Using online payment systems when you source in China

Until recently whenever you wanted to pay a sample fee to a vendor in China you would have to send a bank wire. Service charges for a wire transfer run between $30.00 -$50.00 and the wire can take up to a week to go through, although the ave time is 2-3 days. Not to mention the fact that you have to spend time to go to the bank and do all the paperwork for the wire transfer. Nowadays however, more and more vendors will accept Paypal as a way to pay for samples. I would say that whereas two years ago maybe one in ten vendors would have accepted Paypal, now it seems that about 50% of vendors will accept PayPal for sample fees. The advantages for you, the buyer, are obvious. Paying a vendor thru PayPal will save you a lot of time and a little money. PayPal also protects you if do not receive the samples or if the samples are not what you were expecting.

However, all this is not to say there will not be problems. A case in point: I have a client now who is ordering some samples from a vendor in China. This is a vendor who accepts PayPal. Last week I had an email from the vendor telling me that the samples were ready to go as soon as the sample fee was paid by my client. So I told my client who wrote back that he had already made a PayPal payment to the vendor several days previous to the vendor’s email. I checked again with the vendor who told me that there was no record of the PayPal payment from my client. We went back and forth for a few days and finally discovered the problem which was simply that the vendor was taking PayPal payments through his gmail address. However since Google is persona non grata in China the payments were not going through. So the vendor had to register another email address with PayPal and overall we lost about 4-5 days because of this. PayPal in China still has growing pains.

One other method of payment that many vendors accept nowadays is alipay which is Alibaba’s online payment system, and the largest payment system in China. Many vendors who sell on taobao.com (China’s equivalent of Amazon) use alipay as their payment system and the reviews are generally good. However, I would not recommend you use a China based payment system to pay for your sample fees for the simple reason that if you have a problem it may be hard to resolve it. If for example a vendor accepted alipay or wire transfer I would probably just opt for the wire transfer, time consuming as it is.

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How to ship orders from China which are too small to go in a container

I sometimes get inquiries from people who have a small order they want to ship from China. And this is when they realize that the cost of overseas sourcing suddenly goes up. Simply put the smaller your order is the more expensive it is to ship. It sounds paradoxical but it is true, and for this reason: you pay a fixed cost for the container from China to the US so the more product you can get in that container, the lower your shipping cost per unit is. If for, example you are paying $2500.00 for the container (a standard rate for a 40’ container from China to the West Coast of the USA) and you are packing in 3500 pcs you will pay $0.71 in shipping costs per pc. But if you can pack in only 2500 pcs your shipping cost per unit goes up to $1.00 per pc, a substantial increase. And this is why packaging is so important and why you want to utilize space as efficiently as possible.

If you don’t ship a full container then your next option is LCL which can be expensive, bureaucratic and can subject your shipment to a sometimes lengthy delay if another shipment in the same container has to be inspected. In fact, LCL can be very slow because there are sometimes so many other shipments in the same container, all of which need to be processed in due course. The only time you may want to use LCL is when you simply have too big an order to make air-shipment viable or you want to get product to market as quickly as possible, not wanting to wait until your demand justifies ordering a full container. Let’s say, for example, that you have orders that will fill 70% of a container. You have a choice which is to waste 30% of the container, thereby adding cost to your product, or ship LCL, saving cost on shipping and probably getting your product sooner than if you had to wait for orders to fill a container.

And then there are the really small orders, that shipment of, say, ten cartons for a business just testing the waters on a product. Probably the best way to ship orders like this is to use China’s express courier EMS. EMS is China’s equivalent of FEDEX but is generally cheaper than the other major international couriers, by at least 25 % in my experience. Not only is EMS cheaper but your shipment will likely encounter few problems when it leaves China whereas if you ship one of the other major carriers e.g. DHL, FEDEX, UPS you may risk lengthy delays because China Customs is more likely to scrutinize the foreign companies. I can recall on a couple of occasions over the past four years where there was a problem using one of the above carriers because of a problem with China Customs. In one case a foreign courier had violated a Customs regulation which meant that they were not allowed to ship a certain product out of China. Needless to say, this is more likely to happen with a foreign courier than with a Chinese courier. So to be safe just use EMS, even if you have your own FEDEX or other account.

Finally if you don’t want or can’t use EMS for some reason (maybe you get a hefty discount from FEDEX for example) then my second choice would be FEDEX or DHL, simply because most vendors are familiar with them. From my experience UPS is the carrier you should avoid because many vendors have no relationship with UPS and prefer not to use them.

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When sourcing in China, find yourself a China expert

Most of the small businesses or micro businesses aka startups that come to me are on a budget. When I tell them what I charge for a sourcing project, a fraction of what other sourcing agencies charge, I am sure they are thinking “why should I pay this guy to put together a list of vendors for me when I can just go on Alibaba and find some vendors on my own. “ If I were starting a business that is probably how I would think as well, for Alibaba is just so easy to use when you are trying to find a supplier in China. In some ways I have no problem with this because when you are just starting out you need to be prepared to do everything yourself, to wear many hats as the expression goes. But let’s say I was sourcing something in Brazil. How confident would I be looking for a vendor in Brazil when I did not speak any Portuguese and could not even say so much as hello in Portuguese. The answer is not very. I would be limiting myself to a handful of vendors who spoke some English not to mention the fact that I would be doing business in a country whose language and culture I did not understand, which, common sense tells me, would lead to big problems sooner or later. I would have absolutely zero confidence placing an order with a vendor in Latin America without the expertise and advice of someone who had done business in Latin America. And figure that China is a hundred times more difficult a place to do business than Latin America. But I think the best analogy is buying a house. Buying a house is a complicated process and is often the single biggest investment in one’s life. And even if you know a lot about real estate it is probably not advisable to dispense with the services of a Real Estate agent when buying a new home. And most certainly not if you were a first-time home buyer. So if you want to start importing from China, find someone who knows China. It will cost you some money but it may end up saving you a lot of money over the long term.

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If you are confused when you hear OEM, you are not the only one.

One of the more confusing terms you hear when you start to source in China is OEM. OEM stands for Original Equipment Manufacturer. It was first used widely in the computer and automotive industries where component parts (numbering in the thousands) were supplied by many different manufacturers and these manufacturers were referred to as OEM suppliers. OEM was simply a term coined to designate the manufacturer of the component part as opposed to the manufacturer of the  product as a whole. Apple Computers for example, manufactures computers made up of thousands of parts. Although Apple may manufacture some parts themselves e.g. computer cases,  most parts, for example. motherboard components are provided to Apple by outside companies which specialize in the manufacture of these parts. These then are known as OEM suppliers.

These days however OEM pretty much refers to any supplier in China, whether they are selling parts or finished goods, In fact most companies you see on Alibaba advertise themselves as OEM suppliers, even those that are really no more than trading companies. So that is one change: Whereas OEM used to refer strictly to a parts it now refers to a part or a finished product if that product is going to be rebranded or sold under private label.

Another change in the meaning of OEM is that it now as often refers to a buyer as it refers to a supplier. If, for example, I buy some toys from China and resell them under my brand in the US I am engaged in the OEM business. In fact, the term OEM, it seems, has really come to be synomous with sourcing in China.

In short, OEM is at once so widely used and yet so confusing that I do my best to ignore it whenever possible. If you are confused then do as I do and pay no attention to OEM.  Using the term adds nothing to your conversation with your supplier and often just comes across as jargon.

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