agent in that she doesn’t usually represent a company. Instead, she’s traditionally hired to bring together one-of-a-kind or nonrecurring deals.
For example, a broker is contacted and advised that Company A in New York has an excess inventory of a soon-to-be-discontinued product. This is a one-time deal, because as soon as the goods are purchased, they’ll no longer be available. The broker identifies Singapore Electronics, a potential customer in Singapore, for these items. So the broker brings Company A and Singapore Electronics together for this one-time deal, and in return, the broker receives a commission from Company A.
Looking at the benefits and challenges of being an agent
Some of the benefits of the agent option are the reduced start-up costs and the limited working capital you need. The initial investment and costs of doing business as an agent are significantly lower than those that come along with operating as a distributor.
On the downside, when you’re doing business as an agent, you run the risk that the parties will bypass your firm and deal directly with each other on any future transactions.
Representing clients and getting commissions
The rate of commission when working as an agent depends on the nature and type of product, the nature of the market you’re selling to, and the level of competition. (See “Pondering Profit Potential,” later in this chapter, for info on typical commission rates.)
If you bring a buyer from one country together with a seller from another country, can you earn a commission from both parties? The answer is no. Why? Because as an agent, you’re representing someone. If you represent the seller, you have an obligation to sell that company’s products at the highest possible price. On the other hand, if you’re representing the buyer, you have an obligation to secure the products for the buyer at the lowest possible price. Obviously, drawing a commission from both parties would create an ethical dilemma. Think of an import/export agent like a real estate agent: The buyer has an agent, and the seller has an agent, but the same agent doesn’t represent both the buyer and the seller.
Analyzing Start-Up Costs
Capital is the money that you need to start and run your import/export business. Here are three types of capital:
✔ Initial/fixed capital: This is the money you use to purchase fixed (permanent) assets, such as office space, equipment, machinery, furniture, and so on, plus any money you need to start the business. You need funds to cover initial legal fees, deposits with public utility companies, licenses, permits, office equipment, advances for rental of premises, and so on. Finally, you need to allocate funds for your opening promotion, which are sometimes referred to as promotional capital.
✔ Operating/working capital: This is your business’s temporary funds. It’s the money you use to support the business’s day-to-day operations, such as salaries, office supplies, utility expenses, and so on.
✔ Growth/reserve capital: This is the money you need, as an existing business, in order to expand or change the primary direction of the business as well as to cover your personal living expenses.
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