPA to exporters of US goods can also be provided by the US Department of Commerce in Washington, DC. Website: www.commerce.gov/
Familiarize yourself with the provisions of the US FCPA at the following US
Export-Import Bank of the United States http://www.exim.gov/
Overseas Private Investment Corporation http://www.opic.gov/
U.S. Agency for International Development http://www.usaid.gov/
U.S. Bureau of the Census http://www.census.gov/
U.S. Department of Commerce http://www.doc.gov/
U.S. Department of State http://www.state.gov/
U.S. International Trade Administration [Export & Import] http://www.ita.doc.gov/
Finding a sourcing agent http://www.business.com/guides/how-to-find-a-sourcing-agent-1210/
Help with Importing Clothing and apparel sourcing
http://www.apparelsearch.com/production_sourcing_agents.htm will provide assistance for sources for apparel
Have a question about importing? Connect with a SCORE mentor online or in your community today!