Import export business demands knowledge about international trade, proper licensing, and marketing strategy. This international trading is considered a profitable and lucrative business opportunity regardless you are staying in a developing or developed country. Some products just seem to have more appeal when they come from exotic locations.
Another factor that makes international trade businesses appealing is the fact that certain goods are much less expensive when purchased abroad. Certain products just cannot be produced in certain areas. And so importing them into one market from another creates an opportunity for both the producer and the buyer.
Is Import-Export Business Profitable?
The import-export business has a good profit margin considering the investment and operating cost. When the goods produced in one country are shipped to another country for future sale or trade is called export. Similarly, any product that is manufactured outside the country and brought in for sale, is imported.
The latest trade data from the Ministry of Commerce official site shows that India’s overall exports have touched $61.41 billion. This is an increase of about 37% compared to the same time last year.
Domestic manufacturers, who look for foreign distribution and foreign companies who want the international market both are your prospective client. You have to identify those companies and make a business relationship with them.
The international trading market opportunity is huge. There is a large number of manufacturers who are looking for foreign market distribution. The primary reason for export is to earn foreign exchange. The foreign exchange not only brings profit for the exporter but also improves the economic condition of your country.
Here are the 6 Steps to Start Import Export Business
1. Startup Cost For Starting an Import Export Business in India
You can initially start to import-export business from your home location also. As your business grows, you can think about office setup. In starting this type of business, your basic requirements are a computer with an internet connection, printer, fax machine, phone connection with ISD facility, and stationery office supplies items. Initially, you can use free software to manage to account.
2. Identify Right Product For Import Export Business
Identifying the right product is most crucial in the import-export business. However, you can find plenty of exportable products. However, you will need to care about some of the external and internal aspects. Such as the quality of the product, smooth availability of the product, and the most important is the cost of the product.
Some of the most popular export items are electronic equipment, toys, machinery, organic and inorganic chemical, plastic, medical equipment, gems, precious metals, pharmaceutical products, fruits vegetables, fertilizers, tea, oil, etc.
3. Analyze The Import Export Business Market
Keep informed. Get information as much as you can about world trade. Who is selling what to whom? You can find numerous products to sell, but you have to be sure to study where they are in demand and can get the price to make exportation viable. Finding the right market is as important as the actual particulars of making deals and selling goods.
If you do some careful studies and market research about the trends, you’ll be able to come up with hundreds of products to import and export.
4. Finance Management in Import Export Business
International trade finance is much different than domestic commercial transactions. When a product is sold and shipped overseas, it takes longer to get paid. Extra time and energy are required to make sure that buyers are reliable and creditworthy.
Also, foreign buyers – just like domestic buyers – prefer to delay payment until they receive and resell the goods. Due diligence and careful financial management can mean the difference between profit and loss on each transaction. The most common terms of transactions are as follows:
- Consignment Purchase
- Cash-in-Advance (Pre-Payment)
- Down Payment
- Open Account
- Documentary Collections
- Letters of Credit
5. Import Export Business Legalities
In starting an import-export business, you will need to obtain a specific license and permission from the Government Authority of your state. An export license grants permission to conduct a certain type of export transaction. It is issued by the appropriate licensing agency after a careful review of the facts surrounding the given export transaction.
When you are starting an import-export business and representing the manufacturers, it is important to pay special attention to the agreement with them. You will need to have a written and signed contract to bind this agreement. It is advisable to contact an attorney regarding this issue.
6. Import Export Business Operation
You can operate your import-export business in two ways. One is acting only as sales representatives, finding buyers, and taking commissions, but steer clear of the shipping, documentation, and financing aspects of the deal. Another one is offering a full line of services, buying directly from the manufacturer, and taking on all the responsibilities of transactions from shipping to marketing. According to the product and market decide the way you will be operating your business.
Your responsibilities vary with the terms of the agreements and orders. Check with your freight forwarder to be clear about your responsibilities.
A bill of lading is a receipt for goods shipped. It is signed by the agent of a ship or common carrier and assures the buyer that the goods were unloaded in the same condition as they were accepted. These are the documents you’ll need to produce for your banker to release the letter of credit.
FOB means free on board. The seller delivers the goods to a certain destination with no additional charges. The seller ensures and takes responsibility until that point. The buyer takes responsibility and pays the charges after that.
FAS means free alongside. The seller delivers the goods to the ship that will carry the merchandise. The buyer pays to load onto the ship and takes responsibility from there.
C & F means cost and freight. The seller pays the freight charges. The buyer ensures the merchandise and takes full responsibility after the destination.
CIF means cost, insurance, and freight. The seller is responsible for the value and condition of the goods and pays both insurance and freight charges to a certain point.
You will need to recruit a freight forwarder. Freight forwarders prepare documentation, contract shipping insurance, route cargo with the lowest customs charges, and arrange storage. They are valuable to you as an import/export agent, and they are important in handling the steps from factory to final destination.
In order to assure the quality of merchandise, some manufacturers prefer to handle freight to the loading docks, which makes it easier for you. If you handle overland shipping, follow through to be sure the merchandise is picked up and arrives safely at its destination.
Steps for Export
- Generate the pro forma invoice–give the importer a quote on your merchandise; negotiate if necessary.
- Receive the letter of credit from your bank.
- Fulfill terms of the letter of credit: Have the merchandise manufactured if necessary; make shipping and insurance arrangements; pack the merchandise, and have the merchandise transported.
- Collect shipping documents.
- Present shipping documents to your bank.
Steps for Import
- Receive the pro forma invoice, the exporter’s quote on the merchandise; negotiate if necessary.
- Open a letter of credit at your bank.
- Verify that the merchandise has been shipped.
- Receive documents from the exporter.
- See merchandise through customs.
- Collect your merchandise.
Import export business is not for everyone’s cup of tea. If you are an enthusiastic salesperson, a dynamo at tracking things like invoices and shipping receipts, you love the excitement of dealing with people from different cultures, then import export business is just for you. Go ahead.
Rupak is the founder of MUVSI. He is a small business consultant by profession. His mission is to make people know how to make money and understand personal finance for a better living.