- Published on Friday, 11 January 2013 17:06
I am importing China Baby Diapers as finished goods and would like to hide my supplier’s identity. If the factory becomes public information, my competition and other traders will approach that factory and get quoted the same price I got. They will reduce the margin for me in market. How to avoid the factory name being exposed as they are manufacturer and we are brokers? I also want to avoid the manufacture’s name on the packaging of all the material.
I am going to make the assumption that your destination country is similar to the USA. Basically, the country of origin and manufacturer are required by law to be declared on the shipping documents and that this information is in the public domain.
For example, when importation into the USA takes place, the importer is required by law to accurately fill in the ISF code. This means you need to state who you are buying from, overseas. In your case, that would be the manufacturer.
To see just how easy it is for your competition to find this type of sensitive information, take a look at www.importgenius.com . Here is a blog post explaining how others may “Piggy Back on the Brands You Love (and your competition!) to Find Great Suppliers”. Here is another blog post about how buyers, like yourself, can hide this sensitive information: Sheer Import Genius
Your situation is more complex because you are dealing with baby products. These products may not be able to clear outbound customs from China. The manufacturer of origin must be stated on the export documents. Additionally, that manufacturer needs to be pre-approved by the Chinese government. Even if the unit and master packaging is customized for your brand, the packaging must contain the seal of the approved manufacturer in order to clear outbound customs.
Here are some of the options, recommended and non-recommended, used by buyers to mask their supplier’s identity when dealing in sensitive products that need outbound approval, like your baby products.
Some buyers use unofficial channels to get the product out of China, often overland, via Shenzhen to HK. A logistics company is hired to truck it across the border. Due to the sheer volume of trucking across that border, there is a low likelihood that your shipment will get an inspection. And if inspection does take place, the connections of the local logistics company who you have hired may be able to “get you a pass”. Buyers who use this method generally use it for, ‘one off orders,’ as it is not sustainable for steady business. Not only is it very much in the gray, leaning towards illegal, but you have to pay a high service fee for the fixers and there is no guarantee that they can get the job done. You pay first. If things go wrong, and they run away with your money or product, it is not like you can go to the authorities and ask for help, as you were knowingly doing something very gray to begin with. Refer to this as a warning, if the supplier suggests you use this channel.
Another common option, which I don’t recommend, is to scrub the documents in HK. It works like this: your Chinese supplier sells to a HK company (appointed by you, or even owed by you), and in HK the goods are repacked using either the HK company name or a fictitious name as the PRC supplier. Documentation is also switched and the HK company name or the fake PRC name is used on the ISF form mentioned above. This is illegal and I don’t advise it. It is also worth noting that warehouse space and labor in HK is significantly more expensive than in PRC.
Now let’s talk about the pros and cons of the recommended, legit options.
1. If you represent a substantial order size to the seller, consider setting up exclusivity for your market. But you would need to monitor the situation at the factory as well as the market place. (www.CBIconsulting.com.cn does this kind of monitoring for your reference) Monitoring is very possible, but not always easy or inexpensive. Plus it sounds like you are starting out, and may not have the volume to interest the factory in giving you exclusivity.
2. Build a brand. Even if the supplier’s name is on the small print on the unit pack, the brand name is yours, and if you have a good reputation in the marketplace, perhaps you can hold your margins. Possible, but not always easy.
3. I’ve dealt in both medical products and toys, which are highly regulated on the outbound and inbound like your diapers. My clients did not want their supply chains to be made public, so my China assembly center was used to do final assembly/packaging/inspection on a contract basis. We became the exporter of record. As we ran a fully compliant shop, we were able to get approval from the Chinese authorities to export those goods. In some cases, we even installed a sterile room. It took a bit of time to set up, but it was an inexpensive process to adjust our Chinese licensing and approvals. Potentially, you could partner with a supplier you already have, who you trust to be this third party, or you can hire firms that specialize in this type of service.
4. If the volume is large, consider setting up your own operation in China. Become the supplier of your competitors. While there are significant registered capital requirements, the factory footprint itself does not have to be large. I have seen legit factories set up employing only a dozen people. To learn about the steps and costs to set up your own shop, visitwww.Fiducia-China.com as they specialize in business formation. Keep in mind you don’t need the equipment to actually make the diapers, you just need a shop that can provide some value add, such as assembly, final packaging and inspection so that you can be the registered manufacturer.
To summarize, if you hope to do long term business in Diapers, I would advise you to register your own brand and consider using a third party. The third party can be the approved exporter of record and manage the supply chain in a way that is fully compliant from regulator, legal and quality perspectives. If you importing a considerable amount of diapers, think about setting up in China.
Let me know how things work out for you.
Question answered by Mike Bellamy, an Advisory Board Member & Featured Blogger at the not-for-profit China Sourcing Information Center. Mike is also the author of "The Essential Reference Guide to China Sourcing" and founder of PassageMaker Sourcing Solutions.