This post is by Mark Houng, a product sourcing expert based in Taipei, Taiwan.
China has dominated the world of manufacturing for some time now. With marketplaces such as Alibaba going from strength to strength, sourcing and importing from China has become accessible to businesses of every size – right down to micro-businesses selling on Amazon and eBay from their garages.
Many businesses have products manufactured in China successfully, but they often make a lot of mistakes along the way. For every successful project, it seems like there are a lot more failures.
With four generations of my family in this business, I’ve been hearing those horror stories since I was a kid. Today, it seems like a lot of problems are down to how businesses work with their Chinese suppliers. They often don’t know who is responsible for what, they don’t understand their supplier’s position, and they don’t know the product well enough to communicate exactly what they want.
So here’s my top eleven (yes, eleven!) myths about working with Chinese suppliers. I’ll let you know the reality behind the myths, and give you my best tips on how to get it right. If you have any questions, just drop them in the comments box at the end.
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Myth #1 – Suppliers will check if a product is legally compliant
You should always check trademark, patent, product safety and other compliances before you import. Smaller companies think that because they are working with a large supplier in China, the supplier will cover all the legal bases. The fact is, your suppliers do not need to check on intellectual property, patents or anything like that. As long as they can sell their products, there are many places in the world that they can sell to and never have to worry about compliance.
When you are the importer into your country, you become solely responsible for anything that goes wrong. Whether it’s government regulations or private sector intellectual property rights, they will go after you as the importer. They will not even consider going after the manufacturer in China. For example, if you are importing into the USA, you will be responsible for compliance with US intellectual property laws as well as US product regulations.
When you are the importer into your country, you become solely responsible for anything that goes wrong.Just a couple of weeks ago, I had somebody message me and say they got hit: a company sent them a Cease and Desist letter. What can they do about that? Well, not much once the product is already in their warehouse. It looks like they’re going to have to destroy tens of thousands of dollars worth of inventory. But that could have been avoided if they were more careful, and did some research ahead of time.
So what should you do? Well, there’s no need to hire an expensive patent attorney right off the bat. Do some simple Google searches, look for your competitors in the market, and find out whether there’s a patent issue or not. That could make all the difference. I’m not giving any legal advice here, but you should always do some minimal research to ensure that there’s no patent registered for your product.
With regards to safety and other regulations, such as those for electronics, it can be very complicated because a lot of it comes with experience within the industry. When you are actually searching for a product, it’s always recommended that you work with somebody who has prior experience with your market. They would know what different compliances are needed for that product.
Every niche is a little bit different. Normally the restrictions are very tough if you are selling baby products or anything else for children. It really depends on the product as well. If you’re importing electronics for sale in the US, then you want to make sure you’ve got a UL certificate. If you’re going to Europe then you must have CE, or if you’re going to Mexico then you’ve got to have NOM. These all have different processes. I would suggest you go down to a local superstore and look for a similar product to check their labels and see what kind of compliances they have. That should give you some indication for the most part.
If you are ordering a product but not having it altered, ask the supplier for certificates. For example, if you’re in the US, ask them, “What has been your experience working with the US market? Are you currently selling to the US market?” That should give you a pretty good indication. An experienced supplier should be well informed about what type of certification is necessary, even though they won’t have the certification a lot of the time.
Myth #2 – The initial quote will be the price you pay
First of all, a lot of suppliers, when they give you a quotation will put a time limit on it. For example, “This quotation is only valid for October”. So you’ve got to consider the exchange rate as it fluctuates. They calculate their costs in their local currency then convert it to give you a quote in dollars, pounds or euros.
Another thing that happens a lot is that the costs of the raw materials fluctuate in much the same way as the commodities markets. If the supplier doesn’t lock in with a specific certain period of time, that price changes for them too. So every time they quote for the same product their costs might be different. So make sure that you verify prices all the time.
People forget that in order for you to sell the product you’ve got to move it to your own market.Logistics is another major cost. China is a big place, and depending on where you are getting it from your costs might be very different. One of the biggest mistakes smaller businesses or newbie buyers make is that they will ask for the pricing for one product, and the supplier will quote them for that product. People forget that in order for you to sell the product you’ve got to move the product to your own market. You’ve got to consider the end-to-end cost of the product, with delivery, taxes, packaging, and anything else that goes into it.
A lot of online sellers will buying from Alibaba. But one of the problems with Alibaba is that it’s an open forum, and anybody can become a supplier there. Often people will call themselves contractors and just set themselves up on Alibaba as suppliers, but they don’t actually manufacture any products or even have a company of any sort. They want to get business, so look at the list of suppliers and say, “You know what, I’m just going to sell something for a dollar less or a certain percentage less, than everyone else out there.”
Once you place an order with them, they will start looking for a manufacturer to make the product. Sometimes they succeed, sometimes they don’t. That’s when you run into all sorts of trouble. You might lose your deposit, or they might not be able to fulfill the order because they just simply can’t get anybody to make it for that price.
Myth #3 – Suppliers will be trustworthy if Alibaba has verified them
That’s unfortunately not true. Alibaba will tell you that there is no guarantee their suppliers are going to be reliable. You’ve got to do your own due diligence. A verification process is very, very necessary when you’re working with China, especially when you are thousands of miles away – it isn’t as if you found a supplier next door. Say you’re in California, and the supplier’s in Arizona, then you can drive for a few hours and visit them. It’s expensive to go back and forth to China, so you have to go through that verification process in the first place.
Before you make any significant amount of investment, you should have at least verified a supplier really exists. You can either do that yourself or hire a third party to do it. Make sure that you are not just sending your money off to somebody that hasn’t been checked out.
You’ve got to do your own due diligence. A verification process is very, very necessary.Make sure that someone who goes out there to verify them is someone you trust, and who also has a keen sense of the manufacturing process. Don’t just hire somebody online to take a picture then come back and give it to you. That happens a lot. In China it’s quite easy for someone to lease a space and take a few pictures. They spend a couple of thousand dollars to become an Alibaba Gold Member and post some really nice pictures. So you’ve got to have a very keen sense to walk into a factory and identify whether this is a real company that works and can guarantee your products.
