Private and Public Trading Companies within the Pacific Rim Nations
Wichmann, Henry, Jr., Journal of Small Business Management
Many of the healthiest businesses in the world are part of an export-driven economy, such as found in Japan and Taiwan. Export-driven economies provide diversified business environments, making the entrepreneurial spirit strong for starting new businesses and creating jobs and wealth. Trading companies are at the center of the export-driven economies, providing both exporting and importing services. Trading companies are often either a small profitable business or a public not-for-profit organization helping small businesses.
Generally, Pacific Rim trading companies and trading agencies provide marketing and financial services, but may also provide quality, control, manufacturing, and transportation services to importers, exporters, wholesalers, and retailers located in markets of the United States, Canada, Australia, and Europe. The trend in the Pacific Rim nations has been to move the production facilities to the source of raw materials, cheaper labor, and skilled labor, then export products to the market economies having large middle classes of consumers with buying power.
The purpose of this article is to explain successful trading company models, services provided by private and public trading companies, and success factors common to trading companies. In essence, this percent may help bridge the information gap about trading companies, especially the importance of both public and private trading companies to international trade. This article may be an aid to many foreign merchants not familiar with how to initiate export/import operations.
The American Model
No specific model exists for an American trading company; however, these trading companies usually provide four types of services: market development, sales and distribution, customer service, and financial service.
Since the passage of the Export Trading Company Act of 1982, these businesses have been called Export Trading Companies (ETCs). These ETCs may be organized as a small independently-owned private enterprise specializing in one product with a profit motive or as a large government-backed publicly owned nonprofit organization designed to help many small- to medium-sized businesses, such as a port authority or world trade center.
According to Leo G. B. Welt (1984), president of a Washington, D.C. trading company, four success factors are common to these ETCs: (1) the ETC must cooperate with the factories by providing financial support, market research, and product modification to accommodate entrance into foreign markets; (2) the ETC must have knowledge and experience in international trade, including knowing how to identify the purchaser's needs, how to make the deal, and how to arrange credit terms, insurance, documentation, and physical delivery; (3) the ETC needs expertise in foreign currency, such as how to hedge foreign currencies against fluctuating exchange rates and how to work with the buying country's currency; and (4) the ETC may need a vast amount of financial backing in order to provide a fairly substantial network of operations and to extend credit. If the ETC is not an extension of a large multinational company, then the trading company must work closely with an international bank.
The Port Authority of New York and New Jersey established the first publicly sponsored trading company in the U.S. In 1982, The Port Authority established XPORT, a full service export trading company (ETC), representing over 70 New York and New Jersey manufacturers by marketing and selling their products throughout the Far East, Middle East, Latin America, Africa, and Europe. The agency operates 34 industrial, commercial, transportation, and trade facilities. This ETC has permanent offices in Tokyo, London, and Zurich to inform the international community regarding its services and to make it easy to do import and export business.
XPORT provides the following services: (1) it locates sources for specified products, components, and raw materials for overseas and U. …