Building a Business with Chinese Suppliers
Let's cut right to the chase... You want to build a successful and profitable ecommerce business. The only problem is that you're not sure how to find legitimate suppliers with low wholesale prices. Novice entrepreneurs are regularly cheated and scammed out of thousands of dollars for omitting simple due diligence rules. Don't be one of them!
Goals of this Lesson
- Show you how to find quality suppliers in China.
- How to choose profitable products.
- How to negotiate favorable terms.
- How to NOT be scammed.
By the end of the lesson, you should have a strong foundation of rules for finding, filtering, and making deals with Chinese manufacturers.
Assessing the Quality of Chinese Suppliers
One of the most common mistakes I see is people being tricked with prices that are too good to be true. In the majority of these situations, the supplier is a trading company with little verified business in the past just looking to make a quick profit.
1. Assess Online Credentials
Alibaba provides a wealth of information when it comes to supplier legitimacy. In the images below, I provide examples low-risk and high-risk supplier profiles. Here are some key factors you want to see.
- Actual Manufacturer (not a trading company)
- Certifications (Trade assurance, Gold Supplier, Onsite Checked, Assessed Supplier, Etc)
- Minimum 4 years experience manufacturing the product.
- Verified revenue, location, and size.
- 70% response rate or higher
2. Order Samples
Depending on the nature of the product, it is usually possible to order samples before making a large order. You will be required to pay the shipping, but this step is a must. If you are trying to decide between multiple suppliers, this step will help you make the final decision. Be very of suspicious of suppliers that are unwilling or unable to send samples in a timely manner.
3. Use a Human Inspector
Even with a strong Alibaba profile and quality samples in hand, you can't be 100% certain the final product will meet your standards.
If you strive to build a long term relationship with a Chinese supplier, I highly recommend the using an actual human inspector. It is surprisingly affordable to hire an inspector for a day to audit the quality and working conditions of a supplier. In my experience, a quality control audit will cost from $300 to $1,000 USD for a full days work from an inspector. This step will give you a high level of confidence in the viability and quality of the end product.
4. Attend a Trade Convention
Trade fairs are the fastest way to network and get in touch with high quality suppliers. The Mecca of train conventions is the Canton Fair in Guangzhou, China. It has been established for over 50 years, runs for over a month in April and May, and attracts China's best business people. See if your supplier will be in attendance and meet them in person. This goes above the normal requirements for successful trading, but can be extremely valuable for building your Chinese business acumen.
Low-Risk Supplier on Alibaba
High-Risk Alibaba Supplier
The Single Most Important Rule for Choosing a Product
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Negotiating with Chinese Suppliers
Now that you have chosen the a few of the best low-risk suppliers, it is time to start hammering out the details for a profitable transaction. Like everything in international business, there are several sacred cow rules you should never break.
1. Be Professional, Polite, and Patient
Chinese business people negotiate at a slower pace their Westerners and place a high value on long-term relationships. Don't expect an amazing transaction to happen overnight - it may take weeks or months before you have a finalized shipment sailing across the Pacific Ocean. Treat every iteration like you're going into a job interview. For example, if you're having a Skype conversation, were something business appropriate and be presentable.
2. Learn their Business Policies
Here are a few questions you will usually need answers to before doing business.
- What is the Minimum Order Quantity (MOQ)?
- Do they offer product customization?
- What shipping methods are offered?
- What is the fulfillment lead time?
- What is their monthly maximum production volume?
- Are their any extra fees for packaging, customs, etc.
- What payment methods do they accept?
3. Keep Excellent Records
Before negotiating, maintain an excel spreadsheet that or other contact management system too keep track of every phone call, skype conversation, and price quote you receive from a supplier. Being able to reference past conversations is a valuable advantage when negotiating with the Chinese.
4. Make Suppliers Compete Against Each Other
The first price quote you receive is NOT their best price. Start by requesting quotes from at least three suppliers, then use these quotes as leverage to push prices down. In certain situations, this strategy can result in price quotes dropping by as much as 50%. I'm not saying you should be jerk to your suppliers, but inform them that you are weighting your decision on costs.
3. NEVER Pay with Western Union
If a supplier only accepts Western Union money transfer, it is a scam. They will take your money and you will have no recourse to get it back.
Legitimate suppliers accept Telegraphic Transfer (T/T) or bank wire transfer.
Random Rules for Profitable Business with China
- If you don't understand how something works, get help from a consultant. Never "just wing it".
- Don't put all your eggs in one basket - have backup suppliers for failed deals.
- Respect Chinese culture, their people are vibrant, productive, and come from a rich history.
- Phone calls or Skype are usually preferred over email/chat.
- Be confident. The Chinese will lose respect for you if you show weakness.
- You don't need to be the cheapest in your market nice, just the most well promoted.
- Negotiation is going to fail. Just move on and continue building contacts.
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