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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From the Archives: Sourcing online increases risk

So many people these days use alibaba when they want to find a supplier overseas. And I must say it is easy. Just type in a search word and, lo and behold, you get back pages and pages of vendors who supposedly can make your product. If you are just starting out and a want a rough idea of how much it it might cost to make your product, there is nothing wrong with running your project by a handful of vendors on alibaba. But when it comes time to ordering you would best be advised to get on a plane and go to spend some time with the person (s) you are relying on to build your business. This is due diligence pure and simple. There is just so much risk for your business when you give an order to a vendor you have never met. I would not do it and I always advise my clients not to do it. Here is a blog post I wrote on this subject back in 2011.

Sourcing online

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Planning your production in China. Watch out for CNY.

What people are saying about Mulberry Fields
“I have already learned a great deal about China and your business through your website and blog posts. Very impressive.”   a successful mompreneur in Toronto

 

The headline in the China daily today was about labor shortages in China now.  This is of course peak time for labor shortages in China, as many workers do not return to their factories after Spring Festival.  In many cases they find when they go home that there is more opportunity than when they left.  And this is why in Guangzhou, the principal city in Guangdong Province there is a shortage of 110,000 workers now across many industries. In Guangdong itself the shortage is over a million workers currently.  In Eastern China it is better but there are also massive shortages of workers in cities there as well.

This is why it really helps to learn about the areas where you are going to be making your product and planning your production so as to avoid having important orders that are produced or are due to ship at or around Chinese New Year.  You also have to anticipate last-minute price increases on your orders as vendors need to raise wages to entice the old workers to come back or hire new workers. I personally would not advise putting ship dates on POs that are not at least 6-8 weeks out from the beginning or end of Chinese New Year.

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How to find suppliers in China

If there was a foolproof method to finding good suppliers then I would not be writing this post right now. I probably would not even have a China -related job but would be off teaching 18th Century literature somewhere. The fact is that finding reliable suppliers is one of the most frustrating aspects of sourcing in China.

There are four ways to find suppliers in China:

1.) Online sites like alibaba.com and global sources. I am skeptical of meeting vendors online simply because you have no idea who you are dealing with. I sometimes find it useful to get quotes from online suppliers when I am trying to figure out how much something costs to make in China but as far as actually ordering from people I have not met and know next to nothing about I would not advise it. I certainly would not do it if it were my business. A lot of small companies, start-ups and mompreneurs source online because the costs are seductively low, it is an easy process and they do not understand what a minefield China sourcing is.

2.) Trade Fairs. This I think it the best way to find new suppliers. As I have lived in or travelled to China for 25 years and speak the language fairly well I have become pretty adept at evaluating vendors, and I would say that my snap judgments are fairly accurate. I can usually tell what a vendor will be like to work with after spending an hour in their trade show booth discussing things with them and then following up with them after the show about samples and other issues. Occasionally I am surprised when a vendor I had marked as a good prospect turns out to be otherwise. But like I said I generally can spot the good ones from the bad ones. I really believe that there is no substitute for meeting the people who are going to be making your product. It is expensive to attend trade fairs in China. But it is more expensive to take possession of 3 containers of shoddy goods you cannot pass onto your customer(s).

3.) US or Canadian based China agents or product development companies. Although agents can save you a lot of time, energy and money in the beginning, working with agents over the long-term can be a costly exercise in frustration. In fact, most of the inquiries I get are from people who are not satisfied with their US or Canadian based China agents. They are not satisfied with the quality of the product they are receiving or the rising costs of that product. Still this is not to say that there are no good agents out there. There are and I have worked with them. But my sense is that you have to go through a lot of bad agents to find a good agent.

4.) Referrals. If you have a friend or trusted acquaintance who can introduce a good vendor to you this can remove a lot anxiety and some risk when you source in China. There are two problems with this approach though: First, how many people do you know who are doing business in China in your same product line who are not competitors and would be happy to divulge their suppliers to you ? Second just because a vendor has proven reliable for someone you know does not mean they will be so for you. It all depends on your product, QA standards, target costs and QTYs. There is no vendor who is simply going to roll out the red carpet for you just because one of your friends is a customer of theirs (unless they are a HUGE customer). But getting the name of a factory from someone you know, if you can do it, is a very good start. You should at least receive prompt replies to all your production inquiries.

The key is as I wrote in my post yesterday, to manage expectations. It may take you a year or two to find a supplier you are happy with. If you know that going into your China sourcing, your experience in China will be better.

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If you have 100K you can sell your products in China

It seems that one of the trendy business headlines these days is about the opportunity American companies have now to sell their products in China. The opportunity exists because there is a growing middle class in China who are distrustful of Chinese made products. Both Forbes and the NY Times have run stories recently that extolled the opportunities in China for American businesses. And I sometimes get inquires from people who ask me about selling their products in China.

I remember 20 years ago when China was just a decade or so into its Reform and Opening policy. At that time it was also said that American companies had tremendous opportunity in China and many companies went to China with great expectations. One of these companies was a US regional fast food chain that opened a store in Shanghai in the early 1990s. They had a great location in one of Shanghai’s main commercial areas. The owners whom I met were very nice and they were full of optimism about their China venture. After all KFC was one of the most popular restaurants in Shanghai at that time. Over the course of the next few months every time I walked by the store, it was empty, like an old Sears Roebuck that had seen its day. Cashiers stood by their registers their faces blank with boredom, stains covered the tiled floor, a letter had fallen off one of the signs. And then one day nothing was left. All the equipement and tables had been removed. The only thing that remained was the broken sign. That store had become one of the many failed attempts to tap into the Chinese market at the time.

And this same scenario has played out in China many times over the years. The fact is that it is just not easy for small overseas companies to sell products in China. Most Chinese consumers want name brands or local brands and have no interest in paying 25 % more for a brand they have never heard of. So it is not surprising that currently only 6 % of China’s imports come from the US, and these are mostly electrical, industrial goods, vehicles etc., hard goods Chinese businesses need to build up China’s infrastructure.

Finally, the NY Times small business guide to selling in China advises small companies who want to sell their product in China to set up in China as a WOFE ( Wholly Foreign Owned Enterprise). In this way one can avoid ineffective distributors and Chinese partners. However the total cost to set up a WOFE is about 50K and can easily run 100 K. I don’t know of many small to medium sized businesses that are willing to make that kind of investment in a country where doing any kind of business is risky. I would not do it.

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