Trading Company

Trading Company

Summary of Trading Company

A firm engaged in the purchase, distribution, and marketing of products in international trade. Generally, the trading company deals with products of unrelated firms as well as the manufacturers of joint ventures in which it is involved.

(Main Author: William J. Miller)

Trading Company and International Trade Economy

Trading Company in International Trade

Meaning of Trading Company, according to the Dictionary of International Trade (Global Negotiator): Trading companies are specialists that cover all export and import operations and procedures. A trading company buy products in one country and sold them in different countries where it has its own distribution network. This kind of companies mostly work with high production volumes of products such as raw materials, chemicals, generic pharmaceuticals, etc. The activities of a trading company include:

Identification of suppliers in different countries with capacity to supply large volumes of generic products at competitive prices.

Negotiating the terms of sale and delivery of products.

Financing and assurance of payment to the supplier-exporter.

Managing logistics and transport.

Managing customs and barriers of international trade.

Distribution and sale of the products through its retail network.

At present, trading companies specialize in emerging countries in areas of Asia, Africa or Latin America. Its function is to identify competitive suppliers, negotiate and purchase their products and sell them through a distribution network in its country or neighbouring countries. From a contractual point of view a trading company can act in four different ways:

Sales agent for those exporters that are domestic. The trading company establishes the marketing presence in foreign markets soliciting orders from foreign customers in the name of the manufacturer. Invoicing is done on the name of the manufacturer and helps the exporter with all details of the export transaction. The trading company may suggest the export price, but this principal has the final say on even whether to accept the order. The relationship with its clients is established through a International Commercial Agency Contract.

Buying agent for importers that want to buy a specific kind of products within a specific territory that can be a country or multiple countries well known by the trading company. The responsibilities of the trading company may include, among others: identifying manufacturers and suppliers of products within the described territory; negotiating prices, terms of delivery and payment; and managing the international transport of documents which comply with export and import procedures. The relationship with its clients is established through a International Buying Agent Contract.

Exclusive distributor on a buy-sell basis. The trading company buys a manufacturer at a set price and resells to foreign customers at a price established by itself. When the trading company is acting as a distributor, the manufacturer may have no control over the export price and not even know the foreign clients are. The relationship with its clients is established through an International Distribution Contract.

Intermediary in specific trade operations in which does not act as a buyer or seller but as an intermediary that charges a commission on export and import operations. The relationships with its clients (usually the exporter/sellers) are established through an Intermediary Contract for Trade Operations.

There are thousands of companies and professionals doing this international trading activity. In the GlobalTrade Directory there are over 3.500 international trade intermediaries classified by country and sector. See agent; distributor; export management company.


See Also

Export trading company, Transfer Pricing, Arm's length pricing