In my last article about imports, I discussed how one can import successfully through online b2b trade portals. That was one aspect of the import process especially for those who do not have the money to visit their principal company in person and want to start importing successfully without leaving Pakistan. Whether sourcing through offline or online channels, there are certain practical strategies which apply to any import business. They are particularly important which one can only learn through experience. Here I am sharing those which I learnt through my own experience.
When you are deciding for which items to import, always keep in mind the emerging trends, star products which always have a demand, and per unit margin. And, never forget to segment your market. When LED lights were new in Pakistan, one of my friends started importing them and supplied them to corporate and industrial offices. And now he is doing quite well as every office wanted to install LED lights because of their long term sustainability.
- Pricing/costing for imports
Import costing is the most important and tricky thing involved in the import process as it involves some matters which you sometimes cannot predict due to customs officers and custom agents involvement. For import costing, particularly in b2b trade, you should know the whole sale prices in your product category. Sometimes it happens that the whole sale prices in Karachi are lower compared to Lahore or other major city importers e.g. Rawalpindi/Islamabad/Peshawar. So, always take the rate from your competitors particularly from Karachi so that you know what can be the least selling price of your product. The second general rule of thumb is that the difference between the buying price from your supplier and the minimum whole sale selling price in Pakistan should not be less than 40pc, i.e. if the whole sale price of a product is Rs100 in Pakistan, its buying price from China should not be more than Rs60. As you will have to pay at least 20–25pc more for duties and after deducting operational plus sale expenses and taxes, your profit should not be less than 10–15pc. On the high end, preferably it can go as high as 25–30pc.
One of the major problems which I have personally experienced in imports is the unpredictable nature of custom costs (due to “upper hand” costs involved) which becomes a main hindrance in your profitability. The best solution for this problem is that you make a fixed cost deal with your customs agent and pay him a certain amount. No matter what amount the duties and whatever “upper hand” money he has to give in the customs office, it will be his head ache.
- Focus on logistics
Like in any trade, logistics in import are always very important. The general rule of thumb is that high volume but low priced items e.g. surgical needles are imported through sea while low volume but high priced items are imported through air. Sea imports are measured in volume and the basic unit of measurement is CBM (cubic meters). You will be charged a price per CBM for your shipment. While the air imports are measured in weight in kilograms with a price per kg. Some people prefer to import a full container load (FCL). There is a 20 feet container having around 28 CBM and a 40 feet container containing 56 CBM volume. The usual method for import is to get an NTN (National Tax Number) and Income STN (Sales Tax Number), get yourself registered with customs as an importer entity and then import but some people also prefer another route if their quantity is small. They ask the bigger importer to import for them and pay them some amount as advance and later upon shipment arrival. The benefit of this approach is that due to increase in quantity, the bigger importer is able to fetch a better price for those items being imported and he passes some of this benefit to the small importer as well. In traditional markets like Shah Aalmi market, and Brandth Road in Lahore, many importers follow this method. The other more obvious reason is also that you do not come in the Tax net directly which is indeed not a favourable practice. Another thing to keep in notice is HS code of your product. Pakistan has also singed FTA’s (Free Trade Agreements) with many countries. If your product falls into that category you can get a considerable concession in custom duties.
- Focus on volume
The other general rule in import business, if you have less money, is to “focus on volume, not on variety”. The bigger is your ordered quantity, the better price you will be able to fetch and higher will be your margins. So, if you have a little sum of money then spend it wisely and import two or three items but in higher quantity and be sure about your product specifications and the demand in market. The other decision which you will have to make, particularly in b2b items, is to sell on cash or on credit. You can give a lower rate than the whole market but sell only on cash. And the other way is to sell at a higher price, but on credit. I would recommend selling on cash as if you get involved in a credit cycle then it’s difficult to get out of it. And usually you also do not get the payment on the promised date and even later on, sometimes you get only half or a quarter of your total payment. So, it’s better to work on cash, especially if you are in your initial phases.
- Try to eliminate the middle man – source directly from the manufacturer
If you are sourcing through online b2b trade portals, then the chances are quite high that a middle man or a trading company would be exporting the products to you, but not the actual manufacturer and the ultimate result would be that you will get a high price. So it’s much better that you should visit the relevant trade shows of your industry, at least once. The usual clever practice is that on the trade show you collect the business cards of the relevant companies, visit their factory office and then make a deal. One advantage is that you can actually see their factory or office and observe how big they are as a company. Second is that if you visit their office and factory personally, you can build a better and long lasting relationship with your supplier building trust and off course getting better prices and credit terms. Thirdly, after the trade show you are usually able to fetch a better price.
- Try to streamline your cash flow – as much as possible
In small volume imports less than Rs10 million, the biggest problem is that they are usually on cash. After cash payment, the principal company will take one month to prepare the order and release the shipment. An import by sea from China/South East Asia usually takes around two to three weeks to reach a port city in Pakistan and then one to two weeks to reach any mainland city. After you get the shipment, you will sell it to your customers within 2–3 months on a credit period of one to two months and after that will again send the cash to your principal company.
So, this makes a long cash cycle of 5-6 months which is not good for a company so you should try to reduce this cash cycle by certain measures. One is to send only 10–20pc of the total payment as advance and pay the remaining amount at the time of delivery to your cargo agent. Another way, if your supplier trusts you, is to use bank methods like D/A, D/P. From the sales side, possible ways could be to sell on cash or to have some advance payments from your customers for their placed orders if you have established yourself in the market. Believe me, there are such successful people in the market whosewhole shipments are sold even before they arrive at the port.
- Get a foreign company’s distribution
In the import world, an important way to position yourself and gain competitive advantage over others is to get the distribution of a foreign company. Being a sole distributor of a foreign company means that only your company will have the privilege of selling that foreign company’s products in Pakistan and your partnership with them will continueif you will achieve their annual sales targets from Pakistan. It will give you a competitive advantage that already existing users of that company’s products will have to buy from you and you can setup a country wide distribution network for your product with small dealers and institutional buyers e.g. hospitals, government departments, etc.