It is fairly easy for a small buyer to place an order direct with an Asia supplier. Starting an online store or small business has never been easier. But the sad fact is that most of these startups will not survive for a year. Here are 9 common mistakes which can kill your import business:
Failure to clarify product specifications
If the Asian supplier is not totally clear about your required specifications, there is a good chance you will not receive exactly what you ordered! It is essential to state in writing your exact specs and work with the supplier to create standards which they can use to confirm that their production meets your expectations.
Unrealistic price expectations
Some small buyers falsely assume that going Asia-direct will magically reduce their unit cost by a massive amount. They fail to realize that pricing is highly dependent on shipment volume. For example, you can buy a set of six athletic socks at Walmart for US$5. Walmart buys in the millions of units and gets a great price. Even if you, the new buyer, located the Walmart supplier, it is highly unlikely that the factory would extend to you the same pricing concessions granted to Walmart. For commodity-type items like socks, the factory selling price to the new buyer might be even higher than the Walmart retail price.
Confusing unit price with delivered cost
Too many buyers are seduced by the siren song of low price and forget about all the additional costs like shipping, defect sorting, compliance testing, inspection, project management, local delivery…and more.
Competing on price alone
As mentioned in item #2 above, it would be unrealistic to try to build a sustainable business going up against big buyers on price alone. You can try twisting the arm of the supplier to give you a lower and lower price, but until you have some volume, the supplier will not to be supportive. And if you are only competing on price in the home market, as soon as you start to build some sales volume, the big players will take notice and crush you with their superior buying power and resources.
Solution: Provide a superior product. Build a brand. Deliver great customer service…but don’t rely on price alone if you are a small-volume player.
Thinking in months not years
New buyers often fail to grasp the complexities of sourcing direct from China. They assume things will move fast like when buying domestically. As a result they allocate days for actions that will take weeks, and plan weeks when months may be more appropriate. For example, if you are doing anything customized, you may have to wait 30 days for the supplier to get the raw materials, 30 days for production, and 30 days for shipping. That’s assuming no problems along the way! Too many buyers get excited and accept orders from their clients before the China-side supply chain is in place and proven effective. Missing your lead times with your first round of buyers is a great way to go out of business.
Wide product range
Many first-time and small buyers envision their store filled with a wide range of products all sourced factory direct from Asia. It’s a rude awakening for them when they see the seller’s Minimum Order Quantity (MOQ).But there are ways of working around the MOQ. Think like the manufacturer and find out how they arrived at the MOQ level stated. It’s usually not a number rolled out simply as a negotiation tool. On the contrary, it is often more to do with engineering and production issues. For example, say you want 1,000 pairs of custom socks in a certain color. The raw material available from the factory’s supplier may come only in rolls of X meters and the smallest roll is enough for 5,000 pairs of socks. With that information it is difficult to find creative and mutually beneficial solutions. For example:
1. You pay 10 X per pair.
2. You buy the raw material upfront and agree to place an order for 10,000 units
over a given (long) period of time.
3. Pick another material.
4. Help supplier find a new supplier.
Getting over the MOQ barrier is a discussion not a negotiation.
Cost of compliance
Regardless of whether you import 1 unit or 1 million units, you are the importer of record and are responsible if any of the products fail to comply with safety and other regulatory standards. Even if the factory says they are compliant, when a problem arises (say the socks mentioned above cause a rash on a child’s skin) the local lawyers are not going to go after a Chinese company on the other side of the world. They are going to come after you. Therefore, buyers need to have a compliance plan in place and build the associated costs into their budget.
Skimping on Quality Assurance
In point #7 we talked about the need for the product to be compliant with minimum legal standards. But we also want to make sure the product meets our own specific standards for things like design, colors, quality and so on. Asking an unproven vendor to do the quality assurance planning on your behalf can be a recipe for disaster. The good news is that setting up a robust quality-assurance program is not expensive. But if you don’t have the funds to do it right, you shouldn’t be sourcing direct from China.
Not understanding wholesale
Many buyers confuse “China-direct” with “factory-direct” but in reality are buying from wholesalers and other brokers are a big difference.
By Mike Bellamy
Mike Bellamy is an Advisory Board Member & Featured Blogger at the not-for-profit China Sourcing Information Center . He is also the author of, “The Essential Reference Guide to ChinaSourcing” and founder of PassageMaker Sourcing Solutions.