Archive for the ‘Importing From China’ Category

Importers Should Know How Business is Done in China

It is much better for an importer to make sure that he has the necessary organization in place before any order is placed. Shipments including their documents, product quality and punctual delivery must be controlled on regular basis and for that you need your own specialists.

It is also important to build up some relationship with your manufacturers because that is how business is done in China.

One of the more often asked question by our clients is usually how to import goods and products from China  more professionally. Funny thing though because although they are committed they lack the necessary insider knowledge to give it a head start.

Newcomers to the import business believe that it will be a relatively easy job to do. Just visit some factories in China and select products from their showrooms or use one or more of the China products search engines and choose products that are on offer there.

Theoretically it might even work but unfortunately in most cases importers will fail if they proceed that way.

Factories in China do not have self-service shelves for you to select from but make products to order instead.

Many importers also think that only the lowest possible buying price is desirable neglecting quality, manufacturer’s performance and life cycle of certain products.

They also neglect their responsibility toward their own customers because not the factory in China but the importer will be held responsible if something goes wrong with an imported product.

Avoid too many “Me Too” products but look for unique products and even better if they have not been released to the market yet. You will never find such products during visits at one of the many trade fairs in China or browsing the China products search engines. Every manufacturer hides his new products and visiting him in person at his factory gives you the inside what he has in the pipeline.

Most importantly, go and do your homework first and learn the trades before you make your first steps into China. Greenhorns w/o insider knowledge will either not be taken serious or even taken advantage of which can be easily avoided if you prepare yourself accordingly.

Do not try to import products that everybody else is already importing

We have been often asked by our customers what kind of products they should import from China. Our answer always is what you might not expect it to be: “Do not try to import products that everybody else is already importing.”

Why is that so? It is because you usually will not have the chance to make good money with them and that is probably the main reason for importing goods and products from China.

You have to do some homework first and find out which products your customers want you to import for them from China.

Do you see the point? Do not try to import products that you consider best for your customers because you may be in for a big surprise when nobody wants your products that are sitting in your warehouse after they have arrived.

It is much better to look for products that have been already presold even before they arrive at your port. These could be products that are brand-new and nobody has imported them so far.

They are the real winners but they usually give you only an advantage of a couple of months or so until your competitors have followed. Our advice is to get out then and use the same strategy for other new products.

You will ask: “How do I find such products?” Don’t expect them to be shown on one of the China products search engines or at one of the numerous trade fairs in China. Manufacturers do not want to display real new products there because all of their competitors would also see them as well. The same applies to your competitors when they visit fairs or search for products online.

It may not be so convenient for you but visiting manufacturers in China is the only way to find these important new products. They may not even be shown in their factory showrooms but during your visits the factory’s managers are proud to introduce their latest products to you. It is most likely that they are only in the design stage at that time but that is exactly what you should be looking for.

With photos, specifications and perhaps some handmade samples you can already talk to potential customers in your home country and will have their immediate feedback.

If the first proper samples from the manufacturer are acceptable, you can start ordering these products and make money with them.

Monitoring the Production Progress is an absolute Necessity for all Importers

Constantly monitoring production progress is an important and necessary follow up task. Assuming everything is going according to schedule if you do not hear otherwise is much too risky.

What Can Go Wrong?

Anything could still go wrong for many reasons. The tooling can become damaged and the factory has to stop production until it is repaired. The factory does not want to be embarrassed telling you the bad news and may not inform you about the delay. They often have a naïve hope of fixing problems without having to tell you about them. It is a gamble that usually fails and you as the importer suffer the consequences one way or another.

It is a good idea to ask the factory for a status report on daily basis if necessary. Certainly ask them to inform you immediately about production problems that come up.

If a problem does arise, ask the factory for an estimated date it will corrected. If the delay is long, check back with them regularly, and have them confirm when the problem is fixed. After the problem is fixed, have the factory confirm the production completion date can still be met. If it cannot, have them provide a new date.

Capacity Constraints

The factory may have limited control over some capacity constraints.

These include:

 

  • Available number of production lines
  • Number of trained workers
  • Injection capacity of their own injection machines or from outside partners
  • Sufficient electric power available
  • On-time component and raw material supply
  • Legal requirement (e.g. allowed overtime working hours)
  • Weather conditions such as severe Typhoons can interrupt production

 

Some of the limitations can be overcome by subcontracting part of the production to other factories in the near vicinity. Unfortunately, this may have a negative impact on the product quality and raises liability concerns.

Many importers do not know the Chinese Government has imposed restrictions on the use of electric power for production. In many cities, factories will not have electrical power 1 or 2 days per week. Of course, the electrical power is not completely cut off but severe penalties are imposed if the factory is caught disobeying the Government instructions. Many factories have purchased electrical power generators to overcome the power shortages. The generators run on diesel and everyone knows how expensive this has become recently. Some factories do not want to absorb the additional cost so they stop production during the electrical shut down period. Without constant communication, you may not know about it.

Industrial Growth in the North

Another important factory is the shortage of workers, especially in the Southern China provinces. You may be surprised by the fact that China, a country of 1.3 billion people, cannot provide enough workers for all the factories. However, it is true. Factories need trained workers and it takes significant effort transforming unemployed young people from rural areas to skilled factory workers. The result is, trained workers are in short supply.

Northern China has undergone dramatic changes in its infrastructure over the last couple of years. Major investments have been made to build new factories on former farmland and the process continues. Compared to a few years ago, the changes in places like Ningbo, Wenzhou, and Xiamen are breathtaking.

Workers that previously migrated to southern China for jobs are now finding them in the North. You might recall the terrible events shown on TV at the Guangzhou railway terminal when approximately a million migrant workers waited for days to catch a train to their home provinces. Severe weather prevented the trains from running on schedule and hundreds of thousands got stuck at the railway station.

You can certainly understand that these people appreciate finding jobs near their northern hometowns rather than going through such an odyssey again.

One reason for the southern migration was for better pay. That enticement no longer exists. With all of the new development, workers in the North are now receiving nearly the same pay as in the South.

The factories in southern China no longer enjoy the luxury of workers competing for jobs. Wages are higher and they have mostly abandoned production of low price products. Southern production has shifted towards more complex and more profitable manufacturing. It should be no surprise that sourcing of really low-end products in southern China is becoming more and more difficult.

Chinese New Year

The Lunar New Year Holidays are an annual opportunity for workers to travel to hometowns and reunite with family. The opportunity usually only comes once a year. Factories close for at least a complete week and usually for 2 weeks or even 3 weeks.

If you happen to have production completing shortly before the Lunar New year Holidays or production starting immediately after it, you may be in trouble. Of course, no one will tell you, but from my experience I can tell you, try to avoid these periods because the quality deteriorates. The workers have their forthcoming holidays in mind and lack the concentration to do a proper job.

After the holidays, between 10-20% of the workers fail to return to the factories for various reasons. The result is, that again the factory is short of manpower and even if they manage to hire workers, they have to be trained. It could be your schedule that suffers. Be sure to take precautions if you are forced to run production during this time.

Create Your Own Corporate Identity For Your Import Products

Branding Your Products

Many importers underestimate the importance of this step and get into trouble later on. Having your own brand name and a convincing gift box design (product packaging) could be the main key to success for your import business. Why is it so important to have your own brand name and gift box design? It immediately establishes your corporate image with Chinese manufacturers and the customers in your home country. It sets you apart from the rest of the crowd and gives it a professional touch.

Creating your own gift box design may seem like wasting money since many manufacturers can also provide you with their own design (usually a very simple one) at no extra charge. Unfortunately, they will provide this service to everyone who is asking for it and these goods may even enter your home market without your knowledge. You just become another look alike retailer in a crowded field.

The result is more competition and you become unable to achieve your planned profit margin. In other words, you wasted a lot of time and money without benefiting from it.

Selecting a Brand Name

But let’s start with the own brand name first. You will need some outside help with this because the brand name which you want to choose for your products may have already been registered somewhere else. It would be disastrous if you become entangled in legal battles with the legally established brand name owner after you have distributed your imported products in your home country.

Ask a lawyer to do this for you because they have the tools to do thorough research and can register your brand name for either worldwide or only local use. Theoretically, your chosen brand name may only be available for a certain kind of product but I suggest choosing one that can be used for a wide range of products. This supports your future expansion strategy and you don’t want to be stopped by not having the suitable brand name to do so.

Protect Your Brand

Another reason for having a custom design is that the Chinese Government has implemented quite a few restrictions that help protect you as an importer. The restrictions prevent factories from producing and shipping products with your brand to other than legal brand owners.

Once you have created a nice and professional looking gift box design, there is always the risk that some factory or other importer may copy it and use it for other customers not necessarily in your home country. There is not much you can do about it but you now can see why your own brand name is so important. Do everything you can to protect it from the beginning. When you become hugely successful, it will be very valuable.

At this point, your gift box design is only a concept about color combinations, graphics, use of photos, etc. The final design can be only created after you have finalized your product selection.

How Does The Present Economic Turmoil Affect Imports From China?

The good news for all importers is, there is no substitute to importing from China.

Products at more economic prices have become part of our daily life. Most of these products are made in China and have replaced locally made products that could not compete with them for various reasons.

The bad news is that China as the so called “Factory of the World” is seriously affected by the lower demand of the main import countries like the USA and the EC member states.

To counter the effects of the global financial crises, China has announced a US$ 586 billion rescue package to finance programs in 10 major areas like rural infrastructure, social welfare, etc. The amount will be spent until 2010. Included in the rescue package is a reform of the VAT (Value Added Taxes) rebate system for 3,770 items, that will cut industry costs by estimated 120 billion Yuan.

Since oil prices, raw material prices, and labor costs are in the decline, regular price increases as in the past, should be out of question for the time being.

As a result of the global financial crisis, a large number of small and medium sized factories,  already in difficulties before,  were forced to close. Largely reduced order volumes from overseas customers and lack of funding from local banks have driven these factories into the corner with no way out.

The result may not necessarily be bad for importers because as always in difficult times, only the stronger and better organized  factories will survive and they are usually the more trustworthy partners for importers.