Trading House

Updated on February 1, 2024
Article byPriya Choubey
Reviewed byDheeraj Vaidya, CFA, FRM

Trading House Meaning

A trading house is a global B2B trader that enables the home country to trade with foreign countries. Trading houses act as intermediaries that distribute domestic goods and services in the international market. They are also called Trading Companies and Export Management Companies.

These overseas marketing organizations use their infrastructure and elaborate networks to facilitate foreign trade. Their services include buying, selling, receiving, and delivering goods. In addition, they aid small local enterprises to make a presence in the vast international market.

Key Takeaways

  • A trading house can be stated as a business entity that bridges the trade gap between domestic and foreign countries.
  • A trader, exporter, and importer are all considered trading houses, also known as trading companies. Trading companies enable small and medium scale enterprises in selling to the international market.
  • A trading company makes a profit in the form of a brokerage or commission.
  • The roles played by trading companies include foreign vendor selection, price negotiation, contract negotiation, delivery, payment, customs clearance, retailing and product distribution.

How Do Trading Houses Work?

Trading houses act as sales agents; they buy from local exporters and sell in the international market. In most cases, once the purchase is made, the local exporters have no say in the price of the goods.

Consider this example, a local spices dealer in Singapore does not have the reach to sell in the US, but a trading company dealing in spices can make this possible. The trading company will buy the product from the dealer and sell it to American retailers. Similarly, the commodity trading companies like Glencore and Cargill facilitate the trading of physical commodities.

Trading Companies perform the following roles.

Trading House

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Trading House (wallstreetmojo.com)

  1. Exporter: An Export Management Company supports domestic manufacturers or suppliers to easily step into the international market. They operate as a distributor where they purchase goods in bulk quantities from the manufacturing units. Then they quote a price to sell it to the retailer in a foreign country. The quoted price is inclusive of profits.
  2. Importer: Another kind of trading company includes importers who buy goods from foreign manufacturers. They then sell them to in-house dealers in the local country.
  3. Buying Agent: These companies procure goods or services from the international market on behalf of the in-house manufacturers. The functions of a buying agent include foreign vendorVendorA vendor refers to an individual or an entity that sells products and services to businesses or consumers. It receives payments in exchange for making items available to end-users. They constitute an integral part of the supply chain management for providing raw materials to manufacturers and finished goods to customers.read more selection, price negotiation, contract negotiation, and reliable transport.
  4. Selling Agent: Such Export Management Companies act on behalf of a manufacturing firm or a supplier to earn brokerage. Here, the manufacturer holds all the rights to finalize a deal, and the trading company can only guide about export prices.
  5. Intermediary: An intermediary is neither an exporter nor an importer. They channel the exchange of goods or services between an in-house party and a foreign party. In return they charge a commission.

Financial Modeling & Valuation Courses Bundle (25+ Hours Video Series)

–>> If you want to learn Financial Modeling & Valuation professionally , then do check this ​Financial Modeling & Valuation Course Bundle​ (25+ hours of video tutorials with step by step McDonald’s Financial Model). Unlock the art of financial modeling and valuation with a comprehensive course covering McDonald’s forecast methodologies, advanced valuation techniques, and financial statements.

Examples

American Export House supplies the best quality conventional and organic almonds to different foreign countries across the world. California almonds are famous worldwide for their quality.

International Trading House Co. Ltd. is one of the renowned trading companies engaged in cross border trade, export, and broking. The company deals in a wide range of products ranging from clothing, baby diapers, medical equipment to instruments. These products are quality tested and manufactured in different parts of the world, especially in Tunisia. The brand also focuses on customer relationship management by meeting the specific demands of the client.

Asian Tea & Exports is an Indian company involved in tea plantation, production, international tradingInternational TradingInternational Trade refers to the trading or exchange of goods and or services across international borders. read more, and international export. In addition, it also supplies pulses, lentils, cashew nuts, soybean, etc., in the global market. The company has been certified as a Star Export House by the Indian Government.

Advantages of Trading House

Employing Trading Houses has the following advantages.

Disadvantages of Trading House

Penetrating the international market via trading houses may not be a sensible decision for every manufacturer because of the following reasons.

Japan’s Sogo Shosha

Japan’s renowned trading house, “Sogo Shosha”, has created history. This multilateral general trading company was established at the beginning of the Meiji Revolution, around 1955, after World War II. 

It was a ray of sunshine during government-controlled trade. The Sogo Shosha was formed by merging the ten largest private trading companies in Japan. Together, they started brokering with a diversified product portfolio. These companies are engaged in private equityPrivate EquityPrivate equity (PE) refers to a financing approach where companies acquire funds from firms or accredited investors instead of stock marketsread more and investment bankingInvestment BankingInvestment banking is a specialized banking stream that facilitates the business entities, government and other organizations in generating capital through debts and equity, reorganization, mergers and acquisition, etc.read more as well. The big names like Mitsubishi Corporation, Itochu Corporation, Mitsui & Co, and Ataka & Co. are a part of Sogo Shosha.

In 2020, Forbes reported Warren Buffet investing $6 billion in Sogo Shosha companies. Buffet chose Sumitomo, Itochu, Mitsubishi, Marubeni, and Mitsui.

Frequently Asked Questions (FAQs)

What do “trading firms” do?

Trading firms perform the following roles – foreign vendor selection, price negotiation, contract negotiation, delivery, payment, customs clearance, retailing and product distribution.

What is an example of a trading business?

An excellent example of a trading business is The American Export House is a typical example of trading business. It supplies the best quality conventional and organic almonds to different foreign countries across the world. California almonds are famous worldwide for their quality.

Trading businesses include retailers, who sell goods to the general public, and wholesalers, who offer merchandise to other firms at a discounted rate.

What is a Japanese trading house?

Japan’s renowned trading house, “Sogo Shosha”, was formed from 10 of the largest private trading companies. Together, they started brokering with a diversified product portfolio. These companies are engaged in private equities and investment banking as well. The big names like Mitsubishi Corporation, Itochu Corporation, Mitsui & Co. and Ataka & Co. are a part of Sogo Shosha.

This has been a Guide to Trading House and its Meaning. Here we discuss how it works, its examples, advantages, and disadvantages. You may also have a look at the following articles to learn more –

Reader Interactions

Leave a Reply

Your email address will not be published. Required fields are marked *