The Canadian Trading House Option

Source: International Trade Branch, Ontario Government

www.sse.gov.on.ca

Canada was founded by trading houses: The Hudson’s Bay Company, The Northwest Company and the French fur traders. Throughout history, it was not the manufacturers of the goods that conducted trade beyond the city-state, but the trader.

But, in this day and age, would it be a logical step to use the services of a Canadian trading house?

For some manufacturers the answer is yes. Trading houses can offer both new and experienced exporters access to markets beyond their present management capabilities. For the new exporter, not wanting to increase risk, trading houses can greatly increase profit potential. It can do so without the inherent risks of entering foreign markets. Trading houses can also assist the experienced company to reach non-traditional markets.

The trader knows all the subtleties of international trade. It is not a sometime activity to be engaged in only when there is a glut in the inventory. The trader knows the local language, local rules and regulations, how to move the goods into and through the market. The trader can be cost efficient in a particular market area by carrying a number of similar goods for a number of manufacturers. The costs are spread among the goods.

A Canadian trading house is a company with one or more specialist traders and it is an established company operating under Canadian law.

A trading house is an export and/or import specialist offering market intelligence and commercial trading of goods that it does not produce, between two or more international markets.

The range of services rather than size is the determining factor. A trading house must have sound management, international communications, and trade support services either in-house or readily available. It needs selectivity in goods handled and markets served, and in representing specific lines it needs a close relationship with the manufacturer. It could act as the export department of a manufacturer covering all his merchandise, or only one or two items, into specific overseas markets.

The benefits of Canadian trading houses include:

  • specialized knowledge
  • extensive experience
  • cost effectiveness
  • minimum risk
  • Canadian customer
  • Canadian receivable
  • some or all markets
  • some or all goods

The Trading House as Your Agent

Canadian trading houses can operate in different ways. The simplest way is to be the agent. As such the trader is a go-between, usually in complex, high-value projects. The trader is “plugged in” to the market. That means the trader knows all the right people, from the government ministries to the customs and shipping regulatory persons.

Frequently, the agent can handle most of the technical aspects of the item. This involves negotiating and handling logistics of commercial business and shipping. In this instance, the agent does not take possession of the goods. It follows that the manufacturer is responsible for the goods and for payment procedures. The trader will receive the commission once the goods are shipped.

The other basic function is that of merchant. As a merchant, the trading house will purchase goods at export prices from the manufacturer and take responsibility for shipping and payment of the international receivable. The trading house will place an order against a firm order from overseas while the manufacturer has a domestic receivable. The trading house needs special export prices to make this feasible. This merchant trader should not be confused with the trader who performs liquidations.

Selecting the Right Trading House

The sort of trading house that you will need for an on-going export commitment is a steady trader who knows and understands the manufacturer’s goods. This trader has a trusting relationship with the producer that is reciprocated. The trader knows overseas markets, speaks the languages and above all this trader has contacts and knowledge.

The process for finding the right trading house involves the same techniques as the search for a corporate lawyer or accountant. It is a matter of talking to the candidates. Getting to know both the candidate and the operation means visiting the offices and asking for a brief proposal. The choice should be based on the criteria outlined above.

Ask for references, both normal domestic trade references and overseas. Look for a credible “track record.” Does the trader have the languages of the geographic area of concentration? The trader who promises to sell any item in any market should get specially close scrutiny.

You must decide what is the right trading house to complement goods in the target markets. One trader may be skilled at handling specific merchandise in specific markets. Another could specialize with one item in one market. Several traders may have strengths in moving different merchandise in different markets. Any combination that works is the best choice for the manufacturer.

If you’re not sure, contact the Ministry of Economic Development and Innovation’s International Trade Branch, your industry association, the Canadian Manufacturers & Exporters, or the Ontario Association of Trading Houses for advice. Trade shows are good places to let people know you’re looking for some assistance. Recommendations are sure to follow.