How to approach your first overseas supplier
Making contact with an overseas supplier for the first time can be a daunting prospect for the uninitiated. Here’s a quick checklist of some of the key issues you need to consider in order to plan your approach.
- Your role in the importing process. Are you an agent or a distributor?
- Price. Request a price list early to determine if the product is feasible in your market. In most cases, the supplier will give your their ex-works (factory) prices, but do make sure that you understand the applicable incoterm. You should also try to negotiate that there be a minimum notice period for any price changes.
- Payment terms. A typical arrangement is an upfront deposit (no more than 30 per cent) to start production, with the balance paid prior to shipment. Since you’re paying for the goods upfront, pre-shipment inspections (see point 12) may be necessary.
- Exclusivity. You should always push to be the exclusive Australian distributor. After all, why make an effort to build their brand only to the potential benefit of a second distributor? In return, the principal may expect a regular purchase agreement.
- Product samples. Some suppliers give them away, otherwise a common arrangement is that you purchase the samples and then receive credit for them against your first order.
- Referral of approaches. The supplier should agree to refer any approaches it receives from companies within your territory back to you.
- Marketing costs. Some Principals will contribute a bit, some a lot, some nothing at all. Many will want to see some sales before they even think about it, but it’s worth at least discussing this early. The Principal’s contribution may come as a discount applied against future orders.
- Faulty items. The parties should agree to an acceptable rate of manufacturer’s defects. If the rate is exceeded, you should receive a credit for the additional faulty items.
- Publicity material. The manufacturer should provide some promotional material (e.g. catalogues, posters) but you should also have the freedom to develop your own.
- Labelling, packaging and safety standards. It should be the manufacturer’s responsibility to ensure that the merchandise meets all legal and merchantability requirements before it arrives in Australia. Be aware that customs may deny entry if it does not.
- IP issues. Registration of trade names and trade marks should be paid for and organised by the manufacturer, who should also pay for any steps required to prevent infringement of the trade marks.
- Quality inspections. Quality control (QC) companies can be engaged to audit both the factory and the merchandise prior to shipment. You should raise the prospect with your new supplier early. There is no reason why a legitimate manufacturer would not be comfortable with the idea. If they resist, steer well clear.
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Of course, this list is not complete, and not everything will apply to your particular situation, but taking the time to carefully think these points through will help you to feel prepared and confident when approaching your new overseas supplier. Be sure to go through them early in the relationship as this will improve communication by clearly setting out both parties’ expectations and provide a guideline for dealing with future events before they arise.
Did you encounter any issues when first approaching an overseas supplier? What tips can you share?