The CSIC just published another good article (Too small to go factory direct?), which adds up all the fixed costs of buying in China.
From their calculations, it takes about 5,000 USD for visiting & qualifying one supplier, and for confirming product quality, for a first order. And about 600 USD just for checking the quality of following orders with the same manufacturer. That’s excluding product safety testing, which might be required for your product (and which is quite expensive).
These numbers sound about right.
Some inexperienced buyers contact me from time to time, and tell me they received unacceptable products from a Chinese supplier. None of them has checked the background of that company, audited their factory, and inspected production (whether through the importer’s staff, or through a third party).
These unfortunate buyers saved 5,000 USD, but in the end they wasted a much higher amount of money (their whole order + shipment costs + import duties + all the time they spent). And they are back at square 1, not knowing a single good Chinese manufacturer.
Now, many companies cannot afford to disburse this kind of money, especially if their orders are below 10,000 USD. The reality is, China is not for them!
They usually know they are a small fish — for example, they often struggle to respect the minimum order quantities. The factories with English-speaking staff are not interested in their business, except maybe for a really fat margin.
Many would-be importers are aware of this, and yet they keep trying to find a supplier and a correct price. And it IS possible for them to find one: a small trading company.
Traders lure small buyers by using the following marketing arguments:
- “We will place your orders in a factory we know well”
- “We get excellent pricing because we have other customers who help us buy larger volumes”
- “We understand your needs better than a factory, and we have a sense of responsibility if there are problems”
The only problem is, these 5,000 USD of expenses are also necessary when you purchase from an intermediary! None of these trading firms will do formal audits of their suppliers, or will prepare illustrated inspection reports. Someone has to pay for these services…
What happens behind the scenes? How can these small intermediaries accept such low volumes?
By launching production in small workshops that are desperate for business. The result, in terms of quality, is generally awful. This is a situation most importers MUST avoid.
The bottom line is: check every major step along the way, and understand your supply chain.
Hello Renaud,
I agree with your post, as almost always:)
It’s not easy to check a trader’s background, especially if you can’t be sure from which factory the goods will be and therefore a factory audit is out of question.
I think that’s also why many importers try to deal directly with the factories, although, as you said, one is hardly an important client with small volumes.
Veronika,
Thanks for your comment. Checking a trader’s background is just as easy as checking a factory’s background: you can get their numbers (sales, assets, debt…) where they are legally registered. You can force them to show you a factory, and to sign a legally-binding-and-enforceable contract that says production must take place there OR a large penalty (which can be higher than the deposit) will apply.
Announce this method of working from the very beginning, and you’ll see 95% of these traders stop answering your emails. But the remaining 5% might be worth a shot.
Cool, thanks for the tip Renaud:)
Its not easy to find suppliers abroad who are willing to supply less than truck loads and smaller orders. I would suggest to look for companies/factories based in China that have distributors who wholesale in other countries. Look for manufacturers in China that have warehouses with stock of their products in or near your own country. That way you can get factory direct prices and smaller orders near you without having to source directly from China. MH Group for example are based in China offer a wide variety of products at factory direct prices worldwide, they offer drop shipping and have showrooms where you can see their products first hand.