What should you budget for a first-time order from China ?

A woman emailed me recently asking me if I could help her with sourcing.  She has just started a company selling fashion accessories. In our email correspondence I sensed that she may not have given the business the thought that she needed to, in terms of how much it costs to get up and going with a China order, for there are hidden costs that people often ignore focusing only on the seductively low first costs that they see on alibaba or other popular sourcing websites.   Accordingly, here is what I think it would cost to get a first order from China.

Sample development.  You have to assume you will go through a couple of rounds of samples with a few vendors before deciding on a final vendor.  There will be sample charges and express courier fees ( you cannot send samples via regular air mail because they often get lost) .  Assuming you have a product that does not require a special mold, you are probably looking at $ 200-300.00 per vendor for sample charges and courier fees.  So figure $1000.00 just to get some good samples from a few prospective vendors.  If you have molds figure a few thousand dollars just to get samples from one vendor.

Testing:  If you sell any PCG (Packaged Consumer Goods) then you will most probably need some kind of testing for your product as per CPSIA ( Consumer Protection Safety Insurance Act).  Figure $500.00- 1000.00 for product testing.

Consultant:  If you are sourcing a product overseas it behooves you to retain a consultant or sourcing agent to help you get started.  Sourcing agents or consultants charge anywhere from $300.00 to 5K for a sourcing project.  So figure $500.00-1000.00 for a reasonably priced consultant/agent.

First Purchase Order:  Depending on the unit cost and MOQ ( Minimum Order Requirement) figure $3000-5000.00 for a first order.  Of course I am just throwing this number out there but a good rule of thumb is that China vendors are not really interested in orders under 5K.

Inspection:  To have an order inspected in China costs about $300.00 per day, not including expenses. But inspection is the only way you can make sure you are getting the quality you have paid for. Figure $1000.00 to have an order inspected.

Shipping:  Vendors quote you FOB which means they only deliver the goods to the port It is up to you to arrange shipping. You will need to use a shipping agent because the documentation is far too complicated to do on your own.  Figure $1000.00 to ship a small order from China going LCL.

When you add all this up you are looking at an initial investment, on the conservative side, of close to 10 K, just to get a first order out of China.  If you have a design oriented product for which the vendor will have to create special molds then figure 15-20K for that first order. And this does not include what it costs you to set up your website, establish your company, obtain product insurance and copyright your designs. That right there may cost you and additional 10 K.

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The cost to register a patent in China

What people are saying about Mulberry Fields
” a very interesting blog”  – a company in France

I was involved in a Linked In discussion this week about IP in China. My advice has always been that IP protection is expensive in China and probably not very effective so, at least for small businesses, one’s time, money and energy would be better spent working with vendors to ensure quality and delivery than worrying about their product showing up on the shelf of a Chinese department store or online shop. One of the people who responded to me on Linked In, someone who has been active in China supply chains for over 20 years,  agreed with me that IP is still a very new concept in China and added that China patent law, something it appears he has a lot of experience with,  is “archaic.” However, he said he does go to the trouble to register patents sometimes in cases when he sees doing so as a “strategic” move. My first thought when I read this is that either registering a patent in China is cheaper than I thought, or this guy works with a company that has the resources to make “strategic” moves in China.  So just out of curiosity I looked up to see what it costs to register a patent in China nowadays.

I went to two websites, one a company based here in Tokyo, where I am, and the other a well-known online patent filing company in the US.  With the company based in Japan, the cost is about $ 2500.00 but does not include translation of some documents ( the translation fee for the application itself is about $ 30,00 for every 100 words. That does not sound cheap). There are fees for the initial application/ the patent search/ administrative paperwork/ and the actual registration. So figure at least $ 3000.00 to file a China patent through this company here in Japan.  The US-based company charges a flat $ 4400.00 for this. And this does not even take into account the time that one must spend getting the product ready to file a patent. Anyone who has filed a patent knows that the requirements for doing so involve quite a bit of work.

To me $ 4000,00 to $5000.00 is a lot of money to pay for a “strategic” move that in the end may not be very effective. Most of the small businesses I work with just do not have that kind of money in their budget. For this reason I always advise them not to overly concern themselves about their IP ( though they should think about it) and that their money would be better spent travelling to China to work with their current suppliers, finding new suppliers and inspecting their orders. In short, what they need to do to build their business.

www.theeastasiaco.com

 

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