In modern society, the economy is supported by trade. Trade can support us buy products at low prices, and buy them whenever and wherever we want. There is important knowledge of global trade and how trade evolves with e-commerce that you should know about.
Why is there Trade ?
If there were no trade in the world, or if the rules were that everything must be produced and consumed locally, the products around us would be less diverse and more expensive.
Thanks to the trade, cheap products and expensive, rare, and scarce products are available, making business a materially rich world.
E-commerce in the past decade accelerated the process of distributing good products around the world. When the trend started, business simply distributed brands that existed in other part of the world globally through online shopping platforms or standalone websites. In the past few years, millions of Direct-to-Consumer brand emerged. Directly working with the manufacturer, they design, produce distribute product to consumer without distributors in the middle.
Despite all the new development in trade, the underlining importing / exporting processes are always the same.
It is important for business operator to understand basic trade knowledge
Trading is not the same as buying apples at the local supermarket. You deal with people who have different languages, cultures, and business practices.
To do business with people overseas and buy and sell products, you need to have the proper knowledge.
If you don’t have the proper knowledge, you may fail in your business. You maybe be cheated, lose money instead of making a profit, or violate the law without knowing it.
Since trading is not a volunteer activity but a business to earn profits, you must avoid risks such as loss or illegal activities.
However, with the proper trade knowledge, you can avoid risks and troubles and potentially earn more significant profits than your competitors who are not familiar with the trade.
What are the risks involved in the trade?
The most considerable risk is the trust of the counter party. Will they pay you properly? Will they send the product on time?
There is a possibility that the person you are selling to or buying from will not do the basic things in business.
If you don’t know the other party well or don’t know the situation at any time, there is a high possibility that you will lose money.
Of course, it depends on the person and the company, but in my experience, when dealing with foreign companies, we will have a chance like this.
・ Deliberately delaying payment.
・ Insufficient packaging and wrapping of products.
・ Inadequate packaging and wrapping of products.
・ Delivery is delayed for more than a month without hesitation.
・ They charge you for items that you don’t understand.
These issues are not good or bad, but just a difference in business practices. In some other countries, this is common.
There is a need for proper trade knowledge to avoid the problem causing by different business practices.
Risk for Exchange Rate
In addition to this, there is also the risk of foreign exchange rates. The exchange rate fluctuates daily. If the exchange rate swings to an extremely strong or weak, you may lose a lot of money.
Understanding of the international regulation to Trade
There are many cases that the company loses big money since they cannot clear the customs, because of violating the regulations without understanding. It happens pretty often.
What kind of regulations are there? Let me give you examples:
・ Intellectual property infringement.
・ Environmental problems.
・ Dangerous goods.
・ Endangered species.
・ Invasive species.
・ Protection of domestic industry.
・ Safety compliance.
If you look at the big picture, you may think it’s obvious.
But when it comes to actual business transactions, there are many cases where people ignore the regulations and proceed without knowing.
I will make another video to explain these regulations, so please understand some general ones like these.
How to be successful in trade?
Purchasing goods from overseas is entirely different from buying goods domestically.
Trading with other countries requires a different language, a different culture, and different business practices.
People who are not familiar with trading need to be careful anyway.
Even though it is not easy to purchase goods from overseas, it is attractive from a cost perspective.
Here we explain the steps you need to check before actually purchasing, and reduce the risk of import trade failure.
Decide what to buy
First of all, you need to decide what you want to buy.
If it is a product related to your current business, you should note price and quality to select suppliers. If you are starting import trade as a new business, you will need to do some marketing to find good products.
Choose a country to import from
Once you decide on the product you want to import, the next step is deciding which country you import. Choosing a country is very important.
Don’t just look at the cost of the product.
If the country is politically unstable, has no preferential tariffs, or is too far from your country, you will lose the price advantage away.
Pay attention to the distance of the country you are purchasing
For example, if you buy products from a European country to Japan, it will take about 40 days to transport by sea.
This makes it difficult to adjust stock control, and cash flow during the transportation period will be poor. It is also expensive for you to travel to check the production.
However, if your product is unique enough to make up for the disadvantages of distance, or to differentiate yours from other companies, there will be no problem.
There is the case that the company based in Europe or America, but the actual country of production is in China or Southeast Asia.
How to find a company to buy from
So, once you decide on a country to buy, how do you find a company to buy next?
Use the Internet
Nowadays, you can get enough information on the Internet. Just enter the keywords to search, and contact the relevant companies by email or phone.
One-time contact is not enough to get a reply, so if you are serious about starting a business, approach them many times.
It is also advisable to visit trade shows. Exhibitions are held in many different countries.
It costs a lot of money to open a booth at an exhibition, so the suppliers try to find good customers or distributors seriously. An exhibition will be a good opportunity to promote business negotiations more quickly.
Use a trading company
If you are worried about the difference in language and business customs, it is better to use a trading company specialize in a particular field.
They will import the goods to your home country, so there is some cost as a margin.
However, you will be able to purchase the small lot, and sometimes they will stock the goods by themselves, which is an advantage.
Pay attention to your supplier’s credit
This is the most important part.
When finding a foreign supplier, you need to be careful about the credibility of the company.
In the case of importing, there are some problems whether the company will send you the goods you paid for, product quality is followed to the specification, or they are responsible for the delivery schedule.
I believe that these credit risks are higher when you start doing business with a foreign company only by email.
You will not meet them face to face, and you will not know if the company exists.
Some companies ask you to send money again because of additional costs or make an unreasonable request.
To reduce the credit risk, you can use the L/C or B/L.
Now let’s summarize the contents of this article.
Without trade transactions, we would not have the material wealth we have today.
However, there are risks to conduct trade business with other countries, such as:
- Payment (credit risk).
- Shipping of products (damage, delivery time).
- Exchange rate fluctuations.
In addition, if you do not understand the “global treaties” and “regulations of each country”, you may not be able to send products that you thought you could send. It often results in a large deficit.
Proper trade knowledge covers these risks.
When starting an import trade, find the right country then a company to purchase.
Since overseas companies are physically far away from you, you need to check the credit risk carefully.