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Volume #1, Special Issue#1
Editor: Jeffrey P. Graham
In This Issue: Evaluating Trade Leads
Trade leads are a very important aspect of the
import-export segment of international business. Until very recently, gaining access to
reliable sources of trade leads was a very expensive and time consuming proposition for
many small and medium sized companies (SME's). In the United States, the Department of
Commerce was the sole purveyor of trade leads. Oh there were several so called
"sources" for trade leads, but most originated with the Department of Commerce.
As the individual States became more dependant upon international trade and investment for
their own economic development, their international divisions began soliciting trade leads
independently of the US Department of Commerce. In either case, companies paid a monthly
subscription fee in order to gain access to what was available, whether it was appropriate
or not. With the proliferation of trade lead sources available on the World Wide Web
(WWW), access to trade leads is no longer a problem. What has not changed, however, is the
time involved in handling trade leads.
Enthusiastic proponents of the Internet will always tell
anybody willing to suspend common sense that more is better. What is wrong with this
concept, as is wrong with all Internet hype, is the assumption that the additional
information provided by the Internet can be easily assimilated into a business enterprise
and made useful without any cost whatsoever. Therefore, the proliferation of trade leads
now available on the World Wide Web and in Usenet Groups should translate into more and
better opportunities for everybody. Nothing could be further from the truth because the
real problem with trade leads, is that most of them are of questionable value.
First of all, for purposes of this discussion, let me
define what I mean by a trade lead. A trade lead is a specific offer to buy or sell a
particular product or service or a request for participation in a business venture which
is then posted for worldwide dissemination, either to a government agency or a private
group. A trade lead usually implies a specific intent to conclude a transaction within a
reasonable amount of time. The time factor and intent to conclude a transaction is what
supposedly differentiates a trade lead from a company announcement or advertisement. Trade
leads can be categorized into two groups: 1)foreign government tenders and 2) general
1) When a foreign government is going to purchase some
equipment for a project or possibly some services such as engineering or planning, it
issues a tender offer for the products or services involved. Foreign firms wishing to bid
on such offers usually have to pay a fee to get a copy of the offer and the company
requirements. While this fee may be reasonable, it starts to become expensive if you bid
on several tenders. Often a performance bond must be posted as well. For those of you who
thought that English was the international business language, tell that to the foreign
government agencies who require that their tender offer bids be completed in the language
of their country.
What most SME's do not know is that usually foreign tenders
require the participation of a local company. What happens to many SME's is that they
spend good money only to find out that they are actually not eligible to bid on the tender
even though they might be really capable of providing the good or service. Often, the
tender offer is not really well circulated outside of the country until the last possible
moment. What usually happens then is that a number of companies in that country will
solicit their overseas contacts with a letter stating that their company is participating
in this tender and has an excellent chance of winning the bid with your company's
assistance. You are asked to provide an itemized quote including the manufacturer's name
and brochures and then you are required to add a 10-15% commission for the company.
One experience in particular demonstrated for me why
pursuing foreign tenders is not very easy. Several years ago, while working as an export
manager for a global trading company, I was mandated to pursue a foreign tender whose
value I thought to be questionable. However, the new owner of the company knew nothing
about international trade and was certain that I was wrong. He felt it was important to
pursue every lead. In this instance, there were only three companies in the entire world
which could provide the equipment as specified in the tender offer. Two of those refused
to give me a price quotation because they recognized the tender offer and did not wish to
pursue it. In both cases, the export managers told me that they would be happy to work
with a trading company, especially in markets where they had no representation, but that
they generally did not bid on foreign government tender offers because they were not
comfortable with the commission structure. The third company cheerfully gave me a price
quotation which they sent by fax. One page was missing and I had to call to request it.
The clerk who responded apologized profusely and then told me that she was glad that I had
caught her mistake because the previous ten companies who made the exact same request for
quotation had not. The foreign government finally chose two local companies to compete as
the project's agent. They both called the third company asking for a large commission
which was refused. The project was finally dropped.
Foreign tender offers often tend to generate very large
commissions for local companies who are in good standing with the government agency making
the purchase. One reason for making the tender is to lower the prices or obtain more
favorable terms for the foreign government agency which is actually the real buyer. It
makes sense to participate in a foreign tender offer as a subcontractor to the publicly
acknowledged bid winner. Estimate what it will cost you to answer an RFQ (request for
quotation) and any associated expense in inventory maintenance or initial work up,
whatever the case may be, and then have the bid winner post a cash performance bond, if it
is a domestic company or open a letter of credit in your favor if the company is foreign.
This eliminates the possibility of your company wasting its time with pretenders. If a
company is serious enough to post a performance bond or open a letter of credit, then and
only then are you on safe ground. If you already have an existing relationship with a
distributor in a country and that distributor wants to bid on part of a tender and makes a
special request for quotation, you should , of course respond.
Most foreign tender offers involve huge projects of one
kind or another and by default they eliminate most SME's because they are only capable of
providing small parts of the whole project. We do not think it is wise for export trading
companies or the export departments of small or medium sized companies to pursue foreign
government tenders unless they are dealing directly with an established distributor in
that market who already handles their products or as a sub-contractor to the publicly
announced contract winner with a performance bond/purchase order from a domestic company
or a letter of credit from a foreign company. We recognize that these offers often seem
very appealing but they can present complex business issues which need to be resolved by
competent international business professionals. Unless a company has this talent in house,
it can be a very expensive proposition to just evaluate a deal without any chance of
closing a transaction.
Note to our foreign readers: We would give you the very
same advice about pursuing state and federal contracts in the United States.
2) General procurement trade leads are usually posted for
three reasons: a) to advertise a company, b)to put price pressure on a local distributor
or c) to begin negotiating for a later purchase or participation in a business venture.
Prior to the proliferation of WWW sites and Usenet groups dedicated to this activity,
companies in the US paid the Dept. of Commerce to access its BBS for trade leads. Many
companies which entered the export business in the 80's were very surprised to find out
just how inaccurate and unusable were many of these trade leads. According to my own
business contacts, the situation was very similar in many foreign countries as well.
Many trade leads contain more information about the
company's business activity than they do about the particular transaction being
identified. Others ask for manufacturers brochures and contact information and quite a bit
of other information.
Who places trade leads? Foreign distributors know exactly
where to go when they want to buy something for resale. They do not have to place a trade
lead to procure anything except in very rare cases. If a foreign distributor is placing a
trade lead, it might be looking for a new relationship or thinking about adding a new
product to its line. Most distributors will be straightforward and say that they are
looking for new relationships. End users tend to be more unwilling to divulge their
interest as they are often competing with distributors in their home market.
If you talk to people who actually sell in foreign markets,
they will privately tell you that their best leads are the ones which they generate
themselves usually by direct mail.
So that my foreign readers are not offended and my American
readers clearly understand the message which I am trying to convey, trade leads can be
valuable information but they must be interpreted properly. I am not implying that
foreigners or Americans are being deceptive when they post trade leads. I am saying that
newbies to foreign trade who read a couple of magazine articles and think that they are
ready to immediately jump into import-export trade are fooling themselves. And it is these
people who often make the most serious mistakes about responding to trade leads. A trade
lead means something quite different to any experienced international trader who
understands how business transactions are concluded in foreign markets.
The Internet presents troubling issues even for the most
experienced international business people because of the enormous amount of misleading
information which is pumped into the system; a system which is not yet ready to process
this amount of information. One is really evaluating the company which posts the trade
lead and this is now a very tedious process. Twenty years ago, one could check a telex
address and some bank references and know rather quickly how credible a particular company
might be in a particular market because there were far fewer companies and individuals
doing business. If a company did not own its own telex machine but used a telex service,
this was one clearly distinguishing characteristic which was quite helpful in the
evaluation process. Since 1987, the year generally accepted as the turning point for the
domination of facsimile machines worldwide, it has become much easier for small companies
to enter global business as traders and offer specialized international business services.
Since 1993, when the browser technology really began to take off and the Internet began to
seriously emerge as a marketplace, the changes have been staggering. In the United States,
anybody with $18.95 per month can have unlimited access to the Internet, 7 days a week-24
hours per day. With fax machines costing less than $200 and computers as little as $1000
per system, anybody can get two simple telephone lines and one room in a house, apartment
or commercial space and set up their business very easily for a reasonable amount of
It is not unusual for people who are just wishfully
thinking to write and post trade leads which are designed primarily to elicit responses.
These "companies" have limited capability to engage in a business transaction,
but their access to the Internet allows them to proliferate what many call "trade
leads" but which almost always turn out to be worthless junk. The problem is that
these so called trade leads present very appealing business opportunities and are often
skillfully written. Such postings can send companies on time consuming and very expensive
fishing expeditions which yield no sales and have little potential for future business as
A trade lead in 1997 means something quite different than
it did in 1977; both here in the United States and around the world as well. Newbies to
international business are going to have to face this dilemma head on because it is now an
integral part of the international business learning curve. Some trade leads, especially
sell offers, are only valid for a very short time. Trade leads for used equipment are
somewhat tricky and really require proven expertise. And does anybody really know how to
Following are some guidelines for evaluating trade leads:
1) Look for key words which might indicate a company who is
gathering information and not actually going to buy. Always be suspicious of companies who
ask for detailed information about manufacturers' prices and do not identify themselves as
distributors looking for new lines.
2) Be very wary of companies who post trade leads for large
orders and are not easily located in any company or industry directories. These are often
small companies who will issue an RFQ (request for quotation) for large quantities in
order to get a lower price and then will try to order a very small quantity at that price.
3) Do not be unduly influenced by flowery language. Many
small manufacturers get trapped by this when they are looking for a distributor.
4) Be careful of locked market activities. This trade lead
will specify a particular product. Your company contacts the manufacturer, hoping to make
a commission on the sale, only to find out that the manufacturer already has
representation in that country and will not sell the product to you for resale to that
market because they want to protect their distributor relationship.
Locked market activities probably represent a significant
amount of the trade leads available. What you have are smaller distributors who are
selling just enough to make it profitable for them to try and circumvent the major
distributor in their market.
5) Ignore any trade lead which has "letter of
intent" or "letter of interest".
6) Ignore companies who claim to deal in any commodity
traded on world markets and who are placing trade leads. Traded commodities such as
coffee, sugar, urea, oil and gold are handled by well established companies in well
established markets. These companies do not place trade leads in order to do business.
7) Be very wary of international business scams designed to
separate you from your money. Be suspicious of anybody who prefers phone conversations to
written documents. Do not get sucked into fantastic business opportunities which promise
to yield you, an inexperienced international trader, huge profits with no risk. Learn
which countries and areas have a reputation for spawning international business fraud and
avoid them like the plague. Never ever respond to business opportunities which require you
to make wire transfers in advance of receiving goods or services.
Following are some guidelines for responding to trade
1) Design your collateral materials to answer the most
basic questions and provide enough information for a buying decision to be made.
2) Invest some money in a digital catalog of your products
which can be easily transmitted via e-mail or sent by postal mail on a floppy disk. For
simplicity's sake, keep the price list and the actual graphics separate, so you can easily
edit either one.
3) Do not fall into the sample trap. Unless your samples
are extremely inexpensive, charge a minimal fee for them. Do not make a habit of sending
samples to anybody who asks for them. Identify the person who is making the request and
make sure that this person is the one making the buying decision.
4) Understand that most foreign distributors do not make
fast buying decisions. It is not at all unusual for an initial order to require 9-18
months from the time of the initial solicitation depending upon the cost of the item.
5) Understand the difference between selling to an end user
on a one time basis and selling to a foreign distributor for future distribution.
Obviously, you would want to give the distributor more consideration.
6) Identify your buyer!!!
Manufacturers need to be very careful of companies who place an order immediately after
your initial response. In some countries, selling to one distributor can by law obligate
your company to designate that company as your distributor in that country. Be very
careful about designating any company as a distributor without verifying whether or not
this will grant exclusivity by law.
It is a good idea to try to identify your buyer. Some
companies are so eager to sell in foreign markets that they are unwilling to do this. We
do not advise this. If you respond to a trade lead and provide the requested information
and samples, you have a right to be in contact with the person making the buying decision.
There are several reasons to do this, but wasting your time is the most important.
7) Do not respond to requests for letters inviting a
potential buyer to your country for a meeting unless you are already doing business with
the company. This is sometimes used as a scam to get a visa for entry on the pretense of
doing business. This type of letter is risky unless there is a significant business deal
involved. In such a case, you should contact your country's foreign commercial attaché in
that country and see if they can make a personal visit on your behalf.
8) Use some common sense. Yes you have to be polite, but
that does not mean that you should spend $10,000 and a week to travel overseas to get a
$600 order. Everybody would like to meet the people with whom they are doing business
overseas, but that is not always practical. Do not hop onto an airplane every time some
distributor sends you a very pleasant letter about how much potential business there is in
For companies who are new to international trade, huge
mailings of collateral materials in response to trade leads represent a significant
investment in time and staffing. Try to evaluate the lead as best you can in order to make
a judgment about its priority. Yes, you do want to respond to any possible sales lead.
However, there is a difference between a bona fide sales lead and a company which is
announcing itself and gathering information for future reference. That company which is
gathering information may very well make a purchase but in all likelihood it will be later
as opposed to sooner. Only time and experience will allow you to tell the difference.