Publish date:

Manufacturing Trust in Your Producer

One newly Brazilian-based company must adapt to a middleman way of doing business.

Welcome to the Small-Business Soap series, in which we follow a start-up in real time. Getting a small business off the ground can have as many twists and turns as a daytime drama. But unlike television plots, these stories can inspire and educate entrepreneurs -- be sure to tune in every week to find out how.

When Italian-based shoe company Due Farina decided to relocate to Brazil in March 2006 after a fruitless investor hunt, the owners had about $20,000 to work with, just enough to cover general expenses at their office in the U.S.

Before they could make the move, however, they faced the task of finding a manufacturer that would take the risk of producing for Due Farina first, before being compensated.

Co-founder Marina Rosin then obtained a list of shoe factories from Brazil's Office of Business Commerce and the consulate, and sent out a mass email asking for a manufacturer who could make a produce a shoe for between $40 and $50.

Rosin knows how much each piece of a shoe costs, and how much a factory should make from a pair. If factories Due Farina was testing out resisted letting Rosin see a financial breakdown of the different shoe components, it would immediately raise an alarm.

If the Price Fits

One manufacturer, with clients like British company

Topshop, was impressive but had too many large clients. "We could tell we would have been in the back seat right away," says Rosin.

Out of about half a dozen manufacturing agents that responded, Due Farina picked a father-son business that were not exactly what the company was looking for, but had some experience with their type of business and showed a lot of drive.

"In New York, they want things yesterday, in Brazil they want things tomorrow," Rosin says of the new business climate she encountered. Since the fashion industry runs on very strict deadlines, this cultural difference was initially hard to adjust to, she says.

At the same time, Rosin says, price and volume demands tended to be unreasonable because Brazil was losing much business to China, a favorite with shoe giants like

Nike

(NKE) - Get Report

. In addition, shoe production worldwide was becoming increasingly competitive due to the weakening U.S. dollar.

Agents: A Necessary Evil

Due Farina discovered Brazil's huge agent culture almost right away. An agent is typically an independent contractor who works on commission to sell products for a manufacturer. "The

TheStreet Recommends

agents want a percentage from you and from the factory," she says.

Unfortunately, you can't avoid the agent, says Rosin, because the details of dealing with the factory alone become overwhelming as far as coordinating on production schedule, quality control and price point. "Agents are your eyes and ears overseas," says Rosin, who can only stay in Brazil to monitor the business for four months a year.

The idea is to make sure you aren't paying an arm and a leg for them. "Sometimes the agent is the only one making money," she explains, as some agents charge the customer and the manufacturer high rates. A charge that translates into a 3%-6% price increase is reasonable for a customer, says Rosin, while one upward of 10% is not.

Carlos Garcia, president of Miami-based

Performance Marketing Group

, views agents who charge commissions of both customer and manufacturer as unethical. "

Charging the customer is a very common thing

in South America, but I have trouble with it personally," he says.

Jay Ownby, manager of strategic alliances for the

Manufacturers' Agents National Association, says agents in the U.S. generally don't charge the client a commission. "The customer buys product from the manufacturer as a result of the sales effort of the agent," says Ownby. "The manufacturer pays the agent a commission." 5% is reasonable, while 15% is on the high end, he adds.

Generally speaking, "In Latin America ... people value personal relationships," he says. "The key is who you choose as personal friends," Ownby says, or go through a trusted agent organization in your business's country.

Be a Nuisance

Regardless of your agent's morals, says Rosin, make sure you walk the production line of the factory you are planning on working with and check that the agent has experience working with your country of origin. Check bank references for the factory to make sure it has the resources it claims to have.

When you are starting out, she says, you're at the mercy of any factory willing to take a customer with no standing orders or business history in that country. "They will laugh at every price point you give them," says Rosin. "Stand your ground." She recommends grueling persistence and a bit of obnoxiousness.

"There is somebody out there who will produce at the price point you need," says Rosin. "You just have to find them."