I listened to an interesting interview of Peter Zapf from Global Sources on Evolution of Amazon and Sourcing from China on the Global From Asia podcast.
According to Peter, all Chinese suppliers are interested in Amazon sales. However, the vast majority of the factories that have tried to sell on Amazon have failed.
Why is that? They need to learn how to do many new things:
- Marketing — getting the copy right, taking nice photo shots, thinking of a nice brand (name, logo…) and registering it;
- Making the products first, then selling slowly out of that stock, and then getting paid later;
- Managing pricing, updating it to remain competitive;
- Establishing a consistent pricing policy in case the products are also sold through retailers.
This is not surprising. It is an entirely new business for Chinese factories. And a totally different business model — starting slow and taking 100% of the risks (typically that’s what they hate to do when working with overseas buyers).
Instead, Peter says, many entrepreneurs are handling all these tasks. They buy from manufacturers and sell on Amazon. It means there are two intermediaries in the supply chain — these entrepreneurs and Amazon itself.
I think this will be the model for years to come. I don’t see Chinese manufacturers selling through Amazon en masse.
Ironically, many of them already sell on Taobao (the local version of eBay), which keeps things much easier. No need to worry about an elaborate image, good copy, regular supply, etc. Just make a few hundreds more pieces, put them aside, and sell the exact same products you made for that other customer! If the packaging is in English it looks more valuable.
To be fair, many products sold on Taobao are not counterfeit. And most are sold by intermediaries rather than manufacturers. However, if I were an importer of branded products, I would keep an eye on that channel — I would not be happy to see my products sold on Taobao!!
Hey Renaud,
I do agree with your comment regarding these entrepreneurs handling all manufacturing tasks from A – Z – “I think this will be the model for years to come.” But I wouldn’t jump to the conclusion and say “I don’t see Chinese manufacturers selling through Amazon en masse.” The reason being, I am seeing it happen everyday.
We run a sourcing company that offers e-commerce importers an ability to utilize our purchasing office and resources for a flat rate, in an effort to offer a more transparent approach than a tradition sourcing company who would take some sort of commission/kickback. Because of this, we work with a lot of Amazon sellers, both big and small. What we’re finding on a daily basis is that some sellers are having their listings copied by Chinese suppliers. I am also witnessing Chinese suppliers who were once selling their popular products to anyone, begin to place restrictions on any buyer interested in selling online. This is because the suppliers are trying to control the Amazon market themselves.
With that being said, I try to attend a lot of Amazon Sellers Meetups and try to stay engaged on their online forums, I am noticing a lot of these Chinese sellers fall short when it comes to QC, optimized listings (the online marketing aspect of creating their sales page) and innovation.
A lot of our clients are opting to go for tweaked products where they can have a competitive edge by offering some form of variation, as opposed to a generic off the shelf model. Or, they are beginning to focus strictly on the quality of a product. Nevertheless, any active Amazon seller will tell you, there is a threat to the Chinese selling their products on Amazon. Ebay is a great example of this. The sales model of import from China and sell on Ebay was a booming market 3 years ago. Now, head over and search for some generic products, you’ll notice product listings are written in broken English, and based on the sellers names, you’ll see a clear link to Chinese sellers.
As for Amazon, I don’t think people should be as concerned, since the nice part of Amazon is the sellers ability to market both within Amazon and on their own website. This means skillful online marketing will often trump the antiquated methods we see coming from Chinese sellers, but the risk and competition is clearly here and in full force.
Interesting! I am not surprised about the copying (from manufacturers but probably more often from traders), but I am surprised about factories placing restrictions on what gets sold online (that’s only for those suppliers with a unique product… already a small minority).
It will be interesting to observe this space in the coming few years.
Great article… and I have two points to add:
a. Amazon has “de facto” set compliance requirements above national requirements. We saw this last year with the hoverboard situation (they require UL compliance, which is not mandatory or required by law in the US). Also, they refer strictly to those regulations that are mandatory, such as those outlined by the CPSC. 99.99% of all suppliers in China are not aware of the full list of mandatory regulations, so forget about it. Sure, you can buy lists on ProductIP, at least for the EU, but I guess that those EUR 30 are too much of an investment for most of them.
b. The maximum defect rate is set at 1%. This is calculated based on returns.
Fail to comply with either of these, and you are kicked out – permanently. Selling on Amazon.com requires a committed management, and very solid procedures to support the venture.
Yes these are two more reasons why it will be hard for Chinese suppliers to become prominent Amazon sellers. Good points!
Thanks for sharing Renaud!
I know other Chinese Amazon sellers, and it is funny – they are hiding their strategies from other Chinese in fear of it spreading too much in the Chinese ecosystem. But more and more Chinese are hearing about it and flooding the markets.
I think the difference with eBay is that Amazon doesn’t just let people search by price – but by quality and feedback – so even if people drive the price down – they won’t shoot up at the top.
Mike
Haha yes, interesting. Let’s see how it plays out in the years to come.
Great post. Some additional thoughts…the biggest sellers of China sourced product may end up being the China private label (PL) guys. Look up Anker and Sun Valley – both doing over $100 million annually on Amazon. They’re basically PL guys. So western PL sellers will see competition from China PL guys more than China factories.
Also…I’d like to expand on Fredriks comments on compliance requirements. While Amazon has raised the bar on hoverboards, the majority of private label products imported by U.S. PL sellers (or exported to the U.S. by China PL sellers) have not been tested to meet regulatory requirements. FDA for anything touching food, CPSIA for toys, FCC for electronics, etc. Amazon raised its bar by adding UL safety requirements for third party sold products, which most big box retailers nominally require already. Also, Amazon’s bar for third party sold products is lower than for its own branded products (Amazon Basics, for example). That’s because it is the importer of record for its own products, but not for third party sold products.
And an interesting point on seeing your own products on Taobao. This may be another reason to get your brand trademarked in China. So you have a bit more protection…
Thanks Peter. Yes you are probably right about China private label guys!
Re brand registration in China: Larger PL Seller should register their brand in China and NOT because they want to prevent sales on Taobao but because a local compapny could register their brand in China and prohbit them from producing that product in China in the future.
Yes that’s a risk too.