Importers vs Distributors for SMEs

26/08/2020

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Finding an importer in the US is getting harder. This is because in the years since the financial crisis of 2008, the importer has practically disappeared and been replaced by the distributor. Or, put another way, importers now act like distributors. Still, the need for an importer in the US is a tough-to-kill myth.

Importers have historically been considered crucial in the US, as they typically deal with sales and customer care-related activities. But in truth, they don’t really guarantee that those sales will have any continuity. As far as the US is concerned, the conventional thinking is that having a relationship with an importer is a necessity for Small and Medium-Sized Enterprises.

The hope is to find an importer who falls madly in love with the product we want to sell in the United States, and therefore starts to order lots of containers, taking care of each and every step in the sales process (distribution, advertising, promotion, payments, pre-and post-sales management) and only engaging the manufacturing company when sending orders and paying for goods [maybe in advance].

Given the vastness of the market, a single importer cannot cover fifty states in the US, moreover, it is an unrealistic vision, out-of-step with the times. Besides, in America, no one wants to take the risk of the importer anymore. Importers in the United States have turned into distributors: they expect the manufacturer to perform many of the typical roles the importer used to cover in the past, including logistics and shipments.

The financial crisis, coupled with the competitiveness of the American market, have convinced people in the US that it’s foolish to pay in advance for any type of product, hoping to resell it: this process has become too risky.

Final clients [retailers, department stores, chains…] have reduced the total dollar amount of orders, and increased their frequency. This approach demands a more complex management of logistics, pre-and post-sale. Therefore, importers have taken on a much more sales-oriented role that hands duties like logistics and after-sales service back to the manufacturer.  

Risks Related to Regulatory Compliance

The recent federal regulatory complexity also puts the American importer at a risk that previously did not exist. Importing regulations have become stricter with tough penalties in play if a product is not compliant. In the case of the FDA, for instance, there are new rules on food safety such as FSMA and FSVP, therefore forcing food importers to become, in effect. FSVP Agents. It’s up to them to ensure that their products have been produced in accordance with the FSMA regulations. Penalties for non-compliance are heavy and American food importers are not willing to take them on anymore.

Throughout the food sector, which was originally one of the higher sources of business for American importers, the associated import risks are increasing. We refer to the FSVP regulation which requires importers to guarantee that the food products imported into the US have been produced in compliance with FSMA rules. This is a new requirement that did not exist until a few years ago and one that could result in punitive administrative sanctions for the importer in case the products are not 100% compliant.

Finding an importer in America puts your EU Company at risk: you will lose control of both your product and your market. The importer may place an order or multiple orders over time, but there is a real risk of losing contact with the market. Actually, only the importer knows to whom he is selling and, above all, why he is selling. Practically speaking, the risk is that your product disappears, since the importer can often get the same thing from another company at a lower price point or even produce it on his own.

Selling to one or more importers in the United States, means giving up on the Market. You will sell for the first couple of years and then everything will stop. The solution is to incorporate your Company in the US, and become your own importer. In this way, you can look for as many distributors as you want, you can create your own sales network. This solution offers you great flexibility: you will be able to sell directly to multiple distributors everywhere in the United States. You will have direct contact with the market, and you will be able to identify your best American customers, as the distributors are obliged to declare who they are and where they exist in America.

The fiscal advantage of opening a company in America and acting as your own importer is considerable. Taxation in America is more favorable, and dividends paid to your European parent company enjoy preferential tax treatment in Europe, moreover corporate profits are lower in America and you have less bureaucracy with fewer corporate obligations.

Finally, foreign dividends received by the European parent company are 95% exempt from taxation in Europe and also enjoy a favorable treatment in Italy, since they are considered to be foreign dividends paid by a foreign subsidiary company and received by the European parent company.

Read More:

https://www.cnbc.com/2020/08/10/senators-urge-us-to-remove-tariffs-on-eu-foods-beverages.html

https://ec.europa.eu/commission/presscorner/detail/en/statement_20_1512



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