In this episode…
Renaud and Adrian discuss your 4 China sourcing options: commissioned agents, trading companies, third-party service providers (like Sofeast) who provide sourcing as a paid service, and doing it yourself by going direct to manufacturers, including their pros and cons. Renaud also provides some insight into what exactly it takes to source directly from Chinese manufacturers yourself and shares some best practices for you to consider.
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00:00 – Introduction.
01:23 – Is sourcing from China as simple as finding a supplier on Alibaba, Global Sources, etc? – These directories are one part of it, but market research to find the right product comes first. Also, buyers need to educate themselves in order to reduce risks, as there are many ‘bad’ products on sale here that would end up costing them by being unsellable, for example!
04:28 – The dangers of going for ‘the lowest price’ – A common mistake buyers make is to try to find a bargain price. But when sourcing from China this is likely to increase your risk, as low prices don’t equate to high quality and you’re more likely to end with a substandard supplier who hasn’t made it before, or is planning to buy it from someone else and resell to you, or is merely trying to hook your interest with the price and will increase it later. In China, there is an unspoken assumption that buyers looking to pay a low price do not expect the best quality products.
07:57 – What YOU need to be able to commit to if you’re sourcing from China yourself – You need to have the time as you need to identify potential suppliers, screen them, perform due diligence, audit the top candidates’ factories, negotiate the terms with them, assess their in-house product development capabilities (if needed), and then spend time managing the whole project. This will take several hours per day and is an involved job as you can see, but it is possible for some buyers to handle this themselves.
09:24 – If you’re planning to source from China, what options do you have? – There are 4 sourcing options: DIY, commissioned agent, trading company, and third-party sourcing company.
12:28 – (1) Commissioned agents: A good starter option as these guys can find you the suppliers and handle communication in Chinese, etc, in return for a fee usually paid by the supplier (typically a percentage of the FOB amount). A drawback is that they will often try to get you to stick with a bad supplier who’s not serving you well as it’s in their interest for the deal to go through and they won’t earn any more for doing extra work to find you a new supplier or develop a backup. They may also take additional kickbacks from a supplier even if you do agree to pay them a fee, thereby increasing your costs. On the other hand, if you aren’t happy and decide to pull the plug without ordering you lose nothing as they simply won’t be paid by the supplier in question. It’s best to try to get as much visibility over what they’re doing as possible, as they may cost you more than you need to pay or leave you stuck with the wrong supplier.
19:46 – (2) Trading companies: This is a good option for smaller orders. Here the company you deal with understands your requirements, buys the products you’re looking for from local manufacturers, and then resells them to you. As manufacturers have gotten better at dealing with foreign customers trading companies like this have become less popular, but there are many still out there. In theory, dealing directly with a factory is likely to be cheaper and less risky than using a middleman like this, but some ‘good trading companies’ can add value due to having technical product development expertise which helps fill gaps the manufacturer might not have or they might also be diligent enough to find and stop problems at the manufacturer for you to keep the project on track smoothly. Due diligence is required as if you’re paying a trading company you may be overpaying due to their margin and you may also have no visibility or control over who really makes your products (the trading company will be reluctant to give you this information to prevent you from cutting them out and going direct) which means you don’t know if they’re being made safely, with the correct processes and materials, or will even be compliant!
27:14 – (3) Third-Party service provider: These service companies, like Sofeast ourselves, charge a fee for your sourcing and then carry out the work. They’re not on a commission and therefore have no incentive in steering you towards a supplier who is best for them (kickbacks). They can be hired as and when needed and act as a local buying office which is a flexible and helpful solution for buyers abroad. The initial fee may is a higher cost than trading companies or commissioned agents which can be off-putting for buyers from certain locations. Transparency and control over your supply chain are high here as you will know exactly which factory you’re working with and have the ability to deal directly with them without going through a middleman as the third-party sourcing company has no reason to withhold that information.
This is a good option for companies placing larger orders and buyers who are more accustomed to buying from China or value having experts supporting them with no strings attached and are prepared to invest in that security.
33:33 – (4) Doing it yourself: You might hire an experienced sourcing professional or hire a consultant to do some of the work. If just starting out, keep things simple product-wise and order in smaller quantities. Even when ‘doing it yourself’ you have to work with and pay banks, freight forwarders, and a network of other parties in order to handle your entire sourcing and manufacturing project from start to delivery. However, a lot of the work mentioned before is done by you and it has a steep learning curve but is possible given time and patience. The greatest risk is suppliers detecting that you’re new to sourcing and scamming you or not taking you seriously, so educate yourself beforehand on what to say and the terms you need to negotiate with a new supplier and what impacts quality and delivery times.
34:55 – How to grab a free copy of Sofeast’s 80+ page eBook that can help importers start out with sourcing from China: “The Ultimate Guide To Sourcing From China And Developing Your Suppliers”
35:20 – Some closing tips from Renaud for better sourcing from China – Educate yourself on the market and process. If you need support or lack time, work with an agent or trading company that can help you locally. Working directly with a manufacturer has benefits, but you need someone who is capable of managing the project and working with them closely. If you need to source more complex products, especially when developing a new product, going to a manufacturer directly has risks, such as loss of IP and the manufacturer rushing into mass production too quickly. In this case, a third-party service company who is experienced with the kind of product you’re making is a good choice as they can provide the development support in order to assure quality products as well as finding a manufacturer capable of making them.
38:19 – Tackling quality management – Before you start work factory audits are likely to be helpful to confirm that you’re selecting a great supplier unless your initial due diligence on the supplier shows that they’re really promising and capable. As they start work, product quality inspections are always a must in order to assure quality.
39:10 – Wrapping up
- Read Sofeast’s free eBook: The Ultimate Guide To Sourcing From China And Developing Your Suppliers
- How To Find Trustworthy Suppliers In China In 2021
- Do You Really Need A Sourcing Agent in China Or Can You Do It Yourself?
- How to start buying direct in China
- The terms you need to negotiate with a new supplier
- Sourcing new suppliers (get help from Sofeast)
- Supplier background check (get help from Sofeast)
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