Manufacturer in China- How to Establish a Reliable Connection
There is a vast number of manufacturers out there. However, finding the one (1) manufacturer that is right for you can be a daunting task. This blog will get you started.
This blog article was first published on www.sourcingallies.com
China outranks every other country on manufacturing output. Virtually everything you use is likely produced in Asia’s second-largest country. Nearly 80 to 90 percent of goods sold on Amazon’s US marketplace are sourced from outside the country, with China accounting for a bulk of the products.
When you begin your journey on Amazon, if you can be considered a serious, trustworthy and long-term buyer you will have many Chinese suppliers vying for your business. There are many ways to connect with Chinese manufacturers. Even if you have strategic sourcing experience, expect that language and cultural barriers will entail you follow an informed outreach and engagement plan.
Finding Chinese manufacturers
The first step is to find a large pool of suppliers and access their business information. You have several options, including:
Your business contacts
People from your professional or social circles may know someone who has worked with Chinese suppliers. Your local Chamber of Commerce and trade associations in your industry may be able to provide relevant information or insights.
B2B marketplaces like Alibaba, Global Sources and Made in China provide Chinese suppliers’ and manufacturers’ key business information and other details available for buyers. They are the go-to choice of Amazon sellers dipping their toes in China’s market.
Note that a supplier can be classified as a manufacturer, wholesaler or dropshipper.
- A manufacturer produces goods for resale and sells them for very low prices at higher minimum order quantities (MOQs).
- A wholesaler is an intermediary that purchases goods in bulk and resells them to retailers. While you don’t have to buy in bulk, you can generally save more on larger orders.
- Drop shipping allows you to buy items one at a time at a higher price per item. The dropshipper handles inventory, packaging, shipping and may even take care of customer service and returns for retailers.
Browse suppliers’ product catalogs. Do they produce a wide range of products or a specific type of product? In the latter case, is the supplier likely to be an expert in that type of item and have experience providing quality items in that category?
Alibaba has different levels of verification for suppliers. According to Alibaba, A&V Checked suppliers are reputable (“Gold Suppliers”) who have passed the ecommerce giant’s authentication and verification inspection as well as one by a third-party verification company. All A&V Checked suppliers’ business licenses and contact persons have been verified.
The second level of verification, Onsite Check, is a check of the supplier’s premises by Alibaba to ensure that onsite operations exist at the stated location. The supplier’s legal status and other information are also cross-checked. Further assessment includes an onsite check of the supplier’s premises by independent third-party agencies.
Other than the certifications provided on Alibaba, type the supplier’s name on Google and see what comes up. You may find reviews of the supplier on independent review sites. Customers may have left comments about the supplier. Perhaps the supplier is on Glassdoor or other employer review sites. It doesn’t hurt to get a better sense of the company’s working conditions and wages from employee reviews.
Contacting the supplier
After you’ve shortlisted a few suppliers, you can reach them via email. Use your business email and include the name and URL of your website. Casting a good first impression is important to receive a reply. The supplier may be receiving several emails each day from prospective buyers. Competitors are also known to send inquiry emails to gain some information, so suppliers may screen requests thoroughly.
Suppliers will mainly look for one thing — your buying volume. Give them a rough estimate of the quantity per product you will buy per year. Be specific and truthful. The manufacturer may profile you online to determine if you’re a serious buyer, with sellers from Africa, Bangladesh, India and Pakistan facing the most scrutiny.
Be sure to state the market you’re targeting. Chinese suppliers may say that they can make the products you’re selling but the products and production quality may be adapted for the Indian or African markets. Western audiences are used to a certain level of quality, which the suppliers’ processes may not support. By being specific about your audience, so you can avoid proceeding with suppliers that aren’t a good fit for your business.
Be clear, polite and professional. Inquire about the dimensions and weight of the packaged product, how the product will be packaged, price per item, and minimum order quantity.
Once the replies are in, you can assess suppliers based on how quickly they got back to you. How well they speak English, and whether they answered your questions directly or gave evasive replies are all determining factors that can offer you insight as to their professionalism and validate their experience.
Meet and greet at trade fairs
Attend a trade fair in China to initiate contact with manufacturers. You can meet suppliers that aren’t advertising online. Meeting potential manufacturing partners in person indicates that you’re a serious buyer and builds rapport.
The oldest and largest trade fair in China is the Canton Fair, held twice a year in Guangzhou. Nearly 26,000 exhibitors participate, getting before more than 200,000 buyers. Canton Fair organizers send a letter of invitation to businesses, which is needed to obtain a visa to Mainland China for the purpose of attending the fair. Many people also visit the fair informally on a tourist visa.
Those who have no experience selling online engage sourcing agents to identify the right suppliers for their needs and navigate the complexities of procuring from China. A sourcing agent can provide guidance and assistance at every step of the process, from selecting a supplier to shipping the order. Even experienced sellers expanding their product line and exploring a China procurement strategy can benefit by teaming up with a dedicated sourcing agent.
Sourcing agents have a presence in the country where the items are produced and offices in the sellers’ countries as well. As an intermediary, they support your interests while ensuring a fair deal for manufacturers. A sourcing strategy that does not consider mutual benefits often suffers from outcomes such as poor quality, disputes and short-term relationships.
The all-important factory audit
After you have accepted a quote, your sourcing agent will conduct a factory audit. If you’ve done one before, you can also do it yourself. A thorough check involves getting a feel of the factory. Other than an assessment of the equipment, staff headcount, processes and management structure, factors like working conditions, social responsibility and the attitude of the owner will tell you if they’re a supplier worth partnering with for the long-term.
It is important to reiterate here that you absolutely need to know what to look for on the manufacturing premises. This limits the risks of getting knocked-off and other hassles after you’ve signed the contract. Extra cautious Amazon sellers may choose to only work with publicly traded or state-owned factories with large operations. However, an experienced sourcing agent can expand your options without creating a risk of poor quality or service. Once you find a reliable representative who can help you forge a relationship with an honest and capable manufacturer, things get a lot easier.
The golden sample before mass production
A product sample is a litmus test for quality. But they call it the ‘golden sample’ because it is almost always of high quality. Subsequently, products manufactured in bulk may not match the golden sample’s quality. And if you’ve selected a dubious supplier, the sample may not even be from their factory! A healthy amount of caution is advised because there is no substitute for decent quality, no matter how big a price advantage you have.
A sourcing agent has a plan in place to ensure that mass produced products reflect the impressive sample quality. It usually involves doing a second review and stationing one agent representative at the factory to ensure that the promised standard is delivered.
Keep these things in mind when requesting a sample from the supplier:
- The people who receive your email specifying sample details may not be the ones who make the sample or oversee its production. This creates the risk of misinformation as it moves along the chain of command. Speak directly to the product manager or factory line manager to ensure that they understand the desired product outcome.
- After speaking to the manager, send a follow-up email with the technical specifications, payment and schedule. Include diagrams and drawings of how the sample should look. This holds after mass production has begun. A detailed invoice will also help you in the event of a dispute with your supplier.
- Once the sample is complete, consider doing a video chat with your supplier so you can see what it looks like before it is delivered. Any deviations from requirements can be fixed, saving you and your supplier the cost of shipping the sample.
Suppliers charge you for the cost of the sample. Some may request you to only pay for the cost of freight. Most pay the sample and freight costs back on your first order.
There are conflicting views on whether you should request a free sample or negotiate a lower price. You may look cheap which could deter the supplier. It could be beneficial to specify that if you’re happy with the sample, you will place a large order with the supplier. Expressing that you would be interested in working exclusively with the supplier is also beneficial.
Negotiating with suppliers
What is the market price of the product you will be selling on Amazon? Only if you know the cost to manufacture the product can you negotiate with manufacturers. You’ll be aware of what the fair price of the product is, which will help you compare quotes from different suppliers in an informed way.
When the supplier asks about the quantity you will be importing, state the annual order amount rather than the individual amount. Chinese suppliers keep tabs on their competitors and price their items to be attractive to potential buyers. You’re likely to get competitive quotes if they’re interested in your business.
For an easy comparison, create an Excel sheet listing each supplier’s price, MOQ and shipment terms. Be wary of very low prices as they usually indicate the following:
- Lower quality raw materials are used to make products
- They only accept large bulk orders
- Shipment terms are Ex Works*
* There are several shipment terms, called Incoterms. Most commonly used are:
- Ex Works (EXW), where the seller makes the product available at a designated location and the buyer is responsible for transportation costs.
- Free on Board (FOB), the most common option, where the seller assumes responsibility of the items until they are loaded on the ship or aircraft destined for your country.
- Cost Insurance and Freight (CIF), which transfers the liability of goods transfer from seller to buyer. The cost of inland transportation and sea freight are borne by your supplier.
- Delivery Duty Paid (DDP), also a very common option, where the seller carries all responibility and cost for the goods to the dock of the customer.
- Invest time in research. Sourcing from a different country is complex. China has its fair share of unscrupulous suppliers. Avoid acting in haste and vet, vet, vet as much as you can.
- Be as detailed as possible in your Request for Proposal (RFP). Confirm product specifications and delivery timelines over the phone, via video chat and in writing. Engage a lawyer to create a solid contract.
- Audit the factory or have a sourcing agent do it. It is always a good idea to work with a manufacturer that specializes in the type of product you want to sell.
- Communicate with the right personnel and minimize contacts between the supplier’s and your business.
Opening doors in China requires quite a bit of communication back and forth
Finding a manufacturing partner to work with may take you a good 6+ months. Expect to talk to people, visit factories and really invest in building relationships. If you’re in it for the long-term, every handshake, every deal and every relationship will count. That’s how Chinese business culture works — by gaining good ‘guanxi’ or mutual trust and obligations between parties that have common interests. A lot can get done by making the effort to improve interpersonal relationships with business contacts, which includes returning favors and having informal meetings outside of work, over drinks or meals. If you cannot hop on a plane and visit China a few times a year, a sourcing agent can help you sustain a successful Amazon business.