Selecting Products for Importation

One of the most important import decisions an exporter-importer must make is the selec­tion of the proper product that serves the market need. In the absence of such a product, one is left with a warehouse full of merchandise that no one is interested in buying. Nevertheless, importing can become a successful and profitable venture so long as sufficient effort and time are invested in selecting the right product for the target market.

How does one find the right product to import? There are two ways to selecting a product for importation: the reactive approach and the proactive approach.

1. The Reactive Approach

This is a way of selecting a product without a proper assessment of market needs. Some people, for example, travel to an exotic location, stumble on a fascinating product, and de­cide to import for resale. The decision may be based on the uniqueness of the product or its quality, availability, or cost. It is also common to select a product based on government import data (i.e., to identify what is hot and trendy or to exploit trade leads that are often posted on the Internet).

Products that are unique and unusual can be appealing to customers because they are a welcome change from the standardized and identical products sold in the domestic market. The fact that a product is imported and unusual is in itself sufficient reason for many people to purchase the item. The provision of quality products at lower prices also provides im­porting firms a competitive advantage (Shippen, 1999). In the apparel sector, for example, imports presently account for more than half of total U.S. market share in 2010, mainly due to their cost advantage.

In cases where there is a continuous increase in demand for the product, imports become a major source of domestic supply because the product is either not produced in the country or not produced in sufficient quantities to satisfy the growing demand. The major reason for global sourcing in the chemical industry, for example, is the unavailability of needed products in the U.S. market. Many products manufactured abroad are of better quality than those pro­duced domestically. German machine tools, Japanese cars, and French perfumes have proven market demand because of their high quality. In some cases, certain designs could best be manufactured overseas. Identifying a quality product has the potential to increase profits.

Where and How Do You Find the Right Product to Import?

Any one or a combination of the following can be used in order to find, assess, and select the right product for importation

Domestic Market Research

Primary market research can be conducted by a consulting firm to identify the best line of products for the domestic market. A variety of statistical sources provide data on projected total demand for certain products. Trade flows can also be examined to gather information on domestic demand and growth trends for various products. Some secondary sources also provide important market information, such as domestic market overviews, market share data, and opinions of industry experts. Such secondary market research studies and surveys can be purchased for a fraction of the cost of primary research. Online data can also provide industry and product information.

Trade Publications

Trade publications such as Trade Channel, Asian Sources, and General Merchandise provide business and trade opportunities in various countries. They include various advertisements of products and services available for import from all parts of the world (Nelson, 2008; Weiss, 2007). Certain banks with international departments often publish newsletters with offers to buy and sell. The prospective importer can also use electronic bulletin boards of the World Trade Centers to find out what products are available for import.

Foreign Travel

Whenever one visits a foreign country, it is important to look for products that may have a market at home. If a good product is obtained, it would create a profitable business op­portunity. One could find new and exciting products that are not currently imported in the public markets, bazaars, or gift stores. Once a good product is identified, a few samples can be purchased. The manufacturer’s address can be obtained from the country’s trade depart­ment or from local vendors, usually for a small referral fee. If one does not travel overseas, it is always possible to ask friends or agents abroad for product information.

Trade Fairs and Shows

One way of finding a product is to attend trade fairs and trade shows. Many exporters find such shows to be an effective means of promoting their products. It is estimated that al­most 2,000 trade shows take place in more than seventy countries every year. Trade shows represent an entry point into export markets worldwide. Importers have an opportunity to consider a variety of potential products to buy, establish personal contacts, identify new prospects, or gather competitive information. Many exporters introduce their products to the foreign market with the hope of writing orders at the show or of finding suitable distributors or manufacturers’ agents who will handle their products in overseas markets. Major shows in the United States are published in the Exhibits Guide. The Department of Commerce publishes information on upcoming trade fairs and trade shows in the United States and abroad. There are also online sources on various shows and exhibitions in certain product areas to be held in various parts of the world. A recent online announcement, for example, invites buyers and sellers of furniture to the international furniture fair in Copen­hagen, Denmark, where major dealers from around the globe are expected to exhibit their furniture.

Foreign Countries’ Trade Offices

Most countries have export promotion offices abroad. A trade promotion office provides im­portant information on a country’s major export products or services, suppliers, and other helpful information. In the absence of a trade promotion office for a nearby country, the embassy could be a good source of information on potential products to import.

2. The Proactive Approach

The proactive approach to selecting import products involves developing a product that solves problems encountered by consumers. Financial success largely reflects the value that is provided in the marketplace. It grows out of one’s passion to improve a product’s quality or functionality: Haagen Dazs ice cream (to put seasonal fruits in the ice cream), Marcel Schur- man greetings cards (to allow buyers to write their own sentiments), or edible supermarket labels (to provide harmless labels in case they are inadvertently consumed by adults or chil- dren).The ability to provide such value is often influenced by one’s experience, education, and enthusiasm for the product.

When selecting the product, one is guided by the following considerations:

• Products with entry barriers: Products with high entry barriers tend to earn above­average rates of profit. Entry barriers could be created by product differentiation (de­signing the product for the market), which gives the owner an exclusive right to make or trade the product. Entry barriers also include high capital requirements (for ex­ample, large industrial equipment that is expensive and subject to special shipping and handling requirements) and special access to channels of distribution (Grant, 2010).
• Absence of close substitutes: The absence of close substitutes for a product makes it diffi­cult for consumers to choose another product in response to price increases (demand is inelastic with respect to price). For example, switching from Apple to Intel equipment involves buying new software and hardware. If an importer redesigns a product for a given market along with other complementary assets, the cost of switching by users to another product can be quite expensive.
• Limited bargaining power of buyers: The less differentiated the product, the more likely it is that the buyer will switch suppliers on the basis of price. It may not be profitable to start with big buyers such as Walmart since they use their strong bargaining power to pressure suppliers accept to lower prices.

Even though some imported products can be sold without any modification, most products imported into the United States are designed for the U.S. market. For example, all cars, watches, clothing, and furniture produced and sold in Asian countries are differ­ent from those imported and sold in the United States and Europe. They are redesigned to suit the market in terms of functionality, pattern, color, and so on. Baskets used in Asian countries for collecting clams on the seashore have to be redesigned as a single­serving bread basket for U.S. homes and restaurants. Clothing made in Central American countries has to be redesigned or tailored for American sizes. The popular Mazda Miata was designed in California for the U.S. market (Spiers, 2001). Designers can be located at universities (engineering schools) or technical institutes and are often remunerated on a royalty basis.

The process of assessing the viability of your product with potential buyers or retailers begins with the first stage of product identification and continues throughout the process of redesigning and test-marketing the new product (product samples). It may be neces­sary to redesign the product if test sales (product samples) indicate the need for further improvements.

Regardless of the method used to find the potential product to import, it is advisable to buy a sample or a small order to determine whether there are any prohibitions or restric­tions to entry and whether the product can be sold at a competitive price. The sample can be inspected by a customs broker to establish whether the product can be freely entered and, if it is allowed entry, the applicable duty rate. The sample could also be shown to a freight forwarder to obtain an estimate of the shipping and insurance cost in order to calculate the price at which the merchandise will be sold. It is important to realistically evaluate the price in terms of competing products in the market. When calculating the total cost plus a decent profit margin, if the price is much higher than that for a competing product in the market, it may be necessary to go back to the drawing board.

Suppose the product is not subject to prohibitions or restrictions and can be sold at a competitive price. The next step is to pre-sell the product to likely buyers. This will determine whether people will buy the product and how much they are willing to pay for it. This can be done by the potential importer or salespeople. The process of supplier selection and negotia­tion to purchase the first shipment should be done only after making an assessment of how much one can realistically sell.

3. Reactive versus Proactive Approach to Product Importation

The reactive approach to product importation is largely based on short-term market needs. Financial success is a product of long-term relationships and repeat sales. Importing um­brellas one year and moving on to furniture the next year is similar to building a business and abandoning it before it could pay off (Spiers, 2001). The proactive approach has several advantages:

• It seeks to identify and solve customer problems by selecting and designing the right product for the market (on the basis of your background and experience). Importing unfamiliar products solely on the basis of trade leads or market trends can be risky. Numerous products made overseas are unsafe for consumption. Choosing the right product based on your knowledge and experience is thus critical to long-term success.
• Importing the appropriate product for the market requires the development of the req­uisite infrastructure (product design, registration of patents, selection of the best sup­pliers, and access to distribution channels). Such an investment of financial resources, time, and effort is inconceivable using the reactive approach because efforts invested to start one product are wasted when one begins to quickly replace it with another prod­uct (Table 17.1).

Factors to Consider When Importing:

• Long lead times: Once you place an order and pay a small down payment, overseas suppliers will begin to manufacture your product. It may take the supplier one to four months to make the product.
• A hefty minimum order: It is not unusual for suppliers to request for large minimum orders.
• Payment terms: Most suppliers expect to be paid by wire transfer until they establish a certain level of trust.
• Quality control: It takes a few shipments to get the product that meets all your specifica­tions (International Perspective 17.1).
• Language barriers: Most vendors are able to read English much better than they can understand the spoken language.

Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.