Navigating China Wholesale

Although manufacturing costs in China have risen in recent years, the country remains the go-to destination for wholesale sourcing due to an important reason: faster and more efficient supply chains that remain unrivalled elsewhere. In today’s fiercely competitive and dynamic ecommerce world, where trends vanish quickly and copycats thrive, rapid time-to-market results are a critical competitive advantage.

What is your China wholesale strategy?

Wholesale, a catch-all term for sourcing large quantities of goods at a low price, can mean different things to different foreign importers. Do you want to contract with a Chinese factory? Are you looking to buy from a wholesale market or supplier in China? Depending on your sourcing strategy, you can consider the following options.

Where to find Chinese suppliers

At the Canton Fair

China Import and Export Fair (Canton Fair) is one of the biggest trade fairs in the world. It is held in Guangzhou twice a year (end of May and beginning of November) - in three phases - covering electronics, consumer goods, gifts, textiles, garments, shoes and office supplies.

The fair is massive, involving participation from suppliers and manufacturers throughout Asia. You will be one among potentially thousands of importers from the United States and Europe attending the Canton Fair.

Many of the Chinese suppliers at the trade show have been showcasing their business for many years, and are familiar working with foreign clients. You’re very likely to find someone who trades or can make the product you will retail, although sourcing directly from a manufacturer is often more reliable and cost-effective. Companies bring samples, so you can review product quality and short-list potential manufacturing partners. The full supplier list can be accessed at the Canton Fair website.

Suppliers may also speak limited English, so interactions may seem manageable but are often problematic. To avoid this you can hire the services of a translator at the trade show for a reasonable fee and you will quickly appreciate the advantages of communicating with a translator.

A China visa isn’t expensive but processing can take up to three weeks. Book your flight to Guangzhou a few weeks in advance of your trip as last-minute flight costs can put a big dent in your budget. A cheaper option is to fly to Hong Kong and take a high-speed train to Guangzhou (travel time of approx. 50 minutes).  

Canton Fair is free to attend and the cost of living in China is far cheaper than any country in the west. The ballpark figure for a one-week stay in Beijing, Guangzhou or Shanghai is $1,000.

On Alibaba

Alibaba outshines other supplier directories in the sheer number of wholesalers, dropshippers and manufacturers. The website is popular among importers looking to lower their sourcing costs and amplify margins. Alibaba is on good terms with the Chinese government and a safe platform to find products to sell online – as long as you know how to spot the scammers and middlemen.

Specifically, if you need to have your product made in a certain way or don’t want to sell a widely available commodity that many are selling anyway, then you will want to watch out for trading companies posing as manufacturers. You will also pay more when you wholesale as the company will purchase from a factory and add a mark-up to large orders that’s usually more than what you can negotiate directly with the factory. The only advantage is that you can make smaller purchases in contrast to the minimum order quantities (MOQs) set by Chinese manufacturers.

How to spot a middleman

     - They usually advertise many categories of products. Manufacturers usually specialize in bulk-producing specific products, parts or components.

     - They may have a well-designed website in English and market excessively. Chinese manufacturers generally have basic websites with poor English translation. They’re more about face-to-face marketing and relationship-building than digital marketing.

     - The address they provide may be a building in the city center. Factories are generally located in industrial parks outside cities. So, if Google Maps points you to the center of Shanghai rather than around it, you may want to make more inquiries. 

Of course, middlemen can cover their base and give you all the right answers. They may send pictures of the factory (not theirs), their location may check out, and you may also find a couple of positive customer testimonials. Still, to be really, really sure, it is best to tell the company that you’d like to audit their factory. If they act evasively, your suspicions will seem plausible. On the other hand, if you’re okay buying from a long-term wholesaler and manage to get a price that supports your margins, you should go for it.

Other supplier directories: Global Sources, Made in China, DHGate and Hong Kong Trade Development Council (HKTDC).

At the Yiwu market

Zhejiang’s Yiwu Market is home to 40,000 shops, and open all year round. It is an excellent place to purchase bags, watches, shoes, textiles and accessories at competitive prices. Yiwu wholesalers work with factories in Zhejiang and Jiangsu. You can make purchases then and there, and have your bulk order shipped to your location.

If the goods you want aren’t ready for sale, specify your quality requirements so that your supplier can place the order with the right factory. Be wary of fake products and knock-offs at the market. You could hire a Yiwu agent to get in touch with wholesalers and outsource all aspects of procurement. Note that the agent only offers administrative assistance, and won’t audit factories or perform pre-shipment quality inspection.

Through a sourcing agent

A sourcing agent is technically a middleman but not in the way you think. Their role is clearly defined and they don’t have to pretend to be someone they’re not. A China sourcing agent is a company that helps you find a Chinese supplier and takes care of most or all aspects of sourcing from the world’s factory.

The sourcing agent will find suppliers, get you a quote, conduct a factory audit and send you a sample. The sourcing agent will also do in-process inspections, ensuring that improvements stipulated during sampling are implemented. A representative will often be stationed at the factory to review your order at all stages of production.

The sourcing agent will arrange freight forwarding, and monitor customs clearance and delivery to your location. A comprehensive service such as this unburdens you from:

     - Visiting China and conducting an audit yourself

     - Overcoming the language barrier and making yourself clear the first (or second) time

     - Taking care of in-process quality monitoring and pre-shipment inspection

     - Researching and negotiating a good rate with a freight forwarder

Sourcing agents assist with the vital aspects of China sourcing and save you time and effort on associated administrative tasks. A traditional export agent is based in the country where the product is made, while an import agent is located in the buyer’s country and represents their interests. In an ideal situation, the agent will have a presence in the manufacturing hub, and offices in importers’ countries.

Negotiating contracts in China

It’s only recently that corporate and commercial laws have begun developing rapidly in China. Sourcing from China isn’t straightforward: agreeing on price and terms will require considerable back and forth. Given these two factors, you’re advised to create a draft contract – an agreement that isn’t finalized – adapted to Chinese laws.

Anyone who has imported extensively from China will tell you that the main goal of the manufacturing contract is to avoid friction and promote buyer-seller harmony. Chinese business culture is based on strong interpersonal relations and a contract is simply a tool to regulate relationships between parties. It involves setting expectations with utmost clarity, stipulating obligation and sanctions, and not taking legal action or arbitration off the table.

Simple language, a version in English and simplified Mandarin Chinese: Chinese suppliers will indicate that they understand you even if they don’t. This mindset is ingrained in their culture as appeasement, and also avoidance - to not ‘lose face’. The draft contract should, therefore, state requirements and terms plainly, and set realistic expectations for both parties.

Explicitly express obligations and deterrents: If you have a contract, you’re already doing better than sellers who haven’t drawn up contracts. Clearly specify the manufacturer’s obligations and the sanctions against them in response to a breach of contract. For example, if dimensions of finished products don’t fall within the acceptable range, the supplier will be obligated to send you a new batch at no cost or apply discounts on all remaining orders.

Enforce the contract with the possibility of legal action: Chinese businesses are used to authoritarianism, and both respect and fear the law. This may not necessarily translate into their dealing with foreign companies. To ensure that your manufacturer honors the contract, it may be necessary to include a threat of legal action or arbitration in retaliation for non-compliance.

Given the expensive and time-consuming nature of a lawsuit, it should always be the last resort. Don’t overlook that there’s also a lot at stake as far as your business is concerned.  As much as possible, you should try to resolve product quality and delivery issues with your supplier. If the supplier has acted egregiously, you can pursue arbitration as a dispute resolution mechanism in China or internationally.

Most foreign companies choose arbitration outside China as it may be more reliable than one within China. Arbitral awards reached in most countries are enforceable in China under the New York Convention.

The most important clauses to Include in your contract

Clauses define the rights and obligations each party has under the contract. Key clauses that should be a part of your contract include:

1. Intellectual property rights

It must be made clear that any patents, trademarks and designs are your property, and that the manufacturer cannot register these rights in China or other countries. Registering your patent, trademark or design in your home country does not provide protection in China. Seek legal advice about registering your IP in China. A local, international or Chinese law firm with expertise in Chinese law and performing similar legal law should be able to guide you correctly.

2.  Confidentiality

A clause around the supplier’s responsibility to maintain the confidentiality of your commercial and technical information avoids legal and ethical hassles. Barring manufacturers from disclosing sensitive information is even more important for OEM and other complex contracts.

3. Quality control

Include a clause specifying all the breaches and incidents that may affect product quality, as well as terms afforded to you (and required of the seller) to conduct quality control. This may include access to the production site on short-notice or without notice; random testing of a product from each batch prior to shipping; and in-process inspections, including allowing the buyer’s representative (such as a China sourcing agent) to be on site to assist with quality control.

4. Subcontracting

Your manufacturer may receive proposals from several foreign companies for manufacturing and distributing goods in China. They may subcontract some of these activities to another factory over which they do not have any oversight. A clause forbidding the manufacturer from subcontracting their obligations to third-parties is necessary.

5. Specifications, price and deliveries

Needless to say, your contract should set out unambiguously details regarding your product specifications (dimensions, materials, finish, colors, labelling etc.). Settle on prices that will be effective throughout the term of the contract or during some duration of the contract, with a maximum limit on periodic price increases.

The port where your products will be delivered, and payment period (ex: 30% prepayment, net 30 terms, the date on which payment will begin, and so on) are other pragmatic clauses that your contract should not miss out.

Navigate less, get your products out faster

Sourcing from China is complex and missteps can cost you dearly. If you have time to scour the country’s manufacturing landscape and the willingness to educate yourself on Chinese business culture and relationship-building, you can make savvy decisions and outshine the competition. On the other hand, if you wish to focus your energy on running other aspects of your business and want to entrust sourcing to a third-party, a sourcing agent can be a valuable partner.

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.