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Chapter II.—THE HUMAN ELEMENT
The great majority of the American import trade in our day is transacted through import and export merchants, agents, and brokers. For practical purposes, they may be divided into two groups—those located at home and those located abroad.
CHANNELS OF SUPPLY AT HOME
The majority of American foreign-trade houses are located in our large seaports because of their ideal position as the national centers of (1) marketing, (2) transportation, (3) customs, and (4) finance, each of which plays an important part in the organization and operations of an import house.
THE SEAPORT AS AN IMPORT CENTER
An import center must be unexcelled in transportation facilities. An importer located near the head offices of transportation companies can personally look after the many traffic details connected with the handling of his merchandise and in this way reduce or eliminate freight-forwarding costs for brokerage services performed by agents in his interest. The same can be said of customs matters. The governmental headquarters for the Board of General Appraisers and the Court of Customs Appeals is in New York City, so an importer located there is in an advantageous position to secure prompt adjustments of customs difficulties. New York is the financial center of the country, and the large banking houses are equipped to handle all the details of foreign credits and payments. The ability to secure credit and capital sufficient to carry on a promising, foreign-trade venture is much more certain in such a center, and this in itself has attracted the offices of many import houses.
OTHER IMPORT CENTERS
While New York is the largest importing center, all of the ports of entry, such as Seattle, San Francisco, New Orleans, Baltimore, Philadelphia, Boston, and cities on the Canadian and Mexican borders are important, especially for those firms specializing in the produce of a particular country or continent. Some interior cities, such as Chicago and St. Louis, are importing centers for certain products. Importers are also located at points where raw products are used in manufacturing, as illustrated by rubber at Akron, Ohio, silk at South Manchester, Conn., and copper ore at Tacoma, Wash.
THE IMPORT MERCHANT
The import merchant, as the name implies, makes purchases in foreign countries, and imports the goods on his own account for
resale, at prices he fixes, to buyers in the home market. There are several classifications of American import merchants. They may carry on a general import business, bringing in all types of products from all over the world, or specialize in certain products or groups of related products.
There are comparatively few firms doing a really general import merchandise business; of these, the majority, are also commission houses and do an export merchant and commission business as well as an import business. There is a tendency, however, toward greater specialization in importing. In the case of large general importers, particular attention is being given more and more to the importation of certain products, and the firm's organization and reputation are largely dependent upon these specialties.
Those import merchants who do a strictly specialty business do not attempt exporting, as a general rule. They may handle both imported and domestic products, or they may confine themselves entirely to importing. Sorting, grading, cleaning, mixing, and blending may also be functions of specialized importers, and for this reason the latter may be, to a greater or lesser extent, also manufacturers. This type of importer also has an extensive selling organization to promote the sale of his products to retailers, wholesalers, and manufacturers in his own country.
Specialized importing is applicable both to raw staples and manufactured goods. The highest degree of technical knowledge is often required in the purchase of imported goods, and this not only concerns a knowledge of the product, even though it may be highly standardized, but also an expert acquaintance with foreign market conditions, an understanding of domestic demands, and ability in taking advantage of market conditions.
COMMODITY SPECIALIZATION IN IMPORTING Specialization is sometimes carried to the point where only certain grades or types of a commodity are handled
by one importer. For example, one coffee importer may handle only Brazilian, while another deals entirely in Colombian, beans. Specialization is basic in the general importer's organization, where there is a departmental set-up, according to commodities, with a specialist in charge of each department.
THE INDENT HOUSE Importers who import only upon orders received from domestic buyers are known as indent houses. An indent is a pro forma order, or specification, sent abroad for price quotation. Indent houses usually quote c. i. f. (cost, insurance, freight) prices, based on their knowledge of the market. Their profit results from (1) ability to buy advantageously as a result of their organization and experience; (2) ability to secure lower transportation costs; and (3) profits on exchange.
IMPORT MERCHANT—THE STORAGE FUNCTION
When the American import merchant buys for his own account he performs the same functions as the usual domestic wholesaler or jobber. He assumes the whole merchandising risk. In this way he gives a valuable service by carrying goods in stock, thus facilitating inspection of the goods by the purchaser and immediate deliveries. In giving this wholesale service he undertakes risks which the domestic wholesaler is not forced to assume, such as risks connected with exchange fluctuations, tariff changes, and risks growing out of the longer intervals involved between purchase and resale of goods imported from distant centers. For these risks and services he will command commensurate prices.
IMPORT MERCHANTS AS EXCLUSIVE AGENTS
An American import merchant may also act as the exclusive selling agent of a foreign manufacturer or merchant, having an exclusive selling territory for either part or all of the United States. Frequently the import merchant acting as agent may have a financial interest in the foreign producer firm or the foreign producer may have an interest in the importer's business.
IMPORT COMMISSION HOUSE
The term “import commission house” is often applied to an American organization doing also an import merchant business, but only small amounts of goods are imported on commission—that is, for å commission paid by the purchaser. Although an import commission house does not ordinarily buy on a commission basis, it may frequently sell on commission for the foreign producer or exporter. This has been developed from the practice of consignment in the import trade. The foreign seller of goods for which a ready market is available in the United States may consign the goods to an import merchant with directions to sell at market prices or at certain stipulated prices as a broker.
ADVANTAGES AND DISADVANTAGES OFFERED BY IMPORT
Purchasing by local United States firms through an import merchant has some advantages over direct purchase from the foreign producer. First, the importer is usually better equipped to obtain accurate information of foreign market conditions than the domestic buyer. If he is a specialist he maintains contacts in all the world's markets for the goods in which he is specializing and is frequently able, by reason of this, to obtain not only the best-quality merchandise but also better prices. This is not particularly true in the matter of prices, since the foreign seller, not knowing the identity of the ultimate purchaser (which would be the case if he were selling to the purchaser's traveling buyer or foreign branch or agent) and therefore not being familiar with the extent of his needs and requirements, often does not offer the best prices through an import merchant.
IMPORT MERCHANTS AND CREDIT
An established import merchant is often able to secure more favorable credit terms, insurance rates, and shipping rates, however, either as a result of larger purchases and shipments or because of his dependability and reputation in the trade. Any one of these factors might make it possible for him to quote lower prices to the domestic purchaser than would be obtainable through direct importing.
RESIDENT AGENT OF FOREIGN MANUFACTURERS
A number of important foreign producers have resident agents in the United States. These perform the selling function, on a commiission basis, for their principals. They are usually assigned to a given territory and obtain orders from wholesalers, jobbers, and retailers.
These individuals may at the same time represent a number of foreign manufacturers who are offering allied, but noncompetitve, products. They usually confine themselves to calls on certain well-defined groups of distributors, such as hardware merchants, garages, stationery stores, dry-goods merchants, etc. They are salesmen, not order takers, and they assume no financial responsibility except to undertake to sell only to responsible people. Many of them sell on terms that call for payment of the draft by the buyer against presentation of documents (D/P) and agree to try to resell the goods in case the draft is refused. There is also the "del credere” agent, who assumes the entire financial responsibility of the transaction.
The resident agent may also have other functions. He may receive goods in his principal's name and stock them in anticipation of sale and delivery. He may cooperate with the purchaser in promoting advertising and selling schemes to establish a permanent market for his products. He also attends to many of the technicalities involved in importing, such as bringing the goods through customs, providing for forwarding, and arranging for deliveries to the domestic buyer. When dealing with a resident agent the domestic buyer of imported goods is largely relieved of these functions—which is often to his advantage. However, American buyers should always investigate the moral and financial responsibility of the agent as well as his principal. The contract of agency between agent and principal establishes the authority and limitations of the acts of the agent, and since legal remedies are costly and involve much delay, it is well for the importer to inform himself of the respective liabilities of agent and principal before entering any agreement with them. This is particularly true where the contract calls for certain performances by the seller, such as advertising service, after the goods purchased have been delivered and paid for. The past record of agent and principal in living up to their warranties, providing adequate packing, marks, and documents, and effecting prompt deliveries should also be checked to the same extent as any prudent purchaser would investigate any other seller.
POSITION AS REPRESENTING THE SELLER
When dealing with the resident agent, it should be remembered that his commission is being paid by the foreign seller and that he represents first the interests of the exporter. His object is to obtain the highest prices for his principals. However, his success depends on establishing and maintaining friendly relations with American buyers, and his services must be satisfactory if his business is to expand.
WHOLESALER AND JOBBER
The domestic wholesaler or jobber may also be an importer. Although the American import merchant performs a wholesale function, he is not in the strict sense of the term a wholesaler, the latter term indicating one whose major sales are in goods of domestic origin. The wholesaler, therefore, is usually an importer to only a limited extent, and the volume of his import purchases depends on the demands of his retail customers and the type of retail outlets which he services. As a general rule, large retail establishments such as department stores and chains have their own importing facilities and do not purchase imported goods from wholesalers or other importers, but the small independent retailer, who requires credit extension and a ready source of supply, is dependent upon the wholesaler for many kinds of imported merchandise.
The wholesaler generally imports nonperishable items which may be stocked in quantity without fear of changes in style or violent price fluctuations. These articles are for the most part low-priced specialties having a wide market and established demand.
Wholesalers as a rule make their purchases through import merchants, brokers, and resident agents of the foreign producer. This method is most practical when the wholesaler has no importing facilities or when the import merchant, broker, or agent is not sufficiently organized to distribute the goods to retailers and manufacturers in the wholesaler's territory.
In exceptional cases the wholesaler may have his own importing department and establish purchasing agents abroad or send out traveling buyers. This is only done, however, when the quantity of purchases warrants such additional expense, or when the character of the product makes it advisable for the wholesaler to maintain an experienced buyer in the country of export. An illustration of the importance of these factors is the case of certain wholesale grocery companies, selling blends of coffee under their own brands. The success of these brands on the domestic market depends on the quality of the blends and the persistency with which they are advertised. Coffee blends can be maintained only by rigid adherence to specified proportions and to the quality of the beans used. The body, acidity, and flavor of Latin-American coffees differ between localities and countries, and they can only be determined by an expert from a cup test of roasted beans. If the wholesaler imports from the producer direct, and does not maintain adequate testing facilities at the source, he may be forced to accept shipments which do not conform to specifications. On the other hand, by purchasing through a New York broker, the wholesaler is assured of quality, since he can reject shipments which do not come up to standard.