China is one of the best manufacturers in the world. Many businesses turn to this country for product sourcing due to its low labour costs. If you are thinking about direct sourcing from China, then there are certain factors that you might want to take into consideration before choosing the right manufacturers.
Reasons to opt for direct sourcing
If this is your first time in the import business, then you might have a lot of questions about direct sourcing and its aspects. The first and very important question would be how to find a manufacturer in China.
Here the internet proves to be a useful tool in offering you numerous options when it comes to finding Chinese suppliers for your products. Many websites such as Alibaba share genuine suppliers after verifying their credentials. All you need to do is check whether these suppliers fit your bill and take it forward from there.
Now before you finalize your supplier, you need to do your homework. You need to have a detailed plan such as the products you wish to source, the shipment and logistics, the costs involved in the process, demand and supply for the product, your target audience, and the import rights. Based on all these details, you need to come up with the budget and search the suppliers accordingly.
When it comes to planning the perfect strategy, you need to search for suppliers that specialize in your products. You can take the help of Amazon best-sellers to check out the popular categories or choose popular keywords or Google Ads to find products with high volumes.
There are many market intelligence tools out that can help you get the sales estimates and help you conclude how much profit you can make monthly. All such information can then be used to determine the MOQ required to order from your Chinese supplier.
When you finalize the supplier, you need to draw up a contract and state all your terms and conditions on them. You can negotiate with them on the MOQ and other essential details. They need to share the reports and inventory details with you.
Many suppliers also help with the package sourcing services as well. All these also need to be included in the contract. You might also need to check the lead time when you think about direct sourcing from China. International shipments require a minimum of two weeks to a month depending on the delivery location.
Many Chinese manufacturers are hesitant to work with foreigners as they don’t trust foreigners or are not familiar with the English language. Here is where you can hire sourcing agent in China to make the job easier for you.
A sourcing agent will:
They can help you find the best Chinese manufacturers for your products
Sourcing agents are fluent in Mandarin and can easily act as a mediator between you and the suppliers
They are also well-versed with transacting and can help you get the best quotes for your orders
They can even act as local representatives and offer inspection services in China and communicate concerns if any
They will also conduct factory audits and share reports with you
Researching is the key to finding the right sourcing agent for your business. The below pointers might prove to be useful in your quest for an agent:
Where is the sourcing agent located?
Do they have experience in your business?
How is their language proficiency?
How are their negotiation skills?
Ask for documentation such as Bill of Lading, Certificate of Origin, and other information
Check for their licenses and ask for references
What measures do they have in place for quality checks?
Another important factor that you might want to take into consideration is how you are going to make the payments to your supplier and how would you handle the issues that might arise during the production process. You cannot assume that once you finalize your Chinese supplier, it will be a smooth process.
Mistakes are bound to happen, and you need to be well prepared if any issues arise. Waiting till the last minute for problems to arise can be detrimental to your business.
The most common form of payment for international trade is the Letter of Credit (LC). This is a financial contract between you, your bank, and the Chinese supplier that the payment will be done once the conditions in the LC are met.
This proves to be a wonderful financial tool wherein it minimizes risks in international trade wherein both parties do not know each other. LC can be of four types:
Revocable LC gives an upper edge to the issuer to amend or modify the LC at any time without the consent of the beneficiary.
Irrevocable LC ensures that there is no amendment or cancellation of the LC without the consent of all parties that are involved.
Another payment method is revolving letters that can be used for multiple purposes. This payment method is good for businesses and suppliers who will be working continuously.
Last, but not least, standby LC refers to wherein one party will not be compensated if they can prove that they have not received the payment.
Many suppliers might even agree to PO or Purchase Order Financing which is one of the quickest ways for businesses to get funds for their orders. This type of financing is only offered for a short period.
Another factor that you might want to consider about direct sourcing from China is what happens if the supplier increases the prices or if the order does not meet your expectations. Yes, this is a common scenario many businesses face.
Price increases can happen due to a lot of reasons. Small increases are understandable. In case of huge price increases, you need to be prepared. Some of the ways how you can control these are:
Specify a validity date in your contract to 90 or 180 days
Build a rapport with your supplier promising them re-orders if they do not increase the prices
Ensure to mention a discount percentage on bulk orders
If the supplier does not budge, check the price of the raw materials to justify their price increase
Now, addressing the next question which is: What if the supplier messes up with your order? In such situations, you can discuss the issue with the supplier and conclude. If the supplier refuses to acknowledge their mistake, you can either file a lawsuit or opt for arbitration.
To avoid such hassles, it is always better to have a clear and transparent contract made. Ensure that you add all the clauses and have it go through a lawyer. Sourcing agents can also help in minimizing such risks as they will have experience in how to handle such situations.
Common mistakes to avoid while searching for suppliers
As a beginner, searching for the right supplier can be a daunting task. The general rule of thumb that applies here is to understand the common mistakes made by other businesses and not have them repeated.
Some common mistakes while searching for suppliers include:
Not verifying the credentials of the suppliers
Asking for references
Not asking for product samples
Not adding transporting costs to your quote
Avoiding factory visits
Many times, some businesses might choose to think about direct sourcing from China based on recommendations of their loved ones. They will fail to verify the credentials, and this can prove to be very costly for their business.
When you search for a supplier, ensure that you enquire about their experience. Some questions that you must ask include:
Are they specialized in your product segment?
If they have a valid business license?
Are they ISO 9001 certified?
What is the MOQ set by them for products?
Do they have the necessary equipment or technology to manufacture your products?
All the above questions give you a brief idea of how well-versed the manufacturer is on your products.
Ensure to ask for references or request samples of their work. A credible supplier will not shy away from showcasing their work. Avoid suppliers who oversell their business. When placing your first order with the supplier, ensure that you ask for a sample of your product. This will help you judge whether the manufactured product is as per your expectations or not.
When you prepare the supplier’s quote, ensure that you talk about logistics and transportation and add them to the quote. You do not want sudden surprises when your order is getting dispatched. Apart from this, your quote should have all the details included right from the raw materials used to any additional charges that might be applicable.
Next, if you have finalized on certain suppliers, ensure you make time and visit their factory premises. This can tell you a lot about the environment where your products will get manufactured and the different types of equipment and technology they use.
If you are considering direct sourcing from China, then you need to find the best supplier for your products. Customers always want products that can be delivered promptly without compromising on quality.