Fantastic, you have started or made the choice to start selling online (through your own web shop or existing platform). There is more than enough information to find about how to setup your shop. If you want to use an existing platform like Amazon they take your hand and help you get started. However, it is a lot of new information to take in, and this can be overwhelming. How do I make profit with my shop? Which products will I sell? How do I determine competitive prices? And then the big question of how do I purchase products for my own online shop?
Your shop is built and ready to go, but how do I order my goods from China? And even more important how can I buy from China as cheap as possible? There are many things that influence the process of purchasing and the logistics of having the orders delivered. There will have to be big choices made. Important at first is to make the choices as you want them, before jumping in and looking at the challenges connected to your choices.
When purchasing from China there are a couple of important factors, price, quality and delivery time would be the three most important. However there is more to it than only these three important things. We would here like to give a general introduction into buying from China, the 101 of what you need to at least get started.
Choice 1: How will I purchase
Choice 2: Product and specification choice
Choice 3: Order quantities
Choice 4: Quality control
Choice 5: Logistics and incoterms
Choice 6: Payment terms
These basic six choices will now be explained in basics per choice you have.
Choice 1: How will I purchase
Straight out of the gates there are already important decisions to be made. They can influence delivery times, price, quality, liabilities and time spent by yourself.
The most important options you have are:
- Through agents in China (or Alibaba, which is agents/traders mostly as well).
- Through agents/sourcing company in your own country (or other country not China).
- Do entire purchasing process yourself.
Choice 2: Product and specification choices
Of course the choices in which product(s) and which specifications are endless. If you are in the position while making these choices we would always recommend to choose products you know yourself, the more you know the better. If such a product does not exist, make sure you learn everything you can about the product(s) you want to sell, knowing your product is so important. By doing this you will know everything about a product and because of this you will be taken serious by suppliers. Especially because you will most likely be seen as a small customer by the supplier, so if he notices you don’t know the ins and outs, he will not take you serious. Secondly make sure you do your research about different quality levels, find out how they are measured with your product and make choices for yourself which quality level you want to purchase. This can have a huge influence on the price you pay, possibly the number of delivered pieces that do not comply to the standard. Most importantly, if you know precisely what you want to buy, the supplier can’t trick into buying something you don’t want.
Choice 3: Order quantities
Given choices on the order quantities are much more straight forward. The choices you made during choice 1 will also have influence on this, because it would influence the fact whether you will have your own stock in warehouse or not. And the choice then is pretty simple, the higher the quantity you order the better the price you should get. And equally, the lower the quantities the higher the price. However the lower the quantities are that you order the lower the risks are of having left over stock and the lower the costs for not needing a big storage space. With higher quantities this will be more of an issue, if the product you are trying to sell is not selling as you would like, you can get stuck with a big quantity in left over stock. Finally the logistic costs can be lower as well, based on order bigger quantities, the price per piece would normally drop.
Choice 4: Quality control
Obviously it is a good thing to deliver good quality products. “Quality” is however a flexible and relative term, quality of your product is automatically based on the level of quality of similar products. Quality needs and expectations are connected to the amount of money they spend on a product. A small plastic toy costing 2 Euro will bring a completely different set of expectations than an 80 euro box of plastic blocks you can put together of a very recognizable brand.
Those are the choices of what you want the quality of the product to be, but there is also the subject of product quality of the ordered goods. Are you going to do pre-during-end of process quality control? Or are you going to not spend money on it, and presume/hope all arrives in good order. Building in quality checks will of course cost money, and is that worth it? It depends mostly on the product you are buying and the quantities you buy them in. Important to know is that in China the standard is to not return defective products, the supplier will not accept them back and you will be stuck with them. With strong negotiations/communications replacement product will be sent, but you will be stuck with the defective products.
Choice 5: Logistics and incoterms
There is a double choice to be made here, but they are interlinked. The first part would be to determine which incoterms you would like to have. Incoterms in short, means up to where the supplier will arrange, pay and be responsible for transporting the ordered goods. There is a whole range of incoterms, from doing everything yourself and the supplier just offering the goods in their warehouse (EXW or FCA) and you having to arrange everything yourself, to the other end where the supplier does virtually everything and delivers the goods on your doorstep which would be DDP. But there are many all with their own set of rules and responsibilities. In China the incoterm most used is FOB (Free On Board), which means the supplier will arrange export documentation, all customs matters and will deliver the goods onto the ship you want, everything else has to be arranged by you (including booking the spot on the ship). Purchase prices can vary greatly due to the incoterms connected to the deal, EXW will be cheaper than DDP.
With the choice of incoterm made, the next step is to choose which parts of the logistics process (the ones the supplier doesn’t do) you want to arrange yourself and which you want done by 3rd party. You can arrange everything yourself (including importing and customs) which would normally be the cheapest option, however if you are focussed on e-commerce sales, this is normally not in peoples’ wheelhouse. More pricey, but possibly still cheaper than the supplier arranging things, you can make use of 3rd party logistics parties (customs brokers, carriers, forwarders), they are specialists and can arrange anything needed. This part of the choices tends tob e the most complicated for web shop owners, as they need to focus on running the shop and normally do not have a specific background in logistics. A lot can go wrong but there can also be money made here, the right choices can definitely raise your profit margins.
Choice 6: Payment terms.
This step in the process is not fully your own choice, you will be dependent on what the supplier is offering during the negotiations. However there are a lot of people that forget that the payment terms are a full pert of the negotiations you have in China. Especially if you are a starting seller, with a small web shop or your space on Amazon. Without a big cashflow or investment money, the down payment percentages and timing of payments can have a big impact on your possibilities. In China the standard parts of negotiations are, the price itself; down payment percentage (normally needs to be paid when placing order); timing of final payment. The final payment can be at delivery at your doorstep or when shipment takes place in China, so in that example the day of payment can differ by at least a month! In Europe we are used to payment terms like 30 days after invoice creation, this is not the case in China, and most importantly, anything is negotiable.
We hope this will give some understanding about choices you will have to make when purchasing in China. This information is a very short description of subjects that can be made as complicated as you like. If you only want to focus on selling with your shop, make use of specialists, but always keep your finances in check. There are more articles on the way describing the individual mentioned choices.
Looking for more information? You can always contact us and we might be able to help each other be successful.
Maarten de Vreeze