Importing from China doesn’t have to be incredibly expensive and isn’t reserved for large, international companies. The internet has allowed smaller businesses to import products from China in a cost-effective way. What product should you import? How do you find a supplier? What types of inspections should be completed?
To help you answer some of these complex questions, we’ve put together a quick reference article which will help you feel comfortable about your imports from China.
1. Finding a Product and Developing a Plan
There is no single “best” product to import from China. The best product to import will depend entirely on your situation. The first step you should take is to talk to your market. Survey your email list, call current and past customers, and look at what your competition is selling. Start to form an idea of what you’re going to sell based on your research. Is it similar to something that already exists? If so, that’s not necessarily a bad thing. If customers are already buying a similar product, that’s good news because that means a market exists for your product. Competition is a good thing.
Now, go deeper. What do customers in the marketplace like or dislike about the product? What would they like to see instead? The worst thing you can do is import a product in bulk from China because you think it will sell well. Set yourself up for success by being certain your product will sell before you make your first order.
Now that you have an idea of what your customers want, look for a product to sell. Prepare a list of requirements for your product. For example, do you need high-powered, reliable engines? Look for a company with top of the line manufacturing equipment that will supply a warranty for their products, etc. Start to create a list of suppliers that can meet, and preferably exceed, your needs.
2. Finding a Supplier – Manufacturer vs. Trading Company
Now that you have a list of potential suppliers, it’s time to narrow it down. There are many different factors to consider when choosing a supplier and you’ll want to be very careful when choosing who you work with. There are many horror stories of distributors paying a purchase order from a supplier, only to have the supplier disappear without ever sending the product. It’s best to conduct thorough research on multiple suppliers before doing business with them.
You’ll want to get answers to a few basic questions first:
- Are they licensed?
- Can they export to your market?
- Are they close to a port? If located more inland, a feeder vessel will have to be used which can add weeks to your transit time.
- Do any relevant results show up in Google when you search for “supplier name + scam”?
You’ll also have to make a decision between a manufacturer or a trading company. A manufacturer is a company that produces products for sale. A trading company is basically a broker that works with both Chinese manufacturers and foreign buyers. Most people assume that it’s best to “cut out the middle man” and go straight to the manufacturer but both options have their advantages and disadvantages. Dealing directly with a manufacturer can lead to lower prices and removes third party from the negotiation process. However, manufacturers often times have higher Minimum Order Quantity requirements (MOQ) and many manufacturers aren’t licensed to export products from China.
Trading companies often times have a more extensive product selection due to their relationships with various manufacturers. However, when dealing with a third party, certain quality specifications and product requirements go through an intermediary which can lead to confusion and manufacturing mistakes. It’s best to do your due diligence and choose the option that works best for your particular situation.
3. Shipping Terms
Always ask for FOB terms. FOB stands for “Free on Board”. This means that the seller pays any costs for loading and transportation, and clears the goods to be exported. It also means that the seller is responsible for loading everything onto the vessel. Once the load is onboard, Costs and risk are divided between the seller and the buyer. Also, as a buyer, you are allowed to choose the carrier, route, and transit time. FOB allows you to have more control over freight costs and the freight itself.
With CIF shipping, the seller pays for insurance and all costs. However, once the product is loaded, the buyer is solely at risk. Also, the supplier has the final say on every part of the shipment until it is delivered. They choose their own transit time, carrier, and route. This can cause several delays during transit.
4. Educate Yourself on Chinese Business Etiquette
Doing business in China is a lot different than doing business in the U.S. It’s very important to be aware of China’s business etiquette, especially if you plan to visit the country. This can help you avoid unintentionally offending someone you are doing business with.
Here are a couple tips to get you started:
Be prepared Make sure that you have done extensive research on their company, and that you don’t schedule any meetings on Chinese holidays.
Marketing materials Make sure you bring more than enough copies so that you don’t offend anyone who may not get a copy. Print your materials in black and white. The Chinese may interpret colors differently.
Gift-giving Giving a gift can be a sign of the start of a prosperous business relationship for the Chinese. Find out if gifts would be welcomed by your Chinese associates and research Chinese gift-giving traditions.
5. Factory Inspections
Having an inspection of a Chinese factory completed can help you verify if your potential partners are reliable. An inspection will be completed by a professional third party and will let you know if the factory is capable of making your product. This will save you a trip to China and the inspector will catch things that you probably wouldn’t. It’s best to let your shipping agent find a legitimate inspector to complete this process so they have your best interest in mind.
Your inspector will provide you with a full 10 – 15 page report (with photos) of factory conditions, working conditions, and detailed information on the manufacturing area, loading area, licenses and quality control systems.
6. Product Inspections
After your product has been manufactured, you can also hire a third party to inspect the product itself. Afterward, you will receive a 10 – 20 page report (with photos) detailing any defects that were found during the inspection. These reports are very thorough and are broken down by minor, major, and critical issues, complete with detailed descriptions. A legitimate inspector will also give an overall “pass/fail” grade.
This testing should be conducted at the origin so that you don’t receive any damaged product. If it’s completed at the destination, you’ll have to pay to send it back, have the problem(s) corrected, and have it reshipped. As noted earlier, this inspection should be completed by a third party so that your best interests are taken into account.
7. Minimum Order Quantity (MOQ) and Consolidation Options
Minimum Order Quantity (MOQ) is the lowest quantity of a product that a supplier is willing to produce. MOQ’s allow manufacturers to stay profitable. They want to make sure that the revenue from your order will be large enough to justify the expenses that go into manufacturing your product such as training, running the production line, and their opportunity cost. If you’re not prepared to purchase a large MOQ, you can get around this by ordering smaller quantities of your product and consolidating at origin.
During the consolidation process, you order product from separate locations or suppliers, it is then sent to a consolidation warehouse, and it is all shipped together. By consolidating, you can order from a supplier who wouldn’t normally work with you because you couldn’t meet their MOQ. For example, a supplier may have an international shipping MOQ of 10,000 units but when they ship domestically (to a consolidation warehouse) their MOQ may only be 100 units.
8. Shipping Methods and Transit Times
When it comes time to ship your goods you’ll have to decide between shipping via ocean or air. Ocean is the most cost effective method for larger shipments and has more options between the many carriers. This allows you to choose the best carrier for your shipment.
Before making your decision, it’s important to decide which factors are most important to you, such as price, reliability, and transit time. All carriers will vary in their prices and routes, among other factors. For example, air will be faster, but is usually more expensive than ocean shipping. So, this method of transport will be most beneficial when you need your products quickly.
9. Expenses to Consider
There are many expenses that you may overlook when you’re planning to import your items. You’ll want to make sure that you’re aware of any additional fees so you don’t end up with surprises on your final invoice:
General Rate Increase (GRI) This occurs when a carrier imposes a surcharge in addition to their regular rates. A carrier usually occurs across all or a select number of trade routes during a certain time frame. Most of the time, a carrier will announce their costs at the beginning of every month.
Duties Talk to your carrier or freight forwarder about any duties that you are expected to pay. It’s best to estimate higher fees upfront to cover any unexpected costs.
Customs Inspections You may be subject to random exams by customs. If your freight is examined, you’ll have to pay a fee.
Value Added Tax (VAT) Chinese authorities have been charging a VAT to carriers since 2013. If the carrier charges this to the freight forwarder, it will be added onto your invoice. Talk with your freight forwarder if you don’t see a VAT on your invoice – it can end up adding an extra 6%.
10. Be Aware of Chinese Holidays and Plan Accordingly
Chinese holidays usually last longer than most Western holidays. It’s common for some holidays to last for weeks at a time. If you’re having your goods manufactured in China, you’ll definitely want to be aware of any major Chinese holidays. For example, Chinese New Year lasts for about two weeks and has a large impact on global supply chains. The government and all manufacturing shuts down during this time. Ports and customs operate with a limited staff that focuses only on priority, perishable items. You’ll want to plan your shipments accordingly.
Here are some other Chinese holidays to look out for:
Labour Day Starts around May 1 and can last about a week.
Dragon Boat Festival Begins on the 5th day of the 5th lunar month and lasts for 3 days.
Chinese New Year Starts in January or February and lasts for 7 days.
As you can see there are a lot of factors involved when planning your imports. However, it doesn’t have to be a daunting task. As long as you are aware of these 10 things, you should be on your way to seamlessly importing from China in no time.
Can you think of a tip we might have missed? Share your ideas in the comments below!