Welcome back, for the 3rd and final article in the basics of sourcing from China.
In the last two articles we spoke about how to find good suppliers and the process you would go through during the order handling and management phase. For the final part of this trilogy I want to discuss other smaller parts and subjects that are linked to sourcing from China.
I will talk about the following subjects:
- Transport and logistics
- Product development
- Certifications
- Logo and packaging design
Transport and logistics:
This is (at the moment) a big subject for many people, as the current situation in logistics between China and Europe is getting on a crazy level. For the moment the prices are soaring and the number of delays are numerous. This is the case whether you have your goods sent by air, sea or train. The prices have been going up like domino’s. The price of sea freight went up earlier this year (due to multiple reasons) and as a reaction to that the prices of the train are also going up. Compared to each other the sea freight prices are still relatively higher than the train is. The price difference between the two is not that big, and even though the trains are having delays, it is still the faster option and the price is not much higher. For the moment, the prices and delays are persistent and are here to stay until the end of the year (2021). So unfortunately, you will have much higher logistics costs and there will be delays. This is a global situation, with nobody knowing precisely when the situation is going to change.
For your own choice, without going into details there are four options in incoterms that or most commonly used. DDP, DAP (or DDU), FOB and EXW. When talking to your supplier, make sure you are both clear on the what incoterm is used in the price/deal you are making. DDP would mean the goods simply arrive at your door (all transport included), DDU/DAP means everything is arranged, only you will get a message from your local customs and will have to pay for the import related things. This can be handy if you are in the Netherlands and are using Article 23 for your company (this is a Dutch specific thing). With the other 2 incoterms, you will have to arrange the transport through 3rd parties. FOB, means the shipment needs to be arranged from the harbour/train station. And finally with EXW, you will have to arrange everything including pick-up at the factory/warehouse. So all options are viable and as normally is the case, the more you arrange yourself, the lower the costs should be. However there is no wrong answer to which incoterm to use, only make sure that it is clearly defined within your deal, so you know what will be arranged and what you’re paying for.
Product development
Wow, fantastic, you have a great new idea and you can’t find anyone offering it online. Whether a completely new concept or a new version of an existing product. So now what do you do? It’s tricky, especially when it’s your first time. Always decide for yourself first whether you want to arrange copyright/patent in your own location. This will not ultimately stop Chinese suppliers from trying your product on their local market in China, but will definitely help in the area where you want to sell. I will not go in detail on this part of the process as we are sourcing specialists and not patent/copyright focussed. If you want to start this process make sure you find a specialist on this.
At that point in time you will need to collect all your information, technical drawings and other wishes you have and describe them as detailed as possible. If all your information is clear the process of development in China will be much smoother. Finding a place to do this, is probably the most difficult part. And there is no ultimate answer to how to solve this. You will need to ask many suppliers (without giving them much details!) if they can offer this service and what the costs will be. The more remote and unknown the factory/supplier is, the better protected your design would be. But unfortunately, at the same time this also means that the process becomes more difficult and the communication will become more complicated. And with a new product it is especially important to have clear communication to make sure your project will succeed. It’s always possible to use external parties (like sourcing agents) for this process. It will be more costly, but it can save loads of time and problems along the way. Final thing to always remember, be prepared that a supplier in China will use your product (in the same or slightly adjusted form) on the Chinese market. Try to make a deal where the supplier signs that the new product will not be sold to other people in other western countries, but even then just presume the product will enter the Chinese market (if it fits that market).
Certifications:
Another subject that has grown and becoming more and more important. For example in the EU, the CE certificate is a very important one for many products at the moment. If you want to arrange a certificate, do your research. Find out, what is needed, and perhaps even more important, if it’s a common form of certification or a more obscure one. If it’s an unknown certificate, it is going to be very difficult to find and hard to check if it is a legitimate certificate or not. In China certificates are seen as a difficulty in the process and nothing else. They are not looking at this as something that is part of a product. Although it is getting better and better. If you have a product that has an obvious certificate linked to it, that is basically is the business standard for your product, it will be much easier to find this. The suppliers will be up to date on these and can offer the certificates if they are a serious company. Many buyers will ask for it if it is indeed the industry standard. It becomes trickier when the certificates you are looking for are not mandatory or unknown to many. In that case it is a question of putting a lot of effort in and the base thought that if you get a quick reply and certificate, there could be two things going on. Firstly it could mean the supplier is professional and has it ready to show, on the other hand it could also mean the complete opposite as it is something that is completely fake. It is always a good idea to have certificates checked by people you (relatively) trust in China, just to see if the information is correct. And if you’re doing this yourself, only think about actually ordering if they can send you a file showing the certificate(s).
Logo and packaging design:
It is very common to ask your supplier about your personal logo on your product. In most cases this should not be a problem, and not even be that much more expensive as the standard product without logo. However the issue you will mostly run into will be the question of MOQ. If you want to have your logo printed on an existing product, the MOQ of the supplier will most likely go up. This is not illogical of course, as they have to set their machines specifically for your product in this case. Make sure you negotiate on the price and the MOQ, but be realistic in how many pieces you want to order. If you are ordering in smaller numbers of 50 or 100 pieces, you will most likely have to accept that the supplier will not print your logo. You can order the product without logo in a small “test” order and if you find out the product does well, make the choice to make the order bigger and having the option of your logo on it. Alternatively, you can ask if it’s possible to have your logo as a sticker. This is not as good looking and professional obviously, but It is a much simpler process. Even if the supplier has a higher MOQ on this, it means you only need to order more stickers, not products.
Lastly you can choose to have your logo on the carton. Again this will influence the MOQ, but in this case the MOQ of the number of cartons you are ordering. Having extra cartons is always handy to either with the supplier (at their factory/warehouse), or at your own location to use with returns or broken boxes you receive. These options will make the process cheaper, if you are not yet willing to commit to higher numbers to order.
Finally there is package design, focussed on the retail/sales box. This again is something that is relatively easy to arrange. Make sure you know the extra costs before doing or ordering anything. Ask the supplier to send you a blueprint/template of the box size (they will mostly use .ai files in China) and make your design fit the template you received. When you have your design finished, make sure the supplier confirms if the design would work. They can sometimes have good input on changes needed to the design, due to colour scheme, printing issues or other small practical things. Always presume that the box printing will be done by 3rd party, it will not be done inhouse at your supplier normally.
So, and here we are at the end of this threefold introduction of the sourcing process for people new or growing in the e-commerce. All three articles are focused on explaining the basics in combination with tips and tricks. If for the future you have any questions, you can always reach out to me (Maarten de Vreeze), as we are convinced that sharing good information on the business people are in, is the future! Or perhaps that future is already here.
Feel free to contact us at The Silk Road Connection.
