Satisfy local demand by looking abroad
How to start an import business
With South Africa now well established as part of the global community, local consumers have a strong appetite for the same products that are grabbing the attention of customers in other countries. Here are key tips to help you start an import business and grab your slice of the action.
1. Be patient
If patience is a virtue, than being in the import business should make you a saint! If you’re the hyper-active type who wants quick turnover and a fast buck, then this is probably not the business for you. Remember that in importing, everything takes time – much of which is beyond your control. Just getting approval to register as an importer can take 60 working days, according to the SA Revenue Service (www.sars.gov.za). Manufacturers in countries like China or India can take months to process your order and make the product. Then there’s a lengthy shipping process, customs delays, local delivery logistics and mountains of red tape to overcome.
2. Research your home market first
Before you rush off and start importing, you first need to be sure that there’s sufficient local demand. You must also know whether you’ll be up against competition and how stiff that competition is. Be aware that just because something is popular in Canada or China doesn’t automatically ensure it will be a best-seller here. Cultural differences between countries mean that not every product is universally accepted. The globally famous men’s magazine, Playboy, for example, has battled to establish itself here because mainstream advertisers are wary of its sexual connotations, many retailers refuse to stock it for fear of offending customers, and potential readers are embarrassed to be seen buying it.
3. Find the right overseas partners
By definition, starting an import business means that you’ll be dealing with foreign companies in distant lands, where SA business norms do not apply. In many places, unwary foreigners are regarded as easy targets for scams and rip-offs – not least because legal redress is often difficult. So it’s vital that you choose your partners well. A few hours surfing internet sites in Indonesia may give you useful background, but it hardly qualifies as meaningful and trustworthy research! Attend reputable international trade shows and conferences where you can make useful contacts and meet established suppliers. Contact trade representatives based at foreign embassies in South Africa and seek impartial advice and guidance. Visit potential partners on their home turf to gauge their bona fides and check on product quality.
4. Work at the relationship
Once you’ve identified a suitable overseas supplier, you need to work at building and cementing the relationship. Sure, you’re the customer and they should be looking after you, but the reality is that a small start-up from South Africa is unlikely to be a major source of business for manufacturers in China and India, which are often geared to delivering orders that run into hundreds of thousands of units. The cultural and other barriers already described above may mean that the only thing you have to fall back on in the event of difficulty is a good one-on-one relationship with key people within the supplier’s business. If this proves impractical, hire an agent or ‘fixer’ based in that country who will liaise with the supplier on your behalf. Many of these agents specialise in a particular industry and will have a good relationship with suppliers.
5. Be clear as to who is doing what, when and how
Language issues and operating procedures that differ from country to country require you to be extremely clear on everything, from the roles that each party will fulfil in the import agreement through to even the most basic of arrangements. If you’re giving specifications to someone in the US, for example, be sure they understand that you’re referring to kilograms and centimetres – not pounds and inches! For a more structured approach to promoting clarity when working across boundaries, the International Chamber of Commerce (www.iccsouthafrica.org.za) offers a variety of useful aids, including templates of standard contracts and legal agreements. It also publishes the International Commercial Terms (better known as Incoterms), which is a must for any importer as it provides universally-recognised definitions to commercial terms widely used in international transactions
6. Understand that not all countries are equal
Just because you like the idea of visiting a tropical beach and writing it off as a ‘business trip’ doesn’t mean you should choose a supplier in Cancun, Mexico. World trade is a tangled web of international agreements, treaties, customs unions and free trade zones. It may, for example, be more viable to partner with someone in Botswana rather than Boston, simply because Botswana and SA are both members of the Southern African Customs Union and you will therefore avoid paying customs duties and have less red tape. SA also has numerous other trade agreements in place, sometimes with the unlikeliest of countries. An example is the 2009 agreement which gives preferential treatment to trade between SA and the Mercosur (Southern Common Market) countries like Paraguay and Uruguay. The Department of Trade & Industry (www.dti.gov.za) and SA Revenue Service (www.sars.gov.za) can give details.
7. Check your profit margins
You’re here to make a profit, so an import business that delivers unsatisfactory margins is a non-starter. As an importer, you have high costs associated with transport and shipping over vast distances, customs duties, etc. Do your homework carefully to ensure that you can pay all these costs and still add sufficient margin to be profitable. Ask yourself whether the South African consumer will pay the prices you need to charge, or whether you may become uncompetitive. Remember, there are many variables which can impact your margins when importing: exchange rates; currency volatility; political instability; natural disasters; fluctuating prices of fuel and raw materials, etc.
8. Check the status of your product
Just as not all countries are equal when it comes to the import business, neither are all goods – so check a product’s status before you decide to import. Many items require import permits that need to be renewed annually. Those classified as ‘prohibited’ cannot be brought into South Africa at all and goods which are ‘restricted’ require a motivation and additional paperwork. Examples include items made in prisons, cigarettes, weapons, toxic substances, and products which may contravene copyright and trademark laws. The SA government also bars the importation of goods it considers are being ‘dumped’. According to Rian Geldenhuys of Trade Law Chambers (www.tradeinvestsa.co.za) dumping occurs “when a foreigner sells a product more cheaply in South African than in the foreigner’s own country”. Items considered to be unfairly subsidised by home governments are also illegal.
9. Be sure you can maintain cash flow
Importing means you have long lead times and must typically pay up front to secure the order – all of which can put a severe strain or your cash flow. Overseas manufacturers/suppliers usually require anywhere between 20-50% of the payment up front, plus settlement of the balance prior to shipping. There may also be transport costs to harbours or airports in the country of origin, fees to agents, payments for customs clearance, etc. Even the South African authorities and SA-based freight forwarders may want up front payment before they release and deliver the order. Only then – perhaps many months later – can you begin to recoup your initial outlay. So do your sums carefully, particularly in the start-up phase of the business when you will have many other costs as well.
10. Consider factoring
Factoring is when a financial institution or company specialising in this field provides the import business with a cash ‘advance’ based on the (as yet unfulfilled) orders that the business has. Normally, a percentage of the money is given up front, and the remainder (minus a commission) is paid over once the creditor pays the invoice. The benefit is that your cash flow is freed up to continue operating the business and seek other clients and deals. The factoring company will frequently also take over the administration of your creditors’ book, which eases your admin burden and the risk of bad debts. However, the factoring companies take a hefty commission. You’re also unlikely to be able to arrange factoring if you’re importing ‘on spec’ and without advance orders from a reputable client base.
11. Understand logistics
Logistics is what makes the import business go round. No matter whether you’ve sourced a crackerjack product at a great price; if you can’t get it to market cost-effectively, efficiently and on time, then you’re unlikely to be successful. You’ll need to employ specialist agents for many of the tasks like freight forwarding and customs clearing, but make an effort to understand as much as you can about the complexities of moving products from A to B across international borders, and the accompanying legalities and details.