Business as the middle man

[joei3316]

I am planning to start a business of being basically the middle man of some products.

For example, I could act as the middle man between some products manufacturers in China, and then bring it over to North America to some retail stores.

They could be food, drinks, general products. etc.

My question is, what is preventing these retailers in North America from contacting the suppliers in China directly. Thus eliminating the middleman, Me in this case.

I mean, I could see how the retailers can just go. "hey this is a good product, Im ganna contact the suppliers in China directly and cut the cost for having to pay this middleman"

Thanks in Advance guys

[vangogh]

Truthfully there's nothing stopping parties on either end from eliminating you and dealing directly with each other. It's your job to create a reason for them not to, by adding some kind of value to the transaction. You can make it more convenient for both parties. You could find buyers and sellers that might not otherwise know the other party exists. Maybe you deal with all the issues involved in moving product from one company to another. Ultimately you're trying to add some value into things. If all you're doing is taking a cut for yourself then in time you can easily be removed from the transaction.

What some business in the middle do is find a market in one location where a product sells for a certain price and then find another market in another location where people are buying the same product and higher costs. The business in the middle buys low and sells high and can make money for a time. Eventually the two markets find each other and cut you out. Unless you are adding something of value to the transaction.

[joei3316]

Truthfully there's nothing stopping parties on either end from eliminating you and dealing directly with each other. It's your job to create a reason for them not to, by adding some kind of value to the transaction. You can make it more convenient for both parties. You could find buyers and sellers that might not otherwise know the other party exists. Maybe you deal with all the issues involved in moving product from one company to another. Ultimately you're trying to add some value into things. If all you're doing is taking a cut for yourself then in time you can easily be removed from the transaction.

What some business in the middle do is find a market in one location where a product sells for a certain price and then find another market in another location where people are buying the same product and higher costs. The business in the middle buys low and sells high and can make money for a time. Eventually the two markets find each other and cut you out. Unless you are adding something of value to the transaction.

ahhh, great answer.

Apparently I have totally forgotten the "Value Chain" lesson from business school.

Thank you very much.

[Paul]

As Vangough said brokering is basically arbitrage, buying and selling from one market to another. Alot of money can be made that way.

On Chinese Imports;There are a few reasons why retailers won't buy from China themselves.

1) It's not neccesarily cheaper unless you purchase significant volume. Buying just a few items at a time doesn't get you much of a price break especiallyafter factoring in shipping.
2) Lead times and cash flow-Chinese manufacturers do not offer terms. Generally you must wire payment prior to them shipping. Many won't even start production on your order without a 30% to 50% deposit. The basic model for chinese manufacturers is to produce per order, not maintain an inventory.To get reasonable freight rates you must ship by sea. This can take weeks or more to arrive.So, the cash is tied up for quite awhile. Retailers always are in a cash flow crunch and usually need terms to survive, so they have no abiity to front cash.
3) Customs freight agent-To bring commercial size loads it has to be landed at a sea port and managed and handled by a freight agent. There are some costs to this including the local freight (drayage) to your warehhouse or facility.

With all that said, being a distributor (not neccesarily a broker) can be very lucrative if you can develop an efficient infrastructure. But you will need a certain amount of working capital to start and sustain the business.

[KristineS]

We worked with a broker in China to get a product made, and the main reason we worked with that particular company is that they had the knowledge and experience and the contacts that we didn't have. I think that's what brokers really sell, they already know how to work with the suppliers and have contacts to facilitate getting products made. It was worth paying someone to help us with this process because the company we used was able to alert us to some potential trouble spots, and connect us to companies who could do what we wanted. They also were knowledgeable about customs.

What you're essentially selling, I think, is knowledge and contacts. If you can make connections and help ease the process for your clients, you've got something to offer that companies would be willing to buy.