By Renaud Anjoran
I wrote before about the challenges of Chinese factories to sell on Amazon. And yet, it seems to be an emerging trend. I asked Fredrik Gronkvist (from China Importal), who has also been observing the latest trends, for his opinion on this.
Q: Ten years ago, Chinese factories ‘made to order’, and seeing one of them ‘make to stock’ was a rare occurrence. Have you seen more and more manufacturers ‘make to stock’? What do they do with it?
First, Chinese manufacturers still ‘make to order’ and I think this is where their main business is still at. And yes, it is true that we are seeing more Chinese suppliers make stock products that they keep ‘off shelf’.
However, there are two things to consider with this trend.
1. Making their own branded products is at best complementary to their main business. It’s not a shift away from make to order, or serving international buyers.
It makes a lot of sense, given that these suppliers have spent years, sometimes decades, investing in their production facility, and of course, accumulating a wealth of experience.
It’s tempting for a Chinese OEM, seeing their buyers adding large profit margins on top of the factory price, to go about it themselves and create their own brand.
2. The main driver between this push is to use existing production capacity and tap into the domestic Chinese market, not overseas markets.
The goal for these suppliers is primarily to sell their products on Taobao.com and Tmall (two leading e-commerce platforms for selling to Chinese consumers).
I also think that many of them underestimated the challenges faced in their own market, and that’s one more reason why this will at best remain a complementary strategy for many suppliers.
That said, in the last two years we have seen a shift, with both manufacturers and traders going for international markets, such as Amazon.com.
I will get back to that in a bit.
Q: Another trend seems to be Chinese factories that develop their own design, their own branding, and their own technologies. Outside of the billion-dollar manufacturers, this was quite uncommon 10 years ago. Is it much more common these days? How unique are their brands and products?
In the cases I’ve seen, it’s a matter of selling rather generic designs on Taobao.com. They do have brands, but there is not much unique about the products themselves.
Then again, this is only from my experience, and I mostly work with Guangdong based suppliers in the consumer goods space.
For the reasons I explained above, I would say that it is much more common that Chinese suppliers have their own brands – and I think this is something we will see more of.
As I also mentioned, it’s hard to tell if this trend will just fizzle out and be forgotten in a few years, with the suppliers being stuck permanently as OEMs, or if we are seeing the early stages of future industry leaders.
Q: More and more factories have reduced their minimum order quantities. Alibaba launched Aliexpress a few years ago. More and more Chinese companies sell in North America under the “Fulfilment by Amazon” model. What impact do you think this trend will have on Western markets?
I think we are still at an early stage, and it’s impossible to say if the current large batch of Chinese sellers will be forced to retreat, or are actually well on their way to future domination of all global online marketplaces.
I think that a large number of Chinese suppliers are overwhelmed. Selling on Amazon.com is a major undertaking, that sets high requirements for quality, product safety (and compliance in general), and timely deliveries.
In addition, customer support must be provided, in a way that many suppliers may be completely unprepared for.
Not replying emails for a week doesn’t cut it on Amazon, and unlike the supplier directories – it’s a customer first policy, not seller first.
The global Ecommerce markets are still moving so fast, and even faster with China and Asia in the mix – something that happened very quickly. Yet, the markets in Europe, the Americas and Japan are also moving very fast on their own, so it’s very hard to say what effect this will have.
On the one hand, China-based sellers have a more direct access to manufacturers, but US-based Amazon sellers have a much better understanding of the customers and the target market.
The latter is far, far, more important than having manufacturers around the block, especially as that gap is being bridged rapidly by a range of courses and services, helping buyers with everything from managing the process as a whole, to quality control and lab testing – all available online.
Then again, I am also convinced that a certain percentage of Chinese sellers will remain committed, agile and motivated enough, in the long run, to succeed on western marketplaces like Amazon.com.
Likewise, I am also seeing the same with European wholesalers making it big on Tmall.com.
Chinese sellers do have one major advantage though, and that is their willingness to survive on a much lower profit margin than any western seller would be able or willing to accept.
So, sellers that only compete on pricing may face a hard time to stand up against a large number of China-based sellers. Hence, it may take more than just private labeling and crushing sales data to succeed with a product in the future.
That said, the most successful companies don’t rely on razor thin margins.
Look at incredibly successful companies like the watch brand Daniel Wellington. They don’t compete on price, so that card can simply not be played on them.
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Renaud Anjoran has been managing his quality assurance agency (Sofeast Ltd) since 2006. In addition, a passion for improving the way people work has pushed him to launch a consultancy to improve factories and a web application to manage the purchasing process. He writes advice for importers on qualityinspection.org.