Strategic China Sourcing – 5 Mistakes and How to Avoid Them

China continues to be an attractive destination for sourcing products to sell on Amazon. There are incredible business opportunities that sourcing from China offers Amazon sellers and entrepreneurs.  However, as is the case with most business ventures, China sourcing is not without its inherent risks. Most sellers are challenged by the task of balancing these risks with the tremendous opportunities that are presented by China sourcing. You can avoid common mistakes by adopting a structured approach to China sourcing. Overall this can help you reduce the risks while achieving your business goals.

Here are five mistakes related to China sourcing and how you can avoid them:

5 mistakes for China sourcing and ways to avoid them

#1: Not having a defined sourcing strategy

When sourcing from China, the importance of having a clearly defined sourcing strategy cannot be emphasized more. The sourcing strategy acts as a “road map,” and includes details of locating the most suitable supplier for your business as an Amazon seller. Not defining a strategy could result in not attaining the best overall terms in regards to quality, price, timely delivery or functionality.

The strategy should also include details of the type of product that you want to source from China, particularly if you are sourcing for the first time. Many sellers make the mistake of placing orders for a highly complex product. Vendors in China may find it difficult to adhere to the specifications or quality standards for products such as high value electronics, jewelry or watches. Labor-intensive products such as garments, shoes and handcrafted products may not be suitable for your reselling business as the potential for human error is high, while profit margins can be low.

Your sourcing strategy should be based on in-depth research on the type of product that is most suited for e-commerce to your customer base, as well as whether the vendor in China is using an automated process or human labor for manufacturing your product category.

Successful sourcing strategies are also based on:

• Identifying suppliers in China through trade shows, social media and the internet
• Vetting and verifying suppliers
• Managing quality control
• Determining the sourcing method such as direct purchase or partnering with a sourcing agent to achieve your business goals.

Pay close attention to the following before you finalize a supplier

• Geographic location - China being a huge country, you may have to research thoroughly to know if the supplier’s geographic location has any influence on pricing, labor and transportation costs and quality.
• Production capacity- Find out if the supplier can meet your current and future production needs. This is important in determining the right supplier.
• Quality standards. Define the quality standards that you expect from the supplier.
• Price range. Determine the price range based on a market research for the products being sourced. Create a list and compare the suppliers in terms of quality and cost.
• Communication and technology capabilities. Determine what kind of technology and communication capabilities you are looking for in suppliers and evaluate the risks versus benefits of these.

#2:  Lack of supplier visibility

A clear understanding of the practices, processes and the background of the supplier in China is crucial as it helps you evaluate potential risks and scrutinize for sources of disruption in such sourcing partnerships.

Amazon sellers who blindly enter into sourcing relationships with Chinese suppliers without due diligence may find that their business goals and procurement strategies do not align with each other. This results in limiting profits instead of boosting them.

Business attorneys Charlotte Zhanghaixia Westfall and Rick Frasch highlight in a Forbes article that one of the top mistakes Amazon sellers make when sourcing from Chinese manufacturers relates to not performing due diligence on suppliers, that results in lack of supplier visibility.

You can adopt a number of strategies to avoid this pitfall and obtain full supplier visibility when sourcing from China. These include requesting their business license, checking their online reviews and evaluating their ratings on different marketplaces such as Alibaba. While these can help, nothing can match the power of in-person visits to comprehensively evaluate the supplier. Visiting the supplier and talking face-to-face is the best way to get a sense of the supplier’s authenticity and commitment. An in-person visit can also help you gauge if the supplier is the right fit for your product category. If you can't visit the supplier yourself, you can hire a China sourcing agent to conduct a factory audit for you.

Look for these signs of unreliability

There are certain signs that point towards unreliability of the supplier. Knowing what these signs are will help you recognize them and avoid partnering with the wrong supplier:

1 – The supplier is not willing to answer your questions– A reliable supplier is one who can answer all your questions on the product information without any hesitation. If the Chinese supplier is not able to provide crucial product information and avoids your questions or is simply unwilling to answer, it can be a potential red flag and major cause for concern. While the supplier does not have to know the answers to each and every question, they should be willing to provide you with quick answers by checking with their technical/production team.

If the supplier provides incorrect answers, it may be wise to take a step back.

2 - Slow Response Times – Typically, response times range from just one hour to a maximum of 16 hours in China. During holidays, the response times may be longer. So when there are no holidays and the supplier takes an extended period of time to respond to multiple communication attempts you have made, it can signal that either the supplier is very busy or that he does not value your potential business relationship. Either way, slow response times can be a major signal to supplier unreliability.

3 – Excess focus on money – While it is understandable that the supplier expects a decent profit out of the business, focusing heavily on an upfront payment or a large order quantity can be signs of unreliability. Paying upfront without vetting the supplier exposes you to risks such as counterfeit products, fraud, and suboptimal quality. 

4 – Unsure of lead times – The supplier needs to be willing to provide a guarantee of lead time, which is the time taken to complete production. A warning signal is triggered if the supplier cannot give you clear timeframes for production.

On the other hand, a supplier is reliable when they

• Always appear organized
• Are punctual in communication and in providing answers
• Have a positive attitude
• Provide clear timeframes for production
• Asks detailed questions to understand your requirements
• Displays pictures of manufacturing plants and happy customers at trade fairs

#3: Focusing only on the pricing

While it is true that Amazon sellers are in the business to obtain profits, focusing heavily on the price is not a smart strategy when it comes to sourcing from China. Here are some of the common mistakes related to negotiating with Chinese suppliers:

• Driving a very hard bargain – In their eagerness to obtain as much profit as possible, many Amazon sellers try to drive too hard a bargain with prospective Chinese vendors. This can hinder the supplier’s interests in producing good quality products for you. If the seller finds your offer barely profitable, they may not see you as a valuable customer. Unrealistic bargains scare away even the best of suppliers, which can narrow down the list of suppliers that you can work with.
• Negotiating too early for low prices – If you haggle for low prices too early in the sourcing journey but fail to place an order, it can spoil the chances of building a strong relationship with the vendors. When you start bargaining, suppliers tend to think that you are going to place an order so they will strive to provide you with a quote to strike the deal. If their efforts are not rewarded with an order, they may not respond the next time that you actually want to place an order or have a query.
• Misinterpreting profit margins - Many suppliers give quotes that are based on the cost per unit ( FOB / CIF / CFR). However, this is not the total landed cost. You also have to take into account the other costs such as customs duty, VAT, quality inspection, banking fees, transportation costs, warehouse cost and so on.

To avoid these mistakes, make sure to do your homework before negotiating. Research the market to know the latest price for the product and remember that the lowest price does not always translate to higher profit margins. Make a checklist of all the costs involved to know the total landing cost. Verify if the supplier in China can provide good quality products that meet your specifications at a reasonable market price. Check if the freight forwarder has included the costs at both the shipping and destination ports.

#4: Not asking for samples

The “Made in China” tag is no longer synonymous with “low quality.” Many Chinese suppliers and manufacturers make high quality products for acceptable price ranges that are ideal for Amazon sellers. You can order your products on online marketplace platforms like Alibaba with just a few clicks that can include everything from raw materials to finished manufactured products.

However, whether you purchase from online marketplaces or from a supplier in China, there are always risks of fraud, counterfeit products and low product quality. A practical way to reduce these risks and ensure good quality of products is to ask for product samples from the China supplier.  If you are going to place a bulk order, it is all the more essential to evaluate an actual sample. You can check various details including the quality, color, size/dimensions, processing craft, functions, performance and features by testing out the sample.

Obtaining a sample is also a smart way of avoiding misunderstanding and miscommunication regarding the product specifications and manufacturing process. Be sure to present your business request and your sincere intent when requesting  samples as suppliers may feel you are only contacting them for free samples. Also check with the supplier regarding shipping fee details. Some manufacturers may include samples of different product categories or expand the quantity of samples which can contribute to increased shipping costs if not aligned with your interest.

Make sure that you also ask the manufacturer about how the sample differs from the product in mass production. At times the same material or product may not be available with the supplier in smaller quantities required for the sample. Oftentimes a handmade sample can vastly differ from the one mass produced.

#5: Trying to manage everything on your own

Sourcing from China is essentially an international transaction that carries with it potential legal, financial and business risks. From the selection of a reliable vendor by communicating appropriately to ensure your product specifications are clear to the vendor, to the vetting of the supplier; these are all things you need to do to ensure your business is profitable. In case of an unforeseen dispute regarding delivery or product quality, you should predetermine how this can be resolved and consider the probability of whether you can get your money back. Trying to manage all these tasks on your own is not only impractical but reduces the chances of you finding the right supplier that has both the best deals plus optimal quality.

Sourcing agents who have offices in China, Europe and the United States can provide end-to-end assistance on finding the best of suppliers for your product category. They can perform due diligence in checking a supplier's track record; by communicating with them in Mandarin they will check their expertise, references, reputation and licenses, and ensure that an on-site inspection is carried out. They can also arbitrate effectively between you and the vendor in case of a dispute and source a suitable backup vendor in a timely fashion if required. 

Experienced sourcing partners can also conduct a factory audit to inspect not only the production process, but also the manufacturing equipment and the extent of labour or technology capabilities of the vendor. By keeping the lines of communication open between the supplier and you, the sourcing agent ensures there are no misunderstandings on both sides.

By developing a robust sourcing strategy, vetting the supplier, evaluating samples, negotiating smartly and working with a sourcing partner, you can leverage the advantages of sourcing from China.

Sourcing Allies is a team of expert China sourcing agents that has helped western customers manufacture and source products from low-cost regions since 2006.

For more on China sourcing visit our website or write to us at info@sourcingallies.com.