Developing an import strategy

Handled well, importing can make a significant contribution to success in business. For some, using overseas suppliers is a key part of controlling costs. Others have built their whole business on the unique products importing allows them to provide.

An effective import strategy must take into account all the factors you would consider in any form of purchasing. At the same time, you need to plan how you will deal with extra challenges, such as dealing with long delivery times and the financing burden this can impose.

1. Your import objectives

Be clear about why you want to import

  • You might want to source goods that are not available from any suppliers in the UK.
  • Overseas suppliers may offer cheaper goods than their UK competitors.
  • You might want to import components to use in your production process, or complete products to resell.

Think about the kind of relationship you want with your suppliers

  • Building a relationship with an overseas supplier requires an investment of significant time and money. It may not be worth using a new supplier for a relatively small, one-off purchase.

Take into account possible risks and disadvantages

  • Finding suppliers, and setting up and managing the import process, will add to your costs.
  • Any products that you are looking to import must meet UK safety requirements. Local standards in suppliers’ countries may differ.
  • Any problems tend to be more difficult to resolve when dealing with overseas suppliers. For example, if a delivery is incomplete or faulty, it may take a long time to deliver a replacement.
  • It may not be possible to negotiate a contract that fully compensates you for problems. For example, if late delivery of a component means that you have to stop production.
  • You may need to protect yourself against fluctuations in exchange rates, particularly if there is a long delivery time.
  • You might face problems in the supplier’s country, such as new export restrictions or taxes.

Confirm that your import strategy fits with your overall business strategy

  • Buying cheaper supplies from overseas can be an important part of a cost control strategy.
  • Some companies outsource production of parts, or even complete products, to overseas suppliers, so that they can focus on their core skills and on activities where they have a competitive edge.
  • The quality of products you import, and the service you get from overseas suppliers, can have a significant effect on the quality of the products and service that you offer your customers.
  • You will need to make human and financial resources available to develop your import operations.

2. Importing action plan

Nominate one member of staff to be responsible for your import strategy

  • This import manager will need to coordinate with other parts of your business. For example, if you are planning to resell the products you import, the import manager will need to work with staff responsible for sales and marketing.

Decide on potential sources of supplies to investigate

  • Buying from large companies within the European Union (EU) can be a low-risk strategy. However, you may not get the same cost advantages as you could by sourcing supplies from suppliers in other countries.

Decide how you are going to import

  • Importing directly from the supplier, and handling as much of the process as possible yourself, is potentially the most profitable option. Smaller businesses and first-time importers are likely to want to use agents to help.
  • For example, if your supplier is responsible for delivery to a particular UK port, you might use an agent to clear the goods through UK customs and deliver them onwards to your premises.

Establish an initial budget and timescales

  • Many businesses start importing with a small-scale trial. As your import business grows, you can then invest more in building up the operation and your in-house expertise.

3. Locate overseas suppliers

Identify potential suppliers of the goods you want

  • Your trade association may be able to recommend overseas suppliers.
  • Many overseas suppliers will exhibit at trade events in the UK. Trade events are also good places to meet agents, distributors and other businesses in your sector who can advise you on suppliers.
  • If you are happy to import indirectly, you may be able to source products through a supplier’s UK agent or distributor.

Shortlist suppliers in suitable countries

  • You may prefer to work with suppliers in a country where you already have experience and contacts.
  • The simplest option is often to source goods from other EU countries,  but may be affected by Brexit. Check government guidance on preparing to import from the EU after Brexit.
  • Suppliers in less developed countries are likely to offer the most competitive prices, but may present extra complications and risks.
  • You may prefer not to deal with a supplier in a country with a very different business culture and legal environment (see ‘Check legal and tax issues’).
  • Suppliers in remote locations may be unsuitable if you need quick, flexible delivery.

Check the suppliers’ references and track record

  • Assess the suppliers’ financial stability. You can suffer significant disruption if a supplier goes out of business.
  • You may prefer to deal with an experienced exporter, particularly if you have not imported before.
  • Confirm that their products meet your requirements, including UK legal requirements.

Consider visiting the most promising suppliers

  • A visit is a good opportunity to assess their management and operations. For example, you might want to review their working practices and quality-control systems.
  • Visiting the country can help you to get a feel for the business environment they operate in.
  • You may need to make several visits to your potential supplier to agree a deal, build your relationship with them and find out more about local commercial practices and procedures.

4. Check legal and tax issues

Investigate the local legal environment

  • Assess your chances of enforcing your legal rights in case of a dispute. Even within the EU and in countries such as the United States and Australia this can be time-consuming and expensive.
  • Find out about standard commercial practice: for example, payment terms and credit periods.
  • Local laws covering your supplier can affect you. For example, if your supplier is prohibited from exporting the product, it may well be impossible to enforce any contract.
  • Useful sources of information can include your trade association, the British embassy overseas and foreign representatives in the UK.

Find out about any trade restrictions

  • There are UK restrictions on importing certain products. For example, firearms, software, most food products and some chemicals. Import restrictions can apply even if you are purchasing goods from another country in the EU.
  • Import licences for restricted goods are issued by relevant government departments and agencies, such as the Food Standards Agency.
  • Your supplier may need a local export licence. Obtaining a licence could delay delivery, increase costs or even be impossible.

Check whether the supplier’s product meets UK legal requirements

  • The product will need to meet UK safety standards. You can be prosecuted for selling unsafe products, and can be sued for any harm caused by unsafe products you import from outside the EU.
  • Products must meet UK labelling and packaging requirements. For example, labels must be printed in English, and must use metric weights and measures.
  • There are specific regulations affecting certain types of product. For example, foods, building materials, chemicals and clothing.
  • You may have to ask your supplier to modify the product to suit the UK.

Take advice on drawing up an import contract

  • Negotiate for the contract to be under UK law and agree an appropriate dispute resolution procedure that can be used instead of going to court. For example, the contract might name a particular arbitration organisation.
  • Ask your supplier to confirm that their product meets UK standards, and to indemnify you against any legal action taken against you because of defects in the product.
  • Negotiate agreements on logistics and financial arrangements that take into account the risks you have identified.
  • In contracts, use Incoterms wherever possible. These internationally-recognised standard trade terms set out what is expected from buyer and seller, particularly for transporting goods, and can help resolve disputes.
  • You may have to get public liability insurance if your goods are to be sold to consumers.

5. Negotiate and organise logistics

Agree how the products will be delivered

  • Key factors include where the goods are coming from and going to, what type of goods they are and whether they need any special handling, and how quickly they need to be delivered.
  • The full delivery process usually involves several stages and forms of transport. For example, delivery from the importer’s premises to a local port, customs clearance there, delivery by ship to a UK port, UK customs clearance, and so on.
  • The contract should include clear agreement on responsibility for each stage of delivery, including insurance. A well-drafted contract will use the appropriate Incoterms standard terms.

Agree what responsibilities you and your supplier will each have

  • As well as delivery, you need to be clear who is responsible for insurance at every stage of the journey, and for customs clearance.
  • The ‘obvious’ solution is often for your supplier to take responsibility for delivery as far as UK customs. You then take responsibility for UK customs clearance and onward delivery to your premises.
  • You may want to take more control of the delivery process. For example, if you want to be sure that food that needs temperature-controlled delivery is being handled in the way you want.
  • It does not make sense to ask your supplier to do too much, as the supplier will want to negotiate a price that reflects this. For example, a small supplier with no UK presence is unlikely to want to take responsibility for UK customs clearance.

Ensure that your supplier provides the required paperwork

  • Within the EU, paperwork requirements are generally minimal but may be affected by Brexit. It is good practice to ensure that goods are accompanied by a commercial invoice.
  • Goods subject to import restrictions need documentation even if they are coming from another EU country.
  • Goods coming from outside the EU typically need transport documentation and several copies of the invoice. For consignments over £6,500, a valuation document is usually needed. Other requirements can include a certificate of origin.
  • You will also need copies of transport documentation.

Decide whether to use an agent to handle your responsibilities

  • You will not need an agent if your supplier is handling customs clearance and delivering to your premises.
  • Most smaller importers use an agent, such as a freight forwarder, to handle customs clearance (and onward delivery) for goods from outside the EU.

6. Organise import finance

Negotiate the price of the product and the currency to use for payment

  • Experienced exporters are usually prepared to quote and invoice in pounds sterling.
  • An exporter may offer a better price if you are prepared to pay in local currency. You can protect yourself against the risk of fluctuations in the exchange rate by using a forward foreign exchange contract with your bank.

Consider who is best placed to finance the purchase

  • You and the supplier must agree how to finance the delay between production of the goods and their arrival in the UK.
  • If you are in a strong financial position, you may be able to negotiate a better price by agreeing to take more of this financing burden. For example, you could agree to pay once you have evidence that the goods have been shipped.

Negotiate the payment method

  • If your supplier knows and trusts you, they may offer you a credit account in the same way as UK suppliers do.
  • The supplier may want to use an alternative form of payment that reduces their risk and allows them to share the financing burden with you. For example, a ‘bill of exchange’ or a ‘letter of credit’.
  • Resist any request for payment in advance, or a deposit, unless you trust the supplier.
  • Agree who will pay any bank charges.