Sourcing products from China can be hectic and confusing. But depending on the nature and scale of your business on Amazon, sourcing products from Chinese manufacturers can also be extremely profitable.
If you don’t know where to start, this thorough guide will give you the best-kept secrets of the most successful Amazon FBA sellers.
- Research Winning Products: Use tools like Jungle Scout to identify high-demand, low-competition products for your Amazon business. Knowing what to sell is the first crucial step in successful sourcing from China.
- Quote Details: When reaching out to suppliers, ensure quotes include essential details like Minimum Order Quantity (MOQ), shipping terms (EXW or FOB), base cost, total cost, shipping per unit, tariff per unit, and more. These details are critical for cost estimation.
- Quality Is Crucial: Don’t compromise on product quality, as selling poor-quality items can result in negative reviews and potential bans on Amazon. Quality is directly related to the cost you pay per unit.
- Clear Communication: Overcome language barriers with clear and specific communication. Use straightforward English, small sentences, simple words, and provide product images for reference to ensure your requirements are well-understood by suppliers.
- Find Reliable Suppliers: Look for Chinese manufacturers rather than resellers or traders. Consider online platforms like Alibaba, Global Sources, and Made in China, or explore industry networks, trade fairs, and sourcing agents to connect with reliable suppliers.
- Verify Suppliers: It’s essential to verify the credentials of your suppliers. Visit factories if possible, or hire a sourcing agent to assist with supplier identification and production process scrutiny. Check for registration records, business licenses, VAT invoices, and audited accounts.
- Sample Inspection: Always request product samples for quality inspection before finalizing an order. This helps ensure the products meet your standards and match the initial samples.
- Payment Methods: Consider payment methods like Telegraphic Transfer (T/T) or Letter of Credit (L/C) for safe transactions when sourcing from China. Each method has its advantages and should be chosen based on your specific needs and preferences.
- Seek Expert Guidance: If you’re new to sourcing from China, consider seeking the expertise of a China sourcer, as they can help you navigate the complexities of international business, language barriers, and cultural differences.
- Build Strong Supplier Relationships: Developing strong relationships with your suppliers is crucial for long-term success in sourcing products from China. Effective negotiation tactics and understanding cultural nuances can help you maximize the benefits of Chinese manufacturing capabilities.
Reaching out to Chinese suppliers without preparation is foolish. Hasty decisions will lead to losses. Here is what you need to consider:
The first step is researching and finding the winning products you want to sell. Winning products are those that have high demand and low competition.
Use a professional tool like Jungle Scout to find such products. Reaching out to suppliers won’t be as fruitful without knowing what you want to sell.
Once you find the winning products, take your time to get quotes from multiple potential suppliers to get an accurate idea of the costs you will incur for sourcing the products. This will help you calculate total costs and estimate profits.
Quote Details You Need To Know
Here are a few things that a quote must include:
MOQ: Minimum Order Quantity is the minimum number of units you must order.
EXW or FOB: In layman’s terms, EXW (Ex Works) means that the supplier will only manufacture the product and make it available at a certain agreed-upon point. From that point forward, you will be responsible for collecting, loading, and transporting.
FOB (Free on Board) means the supplier will be responsible for loading the package on your desired ship.
Usually, EXW is cheaper than FOB because the responsibility, costs, and risks of shipping the products fall on the buyer. Most products will have FOB, and you don’t need to deal with customs clearance of the origin country (in this case, China).
Base Cost & Total Cost: Base Cost is the product’s cost before upgrades, duties, and shipping. Total Cost is the product’s costs after upgrades but excludes shipping and duties. Both Base and Total Costs are always in RMB or Renminbi (Chinese Yuan).
Shipping Per Unit: This is the average shipping cost per unit in RMB. This cost depends on the size of the product and the container shipping cost.
Tariff Per Unit: Estimated duty (in RMB) per unit based on Tariff Percent and Tariff Code.
Total CBM and Cost Per CBM: CBM or Cubic Meter is the freight volume of the shipment and is calculated by multiplying the length, height, and width of the shipment. You will get the cost per CBM in RMB.
Container Shipping Cost: The current shipping cost (in RMB) for a 40ft High Cube Container (HC Container).
Estimated Landed Cost in USD: This is the estimated cost of the product in American Dollars including exchange rate, duties, shipping, and upgrades. This data will help you in calculating FBA fees.
Estimated Item Weight in Pounds: This is the estimated weight per unit in pounds and helps calculate the FBA fees.
Apart from the costs and order quantity, the manufacturer must also provide the following additional information:
- FOB Port (in most cases, it is Shanghai).
- Tariff Code.
- Tariff Percent.
- Lead Time (time taken to manufacture the product).
- Carton Info (number of cartons and length, breadth, & width of a single carton).
- Extras (if the seller provides anything extra for free or at a small cost per unit).
Since the quotes will mostly be in RMB, you must accurately calculate the dollar value using the exchange rate using a site like XE.com.
You can also ask for product specifications like weight, length, height, width, etc., along with the quotation.
Best Practice: Ask for all possible information that directly and indirectly impacts the final per-unit cost of the product you want to source.
Amazon will ban you from selling if you sell poor quality products on Amazon and receive too many bad reviews. Poor-quality products are cheaper but will cost you dearly in the long run.
High-quality products that use quality raw materials and undergo thorough quality-control inspections will be costlier. Quality is directly proportional to the cost you pay per unit. The higher the quality more expensive the product.
You’ll still need a reasonable price to ensure a decent profit margin. That’s why it’s best to always contact multiple suppliers to receive the most competitive quote.
There will be a language barrier when sourcing from China. So it’s important to ensure you use clear communication when sending RFQ’s (Request for Quotation).
You don’t need to display your language skills. Use straightforward English that everyone can understand.
I recommend writing your requirements using small sentences, simple words, ordered/unordered lists, etc.
Be really specific with what you need and attach photos of the product you want to source. Even if the suppliers have trouble understanding what you write, they can use the product images to understand your requirements.
Finding reliable Chinese manufacturers is essential for the sourcing process. There are a number of different places to start looking for suppliers.
A quick online search can help you identify Chinese suppliers. However, your target should be to deal directly with manufacturers and avoid resellers and traders.
If you go with a trading company, they will add another 10 or 20% commission on top for finding you a manufacturer.
These are some popular online sourcing platforms that you can use;
Alibaba is one of the largest B2B marketplaces where you can find Chinese sellers. Unfortunately, one of the biggest problems with Alibaba is that you can find both good and bad suppliers. It is your job to find the best ones and avoid those with a poor track record.
Remember that if a supplier is listed as a ‘Gold Supplier,’ it doesn’t mean the supplier is trustworthy. Many suppliers pay a fee to Alibaba for a premium listing.
Hong Kong-based Global Sources is another online sourcing site. The company also organizes offline trade shows.
Global Sources is best if you are sourcing products for Travel, Gifts, Smart Home Appliances, Home and Kitchen, Fashion and Apparel, and Electronics categories.
Though there are fewer suppliers on the Global Sources platform, they vetted more thoroughly, and many of them have physical stores at trade shows that Global Sources organizes.
Made in China is another online platform to connect with Chinese suppliers. Though much smaller than Alibaba, Made in China has a higher percentage of reliable suppliers. As before, it will be your job to weed out the bad suppliers.
Another method for China sourcing is to connect with trade bodies and talk to people already doing business with Chinese companies. They can help you find reliable Chinese manufacturers.
Physically attending trade fairs is another option. One such fair is the Canton Fair held every year in Spring and Autumn in Guangdong, China. There are three phases each in Spring and Autumn, and each phase lasts for 5 days.
The fair allows both online and offline attendance and requires registration. More than 25,000 Chinese companies participate in Canton Fair each year.
If you don’t want to spend time finding factories, you can consider hiring a sourcing agent. There are many sourcing service providers in China, who can help you find and evaluate suppliers, help with the negotiation process, and help you develop a procurement strategy.
A sourcing agent can also help you with things like quality control, shipment, tariff rules, etc. However, they will charge a service fee.
Dealing with a sourcing agent is beneficial if you don’t have great organizational skills and want to avoid costly mistakes.
Finding suitable potential suppliers is relatively easy. The difficult part is to verify suppliers. You should aim for manufacturers and avoid middlemen.
Even after you identify manufacturers, you need to know whether they have the technical expertise to manufacture the products. Also, they must have the production capacity to deliver the volume you need.
The best thing to do when sourcing products from China is to actually go there. Visit the factories, and inspect their manufacturing process, or if you know someone in China, you can also ask that person to do it for you.
You can hire a sourcing agent to assist with supplier identification and scrutinize the production process.
You should also dig in and see a factory’s registration records and business license to ensure that you are dealing with a legitimate company. Also, ask for VAT invoices and audited accounts.
Reject any company that refuses to provide credentials. Once you have the details, you can approach the local administrative government or the Bureau of Industry Commerce to verify.
If possible, talk to the supplier’s past clients to find out how reliable they are and what their background is like.
After you shortlist a few sourcing companies, give your order requirements in writing.
If you cannot visit factories to inspect the quality control process they use, you must ask for samples from all shortlisted suppliers for quality inspections.
When sourcing products from China, ensure that you are very specific about your needs.
Provide all details like:
- Total units you need.
- Weight of each unit.
- Dimensions of each unit, etc.
Attach images for reference so that they manufacture exactly what you need.
Once you identify a supplier with the best price and quality, finalize a deal and place an order. But before the supplier ships the entire consignment, ask for samples from the newly manufactured lot and compare them with the initial samples.
You must decline to accept any shipment with poor quality. Manufacturers may produce poor-quality products after order finalization to reduce manufacturing costs and maximize profits.
It is best if you can assign someone to manually inspect each item or at least a random sample at the origin factory before shipment.
There are multiple payment options available for China sourcing. Buyers commonly use services like PayPal or Payoneer for sample orders.
However, the most widely accepted payment method when sourcing products from China, is Telegraphic Transfer (T/T). It is a standard bank transaction in which you deposit funds to the supplier’s bank account using your Internet bank or local bank.
Telegraphic Transfer is accepted by every Chinese manufacturer. However, it has very little protection. That doesn’t mean that it is unacceptable or always unsafe. In fact, most buyers use this method.
The payment terms are simple for a Telegraphic Transfer. Here are the steps involved:
- Sign and stamp the Sales Contract and Proforma Invoice.
- Make a 30% Deposit Payment. It is the advance you pay.
- The production process starts.
- The supplier completes the production.
- Quality inspection and compliance testing take place.
- You approve the batch.
- The product is delivered to the port of loading.
- A Bill of Lading is provided by the carrier to the supplier/shipper.
- You pay the remaining 70% balance to the supplier.
- Supplier forwards the original Bill of Lading and other freight documents to you so that you can collect the cargo at the destination port.
While Telegraphic Transfer is usually safe, scammers can replace the bank details in the Proforma Invoice. This scam can be done by a corrupt employee, a hacker hijacking the emails, etc. So be careful and double check details with your direct contact.
Letter of Credit (L/C)
You can avoid such mishaps when sourcing products from China, with the Letter of Credit payment method in which the banking system gets involved. A Letter of Credit lays down the conditions under which a payment will be released by the bank.
The process is quite simple and involves the following steps:
- The supplier and you sign a Sale Agreement stating the conditions to be fulfilled before releasing payment.
- You approach your bank to get a Letter of Credit (L/C).
- Your local bank contacts the supplier’s bank in China and presents the L/C.
- The supplier’s bank contacts the supplier and presents the L/C.
- The supplier starts production.
- The supplier completes the production.
- Quality and compliance testing takes place.
- The product is loaded and shipped.
- The supplier presents the documents (including the Bill of Lading) to their local bank or negotiating bank as proof of condition fulfillment. The supplier’s local bank and the negotiating bank can be the same.
- The negotiating bank checks documents and releases payments to the supplier.
- The negotiating bank sends a payment demand to your local bank along with the documents.
- Your bank forwards the documents to you.
- You approve the documents and pay your local bank.
- Your local bank sends the payment to the negotiating bank.
There are other payment methods like Supplier Credit, International Trade Financing Companies, etc. Your best bet is to chat all options through with your supplier and pick the one that is best for you both.
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Pros and Cons of Sourcing Products From China
- Best Price: China is known for offering competitive prices, making it an ideal choice for Amazon sellers looking to maximize their profit margins.
- Best Products to Source from China: China boasts a vast array of products, making it possible for Amazon sellers to find a wide variety of high-quality items to meet the diverse needs of their customers.
- Business Ideas: Sourcing from China opens up opportunities for Amazon sellers to explore new business ideas, diversify product offerings, and tap into trending niches.
- Business Partner: Chinese manufacturers can serve as reliable business partners, providing a consistent supply of products and helping Amazon sellers build long-term relationships.
- Balance Between Price: By negotiating with Chinese suppliers, Amazon sellers can strike a balance between getting the best price for their products and maintaining quality standards.
- Be Cautious: While there are reliable manufacturers in China, it’s crucial to be cautious and thoroughly vet potential suppliers to avoid scams or poor-quality products.
- China Sourcing Agent Fees: Hiring a China sourcing agent can be beneficial, but it comes with fees that need to be factored into your overall sourcing costs.
- China Sourcing Direct: Dealing directly with Chinese manufacturers is advantageous but also means handling various aspects of the process, including quality control, logistics, and negotiations.
- Business License: Amazon sellers need to ensure they have the necessary licenses and permits for their products, as compliance with regulations is crucial for selling on the platform.
Sourcing products from China offers Amazon sellers the potential for competitive prices, a wide range of products, and new business opportunities. However, it’s essential to exercise caution, consider the fees associated with sourcing agents, and navigate the complexities of direct sourcing. Staying informed and building strong relationships with Chinese manufacturers can lead to successful Amazon FBA businesses.
The Secrets to Sourcing Products From China – Summary
I hope this comprehensive guide has given you some tips for successfully navigating the complex world of product sourcing from China.
By understanding cultural nuances, building strong supplier relationships, and employing effective negotiation tactics, you can unlock the full potential of China’s manufacturing capabilities.
With the right approach, sourcing products from China can lead to long-term success and a competitive edge in today’s global market.
Sourcing Products From China – FAQ
The Supplier Credit method is not widespread in the Chinese market. In Supplier Credit, a supplier allows paying 1-3 months later. However, because Chinese suppliers cannot force a foreign buyer to pay, there is always a risk of the buyer not paying at all. They don’t want to take that risk.
Telegraphic Transfer and Letter of Credit are the two standard methods of payment for sourcing products from China.
However, there are other methods like Supplier Credit (not very widespread), and International Trade Financing Companies (like Velotrade, Global Trade Funding, etc.) that pay the suppliers first and then receive payments from the buyer at a later date against fixed fees and interest rates.
You can also use PayPal and Payoneer. PayPal is usually suitable for sample orders because of the high transaction fees. Using Payoneer is cheaper because of lower transaction fees.
How can I successfully source products from China, and what role does a China sourcer play?
If you’re diving into the world of e-commerce or retail, you’ve likely considered the question, “How to source products from China?” Sourcing from China can be a cost-effective strategy, but it requires careful planning and execution.
Typically, businesses turn to a China sourcer—a specialist who helps find manufacturers, negotiate terms, and handle logistics. A reliable China sourcer can be invaluable, especially if you’re new to international business or dealing with language and cultural barriers.
What steps should I take for effective China sourcing?
For those wondering how to source from China, there’s no one-size-fits-all formula, but some steps are generally advisable. First, research and identify potential suppliers, considering factors like quality, reputation, and reliability.
This is where a China sourcer can provide expert assistance. Next, request samples to validate the quality of the goods. Finally, negotiate the terms, including price, payment methods, and shipping details. This is another phase where having a skilled China sourcer can make a significant difference.
The best option is to issue a Letter of Credit instead of paying directly. With a Letter of Credit, a manufacturer will not get any payment until they fulfill certain agreed-upon conditions. Apart from that, you must check the history and reliability of a supplier before signing a contract.
How do I get a supplier from China?
To find a reliable supplier from China, you can use online platforms like Alibaba, Global Sources, or Made in China. Alternatively, consider attending trade fairs like the Canton Fair or hire a China sourcing agent to help you identify and evaluate potential suppliers.
How to source cheap products from China?
To source affordable products from China, always negotiate with suppliers to strike the right balance between price and quality. Carefully research and choose the best products to source from China, ensuring they meet your budget constraints while maintaining quality standards.
What are the benefits of sourcing products from China?
Sourcing products from China offers various advantages, including access to the best price for a wide range of products, the opportunity to explore new business ideas, build strong business partnerships, and maintain a competitive edge in the market.
How much does China sourcing cost?
The cost of China sourcing can vary based on factors such as the products you’re sourcing, shipping costs, tariffs, and the fees associated with China sourcing agents. It’s essential to be cautious, consider all costs, and negotiate effectively to optimize your sourcing expenses.