but doesn’t take title to the goods). For example, you know the sweater manufacturer in Japan, and you know that Macy’s, Bloomingdale’s, and Nordstrom are interested in buying the sweaters. You can bring the sweater manufacturer and the U.S. department stores together, without ever taking title to the goods.
In both cases, you’re involved in setting up an import/export business. The choice that’s right for you depends on how much money you have to invest and the amount that you hope to earn. A distributor has higher risks and greater expenses than an agent has, but a distributor also has more control over the process.
In this section, I explain what distributors and agents are and help you decide which path is right for you.
Understanding distributors
A distributor is an independently owned business that is primarily involved in wholesaling and takes title to the goods that it’s distributing. A distributor is a middleman who handles consumer or business goods that may be manufactured or not manufactured (such as agricultural products), imported or exported, and then sold. Figure 2-1 illustrates the distributor’s relationship to the seller and buyer.
© John Wiley & Sons, Inc.
Figure 2-1: The distributor is a middleman, working with the supplier and buyer.
Distributors typically purchase goods on their own account and resell them at a higher price, accepting the risks and the rights that come with ownership of the goods. For example, ABC Importing in New York imports women’s sweaters from XYZ International in Japan. If ABC Importing is acting as a distributor, it purchases the goods from XYZ in Japan and arranges to have the goods transported to New York and cleared through Customs. After the goods are cleared, ABC stores the goods in its warehouse and makes arrangements to sell and deliver them to its customers, including Big-Name Department Store.
✔ Is independently owned
✔ Takes title to the goods it’s distributing (ownership passes from the seller to the buyer upon purchase)
✔ Is often classified by product line (such as medical, hardware, or electronics products)
In the import/export business, there are two main types of distributors:
✔ Full-service distributors: A full-service distributor provides the following services to its customers and suppliers:
• Buying: The distributor acts as a purchasing intermediary for its customers.
• Creating assortments: The distributor purchases goods from a variety of suppliers and maintains an inventory that meets the needs of its customers.
• Breaking bulk: The distributor purchases in large quantities and resells to its customers in smaller quantities.
• Selling: The distributor provides a sales force to its suppliers.
• Storing: The distributor serves in a warehousing capacity for its customers, delivering the goods to its customers at the customers’ request.
• Transporting: The distributor arranges for delivery of goods to its customers.
• Financing: The distributor provides credit terms to its customers.
✔ Drop-shipping distributors: A drop shipper is a distributor who sells merchandise for delivery directly from the supplier to the customer and does not physically handle the product. The distributor does take title to the goods before delivery to its customer, however.
If you’re an importer and you’ve received a significant order from one of your customers, shipping the goods to the client directly from the overseas supplier may be more efficient because of the size of the order. In this case, you’re acting as a drop shipper. For example, ABC Importing in New York receives an order for 300 dozen sweaters from its customer Big-Name Department Store. ABC Importing purchases the sweaters from XYZ International in Japan. The 300 dozen sweaters will be enough product to fill a complete 20-foot shipping container. When ABC places the order, it provides shipping instructions to XYZ International, telling XYZ that when the goods are ready for shipment, they should be placed into the container, invoiced to ABC Importing, and shipped directly to Big-Name Department Store.
Both situations offer pros and cons. When you’re operating as a full-service distributor, you have a greater level of control. On the downside, you have a greater level of risk and need for working capital because of the significant additional expenses.
Understanding agents
An agent is similar to a distributor in that he’s a middleman. However, an agent does not take title to the goods and provides fewer services than a distributor does. The agent’s role is to get orders and (usually) earn a commission for his services. Figure 2-2 illustrates the relationship among the agent, the supplier, and the buyer.
© John Wiley & Sons, Inc.
Figure 2-2: An agent is similar to a distributor but hasfewer responsibilities.
For example, suppose CADE International is an import/export agent headquartered in New York. CADE is aware that XYZ International is a manufacturer of quality women’s sweaters in Japan and that Big-Name Department Store is interested in acquiring sweaters to sell to its customers. CADE is a middleman, bringing the seller and buyer together but not taking title to the goods and not providing any of the services that a distributor may perform.
✔ Is independently owned
✔ Does not take title to the products being purchased and sold
✔ Is actively involved in the negotiations for either the sale or purchase of the products
Understanding types of agents
The import/export business has two main types of agents:
✔ Traditional import/export agents: An export agent works in the country where the product is produced. For example, you may identify a producer in the U.S. and work toward representing that producer (the seller) in foreign markets as the export agent. Or you may work as an import agent based in the country where the product will be sold, in which case you represent the buyers. For example, you may know a company in the U.S. that’s looking to buy a certain kind of product overseas. You’d identify sellers of that product overseas and represent the buyer in foreign
