Export Trading House
International Trading Houses are commercial intermediaries specialized in the long term development of trade in goods and services supplied by other parties. They focus on exporting, importing and third country trading as their core activity and use overseas marketing organization and infrastructure as well as procurement networks to service suppliers and customers. International Trading Houses are of various types and forms. They exist in a number of countries and their activities and organization vary according to the historical background and the scenario in which they operate. They procure locally and sell internationally, they procure internationally and sell locally and they also procure internationally and sell internationally. They have the flexibility and the agility to work in many markets with many products simultaneously as international marketing is their core business. They serve as commercial intermediaries between suppliers and buyers located in different countries. They may also act as agents on behalf of the manufacturers or on behalf of the buyer, earning a commission for their various services. Agents do not take title to the merchandise. Some are supply-driven in the sense that they receive their impetus from manufacturers who wish to sell whereas other are demand-driven in the sense that they receive their impetus from customers who wish to buy.
How do Trading Houses help manufacturers and foreign customers?
Goods are collected and payments made at doorstep.
Proven record of reliability for quality, prices and delivery
Better price realizations because of overseas marketing organization
Lower costs thanks to a network of procurement facilities
All risks and hassles of exporting avoided.
One stop shopping facility.
Global network for techno-commercial information
After-sale services assured.
Market entry at lower cost
Lower transportation and handling costs.
Long term business perspective
Long term business perspective.
Trading Houses provide services both to suppliers as well as customers. Suppliers benefit from getting at their disposal the facility of the vast international marketing infrastructure of the Trading House, its data bases and information networks, its expertise in specialized functions such as finance, procurement, technology, commercial and legal affairs. Also the Trading House looks after all matters relating to the interface with the buyer, from presenting the merchandise to realizing the payment. The Trading House because of its size can obtain the benefit of economies of scale in purchasing, transporting, shipping, insuring and borrowing funds. A part of this benefit is passed on to the manufacturer for improving competitiveness.
Customers benefit from dealing with a company which has a proven record of reliability in international trading as well as a commitment to long term relationships. Buyers thus get confidence regarding the supply of their goods in accordance with commitments of quality and delivery. Also since Trading Houses often deal in a range of products they provide a "one-stop" shopping facility. The Trading Houses organization overseas assures the foreign buyer of continued service in his home country.
Trading Houses vary considerably in their activities and functions. However typical Trading Houses would provide many of the following services:
- Market selection and market research
- Customer identification and evaluation
- Commercial and technical negotiations
- Vendor development
- Product/packaging adaptation and technology upgrading
- Imports, particularly of items required for export production
- Financial arrangements including securing credits
- Protection against export risks including insurance
- Ensuring payments
- Export documentation and shipping
- Managing crises and disasters
- Dealing with claims
- After-sale service and spare-parts availability
- Project exports, consortia and tender business
- Creating distribution networks abroad
How does a manufacturer choose a Trading House? The manufacturer should consider:
- Is it large or small?
- In which product is it strong?
- What is its market orientation?
- Which services does it provide?
- The managements experience, quality and reputation
- Interest in the product?
The compulsions of international trading are such that the Trading House, which is the manufacturers exporting arm, will need to act with considerable independence. Complete trust and understanding between the two will be required. For example, the partners will have to take decisions and make commitments very fast, often over the telephone, when they are thousands of miles apart. Therefore they must be able to rely on and trust each others judgment. So the choice of the Trading House is crucial for the manufacturer, and vice versa.
Names and addresses of Trading Houses, together with a brief description of their activities are available from trade promotion offices of the government, from chambers of commerce and from Trading House Associations. The manufacturer has also to dig out further information about the Trading House, information of the kind that is not normally available in directories. The manufacturer would need to tap both formal and informal sources to find out about the reputation of the company, its track-record, its strengths and its limitations.
The manufacturer should be in a position to specify his needs and define his objectives and then match these with the attributes of the Trading House. The attributes that it may look at are, for example, size, product/market expertise, types of services offered, quality of management and reputation.
What makes a strong relationship between Trading House & manufacturer?
- Circumvention and short-circuiting
- Mutual understanding
- Value addition
- Capacity to supply
- Long-term relationship
The Trading House needs to watch
- Payment terms
- Fair Practices
The Manufacturer needs to watch
- Fair practices
- Quality and delivery
- Memorandum of Understanding (MOU)
How is understanding reached between Trading House and manufacturer?
The Trading House and the manufacturer should discuss their working arrangement and prepare a Memorandum of Understanding (MOU). The drafting of the MOU can result in contentious arguments but it is useful to get all points clarified and reduced to writing before the start of business. If there is a spirit of mutual give and take and if both parties are looking for long term gains from the partnership then most issues do get resolved, often through compromise.
The MOU should cover all the important matters relating to the arrangement, particularly:
- Territories and Products
- Definition of responsibilites
- Exclusivity/ Non-exclusivity
- Sharing of expenses and of income
- Payment terms
- Validity period and termination arrangements
In Pakistan, a few Export Trading Houses are operating in Karachi and Sialkot. However, the idea is worth consideration. Ample business opportunities exist in setting up such trading houses in all major cities of Pakistan.