Top 5 Tips on China Wholesale
These top 5 tips will point you in the right direction when going for China wholesale.
This blog article was first published on www.sourcingallies.com
As a total supply chain solution, China beats most countries on cost, talent pool and workforce maturity. A China wholesale strategy makes good business sense for several reasons, but the fidelities of partnering with Chinese factories should motivate you to take the right steps starting with your initial interaction with suppliers.
1. Negotiate price correctly
Amazon sellers’ price their products 7x-8x the costs of sourcing them from China. When you’ve figured out your margins, haggling too much on price could work against you for the following reasons:
- It is necessary to be reasonable with your supplier because ideally you will stay in business, as long as they stay in business. If every Amazon seller tried to beat down the price and squeeze manufacturers’ profits, they would potentially be risking their own business.
- The quote may not be what you pay. Suppliers do put time limits on prices as they must deal with fluctuations in raw material prices, higher taxes and other cost variables. This is a common reason of why price changes do occur for the same product. Understanding these nuances and accepting that variations do affect the amount you are willing to pay initially, could pay off as your supplier may be more inclined to return the favor if their cost of manufacturing goes up.
- Manufacturers often investigate your business on Amazon to see how it’s faring. They will know whether you’re making a huge margin and if your first order has sold quickly. If you treat your supplier right the first time, there’s a good chance that the price they quote or subsequent orders won’t increase, which if it did it could take a bite from our profit margins. This is true for any supplier, not just those in China.
So, what is a good way to negotiate and what can you negotiate? You can negotiate a fair price on large orders and the promise of along-term commitment. If you’re happy with the product quality and interested to buy above the MOQ, you should then ask for concessions. A $0.10 price increase won’t hurt your profits, but at ¥ 0.68 in Chinese currency can make a difference to the supplier’s bottom line.
It is possible that a manufacturer that specializes in the type of products you sell quotes a high price. How do you tactfully convey that you know enough about the market to understand that you can get better quotes elsewhere? By doing your research — it’s the best way you will be able to negotiate a competitive rate or possibly a better rate for a larger order.
Great negotiation is about having conversations that include facts and figures as these are undisputable. A single line such as, “Mr. Lee, I have another quote from a factory not very far from yours. Mr. Zhang has quoted $5/piece which is roughly 40% below your price,” should benefit you greatly during a negotiation.
Different industries have different margins. When you’re sourcing from a manufacturer that customizes in metal stamping, you cannot expect a similar quote from someone that makes ABS plastic conduit boxes or toys. Doing your research and relying on the numbers matters more than playing hard. Comparing apples to apples should bear fruitful as you negotiate.
Suppliers will also be willing to negotiate certain terms and conditions so long as they’re reasonable and don’t affect their manufacturing processes. For instance, if a piece of the product you’re sourcing is prone to falling off or getting damaged easily — such as a gasket or covering — you can specify 150 spare gaskets or coverings with each order. Here again, a deal that doesn’t hurt the supplier’s position will encourage them to make allowances.
2. Know what you’re in for when you request a sample
The sample is proof of the manufacturer’s capability. Order samples from all shortlisted manufacturers to determine which factory ticks the boxes on quality and price. These tips will help you at the time of placing your order.
- Want to sell a variation of a product on Amazon? You can request the supplier for a sample that has all the specifications you want from changes of color, size, logo and other features. The sample fee will include a one-time logo creation fee, which the supplier will adjust against your next order. However, creating a custom sample usually takes time. If you’re hoping to have a sample in your hands within 3–7 business days, you should consider ordering one from what the supplier already has in stock. Specify details so that they send you a sample that is relatively similar to the one you want.
- You may be able to order a free sample and only pay for shipping. It’s up to you whether you’re okay having each sample shipped separately and pay the $30-$60 in shipping costs per sample. The alternative is to use a freight forwarder to bundle all the samples and ship them in one box.
- Depending on your products, you can order different types of samples.
o One is an off-the-shelf sample with no customization. The issue here is that if you’ve contacted a middleman posing as a manufacturer, the sample can lead you on further. As discussed above, you can order a customized factory sample or a production sample that comes close to your specifications. If the quality of the product material is its key selling point, you can have the manufacturer send you an item in the desired material to check for hardness, finish and other characteristics.
o Based on the type of product, you can also review a sample chosen randomly after mass production has begun. This can be the product itself or a part of the product. In this case, you need to have an on-site quality inspector to check the sample. If you can visit China, you can review the product yourself.
The sample is also a good way to compare prices across various manufacturers. See, touch and use of the sample helps to understand if the quotes on each pricing guide match up to the actual product quality. Although two manufacturers may have used the same material to make the product, you may find a pretty big discrepancy in quotes between them when the prices shouldn’t have much variance. This will make apparent which suppliers to filter out.
3. It is the importer’s job to ensure product compliance
As an Amazon seller, you’re liable for patent, trademark and product safety. Based on the product you’re selling in the United States or EU, you need to check for patent issues, research safety hazards and be sure that your product meets the required intellectual property laws and other regulations in the country of sale.
- Amazon’s Terms of Service (TOS) states prohibited seller activities. This is general guidance, and Amazon does not offer assistance in case your product fails to meet safety standards. If you’re selling a generic or extensively used product, you have nothing to worry about. Certain products need pre-approval before they can be listed. If the product in question is subject to state, national and international regulations, you can consider engaging a third-party to navigate through Amazon’s compliance process.
- Depending on the product category and target market, the standards requirements and compliance process may vary. They include laboratory tests, safety and chemical standards, labeling requirements, and a declaration of conformity. The standards are not set by Amazon, but it expects to see some evidence of compliance. You can accommodate these requirements during pre-production with your supplier.
- Suppliers may have some compliance data for the product, but it may not be current or adhere to Amazon’s documentation requirements. The responsibility is on you to look up Amazon’s documentation standards and gather information proactively so you can submit the records as soon as Amazon requests them.
4. Stay involved in the quality control process
The cardinal rule of sourcing from China is to partner with the right factory. You should have confidence that you’ll get what you paid for. To avoid disappointments, consider the following tips:
- Provide clear specifications, drawings and other product requirements to the supplier. Avoid leaving out anything and never assume that the factory will figure it out.
- Ask the manufacturer if they have any questions. Respectfully insist on knowing that they’ve understood your specifications. Use tact and the right words to get your message across. Speaking proficiency in Mandarin will be an asset here.
- Products should not leave the factory broken or non-compliant. Quality control needs to occur at the factory before products are shipped to your location. The factory should check for visuals color, shape, appearance, dimensions, certifications, function, and outline how those internal checks have been done.
The three quality issues that tend to crop up are:
1. Mass produced goods don’t match the sample
2. Quality is inconsistent across batches
3. You’re not sure who to reach for quality related instructions
The first two can be solved by ensuring more steps in the quality control process or having a representative to inspect the raw material and control processes at different stages of production. A sourcing agent can provide this service, keenly watching quality on your behalf and keeping the factory on its toes.
On your factory visit, you may be impressed by the manufacturer’s ISO quality systems. Still, unforeseen circumstances or price pressures may come in the way of quality and delivery timelines. A China sourcing agent’s physical presence in the country, familiarity with the local language and cultures, anticipation of production down time due to local holidays and events, and production supervision, all serve as a preventive measure against quality issues and delayed shipments.
The third problem — not knowing who to talk to — can be overcome by specifying at the beginning of your relationship with the supplier that a point-person be assigned to negotiate manufacturing requirements. This individual should have the technical skills to understand your specifications and have the authority or influence to raise these issues with factory personnel.
Chinese suppliers make products aligned to market expectations
It is not possible to hold Chinese factories to the same standards as a manufacturing facility in the west. As the country was once poor and isolated, the Chinese may not instantly grasp the level of quality that Westerners take for granted. If you need a product that works as intended at a low cost, Chinese factories are your best bet. But if you’re looking for distinction and quality that outshines other products in your category, be prepared to explain your expectations down to the last detail.
Rather than subjective terms like ‘top quality’, specify the type of raw material or how the product should hold up in a stress test. It may require a bit of back and forth even after you’ve received the sample but a sourcing agent with boots-on-the-ground and Mandarin fluency can state your requirements as precisely as possible and ensure that the supplier has all the details they need to make your product exactly to your desired specifications.
5. Be aware of the pros and cons of different payment methods
You have a good amount of flexibility in choosing the payment method(s) to suppliers. If you’ve partnered with a supplier on Alibaba, you get a Trade Assurance, which minimizes risk by guaranteeing your money back if the supplier does not meet the terms of the order contract, such as delivery delays, quality and quantity discrepancies, and other issues related to processing your order. A delay in shipping your products on time, as per the terms of your contract, makes you eligible for a refund. The caveat being is that not all suppliers accept Trade Assurance.
Chinese suppliers are open to payments via credit card. Credit card companies generally refund money if the supplier fails to ship your order or if the quality deviates significantly from the requirements of your contract. You must file a dispute within 60 days of making the payment, and it will take the credit card company 2–3 months to investigate the dispute and refund the money. Chances are they may try to pass on the processing fees to you, which is about 3% of the transaction amount.
PayPal is a popular way to pay Chinese suppliers, although some are wary of the risk of buyer chargeback. You must factor in the second currency exchange fee — up to 7% of your overall transaction cost.
Western Union is another accepted way to make payments to suppliers, but you are forewarned against making a large or full payment via this method. If your supplier sends you defective products, your money is as good as gone because there is no recourse to get a refund.
In any case, there is no requirement to make a full upfront payment to suppliers. If you wish to use Western Union, send money in an amount you are willing to risk loss. Regardless of the payment method, insist on staggered payments, paying the final tranche after you’ve received your order.