09/ 13/ 2004
by Jeffrey Moses
Importing would seem to be a simple business. You make an agreement to represent a foreign company, securing rights for distribution of goods in the United States. If the products sell, you and the company make money. If products don't sell, not much is lost. Right? Perhaps.
In fact, both these scenarios can lead to financial and legal difficulties. Even successful sales of imported goods can lead to trouble.
To help avoid this, follow these simple tips, many of which have been learned the hard way by seasoned importers:
- Never represent a foreign company or group of companies simply because you love their products. Acting emotionally can result in stocking up on too much product, meaning that you'll be holding the bag if they don't sell as you expected. Importing is not a business in which one can proceed intuitively. In this sense, it should be treated much like direct mail, in that small test runs of sales can indicate potential for success on a larger scale. Most companies are eager to sell in large quantities and will aggressively push potential distributors to commit on the largest possible scale. But as a new importer, or as an importer taking on a new product line, it's vital to test the market before making major commitments. If the companies you're thinking of representing cannot respect your need to take things slowly, you should consider if you want to work with them at all.
- Contracts with companies represented should be complete and agreed upon by all parties. A general importing contract can serve you for most of the new companies you work with. An attorney experienced in the field and amended for each situation should draw up this contract. Included in the contract should be, at a minimum: exclusive rights to distribute goods to the United States or other countries in which you will be working; current price of goods in the currency of the company's country; percentage of commission paid to you; duration of the contract; cancellation policy; rights for distribution of additional products in future; shipment policies; damaged or lost goods policies; and means of working out disagreements between parties (jurisdictions for international arbitration, mediation, etc.).
- Undertake all due diligence to determine the reputation of the company or companies you represent. If you establish contracts or lines of distribution in the United States or other countries, and then find that the companies providing the products are unreliable (or even go out of business while you represent them), you could be held liable for financial damages. At any rate, your reputation in the business could be damaged. New importers discover that the world of importing is small, and that reputations can be easily tarnished. Before entering a relationship with a company, get references from others about them. Contact representatives they've worked with before (even in foreign countries), trade associations and foreign consulates that may have information about the company's reliability and solvency.
- Understand all taxation and other financial import/export issues involved with the country of the company or companies represented. These may be simple and straightforward, but even the slightest importing snag could delay shipments or add extra cost. Also, you should be aware of pending or potential changes to these issues.
- Don't put all your eggs in one basket. Limiting yourself to imports from one company, or to one product, may put you at risk if your activities aren't successful. In general, it's best to represent products from a country with which you're very familiar, but contact a number of companies and try to represent varying types of products from that country. It will spread your risk.
Final note: Many of the ideas in this article pertain to exporting as well as to importing. When exporting, it's always wise to test the market before committing to large quantities of products; draw up comprehensive contracts with all parties; verify the reliability and solvency of companies represented; understand all taxation and exporting/importing issues; and spread your risk by representing a number of companies and product lines.
