This is a guide to purchasing ("sourcing") from China, and working with Chinese factories. It will probably be most helpful to people like me - entrepreneurs developing a new product or starting a new business that need to obtain parts and raw materials from China. It is written humorously, but hopefully there is some useful advice.
I've been doing a lot of shopping recently. I have one favorite store. I buy nearly everything there.
Do you think Home Depot is big? Wall Mart? Amazon? Ebay? McMaster Carr?
They are all pathetic and insignificant compared to The Greatest Store The World Has Ever Known. I am sure you are wondering - "how is that possible? no store is bigger than Wall-Mart!" . You are wrong my friend. There is One Store bigger than Wall Mart. MUCH bigger. Where do you think wall-mart, amazon and mcmaster go when they need to buy something? Sorry jimmy - they don't go to another wall-mart. They go to The Store. It is where all goods come from. ALL of them. You know it as: China.
Perhaps you thought you had to be a "big player" to buy from China? Think again. You and me can buy direct from The Greatest Store The World Has Ever Known. It's easy and fun! I will show you how.
So, say thanks to your new friend Globalization, read on, and soon you too will be a global sourcing expert...
Step 1: A Little History
It used to be that buying stuff from far away places was hard. You had to send a ship across the ocean for a couple years, they might all die at the hands of a storm or bandits, and in the end maybe you get a few grams of Pepper for a piece of gold. woot!
In more modern times, international trade was not so expensive or risky, but it was inaccessible because you had to know someone. 20 years ago if i wanted to buy something from a factory in Mexico, how would I do it? If I didn't know someone my best shot would probably be to go to Mexico and start driving around until I found a factory, buy some samples on the spot and write their address and phone number on a piece of paper and drive home.
As you might expect, the greatest agent of change in our lifetimes - the internet - plays a central role here. In the last 5 years countless Chinese companies have figured out that if they make a web page and hire someone with enough english to process an order, they can bypass lots of middlemen and be far more accessible to their potential customers - YOU!
Step 2: Window Shop China
So - what are you going to buy? and how do you find it?
I recommend starting with some recreational window shopping. This will start to give you a sense of the nearly incomprehensible scope and magnitude of The Greatest Store The World Has Ever Known
There are several large web directories of Chinese companies and their products.. These sites are the place to start for window shopping. These are the largest ones:
Made In China
Just type something interesting into the search bar on those sites. For example:
"rgb led flex"
"solar water heater"
"led belt buckle"
and you can also find things by theme:
did you try a few of those? welcome to the red pill.
Step 3: Digging a Little Deeper
Once you've found some stuff in the directory, take a look at some of the companies selling it. they will usually show a sampling of their products in the directory. if you go to the 'contact info' page in the directory they often have a real website, which may have a different sampling of products. in either case, the real catalog of products is usually far larger. it is often useful to ask about other similar items if you see something you like. also you will rarely find full information about an item on the web, you will need to ask for them for complete info (product specs).
Note - the artistic standards for a website in china are considerably lower than you are used to. I'm sure this will change in a few years, but as of 2008 a multi-billion dollar chinese company might have a website that looks about like your 17 year old cousin's myspace. so don't judge the company by their webpage - yet.
Step 4: Playing the Part
ok, window shopping is fun but lets say you actually want to buy something. take a look at yourself. yes you. are you a 15 year old with an AC/DC tee shirt and $10 in your bank account? well, you are not someone that China wants to sell to.
you will be buying from a factory, and they are only interested in selling to a professional buyer - someone that knows how to buy things, and is likely to buy a lot of things.
but you can play the part, and because of how the system works you don't have to buy a lot of things.
Step 5: What You Need
ok - you ARE going to need a few things here:
(1) a shipping account with Fedex, UPS, DHL or TNT. fortunately these are easy to come by, they all have free web signups.
(2) a bank account
(3) a few hundred bucks in that bank account. that's about the minimum amount to play this game. at the absolute minimum you'll be paying for a $60 fedex charge or two.
(4) optional - a web page (this will increase your response rates)
Step 6: Your First Contact
ok - you're ready to take the plunge. what next?
You can either write an email, or you can text-chat direct. Alibaba etc. have "in-system" email, or you can go to the "contact details" page for the company and find the real web page for the company (most have one). on the real webpage you can usually find a real email address, phone number and often an MSN or AIM chat address. a large number of the companies can live text chat in english. i haven't tried phone calling ever, but i guess it could be fun to try.
Your first contact should be short and to the point. Don't go into too much detail until they reply. You may be making lots of these "intro" emails, and the companies you contact receive lots of them. I usually make my first contact by email, and save the text-chat for a more detailed Q&A that might occur later. Here is my standard intro:
I am seeking a supplier of Scooby-Doo Diapers. Do you sell this? If yes, can you send specifications and pricing?
Thank you very much,
I. P. Frehley
Now, if I have seen some of the companies products on a website somewhere, I might change it to something like this:
I am interested in your Scooby-Doo Diapers Model SD-495F. Can you send specifications and pricing? Do you have any similar models?
Step 7: Communication Skillz
Notice that even in that first intro email we did a few things:
When writing, you must use simple english. The reps you are talking to often know just enough english to handle an order, and often they learned Special English, a simplifed form developed by the Voice Of America. Here are some tips.
(1) short sentences with simple words.
(2) One concept per sentence
(3) be respectful! you are talking to intelligent people, they just don't know english well.
check out your email sig: it includes some backup info. because the company you are contacting only wants to work with a pro buyer, they will often try to check out your website. have something there, doesn't have to be much.
Step 8: Response Rates
It is not uncommon that you will not hear back from a company. There could be many reasons for this - the company may be too busy right now, or it could be that they think you are a 15 year old with an AC/DC tee shirt and $10.
Some things i've found:
- some companies will respond only to "in-system" emails in Alibaba etc.
- other companies will only respond to their real email
- other companies you might only get to by AIM
- its pretty random!
- many companies will check the domain name for your email address, or the website you list in your sig. its pretty much the only thing they know about you. if you only have a yahoo.com email and nothing else you probably will not get as high a response rate as if you have an email from ibm.com and matching website.
Step 9: GETTING STUFF
ok, so once you've found some totally rad thing, you will probably want to GET IT. This is how it works:
We are very interested in your product: Uranium Control Rod Model XF-23. Can you send 1 sample? Please ship using our FEDEX account number: 142234423
< your address here >
Thank you very much,
I. P. Frehley
So, one of 2 things can happen here:
(1) 2 days later, "Uranium Control Rod Model XF-23" shows up on your doorstep. (and your fedex account is about $60 lighter).
(2) They will write you back with:
"Dear Mr. Frehley,
I am sorry, but Uranium Control Rod Model XF-23 has a sample price of USD 425. I have attached a PI.
*The sales rep always has an entertaining english name they picked from a children's book about flowers.
Step 10: The Rules: Sampling
The idea of a sample is that you want to check the quality and suitability of the item before ordering a truckload.
Since the FEDEX charge to ship you anything is at minimum $50, the company of your desire is happy to send you free samples of anything inexpensive. Typically you can get up to about $20 of products for free without any problem.
If the item you want 1 or 2 of is pricey - lets say its an electric car - you will have to pay for it, but you can buy just 1 as a sample unit. Often there will be a surcharge for this low volume sample order. But so what? 10% surcharge on top of a $300 electric car is still a ripping deal.
For particularly cheap items you can often get 5 or 10 of them. But you won't be able to get a quantity that doesn't make sense for a quality check. So - you aren't going to get 100 of the same LED, because nobody needs 100 of it to decide if they want to buy more. they might need 5.
For anything more expensive than $20 or so, you will need to buy it.
Step 11: Next Steps
If the item you want is above the free sample level - there's a couple other things you typically want to ask about:
- "leadtime" - how long after you make payment will they ship? if the item is in stock they should be able to ship it in a day or two after they get the payment. an item not in stock must be manufactured, they will be a lot less interested in selling a sample or small quantity if the item in that case. only once have i had a company take my payment and not deliver, I believe a motivator in that case was that I had ordered about 20 different items, all in very low quantity, and most of them were non-standard and needed to be manufactured. so - if you want a lot of things in small quantity, choose stuff that is in stock.
- "minimum order quantity" or MOQ. usually when you ask the price they will tell you the MOQ up front. it is never strict. you can always order less than the MOQ although often with a small surcharge (they usually will offer either a flat fee or percentage). a few times they have told me they would not sell less than the MOQ and I just offered a moderate surcharge (20% premium over their offer price when I was buying much less than the MOQ), which has always been accepted.
finding out about what you are buying:
- ask for the 'spec sheet' - especially for anything technical. it should have most of the details, but it is NOT always accurate. yet another reason you need to test a sample.
- you can often text-chat with them to ask a lot of questions where there is likely to be communication difficulty.
- ask them to send you a photo. i have found this to be especially useful when i want to see a small detail on the product. For example - "How does the power cord connect to your waterproof electrical box? Can you send a photo?"
Step 12: How to Buy From China
buying stuff is a bit of a hassle, mostly because the only way to pay is with a wire transfer. For most US banks to do a wire transfer you need to actually GO to the bank and fill out forms on PAPER, and your bank changes you $40 just to send the money. So for less than about a $200 purchase it is not really worth it. Last I checked Citibank is the only one in the US that lets you do online wire transfers (at least for normal people).
Ok - so how do you arrange the purchase? Always ask them to send you a PI, or Proforma Invoice. This form is the standard before you pay anything. It shows your ship address, the items you are buying and any other fees, the bank info for the factory, the shipping schedule (sometimes if it is not in stock, they will have to MAKE it, and that can take a month), and other important things. After you check it you will send the wire transfer.
Shipping: ask them to include Express (aka Courier) transport with the price. the term "FOB" means "shipping not included", while "CIF" means "shipping and insurance included". Express / Courier means they will use whichever of Fedex, UPS, DHL or TNT they have an account with, and their rates are nearly always better than yours.
Step 13: Shipping - Other Methods
Express transport is obviously pretty pricey on a per-kilo basis. But fedex sure makes it quick and easy! you'll get your stuff in 2 days right at your door, just like if you ordered from Amazon.
The other normal methods are Air Freight and Sea Freight. i think the best way to describe the process of freight shipping might be - it's a lot like paying your taxes. there are endless rounds of forms, phone calls, fees, faxes, surcharges, more forms, driving around, waiting in line, waiting not in line. it is a truly classic beaurocratic experience.
I tried shipping by sea once - the result was that it only cost $120 to send about 100kg of crap across the entire ocean, but then it cost another $450 and half a day of my time by the time those boxes got to my door - and that's in a case where my door is only half an hour drive from the nearest sea port! i do not recommend this unless you are looking to transport at least a full palette. on the plus side - it is really cost effective in bulk. a full container from china is only about $2500.
A friend of mine told me he had the identical experience trying to send sometihng by sea.
Air freight is not quite so bad as ocean. The difference between using a courier like Fedex and using Air Freight is that with Air Freight you will need to pick up your shipment at the nearest international airport, and you will have to do customs paperwork yourself. The costs for air freight may be 30% to 50% less than the courier service. You can hire customs brokers to take care of your paperwork for you, they might charge $50 to $100 for this.
Because the shipping process is so tedious, there are companies called Freight Forwarders that can act as agents on your behalf to take care of the shipping for you.
So besides Express service and freight, is there any other way? In fact there is - The China Postal System. China Post has an express service (called EMS), but that's just like Fedex and the rest. Here i'm talking about regular Airmail. Airmail via china's postal system is quite inexpensive - perhaps $5 to send a 500g package to the US - however because it is not insured or tracked nobody would send significant merchandise using it. So you will lose some credibility points if you ask for Airmail. In principle it would be by far the most cost effective way to get samples, but since only the sender can pay for it the factory is reluctant. But don't give up yet! I once successfully convinced a very persistent sales rep to send me some samples by China Airmail - the reason being that I didn't care enough about his samples to pay the Express charge, so I told him that if he wanted me to try his samples that badly, he should just send it by China Post and pay the charge himself - which he ultimately did.
Step 14: Taxes, Tariffs, Duties and Other Ways Your Government Protects Jobs
Because cheap imported goods can destroy local economies, your government may have import taxes on the goods you are trying to import. For most countries, importing small amounts of goods as "gifts" or "commercial samples" will be free of any import tax. Once you have larger or higher value goods, they are subject to import taxes. How and when these get paid depends a lot on your country, what is written on the package and what shipment method is used. Express couriers will usually hold your package and call you to collect any needed import tax before they deliver to you.
Here in the US the import taxes depend on the type of goods and you can check it here:
Step 15: Other Stuff to Know
there are different kinds of companies:
typically you want to deal with a MANUFACTURER or FACTORY. this is the company that actually fabricates the item. there are also TRADING companies or IMPORT/EXPORT companies - these are middlemen who do not operate a factory, but they may have products from a factory that does not sell direct.
it is normal for the buyer to pay up front for smaller purchases. for larger purchases any number of payment arrangements can be used.
fraud: i have never been defrauded, however Alibaba etc. have large FAQ's on their sites about different things to avoid fraud. Fraud is probably more common on things like brand name consumer electronics and fashion accessories, which are not things i have buy.
Step 16: Growing Trust
If your business is going well you will start buying in larger amounts. Be careful - I recommend that every new firm you do business with, always start with a small order first and grow your order size after the company demonstrates good quality and on-time delivery.
EstieS made it!