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The Top 5 Myths About Sourcing from China

By June 15, 2016 7 Comments
 

Are you new to China sourcing?

It is difficult to ignore China as the manufacturing powerhouse in today’s global economy. And, there exist tremendous opportunities for business owners and entrepreneurs who recognize its value.

For those prepared to start taking advantage of doing business with China,  I hope to bust some of the myths held by business owners and entrepreneurs.

Working with many small businesses and Fortune 500 companies over the years, I noticed that there were some common misconceptions coming up over and over again.

To save you from countless expensive errors, let me address them here, so you don’t have to go through the growing pains that I experienced when I first started working in this field.

Here are the top 5 myths I wish I knew before I started working with China:

Myth #1: Buying Factory Direct

Haven’t we all heard from someone, some big shot, “Skip the middlemen, buy factory direct for best prices!”

Sounds logical—unfortunately, it’s not true.

As a manufacturer, I buy from middlemen many times over.

Why? Because a lot of the suppliers prefer it that way. It is easier for them to manage a smaller number of customers than to handle everyone themselves.

Don’t get stuck trying to find the factory for everything. It will only slow down your progress. Your goal is to get moving as quickly as possible, and receive profits from your efforts.

Myth #2: Suppliers will Take Care of Compliance

Your supplier is not required to pay for or even check on whether you are legally compliant to sell the products they sold to you.

The supplier’ sole responsibility is to make the products and sell them. As long as they don’t break any local regulation, they are under no obligation to be compliant with the importing country.

You, the importer, are solely responsible for checking and remaining compliant, whether with local laws, or regulations of the importing country.

Stay out of trouble with local regulatory agencies—make sure you do your research before importing.

If you are importing into the US, common things to pay attention to are: patents, trademarks, safety approvals, and FDA compliance.

Every niche is a little bit different. For example, if you are selling hats, baby hats are highly regulated, while adult hats are not. Any supplier who’s experienced with your market should be well informed. They should know about the type of certification necessary for your particular country.

Finding an experienced supplier is critical. Be sure to work with a supplier who has the know-how to guide you through the process.

Myth #3: Sourcing from China Is Low-Cost

Of course, you want to source from China because of its low cost. I get it. But this is not necessary always the case.

There are many factors that contribute to low cost, when it comes to manufacturing: labor cost, raw material, competition (supply and demand), and location.

Some places are more expensive to rent than others. Major cities like Beijing, Shanghai, Guangzhou are all extremely expensive to be in. A lot of times, the the rental cost in these places match that of the U.S.

Depending on the location of the factory, the cost to produce products could go up significantly. Thus, properly selecting the location of your supplier is quite important to keep your cost low. Shipping cost will also play a big part to your landed cost.

Make sure you cover all your bases, and don’t just pick a supplier that provides you the lowest price quote for the product.

Myth #4: Due Diligence Equals Verification

In other words, a lot of people don’t know what due diligence really means in China.

China operates on a complete different set of laws and regulations. Not to mention, the cultural and language differences.

If you want to protect your investment and build great partnership with your supplier, start to understand what motivates them, and under what set of rules they operate.

Too often, I hear people get angry about a situation with their supplier that they could avoid if they only took the appropriate steps in the beginning, and conducted a proper verification.

Due diligence isn’t just checking out a supplier online, or asking for references and whether they are a gold member or platinum diamond grade 2000 member, or have some VIP status for the number of years they have been on Alibaba.

Verify their status with the proper authority and find out about their financial status.

Only after you have been through the proper verification steps you have the green light to start ordering.

Myth #5: Poor Sample Equals Poor Supplier

A lot of times you will run into situations where the samples you ordered arrive in unsellable conditions, or below your expectations.

There is the possibility that you have just run into a shady supplier, but there could also be some other reasons. For example, if it is a new product, they could have created a handmade prototype (or mockup), to get confirmation from you and receive your feedback to make changes and improve.

It is also quite common that they were out of stock, and sent you something from a pile of B stock—something from the showroom that might have been sitting there for a long time.

In any event, you might just miss out on a great supplier if you don’t take the time to get to know them. It’s kind of like dating!

The critical mistake that many people make is that they try to judge for the perfect supplier after one blind date. We all know how disastrous that can be.

These are just a few of the top myths I come across every day. There is no “one size fits all” solution, but now that you know what to expect when you source from China, you can avoid the common mistakes, and get your product off the ground even faster! 

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Houng Crop

Mark Houng has been sourcing products from China for some of the biggest companies on the planet for over 10 years. He lives in Asia and sources products full-time. He is a true expert and knows the ins and outs of dealing with Chinese suppliers.

 

7 Comments

  • Pasi Rita says:

    As a very much lower scale of importer/sourcer I would like to input my humble opinion (actually an addition to this list that I also agree definitely..)

    Myth #6 China is cheap.
    A very common mistake I’ve come across is the culture of bargaining.
    Some cultures and countries have a style of business, where the seller throws in a price. and the buyer throws in his own – significantly lower. Then after a few rounds the agreeable price is found somewhere close to the middle point.
    In this type of bargaining both parties know, that their starting prices are just more or less blind throws, that they try to back up with their reasons and benefits.
    And it’s highly probable that the ending price is a win-win. Of course it can be something else too..
    (Mainly this type of bargaining is typical for Arab countries, Africa and Southern Asia.)

    China is different.
    As we know, we can get quite cheap stuff from china.
    I have developed a phrase I use to describe the Chinese supply market:
    “You can get cheap price and excellent quality from China… But they’re never in the same package! You just have to choose!”
    If the Chinese supplier gives you a price, it’s most probably calculated extra carefully from the expenses (of labour, materials, desing, etc.) This is due to the extra heated competition.
    When you get the quote, and you start bargaining “..well, our budget is actually a bit lower.. could we get this shipment for 35000USD?
    The Chinese guy doesn’t start to bargain back! He says very politely and honestly: Of course, sir!
    The time you’re congratulating yourself for a good bargain, the factory makes new calculations – for your suggested price! This means they take some elements out, replace some components with less quality ones, or whatever, to reach YOUR bargain.

    I’ve heard many angry comments about Chinese crap quality from disappointed newbie webshop operators.
    When I talk about this cultural difference and ask, have they done it as described, mostly they say yes!
    So, if you order cheap stuff, it’s quite obviously crap too!
    And I see this as a very honest business, where they are just so eager to satisfy you, and make the products, even with your own “bargained” price.

    • Mark Houng says:

      Very true Pasi. I have seen this over and over again. Usually a foreign buyer ask for a discount and the owner turns around to talk to the engineer on how to meet the price. That’s why it’s important to learn about the manufacturing process and cost. So you are well informed about the cost and don’t negotiate yourself out of business.

  • Grace Ben says:

    Thanks so much for your help, I really want to start importing to Nigerian, but I don’t know my first move and what really to import that can be sold on time with ease.

    • John says:

      Whatever you do you need to be very careful about sending anything to Nigeria,
      I knew someone who sent expensive digital equipment to Nigeria, after a “Buyer”
      met his asking price for the items he was selling, however, the buyer turned out to be bogus and although the seller had sent everything by Royal Mail Special Delivery, the website kept telling him that his parcels were out for delivery but had not yet been delivered, that was 2 years ago, and even today, that same message is still there, parcels out for delivery, the address was a fictitious address, and he never got his cash nor his equipment back, his goods were worth £900.

    • Mark Houng says:

      Very welcome Grace! I think the training will help.

  • Michael van der Riet says:

    How do you feel about trade fairs? You can meet dozens of suppliers in a few hours.

    • Mark Houng says:

      I love trade shows! If you are willing to invest the time and money, by all means do make the trip. Having said that, you still need to pay attention to the above.

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