When considering the prospects of a new business opportunity or product line, it is often very exciting during the initial phase. This is mainly due to the fact that there is something new on the horizon. Deep down we love the feeling of growth and expansion of what we are, what we are able to do and what we are able to have and experience. A new opportunity provides this stimulation on a very tangible level. This feeling drives us onward to explore the possibilities further and if we are not too careful the possibilities become fantasies that have no hope in ever being materialized.
If that is the way things transpire, how is it that some people get the right idea and make a fortune with it, while others are left dreaming about their castles in the sky without ever seeing them manifest?
The answer may be too philosophical for us to consider here, so we can stick to the practical route of getting an idea that can be made into reality with the correct effort, knowledge, and skills.
The Import Idea
One avenue to explore is the possibility of importing a product, service, system or an entire business from another country into your home country. For the purpose of simplicity, we are going to keep it simple by using the product to mean any form of import, such as money, labor, product, service, system, machinery, or business. The fundamental idea that goods in one part of the world are cheaper to produce than another part of the world. The reasons could be due to:
– The climate is better or;
– Having more available land that is suitable for the product to be grown or,
– The particular skillsets of the population are more aligned to make products more efficiently than anywhere else.
This is the idea behind any trade. The same thing occurs between neighbors. Sue is able to grow wonderful cabbages, while Fred is better suited to growing pumpkins. They each specialize in doing what they are best suited for and we have the makings of efficiency that comes from the focused effort in a given direction. This is the same idea that Adam Smith, one of the early teachers of economics and a professor at the University of Edinburgh, promulgated in his book, The Wealth of Nations.
Taking advantage of price discrepancies in the prices of goods in different parts of the world which is the basis of all trade. Coffee beans are able to be grown in Brazil and Vietnam with fewer costs and inputs than in trying to grow them in California. The prices that people pay for coffee in Brazil may be much cheaper than they are willing to pay for it in California. This can be called geographical arbitrage, which is a concept also mentioned by a more modern author, Timothy Ferris, in his book, The Four Hour Work Week.
This same principle has been used by merchants and traders for countless centuries. The idea of merchants traveling through the Arabian deserts on camels laden with silks and spices from the East to trade with populations of Europe might also come to mind. These merchants would purchase or exchange goods on a barter system and gain far more valuable spices at bargain prices. These same goods would be worth a fortune after a few weeks upon arrival on the other side of a sea of sand.
The Risks of Importing
The business model of importing products can be profitable, but like all things, in our physical world, the potential for profit comes side by side with the potential for losses. Let’s explore some of these possible pitfalls briefly:
– Importing a product that has proven to be successful in another market, that proves to be a failure in the home market.
– There could be a huge outlay of capital involved in getting the minimum order quantities as well as storing goods in bulk may be pricey.
– The products could travel great distances and may arrive damaged or may not arrive at all.
– The products may prove to be faulty or defective and not up to the expected quality that had been determined for what is expected in the home market.
– Due to the distances, there may be little or no support to repair or maintain the products.
– There may be no spare parts for the products locally if there are maintenance and repair actions which require those parts. Importing those parts could prove expensive due to shipping costs.
– The shipping lead time for products to arrive may prove difficult for cashflows if there are no products to supply demand immediately.
– The difficulty with understanding the suppliers or manufacturers of the products due to different languages, morals, and business practices.
Each of these pitfalls is very real. Each of them can also be overcome. Every day people are importing goods and are finding success in this avenue. Just as there are people who meet their ruin attempting to follow the same course. The risks need to be known so that plans can be made to overcome each of them. Good planning is always vital in any business. For those that rely on luck and gut feelings to carry them through, I’d like to acknowledge that there does seem to be a degree of luck involved in any good tide of events or any success story. There are events which come across as lucky or fortunate events which have explanations which I am not going to go into here. The point is that luck and good fortune can be harnessed by careful planning and preparation. Now let’s look at some of the benefits of importing.
The Benefits of Importing
The benefits of this include:
– Importing a product that has had a proven track record in another market and has established itself as a viable business vehicle.
– The product is new in the home market and can become popular due to it being a novelty or creating a better experience for its users. Other products that are currently in the market that fulfill the same desire or need may fall short of the satisfaction levels experienced by the new product you and your team have brought in.
– Taking advantage of price discrepancies in the prices of goods in different parts of the world which is the basis of all trade.
– Because there may be a lack of competition there may be greater profit margins to enjoy with the perceived value being much higher than the costs incurred.
– The opportunity to develop relationships with suppliers and manufacturers from other places in the world which bring in different viewpoints and therefore different possibilities for even further opportunities.
– The possibility to travel and meet with suppliers and visit other countries which lead to greater ideas coming to mind to implement.
– Creating a new market of customers or a niche which have other needs and desires that you are able to provide for with products that supplement your imported product. These supplementary products may be imported or locally manufactured.
Like the risks, these benefits need to be looked at realistically to gain perspective. The profits may seem great initially, but are the prices of the product a true reflection of the market and are the costs involved in getting to customers as low as you presume?
We can cover more of these aspects in the next article. The point is however that despite the risks involved, an individual or business can benefit financially through the use of the basic principle of economics, of purchasing goods in one location cheaply and selling them for a higher price in another location. By using importation as the vehicle, an individual or organization can bring products from another country into their own and profit from the deal if they are also efficient and strategic in the implementation.