By: Robin Wang. About the Author:https://plus.google.com/105221253101024742076
Some people are planning to import something from China to start their small business and, they assume it’d be a lot easier and cheaper to buy directly from Chinese manufactories and skip a local wholesaler or other middle steps.
But after several rounds of contacting and negotiating, they sense deep frustration and many of them end up dropping their purchase plan. Well, when things don’t work out, you should at least try to understand why and how. Thinking without knowing is mere imagination. Depend on it if you are satisfied by just imaging your profit and success.
Before you start your purchase, know these.
Many foreign buyers complain it is so hard to import from China. Their find their purchase inefficient and ineffective, long-winded and usually full of “surprises”.
Here are some typical problems and obstacles they encounter.
1) High MOQ (mininum order quantity)
This is the biggest barrier that keeps the small buyers out.
At the very beginning, the buyers may be very excited to have found the suppliers for the product(s) they want to buy. But soon they will find out that the manufacturer has high MOQ requirements to even make a quotation.
Why do the factoreis have high MOQ requirement?
A. The factories invested huge amounts to build a factory and, more importantly, write the paychecks.
Maintainance of assets is also a constant hole that sucks in cash.
They need big orders and big buyers to keep their factory operation in a good flow.
They need big profits via these big orders to cover these production costs.
B. The factories also have to buy the parts and materials from the material suppliers. No matter how small an order is, they will need to make moulds and dies for it, and they’ll need to purchase all required materials. Unless the order is for regular models that the manufactorer frequently makes and, while it happens that there are preserved quantities available in their stock, they may be able to offer you a wholesale rate that they usually give for a large order quantity. In reality, however, many buyers want to have specific design(s) for their order. The manufacturers’ material suppliers also have their MOQ. In order words, the factories will have no choice but to order a relatively large amount of each material needed for a specific order. They thereby lose but not profit from the order. Concern about price will be discussed below.
C Unlike the stockmarket where deals are made virtually in a flash of time, production of an order takes real time and space. The manufactorers need to schedule dates and times, and number of workers and meterials for the production of any order, regardless of the quantity of it. This process itself produces cost. Nevertheless, when an order is rolling on the line, other products will have to be pulled over or delayed. This is to say, that the opportunity cost of a small order partially includes the profit off a confirmed large quantity order. The real question is, why should they compromise so much for unconfirmed small orders with uncertain potential customers over existing cashcows?
2) Unit Price is not cheap!
Besides MOQ, the buyers are often surprised to learn that the unit price for their order, or even just for the sample, are much higher than expected.
They expected prices in China to be very cheap.
But when they receive the quotations and work out the final prices (including the transportation fee, import duty, handling fee), they find it is not worth to buy from China. It is more economic to buy from their local wholesaler.
Why are prices excessive?
For small order quantities, or trial orders with specific customized designs, the manufacturers will need to include many items while making your quotation. They will put all the expenses into the prices, which inlude comprehending, designing, and confirming product and production requirements, moulding and die making, sourcing and purchasing of parts and materials, scheduling production, labor costs, asserts depreciation, opportunity cost of other orders while the assembly lines are occupied for your production, etc. Remember, they actually lose not profit if the order is way below their MOQ. If you think that they are making profit out of your trial order or sample order, you are way mistaten. No factory will bother making so much effort for such insignificant gains. If they agree to make a sample or deliver a trial sample to you, they hope to establish further win-win relationship with you.
What must be mentioned is that the per unit cost for making a small amount of products is usually much higher than that of a large quantity, because less units share all other costs except for parts and meterials. This is the reverse of the economy of scale of mass production.
Some may ask why the factories would not try to pose a friendly gesture by offering a low sample price or trial quotation. Well then our buyers would be a little floaty with their thinking. The manufactures do not recognize you. They do not intend to profit from you on a trial or sample order, but it doesn’t mean they are willing to make a potential lose for some non-solid opportunities. They, as factories, are not likely to run, but new buyers won’t be given much credit until they proove themselves.
What’s more, a proper order may not be placed after the sample(s) or trial orders for many possible reasons. The manufacturers have to take precautions for femage control.
Most of the new buyers are new to the “mysterious China import business”.
They want to earn profits but they are frightened by so many rumours from thousands of aspects, of various forms and versions.
They learn that many fraud transactions happen in e-trade. They are very cautious when buying something outside their country.
They only accept safe payment platform or banking system, like paypal,escrow, credit cards, etc. But these paying platforms are used mostly in retail business and for small orders only.
Most of the sellers on B2B website are manufactories. They are not wholesalers or retailers.
They accept the normal international payment methods, like wire transfer, Letter of Credit, and so on.
They don’t appreciate paypal and escrow and any of their type much, and they won’t accep these.
4) Lead Time(production time)
Almost all manufactories don’t have excessive stock of finished products, nor do they have large spare of material or parts, unless when they just had a cancellation of order by their buyer, or if dective products occur. You obviously can’t not count on the chance of the coincident that the factory having just enough right products when you need them.
As mentioned above, even for a small or sample order, the manufactory has to source materials before they can produce, just like for large orders. This means it can take from 1 week to 2 months for them to be ready for your production. In peak seasons, factories can be overwhelmed by orders. Since they’ve been so busy, and that your order is so small, they will have to work around the clock to fit your production into the gaps of others, to minimize delay and lose for making your products.
This may be very different from the buyers’expection. They can’t imagine to pay 30% deposit first and wait for 1-2 months’s production.
They feel unsecure. They don’t know what may happen during this period.
In contrast, if they buy from their local wholesaler, they can get the goods as soon as they pay.
5) Limited Choices (for models/patterns/colors)
Buyers are usually upset with the limited chocies they can have. For instance, they want to order 3 tailors of shirts with 3 patterns designs, 4 color combinations each patterns designs, 1,000 peces for color combinations. They want to order more models with small quantities, so their e-shop or paper catagories will has a large range of model collection. They will be told by the factory, that this isn’t going to happen. Why? The reasons are sort of a repetition of those for problems mentioned above.
A.The sellers have to source materials and parts from their suppliers. Their suppliers also have MOQ requirement for each part and meterial. They can’t purchase a trace amount of them just for your little order.
B.It will make them countless troubles in production, and the scheduling and arranging for production, management and communication can all be a mess, if they try to make so many small productions at the same time.
If you are aware of these crucial facts about the REAL WORLD of PRODUCTION and TRADE, and you sincerely are willing to take on your part of risk and responsibility alongside profit, to create a win-win situation, you may then start looking for your opportunities. And for those who are not prepared, or are taking things for granted, it will
only waste your time and others’. Please stay away, or you will end up with nothing but frustration and disappointment, or worst.