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Domestic wholesalers and jobbers may also act as the exclusive agents of the foreign manufacturer or exporter and may obtain exclusive sales territories for the sale of his products.
THE IMPORT BROKER OR FACTOR
An import broker in the United States is one who buys foreign goods, not for his own account, but for the account of another. He never takes title to the goods. His function is merely to bring buyer and seller together and negotiate the contract of sale. He may act either as agent for the buyer or as agent for the seller. For this service he receives a stipulated fee, payable by the party engaging him. After the sale is consummated the domestic buyer imports the goods in his own name, and arranges for their payment directly with the foreign seller.
Import brokers are often specialists who, through long experience of markets and trade technicalities, are able to buy and sell to better advantage than could the general import merchant. Practical experience only will guide importers as to when the expert knowledge of the broker is wisely purchased at the cost of the brokerage fee.
WHERE IMPORT BROKERS ARE USEFUL
The import broker's function is especially important when a high degree of technical knowledge of the commodity is required; when the commodities are collected from a wide range of sources; and when the buyer and seller are widely separated. By keeping in touch with many markets, and with many importers and consumers at home and exporters abroad, the broker is able to render a real service to the buyer by enabling him to locate the exact quality of material needed and the source that can supply it. He differs from the commission merchant in that he is not associated with the physical movement of the goods nor the clearing of goods through customs.
The import broker's service is particularly indispensable for commodities of special grades that are produced in many countries and by many individual producers. An example of such a product is cocoa beans. A certain percentage of the cocoa beans consumed in the United States are purchased through import brokers. These brokers keep the manufacturers in touch with the sources of supply, prices, and other market conditions. The individual manufacturer of cocoa products could not well secure this information, from all markets, without great expense, nor could he obtain materially reduced prices from the producers by dealing direct. The broker's commission is usually only 1 percent of the purchase price, and as he deals in large quantities, no great saving through direct sale in smaller lots is possible. Import brokers offer a wide market at all times, and they can offer a market for all grades of cocoa beans, whereas the manufacturer does not make frequent purchases and requires particular grades.
Import brokers may also take goods on consignment. This is true to a large extent in the importation of perishable food products which must be offered on the produce markets for immediate sale.
CHANNELS OF SUPPLY ABROAD While most commodities are imported into the United States through middlemen located in the importing market, the merchants, agents, and brokers abroad are no less important. They frequently assist the United States import middleman located at home in the purchase of foreign merchandise, and in many commodities the importer depends on them entirely for the purchase of foreign goods. The latter system is usually known as direct importing
Direct importing is the importation of goods by the manufacturer or other consumer of foreign goods, or by retail distributor, directly from the foreign seller without using the services of merchandising middlemen in the importing country. The most direct method is the purchase of goods from the foreign producer by the importer. However, the buyer may purchase from exporters and large middlemen at the exporting ports, through brokers and agents in the foreign country or by sending out buyers to make purchases for him. Such an importer is considered as doing a direct importing business.
GROWTH OF DIRECT IMPORTING
Direct importing has developed slowly. This is due largely to two reasons. First, the purchase of raw materials is well performed by importing middlemen, and second, less attention has been given by American producers and distributors to the problems of purchasing abroad than to the problems of domestic selling. Great emphasis has been given in recent years to direct methods of export selling by exporters in the United States, but corresponding emphasis has not been placed on the problems of direct importing. Only recently have large purchasers of foreign merchandise considered the advantages of direct buying. With the increase in the size of stores and factories and with the development of cooperative systems for buying abroad, direct buying overseas has now become widespread among the department stores and other large retail organizations such as the chain stores, as well as among manufacturers, wholesalers, and jobbers.
FOREIGN MANUFACTURER AND PRODUCER
The foreign manufacturer and producer are the primary sources of supply of all imported goods. Their importance, therefore, cannot be minimized. The amount of goods which can be supplied to any given import market at any time, the price which must be paid for those goods, and the quality and adaptability of the goods to the needs of the domestic market, is largely under control of the foreign producer. These are the first factors which the importer must take under consideration before reaching a decision to purchase foreignmade goods. Thus, even though the actual purchase may be made from an import middleman it is advisable for the importer to ascertain, so far as possible, the integrity, honesty, and dependability of the foreign producer, so that he may be assured of a constant supply of goods and a continuing standard of quality.
FREQUENT IMPRACTICALITY OF DIRECT IMPORTING
As a general rule, it is not practical for American importers who have no foreign office to purchase directly from the foreign manufacturer who produces in small volume and who competes with numerous other small producers in the manufacture of similar merchandise. Usually this type of business may be better handled by an export merchant of the country of origin or by an American importer with local offices there who is equipped to purchase and assemble the products of all these producers and from whom the American importer may purchase better-selected merchandise at better prices.
However, with the growth in size of manufacturing and producing units, there has developed a tendency toward direct purchasing between the American importer and the oversea producer. Many foreign manufacturers maintain export departments for the purpose of promoting oversea sales, and such departments are equipped to handle efficiently the packing and marking of goods and other technicalities peculiar to foreign-trade procedure.
HAZARDS OF DIRECT IMPORTING
Experience has indicated, however, that direct importing from the producer is not always successful. Exporting and importing is a specialized form of distribution requiring a greater degree of technical knowledge than that needed in domestic marketing. The great majority of foreign producers are inexperienced in the handling of goods for export, and frequently the importer is inconvenienced by their failure to use proper marks, obtain the necessary documents, provide adequate packing for shipment, etc. In addition to this, the American importer should realize that many foreign producers are primarily interested in the local market for their goods and the export market is of secondary importance. This is one reason why so many import shipments include merchandise which is “off grade” or defective. Small exporters who do not contemplate the establishment of a permanent export market for their wares are the most flagrant perpetrators of this practice, and contacts with them should be avoided, as any remedy the importer may have is often costly and troublesome.
“SUPPLY CONTROL” AND DIRECT IMPORTING
An outstanding method of direct importing from the producer is where the importer owns, controls, and has full authority over the foreign source of supply. Several large importers of raw materials in the United States have established such a relationship. One of the larger steel producers in the United States owns and mines the iron ore of Chile, operates a fleet of ore-carrying vessels from Chile to the United States, and brings the ore directly to its plants. Similarly, a large rubber company owns and operates, directly or through subsidiaries, rubber plantations in Sumatra; an asphalt paving company controls the production of asphalt in Trinidad and Venezuela; a large oil company produces petroleum and operates tankers from foreign
fields to the refineries in the United States; a large fruit importer owns and operates banana plantations in Central America, has built and operates railroads to the shipping ports, operates its own fleet of specially constructed steamships from the export ports to New Orleans, New York, and Boston, and from these import centers distributes fruit to the wholesale fruit dealers throughout the United States.
FOREIGN GOVERNMENTAL AND PRIVATE MONOPOLIES
Certain commodities produced in foreign countries, which are of great importance in the import trade of the United States, are subject to some degree of control either by the producers or by the governments of the countries in which they are produced. Such control measures may be effected by agreements between producers and/or by governmental decrees. They may be national or international in character and may include the domestic trade of the producing country, its export trade or both. When such combinations of producers or governmental control embrace the major part of the supply of any commodity and it amounts to virtually a monopoly control of that product, there is a potential or actual control in the production, price, and distribution of that commodity. Regulatory measures of this character are different for each commodity so affected, and importers of these products should thoroughly investigate the details of such agreements in order that they may have knowledge of any limitations placed on the production and sale of the commodities and the conditions surrounding their distribution. The following are examples of commodities which are subject to control at the source of supply:
Sisal for binding twine is controlled through a combination of producers, reinforced by legislative action of the government of the State of Yucatan in Mexico.
Potash is controlled by combinations of German and French producers.
Crude rubber and gutta percha are controlled partly by legislative action and partly by a voluntary combination of producers in the British and Dutch colonies.
Quinine is controlled by a combination of Dutch producers.
Coffee was, until recently, controlled by the Government of Brazil.
Quebracho (for tanning purposes) is controlled by a combination of producers and foreign manufacturers.
AMERICAN BUYER'S BRANCH OR AGENT
Direct importing from the foreign source of supply may be accomplished by the establishment of permanent buying branch offices abroad. When purchases in any foreign center are large and well distributed throughout the year, such offices may greatly reduce the cost of imported goods or improve the quality and certainty of supply. The branch is a headquarters for buyers, whether they reside in the country permanently or make periodic visits from the United States. The staff of the office supervises the grading, sorting, and
preparation of shipments to the United States, prepares market reports, arranges for transportation, attends to warehousing and details of financing, and otherwise makes purchasing more efficient. Generally this is an expensive method of making purchases and can only be undertaken when purchases are large and the technical services involved cannot be readily detailed to middlemen. Branch houses are not advisable when purchases are highly seasonal, even if large, as they would be idle most of the year.
ADVANTAGES OF BUYER'S BRANCH ABROAD
With a branch office abroad, the American importer is in a strategic position to obtain knowledge of market and production conditions; to establish cordial relations with producers or merchants in marketing centers; to give special attention to the needs of his customers; and to take advantage of any unusual purchasing opportunities. Such branches may also make material savings on exchange transactions, although opportunities for this are not frequent.
FOREIGN BUYING SUBSIDIARY
It is sometimes desirable to incorporate the foreign branch as a separate company under the laws of the country where it is to be established. If this is done, certain legal advantages, savings in taxes, and an establishment of local prestige may be effected. Whether such incorporation is advisable depends to a large extent on the laws of the country and the character of the business.
ALTERNATIVES TO BUYER'S BRANCH
The selection of a foreign merchant as an exclusive buying agent may afford essentially the same advantages as a branch office. When such a merchant is well established in the producing country, an arrangement of this character may be a distinct advantage to both parties.
Despite the many advantages of the permanent branch organization, the sending of buyers abroad is preferable when the volume of purchases is limited, or the buying is seasonal in character, or the market is so well organized and the products are so well standardized that constant supervision in the producing country is unnecessary.
FOREIGN MANUFACTURERS' AGENT The foreign manufacturers' agent is a selling agent for the exporting manufacturer. Such agents usually work on a commission basis and leave the financing of the order to the manufacturer or exporter. Many of them have offices in this country and other parts of the world and effectively cover definite sales areas such as America, the Far East, Australia, Scandinavia, the Near East, etc. These agents are most successful in handling advertised specialties such as cosmetics, drugs, and jewelry, for which the principal demand must be created by salesmanship.
Foreign manufacturers' agents often sell directly to domestic wholesalers and retailers. They frequently participate with the wholesaler or retailer in sales promotion, advertising, and other plans designed to create a demand and establish a market for their