By Mike Bellamy
Thanks to the internet it is fairly easy for a small buyer to place an order direct to an Asia supplier. Starting an online store or small business has never been easier. But the sad fact is that most of these startups and first time FBA importers don’t survive the first year. Here are the 9 mistakes that can kill your import business:
- Failure to clarify product specifications
If you aren’t extremely clear to the Asian supplier about your required specifications, there is a good chance you will receive exactly what you didn’t want! It is essential to state in writing your exact specs and work with the supplier to create standards which they can use to confirm their production meets your expectations.
- Unrealistic price expectations
Some small buyers falsely assume that going Asia-direct will be magically reduce their unit price by a massive amount. They fail to realize that pricing is highly dependent on volume. For example, you can buy a set of 6 athletic socks at Walmart for 5 USD. Walmart buys in the millions of units and gets a great price. Even if the buyer found the Walmart supplier, it is highly unlikely that the factory in China would extend to the new buyer the same pricing concessions granted to Walmart. Most likely the factory sell price to the new buyer is higher than the Walmart retail price for commodity type items like socks.
- Confusing unit price for delivered cost
Too many buyers are seduced by the sirens song of low price and forget about all the axillary costs like shipping, defect sorting, compliance testing, inspection, project management…
Related video: ‘Not knowing the all-in cost of the “China price”’
- Competing on price alone
As mentioned in item #2 above, it is unrealistic you can 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 is not going to be supporting. 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.
Solutions: Provide a superior product. Build a brand. Have great customer service…but don’t rely on price alone if you are a small volume player.
- Thinking in months not years (when doing customized products)
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 plan 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 shipping. That’s assuming no problems along the way! So many buyers get excited and accept orders from their clients before the China supply chain is cemented and proven effective. Missing your lead times to 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 Quality (MOQ).But there are ways to work around the MOQ. Think like the manufacturer and find out how they came to the MOQ level stated. It’s usually not a number put forth simply as a negotiation tool. To the contrary, it is often more to do with engineering and production issues. For example, if you want 1000 custom socks of a certain color. The raw material available from the factory’s sup supplier may come only in roles of X meters and the smallest role makes 5,000 pairs of socks. With that information you cannot try to find creative and mutually beneficial solutions. For example:
- You pay 10 X per pair.
- You buy the raw material upfront and agree to place order for 10,000 units over a given (long) period of time.
- Pick another material.
- Help supplier find a new sub supplier.
Getting over the MOQ barrier is a discussion not a negotiation.
- Cost of compliance
Regardless if you import 1 unit or 1 million units, you are the importer or 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 mention 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 costs into their budget.
- Related content: Product Certification and Compliance: The Key Steps.
- Related content: How to Confirm Compliance to US Standards
- Related content: Product liability
- 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 meet our own specific standards for things like design, colors, quality and such. 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
The strategies and dangers when buying factory direct are radically different than when sourcing factory direct. Many buyers confuse “China-direct” with “factory-direct” and are in reality buying from wholesalers and other brokers. The following resources explain the dangers and opportunities:
- Small Buyers Strategies: Video Tutorials
- A small buyer placing orders with Chinese Suppliers: contracts, travel, and other issues
- First Time Buyer. Small Volume. Tips?
- Poor quality and scams in Yiwu and Zhejiang
- Story on Yiwu and avoiding scams
- Lessons from Yiwu
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 China Sourcing” and founder of PassageMaker Sourcing Solutions.