For decades now, the lure of low prices on just about anything has had businesses of all sizes looking to China as a source of goods.
Add to low prices the ease with which the Internet has made it possible to search out and begin a dialogue with these factories directly online, and many small businesses that are tempted to import do so too soon and with a lack of appreciation for all of the pitfalls and expenses.
I’ve been travelling to and doing business with Chinese and other Asia partners for my own businesses and for clients for about a dozen years, and visit the area every eight weeks or so. So I have some things for you to keep in mind if you are just starting to investigate the business case for importing.
For starters, if you’re interested in importing, my first piece of advice is to try not to – and by that I mean exhaust all possibilities to source as close to home as possible before considering looking abroad.
Prices in China aren’t as low as they sometimes appear by the time you add up duties, freight, customs and brokerage fees, quality-control expenses, business trips to the country, banking fees and the effects of currency exchange – not to mention the extra inventory you may need and the space and cash it consumes as you adjust to carrying extra inventory to manage the long lead times from places like China.
As a matter of fact, and as I have written about previously, more and more companies have started on-shoring or bringing China-made products back to North America as all those costs continue to rise.
If your product’s cost is mostly made of material or machine time, and not much labour (injection-molded plastic products come to mind), the pricing field is probably level as the costs of materials and machines are substantially the same all over the world.
However, when you find your business struggling to compete with rivals already sourcing from China, a business case for importing may still present itself. If that’s so, take your time and tread carefully – container loads of mistakes will quickly offset any price advantage you were hoping for.
I would suggest starting by using Web resources such as Made-in-China.com or Alibaba.com to do a basic search of possible vendors in China. However, be warned that those website resources are for general information only; I wouldn’t use them as anything more than a starting point. Some of the businesses profiled on those sites may not be the producing factories but brokers or trading companies that you might mistakenly assume are a factory– they could just as likely be people operating out of their apartment working on commission.
Furthermore, some of the best factories to work with in your industry probably don’t bother advertising that way as their reputation likely brings them lots of business.
Hiring a sourcing agent in North America or China may be an answer – there are lots to choose from; use your network and Internet searches to get a broad view of who might be available – but that strategy comes with its own premium. When contacting potential vendors, you will need to ask for minimum order quantities (MOQs), lead times and payment terms. Most factories will want to be paid in advance. Ask for references for sure.
Create a long list and narrow it down to a short list from which you can request samples; you’ll probably need to pay for them as factories get hounded for free samples all the time.
Next, plan a visit. Although I have done business, sight unseen, with China factories, they came highly recommended and I lucked out. I would never do so again if I could help it. There is nothing that tells the story of your potential partner’s business practices more than a walk through their facilities. If they refuse, move on.
Make sure you secure a Chinese business visa through the Chinese embassy in Canada or an authorized broker; budget a few hundred dollars for a one-year, multii-entry business visa. You should plan to visit as many factories as you can on your trip to learn how to compare them and what standards are acceptable to you.
Use your contacts at these factories to help plan your itinerary and stay at name-brand hotels whenever possible. possible as the quality of hotels in China are not always at the level you may be used to. China’s hotel star rating system is pretty reliable if you find yourself in an area without a familiar brand hotel. The factory should pick you up and drop you off and the owners won’t hesitate to drive you a couple of hours each way if you request it for accommodation purposes.
I would suggest planning a trip around a China-based trade show in your industry so you can expand your potential vendor list while meeting up with the ones you’ve already found. Again, don’t assume that the company that owns the booth owns the factory. Ask for clarification as much as possible.
As you get closer to your final decision, be prepared to plan for return trips to keep an eye on quality. Additionally, you can hire third-part quality-control services to check on your behalf during production or prior to shipping.
As well, make sure that both you and the factory have approved “ golden samples ” – a half dozen or so examples of each product that you both have agreed is representative of what you expect the quality of every shipment to be.
China sometimes gets a bad rap on quality but I believe that quality is not cultural. There are manufacturing mistakes made all over the world, every day. You are choosing to do business in China because you are looking for price competitiveness, but, as with most transactions, you typically get what you pay for.
Make sure your quality expectations are well understood. The lure of low prices can quickly be offset by the investment and risk.
With that said, many products would not be affordable to the average buyer if it were not for low-cost production. So if you do need to compete in this way, tread carefully, and don’t hesitate to ask for help from someone in your network who has done it before.
Special to The Globe and Mail
Chris Griffiths is the Toronto-based director of fine tune consulting, a boutique management consulting practice. Over the past 20 years, he has started or acquired and sold seven businesses.
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