Chapter IV.-BUYING ABROAD

There are two distinct types of products imported into the United States that require two distinct methods of importing. Staple products, including foodstuffs and raw materials for industry, are bought either on standard specifications through brokers, or by sample. They consist of goods either in constant demand, such as raw silk, tin, rubber, whose import demand is rather inelastic and arises and remains constant by reason of inadequate domestic supply, or those for which demand is elastic and fluctuates because of price changes and temporary diversion to substitutes. The latter group includes sugar, wool, hides, tea, cocoa, and coffee. Specialties, on the other hand, consist of the things imported from abroad that are sought on the basis of novelty, style, price, or quality. They cannot be bought on standard specifications but must be selected either by sample or by buyers sent abroad. As their styles change frequently, they must be stocked more often, and with greater care. Their purchase abroad is handled in a manner entirely different from the staple products enumerated above. Toys, gift-shop novelties, drawn work and linens, dress and millinery models, and similar products come within this category.

RAW MATERIALS IN CONSTANT DEMAND

Many American industries, depending to a large extent on imported raw materials, are constantly searching out new sources of supply and adopting new methods of procuring the materials they need. One large rubber company has its own plantations in Sumatra, and ships rubber in the form of latex, rather than in the form of smoked sheets, because it finds that in this form the raw material is of greater value in making rubberized cloth. Another rubber company is developing new plantations in Liberia, while a prominent motorcar manufacturer has obtained a large concession for plantation rubber growing in the Amazon Valley. Such developments can only be undertaken with capital expenditures designed to cover long-time operations and because the demand for the product is constant.

CONTROL THROUGH OWNERSHIP OF FOREIGN RAW-MATERIAL

SOURCES

One of our large steel companies owns huge iron resources in Chile from which it ships iron ore to its steel mills on the Atlantic seaboard. Other American industries control nickel and bauxite supplies in Canada, manganese deposits in Brazil, tin concessions in British Malaya and Bolivia, and oil wells in Colombia, Venezuela, and Mexico. These industries control these sources of supply because they wish to be assured of a continuous flow of raw materials. Ownership of foreign sources is also a factor in other imported products. Most of the bananas brought into the United States are grown on American-owned plantations abroad.

CONTROL THROUGH PURCHASE

Other American industries purchase such large proportions of the total production of a given commodity in a single market abroad that they virtually dominate the market. This is true of the henequen or sisal supply of Yucatan, of Japan's raw silk, of rubber from British Malaya and the Netherlands Indies, and of China's antimony. While these products are not dominated by any single American industry, they are so largely dependent upon American purchases as a whole as to be susceptible of effective control.

LONG-TERM PURCHASE CONTRACTS

Many staple materials are bought from abroad on long-term contracts in which prices are fixed at the foreign or domestic market price at the time of shipment or arrival. This is sometimes necessary to insure continuous supply, especially of those raw materials (such as certain types of rare metals) of which there is a limited. supply.

RAW MATERIALS AND FOODSTUFFS: FLUCTUATING DEMAND

Certain raw products, particularly in the foodstuffs group, entering into immediate consumption, do not present as steady a demand as the raw materials for industry discussed above. These are usually not controlled as to ownership of sources of supply, through_largescale purchase or by purchase contracts, but are bought as the domestic market dictates or as a need for them appears. Here the cable and the broker play an important role. Millions of dollars are spent each year by importers in cable tolls and brokers' commissions in locating and purchasing supplies of such products. The items include a long list of tropical products, entering into our import trade. In some cases the demand is more steady than in others. Where it is reasonably steady, foreign sales agents or importers in the United States specialize in certain single commodities or allied groups of commodities. Sugar plantations abroad may thus contract for the sale of part or whole of a season's output to a single American refinery. Coffee importers may supply a group of roasters with several months' supply at a time. Chocolate manufacturers may buy huge quantities of cocoa beans under one contract, and chain-store representatives may send their tea buyers to London or to Japan to buy, either at auction or straight sale, from samples there displayed. Hide and wool merchants may send traveling buyers to Argentina, Australia, and the Near East to select the types and quantities they desire. In every instance the transactions are on the basis of contract for definitely limited supplies.

WORLD PRICES OF STAPLE COMMODITIES

Most staple commodities are bought at world prices, rather than at prices fixed either by the foreign exporter or the domestic importer. This is because buyers are constantly shopping about, buying up supplies in the cheapest market, and sellers, in order to get the best price, must keep in touch with prices in other markets, as well as in their own. If their prices are too high or too low, im

mediate adjustment to a world price is usually effected in this way. Many of these commodities are bought at prices fixed by international commodity exchanges where the ideas of world buyers and sellers are adjusted through bidding as in the Chicago Wheat Pit, the London Tea Auction, or around the exchange posts of the Liverpool Cotton Exchange. This is possible, however, only where the commodity is subject to international grading or classification. Where this is impossible because of seasonal fluctuation in grade, as in wool, or individual differences in each item, as in hides, prices must be fixed and sales consummated as a result of separate negotiations.

FACTORS OF STYLE AND WORKMANSHIP

In the specialties group, style and workmanship create factors which change the whole method of handling imports. Such commodities must often be seen before they can be bought with any assurance that the American consumer will purchase them at prices profitable to the importer. Individual judgment and taste of a high order must be exercised, and price often becomes a secondary consideration. Department stores in this country send buyers abroad each year to visit foreign factories, and such buyers either select items from stock or help create new novelties to meet domestic trade requirements. Many department stores maintain resident buyers abroad who are constantly in touch with foreign manufacturers of gift-shop novelties, linens, drawn work, and toys, giving them suggestions and offering samples of what the American buying public demands, and seeing that orders are shipped promptly.

FOREIGN STYLE SHOWS AND FAIRS

In Paris, each year, the great designers exhibit models of their latest creations which are promptly purchased by representatives of American shops for use as exclusive models. Hats, handbags, and shoes are similarly designed abroad and purchased as models for American wholesalers and retailers. Naturally, the demand for an exclusive style in these things is usually short lived. Time is of the essence in their reproduction and sale. New models from Paris are constantly succeeding each other in the smart American shops, and the names of their designers become trade-marks of excellence.

Somewhat less changing in character are the products exhibited each year in the many fairs and exhibits held in European cities. Here foreign manufacturers display wares of a more practical and utilitarian value, which are, nevertheless, new either in design or utility to the American market. American buyers visit these fairs and exhibits and contract for the purchase of large quantities of these products sometimes on an exclusive agency basis. The great international fairs have now become established channels through which American importers keep abreast of the changes constantly occurring in foreign production of specialties and novelties.

JUDGING THE AMERICAN MARKET

The first basis of judgment as to the salability of a foreign specialty in the domestic market is usually price plus quality and style. The factors are inextricably related. Even where price overshadows qual