Starting an Importing Business

INDUSTRY NOTES

• Starting an import business is difficult, risky and expensive. It is suggested that you have another income source as it may take six months or longer before you realize profit.
• Successful importers start importing because they discover:
  • an unfulfilled need in the marketplace
  • a  product that is new, improved or less expensive than those available
  • a  particular raw material that can be used in the manufacturing process
• The majority of imports to Canada are machinery, motor vehicles and parts, and electrical machinery and equipment.
• The goal of importing is to get a product inexpensively and promptly and to resell or use it as quickly as possible.
• When importing ventures succeed, competition quickly appears. As a result, an importer must be able to build and keep customer loyalty to a product.

BEFORE STARTING

• Before you start, know three things for certain:
  • there is a market for your imported product
  • the product will be available when you need it (timing is crucial)
  • you have the finances to support the import venture
• Understand the product and related market. Determine the features considered most important. The product must have some advantage in price and/or design.
• Investigate the business of importing, international markets and financing. Consult with other importers. Thorough research is critical to your success.
• Start small and keep things as simple as possible.
• Organize yourself as a business and register a business name. Understand the government regulations for starting an import business.
• Establish ways of communicating, such as by phone, fax, e-mail, Internet.

RISKS

There are many risks. To avoid sizeable, unnecessary losses, be aware of changes or fluctuations in:

• Foreign exchange-  Put agreements in Canadian currency, or sign a bank agreement for a specified rate for a set period of time ('hedging currency').
• Delivery time- Caused by problems in communication or transportation. Can also be due to poor or incomplete documentation.
• Expected prices- Changes in export taxes/regulations in source country.
• Tariffs- Changes in goods classifications or duty rates.
• Obsolete merchandise-  Passing trends, such as in fashion.
• Intangibles- Natural disasters, political or labour unrest.

FINDING A SUPPLIER

• Check trade directories for foreign companies who manufacture and export.
• Contact the offices of foreign embassies and consulates located in Canada.
• Travel abroad to establish direct contacts with potential exporters and agents.  Ensure that you study the culture and business etiquette. Consider translation services. Ask for price lists, catalogues and free samples. Expect and allow for extensive follow-up.
• Attend overseas trade shows
• Visit the trade offices in foreign countries.

HIRING ASSISTANCE

• When importing from overseas, it may be wise to hire a local agent from within the foreign country. Agents know the culture, may get better prices and can inform you of opportunities.
• Consider hiring a customs broker who can help to receive shipments quickly and efficiently. Brokers organize documentation, liaise with Canada Customs and look out for special import regulations. Some act as freight forwarders.

PLACING AN ORDER

Once you find a supplier, begin to build a working relationship. Check the supplier's references and export history. Communicate clearly. Do not make assumptions.    Put agreements in writing, including responsibilities for and information about:

• Product description, quality, quantity and price per unit.
• Packaging type, amount, costs and minimum order sizes.
• Cost, insurance and freight to an agreed delivery point (called CIF)
• Any other freight costs and insurance.
• Delivery times and storage arrangements.
• Payment terms, additional fees or charges, time periods for price quotes.

PAYING A SUPPLIER

Suppliers often demand payment upfront until a trusting relationship is established. Negotiations may take three forms:

• Letter of credit (L/C).  a legal document for arranging payment between an importer and exporter in order to protect both parties. Try to include an allowance of several days to inspect the goods or a stipulation that the goods must first pass government inspections/regulations before payment is made.
• Collection basis.  The importer instructs the bank to either release or to pay for the goods. Usually the buyer and seller know each other well.
• Open account.  An invoice is sent directly to the importer for payment.

SHIPPING

Freight forwarders help to move goods. They can also provide advice, estimate freight and insurance costs, and arrange container loading. They usually charge by the weight, distance and type of goods. Shop around -- the industry is competitive.

• International shipping can take many modes -- by air, ocean, railway or road. Each varies in time, costs and restrictions. Consult the freight forwarder.
• Some freight forwarders will arrange to store your goods in a warehouse so that you pay duty on them only as they are drawn out of storage.

SETTING A SELLING PRICE

When you import a product, many things influence its eventual selling price:

• Current market conditions and competition.
• Costs to import the product, including agent/broker fees, insurance, packaging, shipping, labelling, currency exchange, financing, taxes, tariffs and duties.

REGULATIONS

Find out about government regulations for importing goods into Canada, including:

• Taxes (provincial, federal, excise).
• Permits, depending on the type of product.
• Labelling regulations for textiles, food, non-food items, precious metals.
• Import quotas which affect how much you can import. If you are allowed more than the quota,
  you may have to pay additional duties.
• Tariffs and duties which can apply to the product, its materials or even to special packaging. Canada Customs can inspect, hold goods until duty is paid and seize shipments.

HUMAN RESOURCES

The ability to hire and keep excellent employees is essential. Educate yourself in all areas of human resources -- how to recruit, interview, screen, motivate, train, evaluate and develop personnel policies (wages, pension plans, benefits). Promote continuous training and upgrading through related courses and programs. Refer to the Human Resources fact sheet for more information.

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DISCLAIMER
Information contained in this document is of a general nature only and is not intended to constitute advice for any specific fact situation. Users concerned about the reliability of the information should consult directly with the source, or seek legal counsel.

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