18 December,2018 | main author
One minute guide.
Buying houses are a fact of life in the import and export markets of South Asia - India, Bangladesh, Sri Lanka, Indonesia, Myanmar, Pakistan ...
Whilst many large buyers deal direct with factories, many mid-sized and smaller buyers work through middlemen that are commonly known as "buying houses".
A buying house is a small company (usually) that coordinates between the buyer and one or many factories.
The range of services includes:
Selecting the factory or factories appropriate for the customer and the product.
Managing compliance and ethical audits for the buyer.
Checking the quality, inspection before shipment.
Consolidating, so that big orders can be serviced from multiple sources.
Sourcing and organising the supplies needed for manufacturing
Paying the factories at shipment and managing the payment from the buyer
We know buying houses with turnover of $200m, $300m even $500m. Li & Fung is a $10bn business. These are huge and very competent international organisations.
Buying houses exist because many factories are too small to work efficiently with larger international buyers. There can also be language and cultural issues, and the skills needed to manage local staff and production are different to the skills needed to manage international clients.
In other words, managing an international buyer and all their needs is a different task to managing a local workforce and achieving a good quality production result.
Many buyers are nervous about buying houses, especially in the garment trade. As in any industry, there are bad players. It is very important to know where your goods are being made, and to be sure that the factories treat their workers properly.
Working through a buying house does not mean that you cannot also approve the factory(s), and does not mean that you have lost control of how and who makes your products. An importer always has the choice to get involved, and many large buyers conduct inspections and random audits to ensure that standards are maintained.
So it can be very sensible to use a buying house - and real value can be obtained from their involvement.
Export finance from PrimaDollar is a flexible solution, designed to work with buying houses.
Our standard contracts incorporate the buying house role, allowing LCs to be transferred and/or endorsed, payments to be split between factories, margins kept confidential and commissions to be collected.
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