Chapter 5: Finding Sellers in China
ShareThisYou can buy product from China, India, or almost anywhere else. Here are some tips on this process.
Telling you how to find a vendor from whom to buy product in China is difficult. When I say China, I am using China to represent any number of places you can OEM your house-branded product. These places may include Vietnam, Thailand, India, Poland, and maybe even South Korea. The difficulty arises because one country may be better for Product A but not Product B.
Let me start with the most important requirement: you must be able to get your product cheaply. Depending on the product, you should really be able to have the product sitting in your warehouse for half of the typical wholesale price. For instance, if the local dealer pays $1450 for a 48 inch-tall black piano, you must be able to land a similar piano in your warehouse for about $725.
Following this math, here’s how the calculation works for a piano:
* $725 Target landed price
* <$133> Per-unit shipping overhead: 20-ft container rental price ($2000), divided into the number of units in a container (15)
* <$ 26> Per-unit duties charged by US Customs (calculated at 4.7%, a rate which differs by product)
$ 566 Targeted FOB cost per unit
In other words, to get a piano in your warehouse for $725, you actually need to pay no more than $566! Your Chinese manufacturer sells you a piano for $566, and you will have to add customs duties and shipping to your Long Beach warehouse. I talk about FOB (Freight On Board) in the next chapter.
This guideline to have your product landed for half of typical dealer wholesale may seem extreme, and the guideline may be overly aggressive for certain industries. Remember, your value discipline is the “low-cost leader.” Therefore, buyers will choose you on price, and you need to be a price leader. You can do it. You NEED to do it.
eBay should be thought of as selling at wholesale, not discounted retail. eBay will likely be one of your key selling channels. If this is not true in your case, buyers will still use eBay and shopping bots[1] to price compare[2] you against everyone else. Large companies have more resources to optimize their supply chain, so you want to start off with a low-cost structure.
Getting Familiar With the Landscape
Speaking of “starting,” let me give you a good place to familiarize yourself with China: www.business-in-asia.com
This website is maintained by Runckel & Associates, a consulting firm based in Portland, Oregon. Look for the comprehensive content on Shanghai China and Thailand, in particular, to bulk up your knowledge in this space. After reviewing this information, you are ready to explore your manufacturing options. Remember: when you start out, buy a ready-made product. You are not trying to design your own product yet!
Finding a Chinese Manufacturer Through A Consultant
There are several companies advertising their services to help you find a factory in China. The advantage of this process is that you aren’t going into something by yourself. These consultants or their companies have some contacts in China; turn-around times might be adequate; and, in principle, you have a third-party to mediate problems.
I did a Google search for “finding a factory in China” and got several interesting results. Search engine results are always changing, so make sure you check out
and
The downside to these types of arrangements is obvious: if you can find a contact this way, so too can your competition. Also, while your prices may be low, you are trying to be the low-cost leader. Set the goal to have a most favored customer (“MFC”) clause in your eventual contract. An MFC clause says that if the manufacturer offers anyone else pricing better than yours, then the same pricing is automatically passed to you. An MFC clause may not be readily available until you are a better customer, but it never hurts to ask. I have successfully negotiated this clause three times in different situations. Remember that you are looking for any way to assert a long-term cost advantage.
Finding A Chinese Manufacturer Through a Tradeshow
To truly get your product cheaply, I recommend that you find a Chinese manufacturer at a tradeshow. Here’s what you do:
- Visit your industry’s tradeshow in China
- In other words, if you sell tubas, you want to attend the musical industry’s tradeshow in China. This is where you can compare and contrast your options
- Companies that sell tradeshow booths may be able to help you here
- See also www.tradeshow.globalsources.com. These guys also maintain a booth at eBay Live, and attract lots of attention. However, they will try to get you to buy from their network of suppliers—which in my mind makes them the middleman and defeats the purpose of flying all the way over there! Global sources has tradeshows in China, Hong Kong, and even Dubai, and these can have different themes, such as Home Products.
- Get the tradeshow schedule from the Shanghai Mart. This is where most of the best tradeshows are held in Shanghai China. See www.shanghaimart.com
As a side note, I’d recommend staying at the Sheraton Grand Tai Ping Yang Hotel. This beautiful place is only a few minute walk to the Shanghai Mart; has a wonderful English-speaking staff; has a nice lobby area to meet vendors; and, most importantly, has a Starbucks Coffee down the street! Also, don’t forget that proper credentials are generally required to get into that tradeshow.
When you get to the tradeshow,
- have lots of business cards, preferably with your information in Chinese on the back[3]
- read up on proper etiquette;
- consider hiring an interpreter[4];
- ask for price lists;
- be prepared to say you’re considering ordering a 20-foot container full of their product;
- realize that if your picture gets taken with some of the exhibitors, these exhibitors plan on putting the picture on their website showing you as their “partner,” which may hurt you later; and
- focus on talking to the exhibitors who do not have a Caucasian in the booth.
On this last point, our plan is to buy product from someone who does not already have a U.S. distributor. If the Chinese company already has a U.S. distributor, then you might be subject to paying a price no lower than the price provided to everyone else. Also, if there is already a U.S. distributor, that organization becomes very protective of their Chinese counterparts. Once you find a vendor or two who can sell you what you need, you’re ready to order your first container.
[1] A shopping bot is a piece of software that checks the web for prices, then presents the results in order of which vendor has paid the most. Users of shopping bots then sort the results not by paid placement order, but by lowest price (including tax and shipping). A large percentage of shoppers using shopping bots choose their purchase based on price alone. The bad news is that shop-bots reduce the friction inherent in the buying process and therefore reduce the margins for almost everyone. The good news is that you are buying (in China or elsewhere) without a middleman; also importantly, by providing lots of product information on your site seems to empirically increase the buyer’s willingness to pay. See Zhiping, Alok and Bo-chiun, The Sources of On-Line Price Dispersion Across Product Types: An Integrative View of On-Line Search Costs and Price Premiums (International Journal of Electronic Commerce / Fall 2006, Vol. 11, No. 1, pp. 37–62.)
[2] Data suggests that at least 50% of all online shoppers price compare.
[3] Try http://www.lunaconcepts.com/e/biz/index.html .
[4] Consider http://www.patw-china-consultant.com/china_translator_interpreter.htm
