Export, import or both: choosing a trade model that fits your capital and skills

Many people say they want to "start import-export" as if it were one business. It is not: exporting and importing have different customers, different cash cycles and different risks, and each contains several business models. The model you choose in week one decides how much money you must arrange, which registrations and licences you need, and which skills you must learn or hire. This lesson helps you pick one clear starting model that matches your capital, your product knowledge and your appetite for risk.

What you need to know

Export and import are different businesses. When you export, your customer sits abroad, you invoice in a foreign currency and your main risks are non-payment, quality claims after arrival and shipping delays. When you import, your customer is usually in India; you pay a foreign supplier, pay customs duty and IGST at the port before you can take delivery, and then you still have to sell the stock. Put simply, exporting is a receivables business (you wait to be paid) and importing is an inventory business (you pay first and wait to sell).

The common starting models.

• Manufacturer-exporter — you make the goods and ship them yourself. You control quality and cost, but you need capacity, and export orders compete with domestic orders for the same machines and labour.
• Merchant exporter — you buy finished goods from Indian makers and export them under your own Importer Exporter Code (IEC). You need little equipment; your value lies in finding buyers, controlling quality and handling documents. Your risk is that a supplier misses quality or dates and you carry the blame with the buyer.
• Importer-trader or distributor — you import and sell to Indian retailers, institutions, factories or online marketplaces. You need money for the goods, duty, IGST, freight and warehousing, and the product must meet Indian rules such as BIS certification, FSSAI or Legal Metrology labelling where they apply.
• Sourcing or indenting agent — you connect an overseas buyer with Indian manufacturers, or an Indian buyer with overseas suppliers, and earn a commission. You hold no stock and need little capital, but income depends on repeat orders and a clearly written commission agreement. Commission is taxed as a service rather than as trade in goods, so confirm its GST and income-tax treatment with your CA.

Cash cycle arithmetic. The cash conversion cycle tells you how long your money stays locked in each deal:

Cash conversion cycle = days of inventory + days receivable − days payable.

If you pay your supplier 20 days before dispatch, the goods take 30 days to reach the buyer and the buyer pays 15 days after arrival, your money is out for about 20 + 30 + 15 = 65 days. If the buyer paid 30% in advance, only the unfunded part of your cost is locked for that time. Always calculate peak cash: the largest amount you will have paid out before the customer's money arrives. That figure, not the order value, is what you must be able to fund.

Decision rules that suit most first-time traders.

• Start with a product you already know. A garment unit in Tiruppur or a hardware dealer in Ludhiana already understands quality, costing and suppliers.
• If your own funds cannot cover the peak cash of at least two orders plus a buffer for delays, choose a model in which someone else carries part of the cycle: an export buyer who pays an advance, or a commission-only agency role.
• Import only what you can already sell. Before placing the first import order you should be able to name the Indian customers who will buy the consignment.
• Avoid products that need heavy licensing (medicines, food, wireless devices, restricted chemicals) for your first deal unless you already work in that sector.

Skills you will need, whatever the model. Product and quality knowledge; costing in two currencies; clear written English (or the buyer's language) for emails and contracts; documentation discipline; and the patience to follow up for weeks. Note which you have and which you will buy in from a forwarder, customs broker or CA.

This lesson is education, not legal or tax advice; for decisions specific to your firm, consult a qualified CA or trade consultant.

Step-by-step method

1. List every product you know well from your current work, your family business or your network of suppliers and customers.
2. For each product, mark which models are realistic for you: manufacturer-exporter, merchant exporter, importer-trader or agent.
3. Sketch one typical first order for each option: quantity, selling value and total cost.
4. Map the payment timeline: when you pay suppliers, freight, customs and duty, and when the customer pays you.
5. Calculate peak cash and the cash conversion cycle for each option.
6. Compare peak cash with the money you can commit without borrowing at high interest, keeping a buffer of at least one month's overheads.
7. List the licences or product approvals each option is likely to need (you will verify these in lesson 03).
8. Choose one model, one product and, provisionally, one market or source country, and write it as a one-sentence business statement.
9. Fix a review point, for example after your first three orders, to decide whether to add a second model.

Common mistakes

• Treating "import-export" as one business and chasing both directions at once, which doubles compliance work and splits attention.
• Calculating profit on order value but never calculating peak cash, then running out of money while goods are at sea.
• Importing stock before confirming Indian buyers, and later discounting heavily to clear it.
• Choosing a product only because it features in a "top exports" list, with no sourcing or quality knowledge behind the choice.
• Leaving import duty and IGST out of the cash budget because the IGST "comes back later".
• Acting as a sourcing agent without a written commission agreement, and losing the commission when buyer and factory start dealing directly.

Ask the AI Business Tutor

• "I run [your current business] in [city] and can invest about ₹[amount]. I am comparing [option 1, e.g. merchant export of product X to country Y] with [option 2]. My assumptions on cost, selling price and payment terms are: [details]. Calculate peak cash and the cash conversion cycle for each option, list the risks I may be missing, and tell me which questions I must answer before choosing."