International trade is the import and/or export of a product, service, or a commodity between companies or individuals in different countries. Trade exists because a buyer wants to import something that a seller in another country wishes to export. Saudi Arabia has plenty of oil; Japan uses petroleum products in its industries and to fuel its transportation needs. The United States produces software that is used throughout the world. The tiny country of Djibouti in East Africa produces nothing, so, therefore, it imports everything!
Common Characteristics of Successful Traders
Before launching your international trading company, be sure that you possess most, if not all, of the following characteristics or skills:
- Be a good salesperson
- Be organized and good at paperwork
- Enjoy working with people from different cultures and ways of doing business
- Have a background in international business
- Have specific industry expertise
- Enjoy travel
- Be prepared to work unusual hours
Types of Trading Companies
Generally, there are three types of trading companies:
- Commission-based brokers – This is the most accessible type of trading business to start and operate. Your job is to match buyers and sellers, and, along the way, take a commission each time you complete a transaction or trade. In this business, you rely on your contacts and your market knowledge. If you learn that an exporter needs to move 50,000 tons of wheat and you know that Russia had a weak harvest due to bad weather, you should have no trouble finding a buyer for the wheat in Russia. You are not responsible for the exporter getting paid, but you have an interest in the transaction because the seller will pay your commission upon completion of the transaction.
- Retainer brokers – In some instances, an exporter will ask a trader to assist in the sale of a product or commodity that is difficult to sell or for which there is a small market. The trader will agree to find buyers on an ongoing basis and earn a monthly or quarterly retainer (or advance) against future commissions that are due when a transaction closes.
- Principal or Distributor – A principal or distributor operates in the import/export business when they buy a product or commodity for the sole purpose of reselling the goods at a profit. In this case, in addition to using their network and market knowledge, they also use their capital. For example, a plumbing supply distributor in Des Moines, Iowa knows of a substantial construction water and sewer project coming up early next year. He believes that he will have a competitive advantage in winning the bid for the pipe if he buys the pipe now when prices are at their recent lows. He purchases plastic pipe manufactured in China in bulk.
An important reminder is that there are always two sides (and sometimes more) to every trade transaction and that one side of a transaction might be a broker and the other side might be a principal. It is also important to remember that every international transaction involves documents, shipping, insurance, and financing. Some traders will want to be involved in all aspects of a trade, and some will only want to broker a deal and let others handle the other aspects.
Getting Started in International Trade
The following is a step-by-step approach to launching your international trading company:
- Take care of administrative tasks. These tasks may include some of the following: company formation, insurance, licenses, bank account, line of credit, office and warehouse space, marketing materials, and other tasks. Meet with your professional services providers such as attorneys, accountants, and bankers.
- Create a business plan. Yogi Berra, the famous American baseball player, once said, “If you don’t know where you are going, you’ll end up someplace else.” Your business plan is where you answer all of the tough questions about markets, customers, products, type of trading business, which side of the trade, startup costs, monthly expenses, capital requirements, staffing plans, revenue and profit expectations in the early years, and other important aspects of launching a new business.
- Decide on your market space.. If you have grown up in the packaged food business, perhaps this would be an ideal focus market for you. Alternately, maybe you are aware that there is a severe shortage of disposable medical supplies in Sierra Leone. No matter, there is always a great deal of homework to do in determining your market opportunities.
- Build your network. Now that you know where you are going, build your network of manufacturers, distributors, importers, exporters, buyers, sellers, customers, and other market participants. Utilize your LinkedIn connections and social media.
- Execute your marketing plan. Start with your brand. What do you want people to think of you when they think of you? Where will you position yourself in your market space? What are your marketing strategies?
- Begin Selling. Use your network. Develop your sales pitch. Make calls. Start with a manufacturer or distributor that is experiencing slower than average sales. Alternatively, begin with a retailer that requires a higher quality product from a more reliable supplier. Set your pricing strategy.
- Make that first deal. Get paid. Move on to the next.
Does anyone actually do this?
Here are some real-life examples of entrepreneurs that started international trading businesses:
- A Libyan college student is finishing up his university degree in Boston. His family owns a large date farm in Libya. He conducts market research in North America and finds that there is a compelling market opportunity for packaged dates.
- An Iranian businessman has been importing PEX pipe made in China into Iran. The business has experienced some bad years due to international sanctions and a slowing economy. He decides to immigrate to Finland and, using his suppliers in China, import PEX pipe into EU markets.
- A US manufacturer of reusable water bottles has begun to export bottles to Brazil and other Latin American countries that he is familiar with from his years working overseas with a major manufacturing company.
- A software pioneer from the Czech Republic moved to the US to better reach email marketers in the largest market in the world.
International trading is open to virtually anyone, anywhere. Think about your market experiences and your product knowledge, and if you want a professional to help you develop your idea, just let us know.