Sourcing Products and Suppliers in China: A Guide for Small Businesses
As businesses continue to expand their business and supply chains globally, business houses/companies are increasingly choosing low cost countries for finished goods with quality products and components at unbeatable prices. Though China is no longer the country with the lowest manufacturing cost particularly for sourcing low-end products, in regards to mid-to-high tier products sourcing and procurement, China is still the major sourcing destination of the world.
The article will present briefly on how small businesses and companies that cannot afford to establish overseas representative’s offices, branch office or manufacturing operations can still effectively and efficiently source products and suppliers in/from China by using various channels:
Internet Search is the easiest, cheapest mode of sourcing/searching your products and suppliers in China. Many suppliers and manufacturers can be found in the internet based on how the search is streamline and by filtering the results. Although there are many sourcing platform, for example, Alibaba is one of the most popular sourcing platform in/from China for B2B sourcing of large orders product quantity.
In most internet market platform including in Alibaba, there is a filtering option to filter the search to get a desirable search results. Filtering options like “member rating”, “onsite supplier”, “verified supplier”, “accredited supplier”, “supplier backlist”, “credit-check services”, or “supplier capability assessment” are available in Alibaba. However, be aware that even if the desired result is shown after filtering the search, for example as “verified supplier”, it means that the companies or suppliers are verified to exist on the website/sourcing platform; it does not necessary mean that their product quality, product capability, or reputation of the company are verified.
PROFESSIONAL SOCIAL MEDIA
LinkedIn for example, a professional social media platform is a good example to source for products and suppliers from China where there are many sourcing groups, and at the same time, be cautions as not many Chinese suppliers or manufacturers have a social (professional) media presence. To review some feedback and comments on products and potential suppliers, joining professional LinkedIn group is a good source to get some information.
Currently, many Chinese companies, and companies with presence in China are already taking advantage of the digital media marketing platform particularly Wechat. Wechat is a micro messaging platform which can be use both in mobile and window desktop version.
Wechat business or private groups allows a member to follow the activities and connect with the business or private group activities. It has a group public platform for communication and it allows posting files, pictures, website links, and comment on it. Joining a selected Wechat group can also be a good source to get some information such as feedback, comments on products and potential supplier’s information. Just be aware that Wechat private / business group can be created freely without any restriction, so, the product or information published in the public group platform does not necessary mean that the product quality, product capability, or reputation of the company are verified.
TRADE SHOWS / EVENTS
In China, there are many Trade Shows for various products and sectors. Trade events like the Shanghai International Trade Fair and Canton Fair are some example where participates are from around the globe. Attending trade events is a good opportunity to get connected and established direct contact with the suppliers and manufacturers to talk about their products, quality control procedures, production capacity and other related areas.
DIRECT PURCHASE FROM THE MANUFACTURERS
Direct purchasing from the manufacturers can save cost if everything goes smoothly according to the plan after completing the process of verification about the manufacturers or suppliers and if the need for an agent / trading company is not required. At the same time, be cautions that there can be a risk of scamming and the difficulties of refunding your money if the product quality is bad and not up to the standard satisfactory level.
COMMISSION-BASED SOURCING AGENT
If buying directly from the manufacturers could be troublesome and risk, engaging a commission-based sourcing agent like individual agent / sourcing company would be a better choice. These agents can assist in product identification, verification, and communication between you and the manufacturers. The commission fee generally ranges from 3% to 10% with some going even up-to 15% of the purchase value in China depending on the sector.
The risk of engaging an agent is that sometimes there is a hidden agreement between the agent and the manufacturers. The other potential risk is that often the independent sourcing agents might not be well equipped in verifying the products quality, managing production, or making the transaction in a cost-effective channel.
SOURCING SERVICE PROVIDER
For entire end-to-end sourcing service which can provide complete services like manufacturer’s identification, price negotiation, supply management, quality control management, logistics and shipping management, and other related sourcing services, engaging / hiring a sourcing service provider / company is a good choice to minimize the risk of loss.
Usually with a sourcing service provider, there is an upfront payment to be done before the transaction. They can also charge certain fee for managing purchase transaction. The cost or fee for sourcing service providers is higher than the usual commission-based sourcing agent.
To avoid the complexities of sourcing in China or anywhere, and to purchase in small quantity, a trading company is a good option. The cost / price of the products will be generally higher than that of the manufacturer / factory since trading company will have to make a margin on the goods being sourced / sold. However, depending on the type of trading company services, there is still a challenge in supply chain and product quality issues.
As a general conclusion, China, like many other manufacturing countries too poses many risks ranging from poor quality products to fraud to difficulty in proper communication channel to enforcing contracts. Therefore, sourcing in China or anywhere is a challenging task that can put businesses in huge risk if a proper channel of sourcing and procurement strategy is not formulated.
Published on August 26, 2015 by NAHAN BUSINESS SOLUTIONS CO., LTD.