China is recognized as the world’s factory. Products like household gadgets, appliances, electronic products, household utensils, tools, promotion items, etc. Most of them are produced in China.
However, it is difficult for start-up businesses to source from China because of the language barrier, cultural differences, legal difficulties, long-distance and business risks.
In this article, we’ll explain how you can source consumer goods from China. You need to notice the following tips.
1. Market research
It is imperative to know what the market wants. You may have good knowledge in a particular category of product, its manufacturing and retailing, so it’s better to find a supplier for that product in China. For example, being an electronic engineer, you know how to manage supply chain and retail electronic products. Thus, it is wise to get into the retailing business of electronic items.
Check the online e-commerce platform to understand what products are highly in demand, then check what is majorly searched online by consumers.
If you choose a popular category, it means you’re entering into a tough competition, thus your product should be competitive in pricing and better be a level up from the main competitors.
2. Selecting a supplier
Generally, people search B2B platforms to find an appropriate chain of sourcing. Searching from these platforms is easy, but we should also remember that many of the searches in the list can be retailers and not manufacturers. It may be convenient to contact retailers, but if you are buying customized products or you want to have better control in production, then it is better to contact the manufacturers directly.
It is good to find suppliers from China who make such products and have experience of selling in western countries. Novice businesses should not experiment with new suppliers who have little knowledge of import and export.
After shortlisting suppliers, verifying their credentials is also important. You need to evaluate:
- They are the manufacturer and not the middlemen.
- They have the technical expertise and capability to deliver what they commit.
To identify a supplier and its potential, you can ask for a few samples. However, it may be possible that they send samples made by other manufacturers, so the best way will be to hire a Chinese auditor to visit the factory, and verify full details.
3. Quality and cost balance
Since you’re getting into sourcing in China, you must have done your homework of finding the cost of raw materials and market prices. Therefore, stick to the average market price with the supplier, also don’t go with a supplier who provides a price significantly below this.
While negotiating with Chinese suppliers, always remember that factories have a base price to manufacture a product. If you want to use high-quality materials, then don’t ask for unreasonable prices.
Remember that, if suppliers go below the base price to attract buyers, they can compromise on other factors. They could reduce the quality of material; they can also bypass the quality check process. So do your research well and stick to the normal base price of the product.
4. Avoiding communication gap
Often people face problems of language barrier and cultural differences while searching for suppliers in China. Most of owners of small businesses do not understand English and may have misunderstanding due to communication gap. Often what people hear is not exactly what they meant.
This communication problem can create hassle among buyers and sellers. Although we know it is not deliberate, but if that can be avoided, then a lot of mistakes and delays can be eliminated. Communication gap can affect product specifications, quality requirements, type of packaging, packaging, logistics, and so on.
5. Quality check
Even if you have good relationship with the manufacturer, quality control inspection is important. Professional and personal relation can be set aside. A quality check is necessary to assure that the product meets the standards. You may want to ignore the quality inspection once, but this can lead to costly mistakes in the future. If there are problems caught later, then it can lead to more costs.
6. Quick delivery
The Chinese market is supplying all types of consumer goods to meet the demands of western countries, because of the competition, the factories have to produce the products in a super-efficient way, as quick delivery is fundamental in the industry. Always work with suppliers who specialize in your products and can fulfil your order on time.
You should provide your supplier with a firm deadline, so they can work hard to ensure that products are completed at the factory before that date to allow time for inspecting the quality. The most challenging part of sourcing from China is the delivery of quality products on time.
7. Payment terms
A letter of credit is the common financing tool that is used to purchase items from suppliers overseas. It is a document provided by the financial institution that agrees to be the arbitrator between purchaser and seller. It offers access to a credit line, which gives the supplier peace of mind that their payment will be done. A letter of credit contains information about the transaction amount, and details of all goods supplied.
Most suppliers ask for a letter of credit for assurance. It is a good way of building trust in a business. When a supplier demands a letter, you should ensure that there is not a single error in the document, which can result in delay or extra cost.
Apart from letter of credit, bank transfers are also popular payment terms, a term of 30% deposit plus 70% against bill of lading is common in China sourcing practices.
8. Some tips for sourcing consumer goods in China
- Visit the supplier’s factory to gain information and to audit their manufacturing base. This way, you will be sure that you’re dealing with a manufacturer and not a trader.
- Even though we have advance digitalization where video calls and chat forums can solve long-distance problems, but Chinese culture believes in face-to-face interaction. This is the best way of doing healthy business with the country.
- Chinese manufacturers have the capability of working on small quantities so that they can deliver quality products in a set time. Thus, set a realistic estimate for a smooth business.
- Do proper research on the cost of raw materials to prepare a decent base price for the product. This will help in negotiating better with the supplier.
- Don’t provide a delivery time that keeps you nervous whenever the shipment is delayed for a day or two. Rather, keep a buffer of 2 weeks because an overseas delivery can be affected by unexpected events in the country or unavailability of raw material.
- Most importantly, create a good and meaningful contract that mentions all conditions clearly to avoid any disputes at the last minute.
- Any business is done with mutual consent. It helps in long term benefits. Often businesses seek the help of a sourcing agent to avoid any long-distance miscommunication. If you’re a novice, then first do your math, and then enter the market.
China continues to be the preferred location for large-scale consumer goods manufacturing. China's industry assets include strong manufacturing facilities and supply chain infrastructure, which allows it to fulfil big volume orders with short lead times.
China's production capability is more than capable to develop consumer goods from bespoke design to certain production engineering because of the large density of suppliers, which range from automated high-tech factories to small-to-medium sized workshops.