Are you ready to source directly in China ?

Let’s say you have established a business with a modest line of products that you are sourcing in China. You are using a US based China agent or product design company.  As your business grows you begin to think about identifying alternative suppliers because you face pressures from your own customers to lower costs and deliver better quality and more varied product.  Your China agent, however, has relationships with a small group of factories only and you have had your frustrations with these suppliers.  On top of that, you have to pay your agent  a 7% commission on every order you do in China.  You are eager to sever the relationship with the agent and begin working directly with your China suppliers.  It is your business and you want to feel in control. The question is, are you ready to do this ?

Many successful small business owners will tell you that it is very important to have capital to grow a business.  In the words of Adam Dunn, owner of Monster Factory, a successful Canadian toy company: “ Money is rather vital to the growth of a business. “ The principle that applies to all small businesses also applies here.  In other words, there are a lot of hidden costs involved in sourcing directly from the supplier and you have to be able to cover these costs if you want to move forward.   I have listed some of these costs below along with four questions you should ask yourself if you are thinking about restructuring your supply chain in China.

Sample fees

Agents can be useful for keeping sample fees to a minimum if they have a close relationship with the factory in question ( they often do). If you are on your own, you will be responsible for sample fees.   Some sample fees are quite reasonable while others – for highly customized product – can seem exorbitant.  Question # 1 :  Are you prepared to pay sample fees even if they are high ? Nota Bene the only way to know if someone can do your product, to your standards, is to have them do a sample. Pre-production samples are critical but, once again, they can be very costly.

Travel

If you are going to be working directly with the factory in China, you will need to visit China at some point.  Ideally you would want to go a couple of times a year.  On-site visits keep vendors accountable and send them the message that you care about your product and business.  I read a wordpress blog recently about a husband-wife design team in the US. They have already made ten trips to China this year to work with their factories.   Remember your agent has been working with the factory up to now. When your agent goes, you will need to work with the factory.  Question # 2:  Are you prepared to make a trip to China ?  Do you have the time for a trip ?  Do you have the budget ?

China Consultant

In the absence of an agent you really need to have someone on your team who has experience with and understands China. China is just too opaque to understand on your own. Some consultants can be very expensive while others are more reasonable.  But this is a necessary expense.  Question # 3:  Are you prepared to hire an extra person at the very least on a pt.time basis ?

QC

Agents usually handle all the QC themselves, either by working closely with the factory or doing the inspections themselves.  In the absence of an agent you will have to hire a third party QC company in China or travel to China yourself to conduct a final inspection.  But you cannot allow your orders to leave China until they have been inspected. This is the GOLDEN RULE of China importing. Question # 4: Are you prepared to QC your orders before they leave China, even if this means you have to make the trip ?

If you answered “yes” to the questions above,  you are in a good position to begin taking control of your production in China.  If not then you will probably need to work with your agent a little while longer.

DSC00465