1. Validate your Product Idea – Is it Profitable to Import from China?
There are three things you need to think about here. So let’s break these down. There are over 20 different cost areas to control just to import, then you need to take that product to market. There are a few critical areas that will break your profit margin very quickly here they are:
- Risks and compliance – regulations, standards, permits and approvals.
- Product development costs – diving into custom manufacturing with a supplier that does not have the right skills or equipment is a bit like asking a labourer to build a skyscraper. If it does happen it won’t be very pretty. Plus if you don’t understand how the product is developed and manufactured, you may be asking for things that are just not feasible, At this stage the supplier often stops answering your emails.
- Minimum Order Quantities (MOQ) – Chinese suppliers are used to 10,000 quantity orders for their domestic market. So they often frown at anything under 500 quantities, which doesn’t always fit well with a small business or start-up
Once you have worked through these three critical areas for your product, you can start checking off the remainder of risk areas.
2. Prove Your Chinese Supplier Is Up to the Job
It is too easy to find suppliers these days, that’s the problem you are mostly overwhelmed with a whole range of traders, agents, wholesalers, with everyone claiming to be the manufacturer. Here are the recommended ways to find, then shortlist a great supplier:
- Trade shows in China – the Canton Fair is still the best place to find, shortlist and start negotiating with suppliers in as little as five days. You should put aside a week, fly into Hong Kong and spend 1-2 days at the trade shows there that run parallel. Then spend 3-4 days at the Canton Fair. Just be warned, you must be very well prepared to reach the negotiation stage after five days. There are plenty of other trade shows in China, check out Yiwu and industry specific trade shows.
- Online supplier directories – Alibaba.com is a global phenomenon, and does bridge the gap making the role of the agent somewhat unnecessary these days. HOWEVER, Alibaba still does not qualify its listings very well, and there are far too many low quality suppliers. There are tonnes more tips we provide in our import support programs, and the first rule of thumb is to stick with manufacturers with gold supplier status. You must exercise a high degree of caution, this is still the wild west and you have no legal recourse if things go wrong. While Alibaba offers some buyer payment protection the transaction is between you and the suppliers so don’t expect Alibaba to rush in and solve your problems if a supplier starts pulling a fast one.
3. Develop Your Product Prototype at Home – Unless You Can Travel to China
It takes time to effectively import and cover off your risks, its not just an ‘order and hope‘ process. You need a step by step import and launch plan in place to cover off the risks, and you need to do it quickly as timing is everything when launching new products.
This is a REALLY critical stage. We have actively encouraged many of our clients to develop their prototype in their home market. Because the amount of emails, Skype calls and re-sampling required to develop a product in China without actually being there can be brutal – and drain your enthusiasm faster than a toddler in a tantrum.
Of course the manufacturer has to develop a prototype also, but if you can present them with a ready product that they re-model it is much easier than asking them to create from scratch.
Now the MVP is important too. We see so many businesses that try and create the perfect product, with all the bells and whistles, before they go into production, and then take an extra 12 months to bring to market. In that time their budget and the market has moved on.
GET A MARKET READY PRODUCT TO MARKET QUICKLY, THEN WORK ON THE PERFECT PRODUCT AS YOU ARE MAKING SALES OF THE MVP.
I cannot emphasise how important this is. You are competing against other importers, major retailers, and even suppliers that list on EBay these days so creating your market footprint as effectively and quickly as possible is everything. We provide more detail about how to do this in our learning program. This is just a snapshot.
4. Now Protect Your Import Business, Ideas and Customers
There are usually three kinds of businesses that approach this – the first know what they are doing and learned from experience how to systematically mitigate every major risk area. I will pump up our own tyres here for a second and say, we fall into this category.
The second kind of business will DIY based on what they know already, “this is how we do it in here, I have been to China/one of my staff speaks Chinese so I reckon this is how we should do it”.
The third kind of business will not overcome a challenge and just stop, with the challenges deemed insurmountable. They may or may not get professional help to proceed with their product.
Let’s clarify three important risk areas:
1. You have almost no legal recourse in China – you will have no luck enforcing an IP breach (product rip off) or supplier mistake in China. Ask an appropriately qualified lawyer (we are not), and they will tell you the chances are marginal at best
2. Depending on shipping terms, the product is your responsibility from the factory/port to your front doorstep. If it goes missing is damaged, held up, seized or whatever you will most likely bear the brunt of this. As an importer in most countries – you are responsible for ensuring your product is compliant with laws, standards and regulations. Unfortunately no supplier website will tell you this
3. A patent or trademark is up to you to enforce. It is up to you to make sure your IP is not being used without your knowledge. Now I have scared you with the facts, just take a deep breath and relax. All of these risks we have faced, and overcome in some cases quite painfully. Let’s just say I would rather squeeze lemon juice in my eye than try to fix these issues again AFTER they happen. Prevention and risk mitigation is about planning, to properly plan you need to understand what risks there are and what to do about them.
5. Now Commit to an Import Order
Now let me point out two critical points here:
A. Your negotiation with the supplier started at “hi, I my name is….”
Every email and communication since then has been posturing towards the final negotiated agreement, and there is much to get right in your agreement.
B. Using buyer leverage is very different in China, than it is in many western countries
At home you might demand, detail, withhold or ‘lawyer up’ until a supplier agrees to your terms – referring to our culture rather here than generalising about different industries. In China you might do the same, but:
YOU MUST EXERCISE YOUR BUYING LEVERAGE IN A MORE SUBTLE AND CLEVER WAY.
Here is why:
Relationships and guanxi – relationships are very important in Australia, in
- In China relationships are everything. A CLOSE WORKING RELATIONSHIP IS YOUR BEST RISK MANAGEMENT STRATEGY. Get to know the owner of you chosen factory
- Saving face – your contact should not be bullied into submission, sent demanding emails and copied in their boss to everything. Understand the hierarchical structure at your supplier factory and how much genuine leverage your contact has there. Do they have their bosses’ ear and can they enforce the changes you ask for?
- “Yes” can mean “No” – I hate this cliché but you must experience it to understand it. Yes can be “I understand”, or “I don’t want lose the order, so I will just agree and then reveal the truth after you commit”, or it can mean “maybe”
This is Chinese business culture that fills textbooks, and relayed to you in a nutshell, so there is obviously a lot more to it you need to be across.
Let me also point out a really important point on the agreement – the invoice is everything. You might negotiate over hundreds of emails, and think you have an agreement. If the invoice is different, then that is what matters.
6. After Production, Leverage Your Payment
In relation to shipping and launching your products imported from China, let’s look at a few important details and issues to overcome.
- Product quality and recalls – YOU MUST GET QUALITY INSPECTIONS DONE IN CHINA PRIOR TO FINAL PAYMENT
However it is just one step among a dozen to take to ensure great product quality.
All of the product quality steps we take precede the order, even product recalls must be negotiated prior to committing to a production run.
- Shipping from China – obviously air is fastest but most costly, perfect for small regular orders. However for the majority of us that have bulk orders or even just bulky products, you must ship and decide if you will do a LCL (Less than Container Load) or FCL (Full Container Load). An LCL can be costly but for many small businesses it is the only option they have, if a 20 foot container is not needed. We provide a lot more detail about how, why, when, and importantly how to crunch your LCL costs, in our import learning program.
- Launching products imported from China – I tear my hair out when a client asks us when they should start marketing, as their container of product arrives at the port.
My Import Label Homebase
My Import Label Pty Ltd
PO Box 134
Labrador QLD – 4215
Ph: (07) 5532 1636