5 questions you need to ask yourself before you source in China

The other day I read an interview with former GE CEO Jack Welch. In the interview he said of China “ China is a very difficult place to do business and you can’t just use simple Western techniques.” I love it when I read these things because as I like to say, if it is that difficult for GE to do business in China, imagine how difficult it is for your garden variety Main St. USA small business to do business there. You just cannot expect not to have problems in China if you do business there and that is why you have to ask yourself a lot of questions before you begin your China sourcing. Because, in fact, if you are not careful you may find that sourcing in China becomes far more expensive than you had anticipated and you put your business at risk. So some of the questions I think every start up or small business owner should ask themselves before they get involved in China are as follows:

  1. What is the true landed cost of my product ?  Landed cost is the cost of the production, inspection, and shipping.  When you consider all these costs your unit cost may go up considerably and well beyond your target cost. I think too many people look at product cost alone and think they have a business. I can remember working for a furniture company and pricing out some chairs for a large retail buyer.  The first cost ( the cost of the product alone) was very good but by the time we added in the shipping costs the project was not viable. The reason: Chairs are bulky, they damage easily and you need to pack them very well. Consequently it is very expensive to ship them from overseas.
  2. What are the packaging costs ?  When you get that quick quote on Alibaba, it does not include packaging.  Retail packaging can be expensive and you need to figure this into your final product cost. You may find that it costs you $0.50 to put packaging on a wholesale $ 3.00 item. Needless to say, that just does not seem worth it.
  3. Who is going to do my inspection in China? Am I prepared to travel to China to do my own inspections? And how much is this going to cost ?  The only way to minimize risk when you source in China is to check the product before the vendor loads it into the container.  Needless to say, if you have a 50,000 pc order and it costs you $ 10,000 to fly to China and inspect it yourself, you will have to add $0.20 to your product cost. So let’s say $ 0.20 for the inspection, $ 0.50 for your creative retail packaging and another $0.25 for shipping. Before you know it that $1.00 you thought it was going to cost you to get a product from China has quickly become $ 1.95, almost twice what you thought.
  4. How much is it going to cost to retain the services of a shipping agent?  International shipping is far too complex to do it on your own.  Any small business that wants to source overseas needs a logistics company or shipping agent. These are the guys who book the vessels and clear customs for you. They can save you a lot of money and you should see them as indispensable to your business.
  5. What product safety requirements does my product have and how much cost is this going to add to the product to have the vendor comply? This is a very important thing to consider. Vendors have different grade materials for different markets.  Usually the stricter the environmental/safety standards, the more expensive the product is.  Sometimes the cost of the product will double if the buyer requires a top grade material.  But if you are selling in a market with these regulations you need to meet them.

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