Five Tips on Sourcing Products From China
Google a phrase like “sourcing products from China” and you’ll instantly be faced with almost 39 million results! This underscores the importance of China being the world’s manufacturing hub in the past decade, and most likely for the next few decades.
Much of its meteoric rise was also well-timed with the rapid change in the technology market from desktop PCs to the mobile web, including must-have devices like the iPhone and iPad to just about every mobile device made on this planet.
And something called e-commerce came into its own in the past decade as well. Customers demanded cheaper prices, more choices, and faster fulfillment. Annual technology product updates became bi-annual. Fast fashion, with its short production runs, became trendy.
And it’s not just an immense and low-cost labor force that has given Chinese manufacturers a competitive advantage. China’s wages have been on the rise and fast-growing countries like Vietnam and Bangladesh are developing niches in footwear and clothing manufacturing as well.
China still has an advantage that few countries will ever match. It offers a finely tuned supply chain, with experienced suppliers, that will design, prototype, build, and ship products at a fraction of the time it takes elsewhere.
Where Do I Start?
So what does this mean for you as an importer and wholesaler?
Products are the lifeline of your business. You need to source for products to sell at wholesale prices to your retail customers. Pricing, quality, and variety are important considerations. And the place to source for most, if not all, of your products is in China.
This blog post doesn’t aim to be the ultimate guide to sourcing goods from China. 38,999,999 other web pages will show you how.
What it will do is to provide some hands-on, practical tips on finding and assessing suppliers; and to highlight the pitfalls that you need to look out for whether you’re from New York or New Zealand.
Also, what you’ll find is that a lot of these tips are simply things that you have been doing in your business anyway, except now your supplier is halfway around the world or in a vastly different time zone.
So to find success in importing goods from China, just apply the same business instincts as before, use plenty of common sense, and be sensitive to cultural and language differences.
Finally, whether you’re purchasing products locally or from overseas, be sure to use an order, purchase, and inventory management system that’s written from the ground up to support international and domestic trade.
Importers like you will appreciate the time-saving and nifty features that we’ve built into the EMERGE App. Things like handling multiple currencies when dealing with suppliers and purchase orders. Or get a grip on your landed costs with our automatic landed cost calculator. Plus, if drop shipping is your thing then we’ve got that covered with a semi-automated workflow that puts you in control.
1. Do Your Homework
Like the Wild West of the Internet, use your common sense and do your homework when you start contacting people and suppliers online. There are plenty of scammers and fraudsters and China isn’t spared either.
Chinese Business Directories
I like to start with a broad-based search at Alibaba and Global Sources. These two directories, generally, are good for high-volume, mass-market products that fall into definable categories. They may not be suitable for unique, bespoke, or one-off products.
Also, just because a supplier is on a big Chinese business directory doesn’t mean they can deliver the goods on time, at your budget, and at the quality expected of it. You still need to shortlist a few suppliers and work with a few before settling on one or two final suppliers.
Investigate Profile and Background
Once you’ve established contact, due diligence is paramount. Is the person that you’re talking to is who they say they are? Check their LinkedIn profile, one of the few social media sites that are allowed in China. Any self-respecting sales or business development person who deals with international customers should have a verified profile.
Also, check out the company website. Does it look professional? Or is it a simple one-page brochure at a free hosting site? Don’t be swayed by “accredited” or “trusted” badges. They can be easily purchased or copied from elsewhere. Is there a registered business address for the company? Google the company’s name for any news, good or bad, about it.
Next, get online with them on Skype. Ask them to show you their products through the webcam, unless of course, they’re dealing in industrial power generators! Keep the business conversation going on WeChat, a popular Chinese chat and social media app. Their tone and your gut feeling will tell you if they are a supplier to be trusted.
If they ask for large sums up front, act cagey, or drop out of the conversation then they’re best not to be dealt with. Just move on to the next supplier.
2. Meet Face-to-Face
Your homework doesn’t end with verifying their online persona and company website. It’s all too easy nowadays to have an elaborate fake profile, company website, and phone number. They even come complete with fake employees and fake offices!
I believe that the old-fashioned way of meeting in person is the best way to see whether a potential supplier is sincere, trustworthy, and communicates well.
Visit Trade Shows
So your best bet is to attend trade shows, meet your suppliers in person, and visit their physical offices and factories. Face-to-face interaction can do so much more in little time than rounds of emails and phone calls in the office.
The biggest trade show in China is The Canton Fair, also known as the China Import and Export Fair. It takes place twice a year in Guangzhou and it has just about everything under one roof, including electronics, automobiles, consumer goods and gifts, clothing, and medicine.
Other regional trade fairs focus on specific categories, such as consumer goods and gifts. They typically have lower prices and smaller suppliers that may entertain smaller, customizable orders. Check out all upcoming trade shows at ChinaExhibition.com.
Just be careful that not all participants at trade shows are manufacturers. Some are trading companies — typically wholesalers and retailers — themselves. Prices tend to be higher with trading companies but they will accept a lower MOQ. Conversely, prices are lower when you’re dealing directly with manufacturers but they will want an MOQ commitment.
Opportunity Cost of Not Visiting Suppliers
But I hear you say, “I don’t have time to visit China! And I need to bring little Natalie to her dental checkup next week.”. Well, it’s your business and you need to take the time to find solid, trusted suppliers that will supply goods for you to sell and remain in business.
There may be Chinese trade fairs in your country of residence but their frequency will be lower and the pool of suppliers much smaller. You may not be getting a complete, full picture of available products if you settle for this smaller marketplace.
Otherwise, I doubt that you’ll find much success or be able to negotiate lower prices along with a favorable MOQ if you’re going to limit your business efforts to sending off some emails, making a few calls, or chatting a bit online. Face time matters. Remember, if you’re not there in China already, your competitors are!
So, an unavoidable drawback of working with overseas suppliers is that you need to make at least one trip to meet them in person. I’ll explain why this is important later in the post.
Watch Your Geography
Granted, you’re not going to book the next flight to meet one supplier. Ideally, you’ll time your business trip to coincide with a major trade show in, say, Hong Kong before crossing over to Shenzhen to meet a few suppliers lined up for the week. Or you might want to spend a week in Guangzhou and chill entirely at The Canton Fair.
Here you’ll need to brush up on your geography, too. China is about the same size as the United States and the flying distance between Shenzhen and Shanghai, two powerhouses in the Chinese industry, is the same as the distance between San Francisco and Tucson, Arizona.
So, forget about making that grand cross-country road trip. You’ll want to make sure that you sensibly schedule your meetings and visits around each city before moving on to tackle the next city.
3. Bargain and Banter
Culturally, buyers from developed nations are unaccustomed to bargaining during business negotiations. Sure, you might give and take on certain clauses in a legal contract. But haggling over prices isn’t something that is widely practiced in, say, Australia.
In Western nations, a seller usually puts up a price and a buyer comes along to purchase it at that price if they’re happy with it. Otherwise, the buyer will simply move on to another seller to find the right price.
Negotiate, Negotiate, Negotiate
In China, you need to adopt a bazaar mindset if you want to negotiate the twists and turns in securing your first purchasing contract. Think of yourself in a large bazaar of old. For a moment, imagine there are hundreds if not thousands of sellers hungry for business.
The market noise and activity are overpowering but there’s just enough headspace for you to haggle over the prices and terms with a merchant. And merchants expect you to haggle because they’ve already marked up their prices!
Sellers, after all, need to provide a buffer in negotiations as other sellers might be eager to drop their prices (and hopefully not at the expense of quality!).
Don’t Just Pick and Choose
If you’re simply cherry-picking amongst sellers to find the right price that you’re comfortable with, then you’re probably not reaping the benefits of negotiating a lower price in exchange for large, long-term orders.
This will be reflected in your higher prices back home compared with your competitors; thus defeating your efforts to source cheaper products from overseas so that you can enjoy a better profit margin.
4. Get Professional Help
If all of this sounds like hard work, it is! You may want to engage a Chinese sourcing agency to source products for your small business.
The agent will have ready contacts and suppliers for your products. They will arrange for samples to be sent to you and will handle negotiations with Chinese suppliers. And you should not worry about getting scammed. The intermediary will do everything for a fee. This sounds good so far!
A sourcing agency will typically do one of the following roles:
The agent acts as your supplier and supply chain manager. Their role will be to oversee factory production, including product design, sourcing of raw materials, and production planning.
Once the goods are finished and ready for export, they will take care of export certification and documentation, and finally arrange for international freight shipping.
You have essentially outsourced your entire supply chain to them.
B. Sourcing Consultant
If you would like more input in the sourcing process, the agent will offer consulting services to help you select and manage your suppliers. They typically charge 3 to 10 percent of the purchase price.
They will source and purchase goods on your behalf by purchasing from local suppliers. or help you get started with manufacturing your label products. Here, you get a helping hand in kickstarting your supply chain in China.
Take Your Time
Either way, I only recommend that you use an agent if you’re dipping your toes in the Chinese outsourcing market for the first time. Once you’ve learned the ropes and done a few shipments, you should be confident enough to handle suppliers yourself.
Engaging a third party means adding another layer of cost to your purchase price. The sourcing agency will take a percentage of the contractual amount. Most importantly, they will own the business relationship with the supplier. You will not have a chance to develop the supplier relationship further.
5. Build Relationships
When you’re coming from a developed nation with long-established legal systems, adhering to the letter in contracts is normal practice for honest businesses. You’ll fulfill your side of the contract, no more and no less. But adopting a black-letter approach to legal contracts isn’t going to get you far in China.
Don’t Forget Interpersonal Relationships
I’m not asking you to conclude rounds of negotiations with a simple handshake. Some people do and it works for them. However, if you’re going to simply rely on drafting a contract that spells out everyone’s obligations, then that’s going to be the extent of your business relationship.
Your competitors will have a head start in developing their network of connections that are more far-reaching than a simple black-and-white contract. Their contract, in this case, will simply be a reflection of what they have agreed on earlier during a meal or a round of golf.
One’s Place in the Greater Scheme of Things
The Chinese, like many other Asian nations, put much emphasis on guanxi, or your place in the hierarchy of relationships. While this word is commonly used to describe “connections” or “relationships”, it has a far greater impact than what these two words describe.
In essence, it’s about giving trust, respect, and dignity to someone’s place in a network of relationships. Unfortunately, they are not described by rules or written in a contract. Much of it is behavioral and it needs to be acquired and learned.
As an outsider, you’re not going to immediately get a whole lot of love or guanxi. You’ve got to earn it. Developing guanxi means putting much effort into your business relationships, so much so that they cross over into your social relationships as well. This might not bode well for people unaccustomed to mixing their business and social lives.
There Aren’t Any Written Rules
So, growing your business relationship in an Asian context involves at least a couple of things:
- The depth of the relationship
- Moral obligation to maintain a relationship
- Giving “face”
- Nurturing a long-term relationship
- Giving and receiving
All of these are best illustrated with a comprehensive, and completely fictitious, case study.
The Story of Nantucket Sails & Sports
Bill hails from Nantucket, Massachusetts. He’s looking for canvas material suppliers in China for his small business that makes sails, tents, marquees, and backpacks. His long-time customers love his products as they withstand the salty sprays off Cape Cod. However, things have been tough lately. His sole canvas supplier closed down because no one was interested in learning to weave fabric anymore.
Bill Flies to China
Whilst at The Canton Fair in Guangzhou, Bill meets a new supplier called Zhao. They hit off immediately as they both share a passion for sailing when they’re not running their businesses. He takes up Zhao’s invitation to visit his family’s factory in Foshan. Their business relationship has now moved a notch up from a simple handshake to sharing a hobby. And a personal invitation has been made.
Bill feels hungry after a day of touring Zhao’s extensive weaving factory and warehouses. He suggests to Zhao that they have dinner while he brings the book of sample material swatches with him. Also, feeling good, Bill asks Zhao for the best restaurant in town. Here, Bill isn’t afraid of mixing friendly business banter with a nice meal.
Negotiating at a Different Table
Amid laughter, Zhao whips out a Purchase Agreement into the third course of the meal. In between mouthfuls of stir-fry, Bill negotiates the price per yard down, commits to a minimum order quantity, and sorts out the payment terms. And when desserts are wheeled in, Bill also signs his first Purchase Order!
The luxurious Chinese banquet was fantastic and Bill has every intention of putting the bill on his Amex as a business expense. However, Zhao hears nothing of it and insists that he pays for it. Here, Zhao is giving Bill “face” and respect by paying for the nice meal and giving him a treat. He does this in the expectation that Bill will reciprocate with more orders.
The First Delivery
Months later, all goes well when Bill receives his first shipment of canvas material. He’s confident that they will surpass his old supplier’s quality after a few tweaks here and there. Better still, Zhao can weave them in any pattern and color that he chooses! Bill is very happy to find a new long-term supplier. Business resumes at a clip with nationwide orders pouring in for goods made from the new durable material.
A Personal Favour
The following year, after many quarters of back-and-forth business exchanges, Zhao calls Bill for help. He wants his teenage son to have a good education in the States and asks Bill for advice on high schools in Massachusetts. Bill, an alumnus of various schools, is happy to help to find out more about the application process.
Bill invites Zhao and his family to visit and stay at Cape Cod. He will be happy to show them around high schools in the Boston area and have them meet the admissions officers. Zhao is ecstatic and happily takes up the offer. Here, Bill is giving greater depth to the once business-only relationship. He is returning Zhao’s hospitality in China and is helping out Zhao and his family. There is reciprocity between them.
Success and Fame
Years of sizzling sales and funny YouTube videos have made the Nantucket Sails & Sports company famous. It is continually recognized as a top small and medium-sized company in the States. News of Bill’s success story soon reaches Zhao’s hometown back in Guangzhou. Soon, Bill is flooded with offers from other suppliers to sell canvas materials at prices far cheaper than Zhao’s.
Bill is now in a dilemma. Cheaper canvas materials mean a fatter profit margin for him. But these new entrants are a big risk if they cannot deliver materials on time or at the same quality that their customers are used to. And he needs to start the business relationship with them again from scratch.
Do What is Right
Bill decides to decline these new offers and stay with Zhao. Here, he feels morally obliged to maintain his long-term relationship with Zhao. Bill knows that a good part of his turnaround was due to Zhao’s enthusiasm to meet his custom orders. Also, dropping Zhao will mean that they will never deal again.
Bill eventually makes the cover of Fortune magazine and Zhao’s son gets into the college of his choice. As for Zhao? He buys out those same competitors around him and turns their factories into a private golf course.
There’s nothing dramatically different about sourcing goods from China aside from the language and cultural differences. Whether you’re importing stuff from China, Cambodia, or Canada, you still need to apply the same business acumen and common sense in evaluating suppliers and sizing up purchase agreements.
Finding reliable overseas suppliers, however, does require you to put in more effort and legwork in meeting your contacts face-to-face and nurturing a long-term business friendship. You might need a helping hand at first. Do this right and you will be rewarded with your guanxi that your competitors can’t touch.