5 common mistakes to avoid when importing from China
1. Rushing a supplier
If you’re new to importing, it can be tempting to try to rush the purchasing process in your eagerness to start selling. But as the saying goes, act in haste, repent at leisure! Impatience can mean failure to do thorough research and lead to making a poor choice of supplier, perhaps because they offered you a quicker delivery time or were simply the first to get back to you with an acceptable deal.
While the exuberance is totally understandable as all new entrepreneurs are excited about their venture & want things to move fast, this can often be a recipe for disaster.If a supplier agrees to a rapid turnaround time, ask yourself what corners they may cut to achieve that. Or perhaps they’re just not that busy with orders – for good reason!
Insisting to a supplier that your order is urgent could also remove the incentive for them to offer you the very best price to win your business. Identifying a good product and supplier, and ensuring you’ve researched the import process and appropriately dealt with logistical requirements, takes time, so don’t cut corners to make – or lose – a quick buck!
2. Overestimating the Profit Margin on a Product
This is a very common problem when first starting out importing and normally happens due to the nature of international trade. Even in a simple international trade transaction there are several parties involved which can make it difficult to calculate the landed cost of a product and hence the expected profit.
On top of that, what I often see in the consultating work I do with a lot of e-commerce clients is that when you factor in other costs for e-commerce platforms, say Amazon seller fees, domestic courier costs, marketing costs, professional product photography costs, etc. the profit margins don’t always look viable & there might be better opportunities in a different product.
New importers often base their costing on the obvious costs such as product cost, logistics, and inspection. However, there are often other not so obvious costs that influence profit margins for a product.
These can be for unexpected contingencies such as cost of random customs inspections at port of loading or port of destination or planned contingencies such as cost of expected returns.
3. Ordering too small
Understanding how ‘economies of scale’ work is vital when you’re first starting to import from China. The easy rule of thumb is that the bigger the order, the better the deal. For example, the quantity of goods you plan to order can affect the quote and service level given to you by the supplier. You will also find that your shipping quantity will affect your logistics cost per unit.
Of course, ordering more than you can realistically use or sell is a complete waste of money, so it can be a tricky balance to strike. Working out your optimum quantity before you order will help to maximise your profit margins.
4. Expecting too much
When importing from China, there may be a difference in the quality of the product provided and what you were expecting to receive. What a factory in China deems acceptable may not match what you’re offering your customers.
You can try to minimise this issue by being very clear from the beginning on your expectations and requirements. You should also remember points one and two when choosing your supplier and product. Another shrewd move is to build a quality control contingency into your profit margin calculations, so that a few not quite perfect products in the batch are already planned and accounted for.
It’s also worth remembering that even if you can’t visit a supplier’s factory yourself, you can arrange for a company to do this on your behalf. John Good, for example, offers a wide range of different types of Quality Control Inspections and Audits covering all stages of production and despatch. From a Factory Audit that provides a full overview of a Seller and their suitability to produce your product to quality control Inspections and laboratory testing.
There’s much to consider when you first start importing from China. On top of building and running a fledgeling business, importing from abroad can be a daunting prospect. Choose to use the freight forwarding services of a shipping company such as John Good, and you’ll have one less part of the importing process to worry about.
5. Paying before verifying the supplier
Paying before actually seeing what the supplier is capable of producing tops the list of China sourcing mistakes. You might search popular websites like Alibaba or Made-in-China for neon signs. But just because you come across a supplier that claims they can make neon signs at the quality and quantity you want doesn’t necessarily mean they can. It’s wise to rely on more than just the word of the salesperson you’re dealing with.
Requesting and approving a product sample
One of the best ways you can verify the product before you place an order is to request a product sample. A product sample is sometimes called a "golden sample" because it represents the best product a supplier is capable of delivering. Let’s say you ask for a sample neon sign, for example, and the supplier sends you one that’s defective or substandard. Now you can nip the problem in the bud by having the supplier send you a revised sample or by finding another supplier entirely.
If you don’t request a sample, you’re working under the assumption that the supplier knows exactly what you want. This is risky because it denies you the opportunity to clarify any expectations regarding the product prior to mass production. And it’s much less expensive to find and fix issues before they affect a larger quantity of your order.
Receiving and approving a product sample does have some limitations. Perhaps the most obvious one is the difficulty of verifying where the sample actually came from. How can you be sure that the supplier that sent you the sample didn’t just buy it from another supplier that won’t be your manufacturer?
The Types Of Suppliers You Will Encounter On Your Importing Journey
There are several types of Chinese suppliers that you’ll come across as you do your research.
1) The first type of supplier is a factory.
A real factory owns their own facility and physically creates every item that they sell. The pricing that they offer will generally be the lowest that you can find albeit at much higher minimum order quantities.
Factories in China typically have very narrow specialties and you’ll rarely find a factory that makes a large variety of goods. In fact, if a company claims to be a factory but sells hundreds of disparate items, they probably aren’t a real factory.
2) The second type of supplier is a sourcing company.
A sourcing company is essentially a middle man that acts as a liaison between you and a factory. As a result, they will add a markup to the overall cost of your products.
Now you might think that working with a trading company is a bad idea but there are several advantages to doing so.
For one thing, sourcing company often have the ability to negotiate lower prices with factories than you can because they have special relationships already in place. As a result, the price that a sourcing company quotes you could be pretty close or on par with a factory.
The second advantage is that you can often purchase in lower quantities. Whereas a factory might demand that you purchase 5000 units, a sourcing company might have an minimum order quantity of only 500 units.
The final advantage is that sourcing company are often more experienced in working with Western company and they can provide additional services. For example, they might offer better packaging options or offer a first level of quality control to screen your products.
3) The last type of supplier is a pure middleman.
A pure middleman is just an individual or a small group of individuals who essentially go shopping on your behalf and take a cut of your profits.
The main distinction between a pure middleman vs a trading company is that a sourcing company is a real business and not a fly by night operation. In general, you should avoid pure middlemen at all costs.
Conclusion
The U.S. Department of Commerce has list of recommendations for risk management in China. These tips, along with those China sourcing mistakes covered here, will help you if determine if you’re dealing with a Chinese supplier you can trust or on a one-way path to financial blunder.
It’s easy to trust your suppliers to do the right thing. But you could pay dearly for blind trust. Knowing what pitfalls others have fallen into can help you avoid similar peril. I’ll leave you with the words of Eleanor Roosevelt, who said, “Learn from the mistakes of others. You can’t live long enough to make them all yourself.”