By Dr Tim Nielsen (Adelaide, South Australia)
[this article was published in Flying Solo on 28/9/2013]
One of the first things you need to consider when you start importing is what your role in the importing process will be. When importing, you can act as a sub-distributor or as a sales agent.
A sales agent (or simply “Agent”) acts almost exclusively as a sales rep/account manager for the overseas supplier (who is known in this relationship as the “Prinicipal”), and is the simpler of the two roles. The Agent manages the Principal’s existing client base here in Australia and helps to find new customers in return for an agreed commission, which is usually an ongoing percentage of sales. The Agent is not an employee of the Principal, does not actually purchase the Principal’s product for re-sale, and does not take responsibility for organising the delivery of the freight to Australia, which is co-ordinated between the Principal and the client.
The main advantage of being an Agent is that there is little financial risk, little start-up capital required, and lower overheads. Since Agents do not invest financially in the products, and don’t get bogged down in organising logistics, they are often able to take on a far wider product stable and have more time to focus on selling, thus multiplying their chances of success. This is particularly advantageous in the initial stages of the business. Commission for Agents varies from industry to industry, but rates of 5 to 15 per cent of the ex-works (i.e. factory) price are common. This may not sound like much, but it can quickly add up if you have a wide product range, can broker a deal with a major client, or are selling highly expensive merchandise.
In contrast to the Agent, the sub-distributor does take title to (purchase) the Principal’s products, which he then re-sells to his own clients in Australia with a margin of profit on top. The Distributor is therefore usually responsible for the organisation and cost of everything downstream of the purchase (such as freight, customs clearance, warehousing, and distribution within Australia). Depending upon the relationship with the Principal, the Distributor is often responsible for virtually all matters relating to the product within their territory. This can include not only the direct costs of selling the product (such as marketing and advertising), but also other incidental costs such as, for example, the legal costs involved in ensuring that the products comply with relevant codes and standards.
The reward to the Distributor for this higher level of risk and responsibility is, firstly, financial (Distributors have the capacity to make much more money than Agents), and secondly, a higher level of control (the Distributor can often make decisions that an agent would need to refer back to the Principal). A Distributor is also in a better position than an Agent to ensure that the overseas Principal and the Distributor’s own clients here in Australia do not conspire to cut him out of the picture by dealing with each other directly since, in contrast to the situation with an Agent, there should be no need for those two parties to communicate with each other.
These are just some of the myriad considerations in deciding your role in the importing game. Your decision to act as an Agent or Distributor will depend upon your financial position, the perceived potential of the product, and your level of comfort with the risks involved; the prospective Principal may of course have their own ideas about what they are looking for in terms of representation in Australia. Fortunately, you are not necessarily restricted to either/or, and many successful businesses function as an Agent for some products and a Distributor for others. We often recommend that those new to importing start out as an Agent to gain experience and contacts before moving on to be a Distributor when they feel the time is right.