Trade has been around for centuries, facilitating over time by both trading routes (Silk Road, Spice Route, etc) and trading blocs (NAFTA, ASEAN, EU, etc). Over the past few centuries, in particular, increasing globalisation and the resultant economic interdependence between countries, markets and industries have led to a remarkable expansion of international trade.
In addition, factors such as economic liberalisation, expansion of communication systems and lowered barriers to immigration have also contributed to its rise. In a number of ways, international trade is now an important and irrevocable component of the global capitalism engine.
International trade is a function of demand and supply – one country has a supply of some commodity or merchandise that is in demand by another. In fact, the demand/supply connection is exactly why international trade through imports and exports is seen as desirable, at least by countries that follow the capitalist model. International trade enables countries to specialise and produce goods where they have a comparative advantage, i.e. efficiency and/or cost advantage over other countries, so they can export these goods. For goods, where they don’t have a comparative advantage, they will import.
Thus, exports and imports are two sides of the same coin. Without these two activities, international trade would not be possible.
Types Of Import/Export Businesses
Import-Export is big business. In 2016, the EU, the United States and China accounted for more than two-fifths (45%) of world trade in goods (data from Eurostat). Unsurprisingly, in that year, China was the world’s largest exporter with a 17% share in total world exports. The US, whose exports decreased at an annualized rate of -0.8% over the preceding five years, was the world’s second-largest exporter in 2016.
Exports and imports – the buying, selling and distribution of goods and services – are important vehicles of growth and development for capitalist countries. However, the field is not the sole purview of large multinational companies. In the US particularly, large players constitute only 4% of its output and revenue according to the Department of Commerce. This means that 96% of firms involved in the import/export trade are small outfits.
Costs Associated With An Import/Export Business
While it is possible to start an import/export business from home with very low initial investment, potential importers and exporters must be aware of the different costs associated with the business. Needless to say, as the business grows, some costs may also rise, but if managed right, so can the profits.
Cost #1: Start-Up Capital
As mentioned, a home-based business might incur little to no start-up costs. However, in general, this cost could cover a number of aspects including:
- Deposits or advance rent on office space
- Deposits for utilities
- Equipment and machinery – computers and software, fax machine, printer, phone with voicemail or answering machine
- Stationery and office supplies
- Internet and email service
- Initial promotions
- Initial registration, setup and legal fees
Cost #2: Operating Costs
- Staff salaries (if any)
- Utilities – electricity, water, Internet, phone
- Office rent
- Marketing, branding and promotional activities
- Overseas sales or distribution agent
Cost #3: Fees & Deposits
- Legal fees
- Registration Fees
- Licences and permits
- Duties/VAT (on imports)
- Port and inspection fees
- Agent Fees
Cost #4: Other Costs
- Customs duties
- Customs broker fees
- Exchange rate fluctuations (which can reduce overall profit so they must be considered a cost)
- Distributor markups
- Labelling, packaging and UPC barcodes
- Taxes and fines
- Product modifications or customisations
- Missing or delayed shipments (which may incur replacement cost)
- Travel expenses
5 Effective Tips To Manage The Finances Of Your Import/Export Business
Every businessman knows that one of the best ways to increase profits is to reduce costs. The import/export business is no exception to this basic rule of Economics and Business. Reducing costs can also make the business more competitive and enable the entrepreneur to undertake growth-promoting activities such as expanding to a new market or investing in a new product line.
Here are our 5 top tips that can help importers and exporters reduce their costs, manage their business finances and thus improve their bottom line.
Tip#1: Compare Shipping Services & Freight Forwarders – Cheapest Is Not Always The Best
Do your research on shipping/freight services and costs using comparison criteria such as shipping timescale, shipment tracking procedure and business impact of delays and how they will be dealt with. The tracking feature, especially, can be a major cost-saver because it can help streamline the process and keep overheads and other en-route expenses down. In addition, a shipping service with a proven track record and the ability to effectively handle delayed or missed shipments while minimising your financial or reputational loss will be a more reliable partner for your business.
A ‘cheap’ shipping service that ends up taking weeks to deliver your goods can cost you a lot more in the long-run. This is why you should not automatically use the cheapest service but be strategic in your selection.
Tip#2: Be Aware Of Licences, Free-Trade Agreements & Possible Fines
Fines are probably the most wasteful cost for an import/export business. If you are importing or exporting certain types of goods, especially, if they are on your government’s ‘restricted’ or some other special list, you must have the right kind of licence to do so. Without the correct permit, you will not only incur unnecessary costs and fines, but will also experience delays and loss of reputation. In extreme cases, you may even have to face legal action.
In addition, buying from countries with free-trade agreements can help an importer save on duty charges, which in the long term, can translate to hefty savings and a healthier bottom line.
Tip#3: Be Aware Of Subsidies & Tax-Free Schemes
At the other end of the spectrum, you should know whether the goods you are importing or exporting fall under the remit of a subsidy scheme. Many governments offer incentives such as reduced taxes or duty relief to importers and exporters trading in certain goods and holding the relevant licence. These can translate into big cost savings for your operation.
Tip#4: Understand Import Duties & Customs Charges
Apart from start-up and ongoing operating costs plus one-time costs like registration fees and deposits, the ‘other costs’ can really eat into your final profits. To mitigate these costs, consider all fees, duties, charges and taxes that you may incur when trading internationally, and check if these can be avoided or at least minimised. Confirm if you can have your goods properly inspected and certified to avoid warehousing and inspection fees. In addition, using an internationally recognised commodity code system of tariff numbers can reduce the possibility of incurring fines or additional fees for improperly or inadequately labelled goods.
Tip#5: Manage High-Volume Payments With MassPay By InstaReM
InstaReM, a Singapore-based online remittance firm offers retail users a fast, reliable and low-cost option for cross-border money transfers.
In addition, the company also provides MassPay, an institutional platform that enables corporations and SMEs to make bulk payments. Using this configurable solution, corporate users can easily manage and control their high-volume remittances to multiple beneficiaries in multiple currencies. And the sign-up and transfer processes are seamless and hassle-free.
Thanks to InstaReM’s broad network of 8000+ banks in 55+ countries, MassPay can help exporters and importers avoid high currency conversion costs charged by banks, and also get better exchange rates. They can thus avoid incurring potentially large losses due to market and currency volatility.
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