Emailing Chinese Suppliers

Why Good Chinese Suppliers Don’t Reply to Your Emails/RFQs and How to Fix That

Emailing Chinese Suppliers

When sourcing from China, it’s important that your emails and RFQs to suppliers are formatted correctly.  What tends to happen when emails/RFQs are formatted incorrectly is that you’ll get a low response rate from quality factories, i.e. the suppliers you want to be working with, and an outweighed response rate from low-end factories or trading companies. We’ve discussed the pitfalls of purchasing from a Chinese trading company previously.

 

Below is an example of a poorly formatted email to a Chinese factory. There are 5 obvious problems with the email that will affect the buyer’s sourcing and supplier verification efforts:

 

  1. The buyer has not introduced their business
  2. The buyer is vague in terms of their product requirements
  3. The buyer used ambiguous/subjective terms (“high quality”) to describe their product requirements
  4. The buyer hasn’t included a spec sheet and has not listed their product specifications
  5. The buyer comes across as an amateur importer and an unprofessional business

 

Hi,

 

I’m looking to buy solar panels and ancillary fittings for my business.

I want high quality panels and the pricing has to be low!

Can you put my brand and logo on the product and the packaging? I want it to look like this:

 

 

 

 

 

 

 

 

 

Needs to have a 20 year warranty

 

Send me your best prices and your product catalogue.

 

Thanks

 

Importers need to understand that it’s a myth and somewhat arrogant to believe that every Chinese factory is dying for your business. This is particularly true for the best manufacturers as they have long-term clients and operate at close to full production capacity. Many simply don’t want the hassle of going through months of negotiations, sample development, and customizations for flaky, unprofessional customers that they perceive as having no hope of doing regular orders.

 

So how do you encourage a high response rate from quality factories?

 

  1. Your email should demonstrate that you are a professional operation and a potential long-term customer for the factory.  In other words, you need to show that you are not a tire kicker
  2. Your email should be concise with clear calls to action
  3. Your email should use the correct terms for components, raw materials, and testing requirements
  4. Your RFQ should contain a detailed spec sheet as an attachment.

 

Below is a correctly formatted email to a Chinese supplier that would likely get a high response rate.

 

Hi Joe,

My name is Stephen and I’m the sourcing manager of Green Gardens Online. We’re the leading online retailer for garden supplies in Portugal . You can find more about our company by following this link  Green Gardens Online.

We are developing a new line of indoor furniture. The product we want to start with is a recline arm chair. The chair is similar to the one on your website/Alibaba, model number ARM003/004.

Please review attached spec sheet/RFQ which has all the product information. You can fill in the details on the attachment.

Could you please provide the following:

–  FOB/EXW unit prices based on 100/500/1000 units

– Available certifications

– Production lead times

Product (see attahed spec sheet)

  • ARMCHAIR
  • 101*97*92cm
  • Fully Reclined Dimensions H:80 x W:97 x D:168 cm

Material

  • UKFR PU & BS5852 foam

Packaging

  • Mail order package is necessary.
  • The package has to pass drop test.
  • Drop test standard: 100cm height, ten times drop. 3 corners, 3 edges, 4 faces.

If you have any questions please let me know. I look forward to your quick response.

Many thanks,

Stephen Green

Managing Director

Green Gardens Online

 

Aside from encouraging a high response rate from the right suppliers, it’s important that Chinese factories understand your exact requirements and reply with the information you need. You don’t want to be going back and forth with 15 emails clarifying that the factory has the right certifications, can meet your lead time requirements, has access to the components you need etc.

 

Read on for a step-by-step guide on how to format your email and RFQ so that you get a high response rate from Chinese suppliers that you actually want to be doing business with.  I’ve included a free downloadable email template at the bottom.

 

Introduction

 

You should explain who you are and provide a brief introduction to your company. It’s an opportunity to show that you’re a valuable potential customer to the factory.

 

­­Hi Joe,

My name is Stephen and I’m the sourcing manager of Green Gardens Online. We’re the leading online retailer for garden supplies in Portugal . You can find more about our company by following this link  Green Gardens Online.

 

Details and Spec Sheet

 

Your next step is to outline what you require from the supplier and to list your product requirements.

 

We are developing a new line of indoor furniture. The product we want to start with is a recline arm chair. The chair is similar to the one on your website/Alibaba, model number ARM003/004.

 

It’s important that you attach your product specification sheet, which can double as an RFQ. You should include packaging requirements, any required certifications/tests, and ideally images or product design files on the spec sheet.

 

Please review attached spec sheet/RFQ. You can fill in the details on the attachment.

Could you please provide the following:

–  FOB/EXW unit prices based on 100/500/1000 units
– Available certification
– Production lead times

Product (see spec sheet)
• ARMCHAIR
• 101*97*92cm
• Fully Reclined Dimensions H:80 x W:97 x D:168 cm

Material
• UKFR PU & BS5852 foam

Packaging
• Mail order package is necessary
• The package has to pass drop test
• Drop test standard: 100cm height, ten times drop. 3 corners, 3 edges, 4 faces

 

Avoiding Miscommunication

 

To avoid miscommunication and inaccurate quotes, make sure you use the correct terms for components and raw materials. If you are unsure, do some research on Alibaba to see what the standard word is for that material. Avoid using slang terms or localized words for a product or component.

 

Samples

 

If your product is customized, let them know that you have samples that you can send to the factory for a more accurate quote. Chinese factories are great at copying existing designs.

 

Politeness

 

It should go without saying, but don’t be rude to suppliers. Don’t create unnecessary time constraints on receiving a reply. If you have met the supplier at a tradeshow, remember to address them by their name.

 

If you have any questions please let me know. I look forward to your quick response.

Many thanks,

Liam Pratt

Managing Director

Green Gardens Online

 

Your initial email should be detailed in terms of product requirements but short in length.  A salesperson at the Chinese factory is not going to read a 3-page document, especially when English is their second language.

Click here for a free email template.

Product Spec Sheet: Why You Need One in China

China Spec Sheet

 

Good results in China with sourcing, price negotiations, and product quality starts with a good product spec sheet. Unfortunately, far too many businesses (especially startups) have no idea how their product is made, the grade/type of material they require for their product, and the product’s dimensions, tolerance limits, and testing requirements.

 

If you are relying on product links (or pictures), a few random points on product functionality, and broad descriptions such as “best quality” when communicating with potential suppliers, you are setting yourself up for failure.  Factories are smart and if you approach them without a clearly defined product spec, you are signaling to them that you’re an amateur business. Expect to be taken for a ride.

 

The following is a list of reasons why a spec sheet is crucial when purchasing from China, and what to include in a spec sheet. We’ll also include a free spec sheet template that you can download.

 

8 Reasons Why You Need a Spec Sheet:

 

Reason #1: It helps factories understand your requirements. Factories rarely provide more information than what you have requested. Don’t make them guess your requirements or you will end up in a rabbit hole of back and forth emails that will delay your order.

 

Reason #2: It shows you are professional. Good factories get hundreds of enquiries a week. A lazy enquiry will get a lazy response (or no response at all!).

 

Reason #3: Accurate pricing. If you don’t know your product spec, how can you judge if the quoted price is accurate? Pricing and quality are entirely dependent on your specifications. For instance, a common one we see is clients requesting ‘good quality leather’. There are dozens of grades of leather and tanning methods. Do you want cowhide, or from another animal?  Perhaps you want PU leather? Without a detailed spec sheet, suppliers will quote ‘low-ball’ pricing based on the cheapest quality standards to gain your interest.

 

Reason #4: It helps quickly eliminate unsuitable suppliers. If the supplier can’t produce to your quality level or compliance standards (ISO, FDA, CE, etc.), then what’s the point of engaging them to quote and develop samples?

 

Reason #5: Its useful when creating contracts, OEM agreements, and POs. As Dan Harris from the China Law Blog points out, your spec sheet will be accommodated into your factory contracts, POs, and OEM agreements.

 

Reason #6: Its less likely that the factory will degrade your product. Chinese manufacturers operate on low-profit margins and clearly defined spec sheets leave less opportunity for the factory to cut corners, use cheaper raw materials, low-grade packaging etc.

 

Reason #7: Youll need this information for your quality control inspections. Much of the information in your spec sheet will be transferred to your quality control inspection list.  Once production is finished, your QC inspector will need to know your quality parameters, tolerance limits, packaging and labeling requirements etc.

 

Reason #8: Its a useful reference point for customizations. It’s beneficial to have a reference point to your original specs if you want to change something on future orders. It’s much easier to track and communicate product changes/customizations to your factory if you have a reference point.

 

What Should You Include in Your Spec Sheet?

 

  • Product description
  • The SKU
  • The specific materials for the product and the precise amount
  • Product dimensions
  • Product tolerances (if any)
  • The Pantone (product colors)
  • Testing requirements
  • Price
  • Order quantity
  • Label specifications
  • Packaging specifications
  • Shipping specifications
  • Special instructions
  • Photographs of the product from multiple angles and with the dimensions indicated

 

Click the following link for a free template China Spec Sheet that you can download.

 

On a final note, it’s important to remember that when you are importing from China you are dealing with Chinese suppliers, not your local vendor. Cultural differences and language barriers mean that you need to be more, not less, specific with how you communicate your product requirements.

 

In the next post, I will run through how to format emails and requests for quotes (RFQs) to get the best response rate from Chinese suppliers.

10 Reasons Why You Should Never Purchase From a Chinese Trading Company

 

We often preach to our clients that sourcing is an underrated process deserving of greater attention. If your business is importing from China and you’re experiencing issues with product quality, lead times, and pricing, it’s likely directly related to your initial efforts with sourcing and verifying suppliers.

 

We often see businesses that have the volume to purchase factory direct making the mistake of purchasing (knowingly or unknowingly) from a Chinese trading company. In this post, I will briefly explain 10 reasons why buying from a trading company is a terrible decision.

 

1. They outsource production. Trading companies are not manufacturers, they take your order and then send the PO to a factory. Oftentimes those factories will then outsource production to another supplier, so essentially it has been outsourced twice!

 

2. They add a margin to the product.  Trading companies are middlemen and they survive as a business by adding their own profit margin to the product.  To get lower pricing, it’s best to purchase directly from a Chinese manufacturer.

 

3. You have zero control over the supply chain. Trading companies typically won’t disclose the factory they outsource to for the production of your product. This makes sense, because if you knew the actual manufacturer, why would you pay the trading company to add margin to the product?  Given this lack of transparency, it also makes it impossible to arrange third-party auditing and post-production quality control. It is also impossible for you to own the tooling and molding for any products that you have designed, as the trading company won’t disclose the factory that is using your molds and tooling.

 

4. They frequently change suppliers.  To increase their own profit margins, trading companies will often outsource future orders to another cheaper manufacturer.  It’s impossible to maintain consistent product quality when your factory changes order-to-order.

 

5. You are better off building a relationship with the manufacturer.  If you want to build a scalable business importing from China, you need to develop a relationship with your supplier.  When problems arise (and trust me they will), you want the option to reach out to the factory’s boss to get a quick resolution.  Whether that’s to do with changing product design, resolving quality problems, locking in raw material prices, or rushing through an order when you’re business is low on stock.

 

6. Trading companies close down quickly. Trading companies are often capital-light businesses, which means they can shut down quickly, change businesses names, and take-off with your investment. We’ve seen this happen countless times. To protect your investment, it’s essential that you have a contract in place with the actual manufacturer.  The contract should be compliant to Chinese legal standards and cover product specifications, quality requirements and technical standards, packaging requirements, lead times, no unauthorized outsourcing, payment terms, force majeure, port of loading, etc.

 

7. Miscommunication. When you communicate design requirements, packaging requirements, technical specifications, and compliance requirements, this needs to pass from the trading company and then on to the actual manufacturer (and possibly on to another factory if the first factory is themselves outsourcing!). A lot can go wrong in terms of miscommunication. It becomes a case of Chinese Whispers (Game of Telephone in the US).

 

8. Trading companies are sales and marketing orientated. Trading company’s primary business investment is building a strong sales team and a fancy website.  Trading companies leverage their advantage in sales, communication, and marketing to wrangle business away from manufacturers.   A manufacturer’s primary focus is production and they are typically less sophisticated with sales, communication, and service.

 

9. They are not hands-on. Trading companies typically won’t visit the suppliers to communicate design requirements and to resolve supply chain issues.  Instead, the salesperson at the trading company will relay your concerns over the phone (if you’re lucky) to the salesperson at the factory.

 

10. They are by nature unscrupulous.  For the reasons listed above, trading companies understand that serious importers prefer to buy direct with the manufacturer.  To get around this, Chinese trading companies often falsely advertise themselves as manufacturers. A simple way to differentiate between the two is to remember that trading companies sell many goods across different product categories. Whereas factories will specialize.

 

It would be remiss of me not to mention that trading companies in China have an important role to play in the market.  If your quantities are too small to go factory direct, then a trading company is a good option. Trading companies stock product which often means you can buy well below a factory’s minimum order requirements.

Why You Should Think Twice About Importing Fad Products From China

 

Over the past decade, we’ve seen first-hand what products and business strategies have worked for our clients when importing from China. The success stories, i.e. those businesses which have scaled from small startups to successful companies, all have one thing in common. They avoided fad/hyped products.

 

What are Hyped Products?

Hyped products are those that come on the market with a huge amount of attention and quickly gain popularity.  Think hoverboards, cheap drones, and fidget spinners.

 

Hoverboard that exploded while charging.

Problems with Hyped Products

Problem 1 It’s impossible to predict what product will become the next fad.

Problem 2 When it does become obvious, you’ve probably missed the boat.

Problem 3 Short product lifecycle makes it difficult to build a brand around the product.  The novelty fades. In the case of consumer drones, a few companies dominate the market and the software is what drives customer loyalty to the brand/product.

Problem 4 Hyped products by their nature are new on the market and quality problems normally haven’t been fully resolved. For instance, hoverboards were recalled due to dangerous batteries.

Problem 5 You’re competing with thousands of people with the same idea. You have very little time to build brand awareness for your product. Essentially you are just competing on price and quality. It’s a low margin business.

 

Focus on Niche Not Hype

A niche product is an item that appeals to a particular market subgroup. Some examples of niche products are chairs for weddings, boat covers, and yoga mats.  Unlike hyped products, niche products are unlikely to disappear from the market when the next fad comes along.

Niche products also allow you to build a brand around a product category and to develop a line of products related to that category.  For instance, if you started with yoga mats, you move into yoga blocks, balance balls, kit bags, and yoga apparel.

 

Why its Hard to Scale a Business With A Hyped Product

Scaling a business requires brand recognition and loyalty.  Brand loyalty is built on product quality, strong after sales service, efficient logistics, excellent marketing, and SEO.  All of this takes time and money, and with fad products, there’s a risk that your resources will be wasted if the product’s popularity dies when consumer tastes change.

 

Whats the Alternative?

Identify a market niche that you are interested in and ideally a niche where you have some expertise. Don’t be afraid of competition. Look to optimize your product in terms of design and price. Then focus on marketing, customer service, and building out new product lines within that product category.

10 Things I Wish I Had Known Before Coming to China!

10 Things I Wish I Had Known Before Coming to China!

 

As the founder of Easy Imex – one of the largest China-based, Western-run sourcing companies – I’ve experienced almost every problem imaginable when dealing with Chinese suppliers.  So that you can avoid some of the same mistakes that I’ve made along the way, here’s my top 10 list of things I wish I’d known before coming to China.

 

1.Yes means maybe, maybe means no, no means no! In China, especially in the business setting, people don’t like to say no! So when you ask a Chinese factory about whether they can manufacture a product, rarely will you get an answer of no! The Chinese philosophy towards business is to grab the chance while it’s there and give it your best shot.

 

2. China manufacturing and poor quality control often go hand in hand. While Chinese manufacturing standards have improved dramatically over the past 10 years, issues with product quality remain a major concern for importers. As such, coming to China without doing quality control inspections is madness! If your margins are so tight that you can’t afford a $250 pre-shipment inspection – then you’ve either found the wrong product, you’ve failed at price negotiations, or you haven’t budgeted enough in the first place.

 

3. Assumptions are the mother of all stuff-ups! One thing I’ve learnt during my time living in China is to NEVER ASSUME ANYTHING. This applies to even the most basic of things. Whatever your factory tells you, never assume it’s true. Seeing is believing. Don’t assume your factory will do what they say they will do, assume the opposite! (Hence why quality control is so important, more on that later!).

 

4. Regions of China. China is a huge country. Looking at a map of the world, China’s landmass basically covers Western Europe. While manufacturing is concentrated on China’s eastern coastline, for various reasons different products are better bought from different regions. If you’re buying your product in the wrong region, there is a high chance you’re at a price or quality disadvantage. Generally speaking, the south of China (starting from the bottom of the map of China) around Guangdong and Shenzhen is the region of China that specializes in high tech products. As you move further north, towards Fujian, Shanghai, Hangzhou, then further north after that, Qingdao, Hebei etc., products generally become ‘bigger’. So as a basic guide, just remember small products in the south, big heavy industrial steel fabrication in the north!  Read this article for a detailed breakdown of China’s manufacturing geography.

 

5. Timeframes. When you’re importing, assuming you’re selling product to make money, staying in stock is important. As simple as this sounds, I’ve seen many importers screw up year after year due to poor management of their supply chains. Consequently, businesses are out of stock during peak season and are overburdened with unsaleable stock during the offseason. There are various holidays in China that will cause delays, the Chinese New Year and May, October holidays being the main ones! You need to plan in advance to get around this!

 

6. Capital requirements and order volume.  When you’re importing, it’s really a case of Y. Many new importers come to China and want to dip their toe in the water before committing big bucks to a project. This is a flawed strategy. By starting small, you are forced to deal with less professional manufacturers. This makes quality control hard. You are also not a priority for the factory because your order value is small. If a larger customer comes along, expect to be kicked to the back of the line. You also have far less leverage with manufacturer with price negotiations and contract negotiations.

 

7. How much is it going to cost to import? Before you buy anything in China, it’s important to understand your LANDED COST. That is, after you pay the factory in China, what is the unit price per product by the time it arrives at your door. You need to be aware of the sample costs, incoterms, quality control costs, logistics costs, relevant customs duties, and sales taxes (GST, VAT)

 

8. Quality Control. My number one tip to any importer is to do some form of quality control. Importing goods from China without doing quality control is like playing Russian roulette! You might get away with it sometimes, but the risk of failure is high! Why people take these risks I will never know! What you need to remember when it comes to importing from China is this: it’s a one-way street. Meaning, that once your goods have left, they won’t come back (for complex reasons such as the factory won’t accept returned product and government policies to re-import into China make it financially burdensome).

 

9. Simple things are very complex. Inexperienced importers often underestimate the technology involved in manufacturing the simplest of products. Also, don’t assume that your manufacturer understands how your product is used.

 

10. On the ground presence. There’s an old saying in China that the mountains are high and the emperor is far away. Essentially it means that local officials will disregard the wishes of the central government in distant Beijing. The same is true of the relationship between Chinese manufacturers and buyers in the West. Chinese manufacturers will use this tyranny of distance to distort reality and deceive foreign buyers who don’t have a local presence in China. For instance, they can outsource production to alternative cheaper factories. They can raise prices and blame it on local conditions influencing raw material costs. They can blow out lead times and blame it on the weather, power outages etc. If your supply chain is complex, there are countless opportunities for the factory to pull the wool over your eyes. The best way to solve this problem is to have a representative acting on your behalf on the ground in China.

6 Crucial Steps for Sourcing a Good Factory in China

6 Crucial Steps for Sourcing a Good Factory in China

 

In our previous article, we identified the top 3 mistakes to avoid when selecting a manufacturer in China. Mistakes generally occur because importers make decisions based on their emotions and how a salesperson made them ‘feel’, rather than tangible evidence of a factory’s quality, export experience, production capacity, internal quality control systems, documentation etc.

 

In this article, we will go through 6 crucial steps that importers should take to ensure they pick the right supplier. Before we get to that, let’s have quick look at the benefits of careful factory selection:

 

  • Greater control over your supply chain
  • IP protection is made easier
  • Less chance that the factory will collapse from unpaid debt obligations
  • Greater confidence in product quality
  • Legal recourse if a problem arises
  • Less chance of receiving defective product
  • Quicker lead times
  • Supplier reliability
  • Better communication and service

 

Step 1: Know your product – if you don’t know the specifications (input materials, dimensions, components, packaging requirements), the compliance requirements to sell into your country, along with the quality demands of your market, then it is very hard to determine which manufacturer is right for you. Price should never be your only concern!

 

Step 2: Research – trade websites such as Alibaba.com and MadeinChina.com are a great tool for finding factories.  However, many professional manufacturers will not advertise through these portals and are instead found through Google, Baidu (the Chinese equivalent) or through industry-specific trade shows.  Keep up to date as to when and where specific trade shows are held, both in China and in your own country.

 

Step 3: RFQ – Sending out a request for quote is important as it allows you to gather information about a factory and their capabilities, along with their price levels. It’s also an opportunity for yourself to demonstrate that you are a serious buyer that will bring the factory good business over the long term.

 

Step 4: Vetting potential suppliers – ­Aside from the obvious question, can they actually produce my product, below are other points you should consider when verifying potential suppliers:

 

Communication: can you communicate efficiently with the manufacturer? Are they prompt in replying to your calls and email? Are they ok discussing specifications in detail?

 

Location: factory location will have a bearing on lead times. It will also impact prices through labour costs, access to raw materials, rent etc. Avoid companies that don’t provide the location of their production facility as they are probably a trading company or middleman.

 

Size: typically you want to represent 5-30% of the factory’s business during that period. Anything less and you won’t be a priority for the factory and you’ll have limited leverage with price negotiations. It’s also worthwhile investigating the operation size, production capacity, equipment, and staffing.

 

Compliance ability: Most products sold into the US, Europe, Australia etc. will have specific compliance requirements for importation and sales.  Paying for compliance is sometimes necessary, but in many instances, it’s best to work with a supplier that already has your particular compliance tests done. Having tests done through international testing companies such as SGS and Intertek is expensive, especially when you are importing multiple SKUs.

 

What they specialise in producing: China’s manufacturing sector is highly competitive. As such, Chinese factories are forced to specialise in production to maximise efficiency. I’d be wary of purchasing from a manufacturer who claims to manufacture a wide range of products. They are probably a trading company.

 

Production lead times: How important is a quick turnaround from placing a PO with your factory to completion of mass production? There’s often a variance between suppliers and you should understand how/if this will affect your business in terms of cash flow and inventory.

 

What markets they sell into: if your product must comply with strict national standards, it is wise to choose a factory that has experience manufacturing that product for sale in your market.

 

Legitimate operating entity: check the ownership papers of the factory. Also, depending on the value of your order, auditing the factory can be worthwhile.

 

Level of interest: sometimes good factories have no interest in working with you. There’s no point pushing.

 

Step 5: Ask for samples – request that the supplier sends samples of the product. For off-the-shelf products, the samples should closely match the specifications you supplied to the factory.  If the factory can’t match your samples, then unless you are willing to spend time and money on re-tooling and product development, the factory is probably unsuitable.

*it is common to have samples redone and redeveloped in order to reach your desired outcome.  Don’t write-off a factory too quickly if the first sample is not perfect.

 

Step 6: Visit the factory – this is by far the best way to determine if the factory is suitable.  By visiting the factory you can eyeball the equipment, the factory’s capacity, the quality of the factory workers, the sample room and the factor’s internal quality control systems. It also allows you to negotiate pricing directly with the factory boss.

Top 3 Mistakes to Avoid When Selecting a Manufacturer in China

Top 3 Mistakes to Avoid When Selecting a Manufacturer in China

 

For many first time importers, selecting the right supplier is like playing pin the tail on the donkey.  Sometimes they get it right, and the tail lands on the donkey’s backside, but most of the time it ends up on the donkey’s head, on its chest, or it misses the animal completely!

Here are the top 3 mistakes made when selecting a factory.

 

Relying Solely on Alibaba and Made in China When Sourcing

 

While Alibaba and Made In China have thousands of good suppliers, many of the best suppliers in terms of price, quality, export experience and lead times do not advertise their business on these platforms.  A large percentage of the Easy Imex preferred suppliers were found at industry specific trade shows held in China.  The best suppliers often prefer trade-shows because it attracts serious importers who buy in volume and understand international trade.

 

Getting Persuaded by the Salesperson’s Charm and Low Prices 

 

Most importers begin their sourcing exercise by visiting the likes of www.alibaba.com or www.globalsources.com and contact 20 suppliers at random.

They then receive 10 quotes back and carry on talking with these people. One salesman from the factory is really chatty, talks about how the factory produces excellent quality and forms a relationship.

Another factory does the same, but this saleswoman explains a few more details than the other factory and her price is 5% cheaper! Boom, she gets the sale.

The second factory got the sale because the saleswoman was a good talker, built up some dialogue and rapport and because she offered a low ball price.

For all the importer knows, this savvy saleswoman is working out of an apartment block in Shenzhen while claiming to be a manufacturer.  In order to maximise her profits, she is now going to outsource your order to the LOWEST priced factory she can find.  The factory’s prices are low for a reason because the quality and reliability of the factory are poor.

The buyer was coaxed in by salesmanship and potentially overlooked 15 alternative factories, one of which was a highly professional manufacturer with over 20 years’ experience, and another five were highly experienced factories that were willing to negotiate lower on price as the relationship developed.

The mistake the importer made was to select the supplier who 1) was proactive and replied 2) talked a good talk 3) promised the world 4) gave the cheapest prices!

 

Failing to Background Check the Factory 

 

It’s essential that you background check your preferred suppliers to determine if they are trading companies, manufacturers – or even real at all!  Relying on price, salesmanship and product samples opens your business up to huge risks.  A thorough background check should look into:

  • Factory licenses (business license and export license)
  • Factory financials, size, and location
  • Export history
  • Compliance with national standards
  • Factory accreditation (ISO 9001, ISO 14001, SA 8000, OHSAS 18001)
  • Internal quality control systems

It’s common for Chinese factories to close down due to unpaid debt obligations.  We’ve had several clients over the years who contacted Easy Imex because their previous factory literally disappeared.  The factory stopped answering emails, their website went offline and they were unreachable via phone.  Apart from the inconvenience of sourcing a new manufacturer, one particular client also lost a 30% deposit on a very large order before coming to Easy Imex.

In the next post, I will discuss how to select the right manufacturer.  Get this right, and you will greatly improve your odds of running a successful import operation.

 

4 Ways to Protect Your IP When Manufacturing in China

4 Ways to Protect Your IP When Manufacturing in China

 

Easy Imex often handles inquiries about how to protect sensitive IP when manufacturing in China. As this article will point out, there are ways that you can reduce the chance of your product being copied and sold to competitors.  Let’s run through your options.

 

Protecting your IP outside of China

 

The best strategy for IP protection is to prioritize IP registration in your major sales market/s. If you have a large budget and expect global sales, then you should register your patents and trademarks in every market you plan to sell into. This means that if you intend to sell your product in China, you also need to register your IP in China!

However, if you’re a small startup without funding, you’ll need to prioritize. It’s expensive and time-consuming to register IP in every market, so work out where your customers are located and register your patent and trademark in those jurisdictions.

 

Limit IP theft before manufacturing

 

If you have a pioneering product then you should definitely set up a Product Manufacturing Agreement that is legally binding and enforceable through mainland Chinese courts.  As Dan Harris from China Law Blog points out, Chinese judges won’t enforce a foreign judgment.  If you are going to the effort of preparing a contract, agreement, NDA, NNN etc. make sure that it is done correctly by a lawyer who understands how to meet China’s standards.

Product Manufacturing Agreements typically cover the following: quality requirements, lead-times, product and IP ownership, molding/tooling ownership, NNNs (non-compete, non-circumvention, non-disclosure), and penalties clauses.

 

Limit theft during manufacturing

 

If you have a product with multiple components, Mike Bellamy – China Operations Manager at PassageMaker – recommends separating the production of key technologies and having them sent to a trusted third party warehouse for assembly behind closed doors.

This process isolates the final product in a controlled location which limits the chance of someone stealing the idea and manufacturing for sale to your competitors.

 

Make your product copy proof

 

The surefire way to protect your intellectual property is to make it copy proof!  As this excellent QZ article by Josh Horwitz explains, groundbreaking designs are not enough.

“Companies must create products that are impossible to copy exactly from the get-go, by focusing on a special feature they can protect, or creating a coveted brand name consumers will pay more for.”

This can include creating exclusive software to compliment your product, using complex manufacturing processes that prohibit easy copying, and focusing on your brand and after sale service.

On a final note, deciding to manufacture outside of China in the hope of limiting the chance of IP theft is ineffective.  It’s simple for copycats to purchase your product once it hits the market, send it to China for reverse manufacturing, make a few slight changes and then compete directly with you back in your market.

Shipping From China – Sea Freight Vs Air Freight

Shipping From China – Sea Freight Vs Air Freight

 

Deciding on whether to ship via sea or air from China is a crucial decision for importers. We’ve put together this guide to help importers quickly decide the best option based on cost, delivery time and complexity.  The guide covers freight methods, container types and sizing, delivery times and weight calculations.

 

Sea Freight

 

For volumes over 1 cbm and weights over 100kg, delivery via sea is definitely your cheapest option.  The downside of sea freight is slower delivery times.

 

FCL and LCL

 

There are two options for sea freight, full container loads (FCL) and less than container loads (LCL).  FCL containers are filled with your product only. With LCL containers, your product will be consolidated with other importers’ goods from the same port origin and destination.

 

When to Ship FCL?

 

As a general rule of thumb, if your volumes are over 15 cubic meters (cbm), then it makes sense to ship FCL as the freight costs per unit with FCL are lower than with LCL.  If your container load volume is above 10cbm, then consider increasing your order volumes to fill a full container load to reduce freight costs per unit.

 

Container Size/Dimensions

 

There are three sizes of FCL containers: 20 foot, 40 foot and 40 foot high container.  The practical container capacity for each size is 28cbm, 56cbm, and 68cbm respectively.  The weight limit/restriction for each container is a maximum of 28000kg irrespective of container size.

 

Delivery Times

 

Approximate delivery times from a port in China:

Australia ~ 18 days

The United Kingdom ~ 30 days

USA and Canada (West) ~ 20 days

USA and Canada (East) ~ 30 days

South Africa ~ 30 days

 

Air Freight and Courier

 

Shipment via air is best for high value – low volume goods (electronics), and for urgent deliveries (samples). When shipping small volumes (less than 1cbm), delivery via air is faster and in most circumstances more affordable than shipping via sea.

 

What’s the Difference Between Courier and Air Freight?

 

Courier is a ‘door-to-door’ service through companies such as TNT, FedEx, and DHL. These companies will arrange to pick up from the factory and handle customs clearance at both the destination and origin ports, along with payment of duty and taxes.

Air freight is similar to shipping an LCL container in that the service is port to port (airport to airport in this instance).  A forwarding agent will be required to handle customs clearance and to arrange internal delivery (haulage) to your door.

 

How Do I Decide Which is Best?

 

Delivery through a courier is the simplest method as you don’t need a forwarding agent to handle customs clearance, payment of tax and duty, and internal delivery.  Courier services are also typically faster than air freight.

When it comes to pricing, for small chargeable weights (see below for formula of chargeable weights) less than 500kg, a courier is more economical.

It’s important to note that we are talking about ‘chargeable weight’, which is the greater of either the actual weight or the volumetric weight of a shipment.

Think of it this way, a 100kg parcel of linen will have a much larger volume (box size) than a 100kg parcel of batteries.  It will, therefore, take up more space on the plane. Freight services account for this differential through the volumetric weight formula.

 

How Do I Calculate Volumetric Weight?

 

Volumetric weights for cargo in kgs/cbm are calculated as follows: total volume (LxWxH) x 167kg/cbm

Where 167 kg/cbm is the air shipment volumetric weight constant for courier (it’s 200kg/cbm for air freight).

If you have 10 boxes with the dimensions of 1.2m x 0.4m x 0.6m.  The volume is 0.288 cbm x 10 boxes = 2.88 cbm

The volumetric weight (courier) is therefore 2.88 x 167 = 480.96 kg/cbm

*For air freight it’s 2.88 x 200 = 576kg/cbm

 

 How do I Calculate the Chargeable Weight?

 

As mentioned above, the chargeable weight is the greater of either the actual weight or the volumetric weight.

From the calculations above, the volumetric weight is 480.96 kg/cbm.

If each box weighs 40 kg, then the actual weight is 40kg x 10 boxes = 400 kg.

Therefore in this instance, the chargeable weight is the volumetric weight of 480.96 kg/cbm.

*as the weight is above 100kg and the volume is above 100 cbm, the best option in terms of price would be to ship this parcel via sea freight rather than air.

 

Final Notes

 

Shipping and logistics are far less complicated than most new importers imagine. It can provide you with a competitive cost advantage over your competitors if you take the time to understand the processes and plan/forecast order quantities over the medium-long term.

How Understanding China’s Manufacturing Geography Leads to Better Sourcing Results

How Understanding China’s Manufacturing Geography Leads to Better Sourcing Results

 

As an importer it’s vital you’re familiar with China’s manufacturing geography as price levels, quality, logistic costs and manufacturing capabilities all vary region to region. The information that can be gained through a quick survey of manufacturers and their location is significant and should not be ignored.

If 99% of factories making a particular product are concentrated in one region, you can bet there is a competitive advantage to them being there.  Typical regional advantages include access to raw materials, access to component parts, cheap labour, specialised labour or logistics.

That doesn’t necessarily mean that you should dismiss outlier factories.  However, before purchasing from these suppliers you must be diligent to ensure that price advantages arise from genuine competitive advantages (i.e. cheaper production costs), rather than poor quality control systems and bad management.

This article will lay out the differences in China’s regional development and how that may play into your sourcing decisions.

 

The Pearl River Delta (PRD)

 

Located in China’s south, the PRD encompasses the areas of Hong Kong, Guangzhou, and Shenzhen.  This region owes its industrial transformation to the “reform and opening up strategy” of Deng Xiaoping and the creation of “Special Economic Zones”.  The PRD developed rapidly as foreign companies invested heavily into the area to leverage favourable trade and tax policies, access to cheap labour, and proximity to Hong Kong.

The two cities you need to know, Shenzhen and Guangzhou: Shenzhen has grown from a market town of 30 000 people to become an international city of over 10 million people.  Guangzhou, Shenzhen’s older brother to the north, is the main manufacturing hub in the Pearl River Delta.  Guangzhou hosts the bi-annual Canton Trade fair, which attracts thousands of prospective importers every year.

What does the PRD specialize in producing? The PRD is transitioning away from labour-intensive consumer goods and now specialises in high-tech electronic equipment, machinery, and auto parts.  The region does, however, still lead the way in the production of footwear, lighting, and toys.  It’s also a good place for sporting equipment, stationery and art ware, construction materials and furniture (amongst other things).

What are the advantages of sourcing from the PRD? Factories here are experienced with the demands of the international marketplace. The infrastructure in the PRD is world class which makes transporting your goods from here affordable and efficient.  Sourcing component parts, raw materials, packaging materials, production equipment etc. is easy due to the massive concentration of manufacturing within what is about a three-hour driving radius.  It’s by far the best place to manufacture complex or high tech goods.

What are the disadvantages? Due to the reasons mentioned above, prices are generally higher in the PRD.  Manufacturers here are also well aware of the going market rate for their product in your home market.  They will negotiate prices to a point where it’s just enough for you to make a profit in your home market and nothing more.

 

The Yangtze River Delta

 

Surrounding the megalopolis of Shanghai, the Yangtze River Delta (YRD), with its enormous population of 105 million (2014), historically manufactured products for China’s domestic market.

Production in the YRD has traditionally been geared towards high volume, low margin type commoditized goods.   Competition for business here is fierce and this has generally kept prices low.  The downside to this is that tight margins encourage factories to cut corners on quality and cut production costs by using inferior raw inputs. Service in the YRD is also of a lower standard compared with the PRD.

While it can be more difficult sourcing from this region, importers should not be discouraged.  With careful oversight, factories in the YRD can produce excellent quality products and at low prices.  As China’s number 2 export base, the region is moving up the quality scale as firms gain experience selling into international markets.

Cities you should know: The major cities in this region are Suzhou, Ningbo, Shanghai, Nanjing, and Hangzhou.

What does the YRD specialise in producing? Labour intensive consumer goods, textiles, metals, glass products, furniture, motor and bicycles, electronics, household appliances, construction materials, paper products etc.

What are the advantages of sourcing from the YRD? Costs for manufacturing many products are cheaper than the PRD. The YRD has the same advantages as the PRD in terms of excellent infrastructure and access to raw materials.

What are the disadvantages? The region focusses on price over quality.  Many factories in this region are in debt and risk going under.  Copyright infringement is rampant in the region so be cautious if you have IP to protect.

 

The Northeast

 

Historically the Northeast has been China’s heartland for heavy industry due to its abundance of coal and oil.  Industry here is heavily centred on the production of iron, steel, oil, petrochemicals, shipbuilding, machine tools, aviation and automobile manufacturing.

In recent years the government has set about transitioning the region away from heavy industry to become a centre for modern manufacturing. Reform efforts are yet to come to fruition.  Problems of overcapacity, poor investments, and a dominance of state-owned enterprises remain.

Cities you should know: Shenyang, Dalian, Harbin, Changchun, and Anshan.

What does the YRD specialise in producing?  Heavy industry: iron, steel, oil, petrochemicals, shipbuilding, machine tools, aviation and automobile manufacturing.

What are the advantages of sourcing from the Northeast? While it is unlikely that you will be sourcing from this part of China, you can find non-heavy industry factories here that produce at unbeatable prices.

What are the disadvantages? Sourcing from the northeast can be a major challenge.  Production needs careful oversight and you must pay careful attention to project management, IP protection, quality assurance and due diligence.  Logistics from this part of China is also more challenging than from the south.

 

The West

 

The Western regions of China have long been the supplier of cheap labour for the richer coastal regions.  Migrant workers, attracted by higher wages and guaranteed work, flooded the coastal regions and sustained China’s comparative advantage in labour-intensive manufacturing for decades.  Rising rent and labour costs have pushed manufacturing inland, away from the coast, in recent years, which has convinced migrants to return home to the west.  The Government’s “develop the west” initiative – which has pumped massive amounts of money into the west – is also contributing to this shift.

While manufacturing is gaining traction in the West, it is unlikely that you will find yourself sourcing from these areas.  Similar to the northeast, while pricing might be attractive, problems with logistics, IP protection, quality assurance, due diligence and export licensing make exporting from the west a challenge.

Cities you should know: Chongqing and Chengdu.

What does the West specialise in producing?  The West is China’s manufacturing hub for motor vehicles.  It is also a hotspot for computer parts/components.

What are the advantages of sourcing from the Northeast?  Significant savings can be made on production costs due to lower prices for labour and land. For computer components, heavy machinery and automobiles it may be the cheapest place in China to source from.

What are the disadvantages?  Being landlocked, logistics from the region is difficult, time-consuming and expensive.  Goods must travel by road, rail or most commonly via river all the way up to a port in the Yangtze River Delta (Shanghai) or the Pearl River Delta (Shenzhen).

As this article has shown, you can reveal significant information about your supplier by knowing their location.  Will lead times be slower? Is the price advantage due to nefarious reasons? How long has this factory been in operation? Do they have an export licence?  By looking first at location you will naturally provoke important questions that will expose the legitimacy of your manufacturing prospects.