What are the main questions you need to consider if you’re thinking about sourcing from China? These will differ depending on whether you are just looking for the cheapest possible version of a product or considering a custom product development.
The topic of economic decoupling has been prominent in the news in recent months, however the country still represents many excellent opportunities for purchasing if you are savvy about finding reliable suppliers at a decent price.
This discussion was originally broadcast as a LinkedIn and YouTube Live as International Expansion Explained episode 6. I’ll put a link to the full recording at the end of this article – please subscribe also to my YouTube channel.
Table of Contents
Laura Cortes is a Mexican who’s been living, studying and working in China for the past 12 years.
Since arriving in the country she’s been able to take advantage of the opportunities such a dynamic market offers and her work and understanding of business culture have allowed her to change her financial and personal situation not only for herself, but also for her mother.
Laura has worked with brands like Hello Kitty Mexico, iCon, Lamborghini Mexico, Boy London Mexico, KLM Netherlands, WAG! The USA, NEXT UK, Xiaomi, Honor, Coppel & GE.
She’s been involved in product development, logistics to quality control, and now International Accreditations.At present she’s the Associate General Manager at Bay Area Compliance Lab Corp, a 3rd party testing lab with over 30 Branches worldwide.
Laura also runs her own business OlingoCo, helping people outside China to learn how to verify a supplier, review a product or manage their logistics, and in difficult times like now more and more people want to become more independent and develop their own products.
No longer a sleeping giant
China is on it’s way to becoming the world’s largest economy – indeed in terms of purchasing power parity it has already taken the top spot as the world’s largest consumer economy.
With that growth in consumerism, the reputation for being the factory of the world has come under pressure. Combine the rising wages of Chinese workers with the uncertainty caused by Zero Covid policies and the political tensions between the US & China, and many companies are looking to diversify their production locations.
However, if you are looking for many kinds of products at decent prices then China can be a great option for smaller producers IF you know what you are doing.
Know what it is that you want
It’s important to have a clear idea of what it is that you’re really looking for if you’re thinking about manufacturing in Asia.
- Which kinds of products are you looking for?
- what does your budget (& cashflow!) look like?
- In which kind of price class?
- Which kinds of specifications need to be met?
- What kind of business model are you considering?
- Which volumes are you looking for?
Even if you are not thinking about custom product development, then you still need to have a clear picture in your mind of what you need. It’s no good approaching a potential supplier with the idea “I just want any kind of product where I can make money fast” as that is a recipe for disaster.
The principles that we’re talking about here for sourcing in China are mostly universally applicable & not unique to the Middle Kingdom, just the details are specific. You need to be aware about which questions to ask and which aspects to check whether you will be finding your own suppliers or working together with an agent.
Whether you are looking to develop a brand or just to do drop shipping and earn money on volume you simply need to be clear on what your potential customers are looking for, and adjust your strategy and marketing accordingly. Easy, right? ?
Be Patient When Looking for a Supplier
Do your research up front
Know what kind of paperwork, certificates or accreditations you will need to be able to import the products you want to source into your country. The more knowledge you have up front, the better you can evaluate whether or not a proposed supplier is as competent as you need.
Don’t wait until your products are stuck in customs somewhere to find out what it is you need! Make sure in advance of any decisions that you are aware of the regulations (especially if you want to have any kinds of products for children!) so that you can make sure your supplier can fulfill them.
Ask lots of questions! There’s no way that you can know everything so keep digging until you get the answers you need. Be patient and if someone is not willing to give you the accreditations that you need, move on to the next one.
Working directly with a Manufacturer or with a Trading Company?
Whilst working with a manufacturer might offer slightly better prices, there are many reasons why you might consider working with a trading company in China, these two are the most important.
- If you need high-quality, custom product development, a trading company can help you source the best possible manufacturers.
- If you have smaller quantities to purchase, trading companies can be a great option, as they often have good relationships with suppliers and can offer competitive prices.
In addition, trading companies usually have extensive knowledge of the Chinese market and can provide valuable insights into the best way to do business in China.
?Ultimately, whether or not you decide to work with a trading company in China is up to you, but it’s definitely worth considering all of your options before making a decision.
Protect your IP
Take professional advice before sourcing anything from China (or anywhere else) about how to protect your intellectual property. China is a first to file market, so you don’t want to discover that your new supplier actually registered the rights to your brand IN CHINA simply because you neglected to consider this point.
You may never want to actually sell in China, but if you are building a brand (or already have a brand) then it pays to be cautious.
Do the Due Diligence on your Proposed Supplier to Verify the Details
Do as much background research on potential suppliers as you can – check online reviews (find a trusted person to help you check Chinese pages), ask for a copy of the company’s Chinese registration document and check with their local authorities that they are legitimate. Many countries have a trade commissioner service who can assist you with these kinds of background checks if you don’t have your own contacts on the ground.
Does your intended supplier have the necessary accreditation and can they issue the documentation that you need to import into the country where you intend to sell?
International Trade Fairs
There are two key periods in the year if you are looking to source new products from China:
- Around Chinese New Year (products will be developed at the end of the year, for launching in the auspicious New Year period)
- In summer time before the Canton Fair
Whilst attending the Canton Fair in person hasn’t been an option realistically for the past couple of years, Covid has at least brought the benefit of you being able to attend virtually. You can buy a day pass to attend without the hassle and expense of flying to China, and staying in overpriced hotels in Guangzhou!
We don’t necessarily mean that you should make a decision on the spot though. The Canton fair is huge and almost all the possible manufacturers as well as many trading companies will be there, which can be truly overwhelming. Still, you can get a feel for what is being offered, what are the price levels, what ideas might you not have thought of? What kinds of packaging are being offered.
Attending the fair, be it in person or virtually allows you to learn, ask questions and compare.
Maybe you’ll see something that you hadn’t considered in any way, shape or form before. Attending such a trade fair gives you new ideas that you need to actually go away and really think about, again, how to improve on the product which you had as a basic concept in your mind.
Alibaba, Global Sources, Aliexpress & Co…
One alternative to finding a supplier at an international trade fair is to search on a platform such as Alibaba.
Don’t make the mistake though of believing that what you see online is what you’ll get and that you just need to click on it for a delivery to be made – it’s more complex than that.
It can be really hard though to know how to differentiate between all of the suppliers who seem to offer the product you’re looking for. Again, do the due diligence, and ask a lot of questions. Suppliers are usually really responsive – the level of customer service is way higher and faster than you would get from a European or US factory.
Remember that the price quoted on the listing will be the price for a standard product so if you are thinking of making your own product development in China (very practical especially for electronics or textiles) then you need to consider that prices will vary according to quantities, materials (ingredients or components), urgency of the order etc.
Don’t just go for the supplier who seems to offer the cheapest products and make sure you really understand the details of any offer. Ask them to send you photos and really do a full profile of the manufacturer so that you can compare.
Chances are that most of the companies you see will be traders and the online platform you are searching on will just be one of the places they are selling. Check what are the MOQs (minimum order quantities).
Be sure to order Samples
Don’t skimp on the cost of samples! This is truly a false economy that will come back to bite you.
The cost of a sample is pretty low compared to the investment you will be about to make in stock, so just pay for the sample and ship it with a reputable company such as DHL, UPS etc. Chances are that if you go ahead and buy from that supplier you can get the sample costs reimbursed against the first delivery anyway but you shouldn’t skip this step.
In the end if your T-shirt causes someone to come out in a rash because it was treated during the production process with harmful chemicals, or some part of a toy comes off in the mouth of a child and he chokes then it is your reputation on the line. You don’t want to end up on the receiving end of a lawsuit because you didn’t do the due diligence up front when sourcing in China.
Working on producing a sample also shows you with low financial risk how it would be to work together with this supplier. You get to see how his product development process looks and to find out whether he understands your requests or not.
Audit Your Supply Chain
Since June 2022 if you are based in the US then you need to audit your supply chain to avoid falling foul of the Uyghur Forced Labor Prevention Act. This can be especially critical if you are sourcing cotton T-shirts, caps or hoodies (all of which are popular products) and think that a part of the cotton may originate from Xinjiang. You don’t want to fall foul of any laws.
You get what you pay for when Sourcing from China
If the price from your supplier seems too good to be true, then it probably is…
Whilst China has a reputation in the past for producing really cheap products those days are long gone. Consequently you need to compare offers (like really compare the specifications in detail) in order to find out what is a reasonable price level for what you are looking for.
If you apply excessive pressure on the topic of price to a Chinese manufacturer he may offer you a significantly lower price. However you can then expect that corners will be cut somewhere on the quality, so be careful with any offers which seem exceptionally low compared to other similar producers.
Just remember that many luxury brands (eg. Louis Vuitton or Apple) produce in China, so China is more than capable of producing the best quality, but you have to pay for it and you have to invest some time and effort to ensuring that the quality is consistent.
Take Care with the Communication
Possibly 90% of problems that arise between suppliers and their customers outside of China may originate in miscommunication. This is even more likely to happen when most communication is taking place online.
This arises both due to a lack of language skills but also a lack of cultural understanding.
Remember it’s basically rude in China to say “no” to a client, so you may find that a supplier will find other ways to do this. eg if they are not able to deliver according to your requested specification then the MOQ or price may suddenly be unreasonable high. That way the supplier doesn’t lose face by telling you “sorry, can’t do that” but you simply go elsewhere.
So you have to listen carefully to what is being said “between the lines” & we’d recommend you spend some time learning about Chinese culture.
Also, don’t assume anything – give as detailed a briefing on the product you need as possible and ensure that everything is included in the specification. Make sure that you also communicate via as many channels as possible to ensure that the message is received and understood (& implemented!).
If you feel that a supplier isn’t right for you for whatever reason, just move on. It’s your hard earned cash that’s on the line so you need to take every possible precaution to find a supplier that you feel you understand and feel comfortable with.
Be open for Learning about Cultural Differences
We need to set an example of being respectful to everybody. Regardless if we agree on something or not. It goes beyond business, actually, especially when we’re doing international business. We have to have a level of open mind, and we need to deal with people that might be from a religion that you don’t agree with, or from a country you don’t agree with. That’s not the point. The point is that we coexist when we are citizens of this world. And we need to communicate accordingly or we’re not going to move forward as a society.
If you take the time to build a strong relationship with a good supplier then they will be extremely loyal, but this kind of understanding takes time.
Make Sure you do Pre-Shipment Inspections (& other Inspections if you can afford it)
Once your goods have left China (or any other Asian country for that matter) the chances of getting any kind of compensation from your supplier are close to zero. Consequently it pays to pay the couple of hundred dollars that a pre-shipment inspection costs in order to ensure that your production run meets the same quality criteria as the sample you received.
Of course, if you have a larger operation or specific standards which have to be met then you may consider auditing the supplier prior to any delivery, but at the very least, you should consider a pre-shipment inspection.
Many countries around the world have a pre-shipment inspection by an organisation such as SGS or Bureau Veritas as a legal requirement. eg. Egypt, Middle East so this is nothing new. You do however need to plan in advance so that your chosen inspection company have time when you require the audit, but combined with flexibility in case there are production delays.
Doing Custom Product Development in China can be a solution
You need to understand that the “small change” that you need doing to a standard product effectively means a whole new product is being created. A swapped component or material can mean adding additional suppliers, a different export destination can require extra accreditation, a larger size might mean that new tools are required for a machine.
It is seldom as simple as “just make it a bit bigger”, although Chinese factories are amongst the best in the world at making these kinds of changes.
Consequently, as I mentioned above, you need to give your supplier as detailed a specification as possible right from the start if you want to avoid nasty surprises around MOQs, quality standards, lead times or pricing.
Just accept that Logistics are Expensive right now
However you choose to ship your products from China right now then you have to accept that the logistics won’t be cheap.
- Operations in many ports & container deliveries to many ports is suffering with delays due to regional covid measures within China
- Flights have been extremely reduced, which has pushed prices sky high
- Rail routes to Europe have been blocked by the war between Russia and the Ukraine.
All of those factors taken together mean that prices are really high. Still, it pays to use a well-known freight company for peace of mind when transporting your goods from China. Open a business account with DHL, FedEx or UPS (this will give you rates around 40% cheaper than if you are an individual making an adhoc delivery) and ship knowing that your goods are insured. You also have some come back with such companies if the goods arrive damaged or with something missing (compared to the paperwork).
Of course this has an impact on your cashflow, but it’s better to be on the safe side and ensure that the goods which you’ve paid for up front arrive securely in as little time as possible.
Sourcing in China requires you to be Vigilant
Purchasing products from overseas, be that from Bangladesh, Germany or China always requires an enhanced level of critical thinking. Think about what budget you have available, do a deep analysis and make a plan. This isn’t a quick process so your timing plan should allow plenty of puffer for unexpected changes until your process has been honed by several deliveries.
The points listed in this article are generally relevant wherever you choose to purchase, but the specific details mentioned here are unique to China. Sourcing from China is especially complex at present as the Zero Covid policy makes it practically impossible for you to meet in person with any suppliers. In a high context culture such as the Middle Kingdom, that makes it also significantly harder to build meaningful relationships.
Because of that, doing the relevant due diligence in the form of background checks, sampling and pre-shipment inspections becomes even more important. Yes, these became more expensive due to covid travel restrictions within China but having an inspector travel to do an audit is still considerably cheaper than buying a full shipment only to realise you can’t sell the products.
Remember it takes time and hard work to build your brand and reputation so it’s worth investing in a strong foundation right from the start. Taking a little bit longer to make sure you have the right supplier is a worthwhile investment of time, resources and energy but of course that means that you need to have the cashflow to provide you with enough runway.
Full Replay of the Video Interview
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- Instagram: @olingoconews
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- Website: https://olingoco.com/
- Website: https://lauracortes.net
- Twitter @olingoconews
- Linkedin: https://www.linkedin.com/company/olingoco
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If you are interested in selling in China, you might also find these posts interesting:
- Successful Selling in China Part 1: The Background
- Successful Selling in China Part 2: Do the Due Diligence
- Successful Selling in China Part 3: Building Guanxi for Success
- China Challenges Part 1: Underestimating China
- China Challenges Part 2: Understanding Chinese Business Culture
- China Challenges Part 3: Keeping up with “China Speed”
- China Challenges Part 4: Finding the Right Partner
- China Registration Regulations for Overseas Food Manufacturers from 2022
- New Trends in China, new Opportunities in Trade
- Top Basic Concepts of Cross Border E-Commerce in China
- Alberto Antinucci: Preparing the Best Market Entry Strategy
- Julia Bingel: Top Tips for Entering the Market
- Laura Cortes: Custom Product Development and Sourcing
- Food and Beverages Trends You Should be Evolving with
- A Sweet Business Opportunity? Entering the Chocolate market
- Get the Scoop on the Ice Cream Market in China
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