Home Forums Logistics Question: Would you sell to an overseas market on consignment?

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  • #992902
    Johny
    Member
    • Total posts: 840

    I have a pretty broad question to ask and I appreciate any comment or discussion.

    If you were involved in the manufacture, growing and processing or general marketing and selling of an item, and looking to initiate overseas sales of your product, how would you feel about selling on an “on consignment” basis?

    For example, your company made a food item and was looking to enter a foreign market.

    In the first scenario you can enter an established online selling channel where all the warehousing, promotional work, advertising etc is incorporated into the process. The customs clearance takes a couple of weeks and there is no special labeling required. There are taxation advantages where your pricing under certain circumstances can be much cheaper than selling in the traditional method. You do pay a cost to the online seller but it is probably less than the margin a retailer adds to the wholesale price of the product.

    On the face of it, all the risk is with you as the supplier. You provide the goods in bulk, pay for shipping, pay any costs associated with getting approvals for your product etc.

    And there is no guarantee you will recoup your money from sales.

    The alternative option when trying to enter the foreign market is to hook up with a traditional importer/retailer. That involves travelling overseas, assessing potential “partners”, exhibiting at trade fairs and quite often having to pay for some or all of the promotional and advertising costs for your product. You need to have labeling created and approved, customs clearances can take months and cost quite a lot depending on the product and you need to provide a large amount of samples to establish your product.

    After all that, there is also no guarantee your products will sell.

    While you would have probably been paid for your goods before shipping them out, you would still be up for a large amount of cost with all the add ons mentioned.

    Would the benefits of the first method allow you to consider selling “on consignment” as opposed to wanting to be paid up front, but then having to pay significant other costs.?

    Does what I am asking make sense. It is a little difficult to be too specific here, not because of secrecy, but because it is hard to cover every angle.

    #1188715
    Jason Ramage
    Participant
    • Total posts: 3,161

    Hey mate

    My head is hurting, and to answer your question quickly – NO, never sell on consignment and especially overseas. I would be better off going to the Casino and having a punt with my monies.

    Not shooting the discussion down, just the costs to export being stock + freight + everything else would just be so inhibitive with no guarantee of anything and all risk on the manufacturer. This is a positive stacked scenario for seller in foreign land to tackle a business exercise with little or no risk, and as most know the less hurt money (and in this case the ZERO hurt) money can potentially provide lack of motivation for the seller to push your product over another. Cos they dont lose anything if my stock doesnt sell.

    Furthermore, how would one be protected from theft, the elements if the items are mistreated and so forth.. Again, the risk is on me as the seller/supplier.

    Even in the large corporate world, this does not happen. If one holds a product license, for example, they invest in the product and back it.. In fact, they have mandated KPI’s to keep ordering and to maintain an up revenue stream to the owner of said brand. This would not be evident in the scenario described of providing goods on consignment.

    This hasnt even touched on the checking suppliers, checking trustworthiness, checking that they exist, checking they want to sell and so forth.. Just fraught with danger i feel.

    To be successful in business, there are several elements of which i am sure you are aware.. Several of the more important ones are:
    – Product/Service (proposition)
    – Sales/Revenue
    – CASH FLOW
    – Drive

    In this scenario the person supplying goods would have none of the above in the equation and ALL the risk whereas the person receiving the consignment has everything as Product in in their possession, Sales are all theres (and may not even remit the COGS), Cash Flow is ALL THEIRs as money hits them first, and DRIVE to sell is good as they earn 100% of sales price until they decide to remit…

    Dont get me started on paperwork and remittance discrepancies in both value and time frame. LOL i have gone on from a short reply to a theory!

    One more point, i put n my importers hat and ask myself would any of my current chinese suppliers send me my 40ft HQ containers on consignment, of which there is a resounding thought… What do you think they would say ? :)

    Jason Ramage | Lucas Arthur Pty Ltd | E: hello@lucasarthur.net.au   P: 61 3 8324 0344    M: 61 412 244 888
    #1188716
    Johny
    Member
    • Total posts: 840

    Ha, thanks Jason.

    You know, everything you mentioned is exactly what I expected to hear. Not only that, but it is every argument I usually come up with as a reason that I wouldn’t do it, or wouldn’t expect anyone else to do it.

    But you know what, the deeper I dig into it, how much of that is based on a predetermined bias. For example you have automatically gone down the route of highlighting every negative, with not one mention of any potential positives.

    For example:-
    – How is one normally protected against theft- insurance.
    – Corporates don’t do it because they have the power to demand the terms. Smaller companies don’t have that power so often need to accept a different proposal just to get their foot in the door.

    It then becomes a matter of how much risk you are willing to bear.

    If say I supply a pallet of goods and the total cost of supplying the goods, shipping etc amounts to AUD10,000…..

    How does that compare to exhibiting at one overseas fair that may cost over 5 grand just for the booth + all the associated costs like travel and accom+ sending samples etc. This is before you even have any prospective buyer.

    End result can be that you don’t sell anything with either option. So does that make it a lottery no matter which option you choose?

    So then is it better not to do anything at all?

    #1188717
    Anonymous
    Guest
    • Total posts: 11,465

    Hi Johny,

    In my experience, consignment-based selling is difficult to manage even at a local level, as the retailer/distributor has no skin in the game and doesn’t face any negative consequences if your products don’t sell.

    It’s particularly fraught with food products (as per your example) or anything else that has a limited shelf-life, because with every day that passes the window of opportunity in which the product can be sold declines until it gets to the point where it cannot be able to be sold at all.

    When use-by dates aren’t an issue, consignment selling may sometimes be beneficial, but only if the effort to retrieve your unsold property isn’t going to eat up your profit margin, which seems unlikely in an export scenario.

    For example, while an artist could put a painting into a local gift store on consignment and then just pop back into the store to pick it up after a set period of time if it doesn’t sell without incurring great cost.

    However, the time, effort and money involved in getting food products back from Asia to Australia would be much more costly (and the cheaper shipping methods would eat up even more of your shelf-life).

    For all those reasons and the others raised by Jason above, personally, I’d steer clear of this model.

    Johny, post: 221377, member: 34822 wrote:
    End result can be that you don’t sell anything with either option. So does that make it a lottery no matter which option you choose?

    So then is it better not to do anything at all?

    In answer to your last question, yes, in my experience it would be better to do nothing at all and put your energies elsewhere than to sell overseas on consignment, because doing so is likely to burn cash fast.

    On the other hand if you and your business are ready to expand internationally via the traditional method, and have the cash to invest in doing so, both parties usually invest time in doing due diligence about the size of the opportunity, the best people/businesses to partner with, and the best way to structure their business/marketing plan for the market entry.

    It’s certainly not a cheap or fast process most of the time, unfortunately!

    Hope that helps – hit me up with a PM if you’d like to chat about my experiences with it in more detail.

    All the best,
    Jayne

    #1188718
    Jason Ramage
    Participant
    • Total posts: 3,161
    Johny, post: 221377, member: 34822 wrote:
    Ha, thanks Jason.

    You know, everything you mentioned is exactly what I expected to hear. Not only that, but it is every argument I usually come up with as a reason that I wouldn’t do it, or wouldn’t expect anyone else to do it.

    But you know what, the deeper I dig into it, how much of that is based on a predetermined bias. For example you have automatically gone down the route of highlighting every negative, with not one mention of any potential positives.

    For example:-
    – How is one normally protected against theft- insurance.
    – Corporates don’t do it because they have the power to demand the terms. Smaller companies don’t have that power so often need to accept a different proposal just to get their foot in the door.

    It then becomes a matter of how much risk you are willing to bear.

    If say I supply a pallet of goods and the total cost of supplying the goods, shipping etc amounts to AUD10,000…..

    How does that compare to exhibiting at one overseas fair that may cost over 5 grand just for the booth + all the associated costs like travel and accom+ sending samples etc. This is before you even have any prospective buyer.

    End result can be that you don’t sell anything with either option. So does that make it a lottery no matter which option you choose?

    So then is it better not to do anything at all?

    Howdy Mate

    Nope, i didnt automatically go with the negative and did not outlay the positives as i DO NOT see any positives.. I know that is extremely melodramatic, although it is a recipe for complete disaster. There are just to many unmeasurable quantities and variables with unreliable or reliable partners.

    You mention is it better to do trade fairs yourself or invest this into consignment stock to which i would answer you would be far far better off to control your own destiny and invest in the first section of conducting the trade fair yourself.. This will expose you to a multitude of buyers, some may or may not buy, although you have the contacts and not some potentially rogue agent of yours.. Bearing in mind, i am putting an FS hat on and referring to businesses we would deal with as a flying soloist (assuming resources and funds are limited).

    It would be best not to explore these options if consignment was the only option, as you would be offering all the power to another person to control your business.. And $10k is a lot of stock to invest into a non entity for consignment stock.

    You also need to note, that my past is finance + corporate and combination of smaller enterprise and as such quickly cut through potential money burners and focus on money earners… This arrangement would have a business locking down $10k plus for anywhere between 1-3months being production time to delivery and THEN waiting for it to sell if the consignee does their part of the equation… And then if they do, i would probably wait another 1-3 months for reimbursement of this monies… :( Thats a lot of bucks to allocate to a ‘not sure’ scenario.

    Also, if someone where able to invest $10k into stock that may be ‘lost’ i think its also a greater risk being international as you will incur freight costs regardless which has a hard impact on cash flow.. Whereas, if the same $10k was produced and housed locally (or shipped as sold instead of consignment) there is no costly freight costs until revenue is incurred… This freight cost could be from $500+duties (its expensive just internally freighting stuff here and with customs brokers) and so forth.

    One other point, if the $10k stock is internationally consigned, there is little to no chance that if something goes wrong with a business operators cash flow to actually treat it as an ASSET on hand (as its not here) and liquidate it for a quick buck… Which sometimes occurs…

    Hope that makes sense, it would be nice living in a world of equals and honourable people.. although, this is not always the case and business between friends or people with no monetary input and as such can end terribly for those that do have the money into it.

    Jason Ramage | Lucas Arthur Pty Ltd | E: hello@lucasarthur.net.au   P: 61 3 8324 0344    M: 61 412 244 888
    #1188719
    bb1
    Participant
    • Total posts: 4,485

    Johny,

    you mentioned insurance, I think we need allieddb to comment here, but would you be able to insure against this kind of transaction, again me just asking the dumb question. But I suspect any insurer if they will take it, would charge a hefty premium.

    I do know someone who did consignment locally, and the consignee did a runner, and they lost all there stock, it was only a small amount, but to them it was still a whack on the bottom line.

    I am like anon and Jayne on this one, you are taking 100% of the risk

    #1188720
    Dave Gillen – FS Concierge
    Keymaster
    • Total posts: 2,543

    Hi Johny,

    Johny, post: 221377, member: 34822 wrote:
    It then becomes a matter of how much risk you are willing to bear.

    Exactly. The replies so far seem to suggest the risks are extremely high. If you were to consider proceeding, then you’d need to look for ways to improve the risk-reward equation. If you have confidence in any of the following, the equation could theoretically be different…

    • Confidence in the product selling (knowledge of the market and strong evidence it will sell) (=lower risk)
    • Confidence in your partner (are they good at what they do, and are they loyal to you – do you know them personally?) (=lower risk)
    • You can afford to lose $10k (=lower personal risk to your lifestyle)
    • Upside (=bigger reward). Will your shipment of $10k sell for $100k? If so, you can afford to take a bigger risk.

    Just a perspective on decision making from a non importer/exporter.

    Dave

    Dave Gillen - Client Acquisition | Brisbane | (07) 3180 0288
    #1188721
    Johny
    Member
    • Total posts: 840

    Thanks all for your comments.

    Dave, my interest in this isn’t about the proposal per se, it is more about the attitude about this selling method.

    But I got out of it what I needed and expected.

    Thanks again.

    #1188722
    Johny
    Member
    • Total posts: 840

    “Could be true, could not.. Same as any industry, be it 3pl or granite suppliers i guess? My only concern would be that you are best not to go into a relationship with ANY SUPPLIER or chain management group with an expectation that something is wrong or going to go wrong – reason is if you have this perception, you will either a/ find the problem you thought would happen or b/ create the problem you thought would occur :(

    Calling you out here a little Mr Anon Beorgeoisie ( And I sure aint typing that again.)

    Interesting comment from another discussion. Perhaps it’s just industry specific?

    #1188723
    Jason Ramage
    Participant
    • Total posts: 3,161
    Johny, post: 222574, member: 34822 wrote:

    Calling you out here a little Mr Anon Beorgeoisie ( And I sure aint typing that again.)

    Interesting comment from another discussion. Perhaps it’s just industry specific?

    Johny B,

    Did you type the first sentence? if so, what you calling me out on.. LOL

    And i dont think my comment is industry specific, can be anything – this 3pl quote you pulled is interesting from start to finish, attributing blame to others when there are so many hands in the chain.. from manufacturer, loaders, containers, unloaders, local deliveries to warehouse (yours or not), storage, end chain supply.. ;)

    Jason Ramage | Lucas Arthur Pty Ltd | E: hello@lucasarthur.net.au   P: 61 3 8324 0344    M: 61 412 244 888
    #1188724
    Johny
    Member
    • Total posts: 840

    Sorry, thought I had changed the italics.

    I just find this particular part interesting:-

    “My only concern would be that you are best not to go into a relationship with ANY SUPPLIER or chain management group with an expectation that something is wrong or going to go wrong…..”

    Seems somewhat the opposite of your comments in this discussion.

    #1188725
    Jason Ramage
    Participant
    • Total posts: 3,161

    Sorry Johny B, although i feel a quote can be pulled from any post across multiple forums and attributed in any way to skew a point of view favourably – which is really what i think you have done here, either just skimmed across the other post and thought it ‘may’ sound similar and then dropped it in here..

    Unfortunately, and normally i agree with you in most instances, although these 2 threads you reference (one quote from and yours above) are not alike nor is the comment in any vein relevant to this thread.

    In life, i strongly believe that if you go into a relationship with negatives you will potentially damage the relationship before it begins – be it personal or business. Now, that being said the main reason i beg to differ is the following:

    the post you pulled is related to someone seeking warehousing who clearly demonstrates a lack of trust and willingness to attribute blame on others compared to your post querying the viability of sending stock to someone at a HUGE BURDEN cost wise (both raw material and shipping costs) with a skerrick of a guarantee that something fruitful will deliver.

    Advice on other thread is about a mindset of entering a relationship with these concerns although your post is all about the thought process of BEFORE you enter the relationship. Same advice would apply to other post as it does here.

    My thoughts would still be NO to your scenario above as a FlyingSoloist as there are just too many risks associated with an outlay of setting up someone elses international supply chain with no guarantee of return + its overseas so no stock on hand etc etc

    Example, and as you know i import so trust with suppliers is no issue once due diligence is done, if i could jump through all the viability and feasibility assessments of your above scenario i would still apply the quote i made that you referenced before the next step. The quote is but one piece of advice in a rather long piece of string scenario you gave and once all hurdles are jumped through, like marriage, you need to trust each party implicitly til the end.

    Overall, i stand by my quote – trust is required with anyone you want to go into partnership with – key words being WANT TO, as your scenario does not make it to the wanting stage (too much out of pocket cost) so trust doesnt really even enter the equation at this point. DUE DILIGENCE is still required, this will be the marker of IF YOU LIKE THE SUPPLIER (read this as trust) and once you commit then you proceed with the proper mindset..

    Hope i havent muddied the waters too much ;)

    ps.. to look at this whole post differently, lets say i wanted to sell my stuff into Hong Kong? Personally, and if appropriate product wise, i would trust you Johny – after we met and went through a few things i am sure, and if i could burden those outrageous shipping costs would be happy for you to sell my stuff… Although, realistically, in my space i would not outlay that sort of money to hold internationally with no guaranteed returns. In saying that, i just shipped a sizeable ($$$) order to China from Melbourne in a different industry which was paid for prior to shipping with no questions asked – order 2 being processed as we speak and i tell you what, i would not send this stock out on consignment as if anything went wrong i would lose my house :(

    Jason Ramage | Lucas Arthur Pty Ltd | E: hello@lucasarthur.net.au   P: 61 3 8324 0344    M: 61 412 244 888
    #1188726
    Jason Ramage
    Participant
    • Total posts: 3,161

    WOW that post was much longer than expected, but truly i am surprised you see these 2 posts in a similar vein JohnyB.. truly i am.

    Jason Ramage | Lucas Arthur Pty Ltd | E: hello@lucasarthur.net.au   P: 61 3 8324 0344    M: 61 412 244 888
    #1188727
    Jason Ramage
    Participant
    • Total posts: 3,161
    HarryLuke Logistics, post: 221374, member: 34537 wrote:
    This hasnt even touched on the checking suppliers, checking trustworthiness, checking that they exist, checking they want to sell and so forth.. Just fraught with danger i feel.

    Also, please read a quote pulled from your actual thread…. this seems to be the only area i reference trust/distrust about your scenario – most of my comments were based on the viability and risk associated with your scenario and not trust – as opposed to the OP in the other thread.

    Jason Ramage | Lucas Arthur Pty Ltd | E: hello@lucasarthur.net.au   P: 61 3 8324 0344    M: 61 412 244 888
    #1188728
    Johny
    Member
    • Total posts: 840

    The whole reason I pulled out that comment of yours from another discussion is that, as far as I am concerned, it’s in the mindset, which should be pretty much the same regardless of the discussion.

    “My only concern would be that you are best not to go into a relationship with ANY SUPPLIER or chain management group with an expectation that something is wrong or going to go wrong…..”

    Given something can go wrong in any relationship isn’t it therefore better not to be in business at all?

    Isn’t that therefore the reason you do due diligence to reduce the risk of something going wrong? And yet you use that very definite word “never” in this discussion.

    The reason I found that comment of yours interesting was not to be pedantic, believe it or not, but in a much broader sense is very much what I am finding about the attitude of Australian business in general.

    On the one hand there is a lot suggesting Australian business should engage with Asia, and on the other there is this mentality of finding reasons not to, with many of those reasons being that “something is going to go wrong”.

    And rather than mitigate the risk, the standard response is “never” do it.

    Or let me offer an example of two companies looking to export:-

    Company A spends tens of thousands of $ on attending trade fairs, travel and accomodation costs, marketing costs which often include advertsing as well as costs for placement, samples for promotions, numerous additional travel costs, labeling costs, in many cases registration costs.

    And all these costs are often the result of the importer or local distributor expecting the supplier to contribute towards them or pay them outright.

    Company B spends say $10,000 (that is a figure plucked out of the air and would probably be much less), on sending several cartons of product to China, pays any costs after the product has been sold, and gets paid only after the product has been sold. Their importing costs are less and more streamlined, there is less stringent labeling, they get access direct to the end consumer, and it goes on a little more.

    Neither Company A nor B is guaranteed a return, and yet, there are many, many company A’s out there, but a company should “never” be a company B.

    Doesn’t make business sense to me for Company B the never be an option.

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