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.
Prepare Before Reaching Out When Sourcing Products From China
Reaching out to Chinese suppliers without preparation is foolish. Hasty decisions will lead to losses. Here is what you need to consider:
Be Clear About Sourcing
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.
Quality Is Directly Proportional to Cost
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.
Find the Right Supplier When Sourcing Products From China
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.
2. Global Sources
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.
3. Made in China
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.
Verify Supplier Credentials
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.
Ask for Samples When Sourcing Products From China
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.
Give & Get Everything In Writing
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.
Sourcing Products From China – Payment Terms
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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Sourcing Products From China – FAQ
Can I expect to get a credit from my supplier?
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.
What are the standard methods of payment when sourcing products from China?
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 trust the manufacturer will deliver?
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.
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.