TMBA 095 (LBP85) – How To Get Started Sourcing Products From China post image
 

This week, Dan, Ian and special guest Matt Kowalak talk about how you can get started sourcing products from China. Matt has been living in China for almost a decade and specializes on sourcing.

Listen to this podcast and learn:

  • Why so many people are getting into selling physical products (instead of information)
  • How to get started with sourcing products from China
  • How to avoid getting ripped off
  • Where to find manufacturers
… and much more.
Tip: Make sure to scroll down further to read some more advice from Matt after listening to the podcast.

Have fun. Leave a comment. Give us a ring. 888-554-8428. Go make it happen! :)

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Call us with your questions or comments at 888-554-8428.

Episode length: 20:06

 

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From Matt:

This is a follow up article for the podcast, just to give you some basic tips on sourcing from China, where you should look for help and where you can do things by yourself.

The China mindset is a bit different that just about anywhere else on the world, this place is busy, crowded and white hot with growth, development and manufacturing capabilities.

Check your “western ego” at the door, humble yourself a bit, learn to listen and read between the lines a little bit, don’t rush through important things and you should do fine.

Agents
There is not really a rule of thumb for what you should be paying your agent, if they are good they know they are good and will charge you accordingly, either with what you pay them or by some arrangement they have made with the supplier.

It really depends on the product, your order quantity and consistency on what you should pay a good agent.

This backdoor commission is very difficult to detect unless you know your cost structure backwards, forwards and inside out.

Agents in China can be very valuable and can help make sourcing easier, or they can add a layer between you and your suppliers making communication that much more difficult.

Look for your agents to provide you with specific services, especially if they are invoicing you directly and you are not paying a supplier directly.

Without being on the ground in China, it is almost impossible to independently verify your supplier properly.

You should look for an Agent that can provide the following services:

 Walks you through the sampling process and uses several different suppliers

 Detailed Agreement structuring – Yes you can build a strong contract in China with a Chinese supplier, you just need to understand or find someone that understands Chinese law

 Long Term Negotiations – Real negotiations start immediately and never really end with a partner in China, the culture surrounding this is subtle and as long as you have any type of business relationship with a supplier, you should constantly be taking their temperature on things and bringing up information that supports your side of the discussion. This is especially important with regards to payment terms and orders. The following points are all factors in your price, product quality and production time:

o Who paid for the tooling?
o Who’s handling the shipping and logistics?
o How strict are your QC requirements?
o Exchange rate? What was it when you signed the contract? What is it when the order ships out?
o Does the supplier know you aren’t in China? What will it cost for you to come and personally oversee a problem?

 Decent QC skills or hiring a 3rd party QC service – it is worth its weight in gold to have someone physically show up to inspect the goods, your agent should provide this service or have a trusted recommendation for a qualified 3rd party QC service.
o Be very wary of any agents that try to dissuade you from inspecting your goods before they ship out, massive red flag.

 Knows your product specs and can discuss them with you. Don’t get passed off to someone that doesn’t know jack squat about you and your product.

 Link your payments to performance!
o Place the deposit on receiving a sample that passes inspection
o Pay a bit AFTER completing an inspection in China
o Pay the balance once the goods arrive at destination post and are inspected.

 Helps you out with you due diligence
o Are you sure the company is a legitimately registered company and is legally allowed to manufacture your product?
o Are you sure that your agent is not paying into a private account and not a company account, leaving you no legal recourse to prove that an actual order was placed?

 Acts as a project manager, or works with the person managing the project in China
o No news in BAD news in China
o You need to stand up and bark, the more complex your project is, the most attention you need to pay to it. Don’t just be another PO, make sure your order is placed with the right sized supplier and get people on the ground.
o I try to make my supplier PROVE to me that they know what is going on, make your project manager display a command of your product specs and your timeline.

 You don’t want an agent that is buddy buddy with your supplier either, and neither should you be.
o Be wary of very tight relationships in China, they signify family relationships or deep economic ties.
o Do not put yourself in a position where you need to ask for favors, the courtesy will then be asked of you and it will be a higher than what was conceded to you.
o You want the supplier to see you as a good customer that trusts your supplier but is smart enough to verify what is said, don’t demand to be respected, EARN it.

I’ve been here for almost a decade so I’m slowly turning Chinese.

Great reading for negotiation skills in China is James Clavell’ Tai-pan, this book was my inspiration for moving to the Pearl River Delta.

Fascinating story about a Scottish trader in the early days of the establishment of Hong Kong and does an excellent job of showing a westerner successfully adapting to Asian cultures and values.

You can hit me up at matt(at)southernperspectivesz.com or matt(at)highcappin.com

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  • Anonymous

    Thought this might interest you guys

    “Will the Next David Ogilvy Speak Mandarin?”
    http://www.forbes.com/sites/avidan/2011/11/15/will-the-next-david-ogilvy-speak-mandarin/

  • http://www.facebook.com/profile.php?id=615283729 Alanna Tyler

    I worked in China for 4 years and this is a great overview.  I agree that being on the ground there is essential for the first round of negotiations and to show up occasionally at your factories just to see what is going on.  I also had a local manager who showed up much more often that I did, and allowed me to play the bad cop by asking for difficult things and blaming it on his white boss.  Speaking Mandarin really is essential, because when they don’t know how much you understand it can be amazing what the differences in their private side conferences are before they answer your question in English.  Of course, once they know you speak Mandarin sometimes they switch dialects on you…

  • http://www.tropicalmba.com Dan

    cheers man! 

  • http://www.tropicalmba.com Dan

    hey Alanna thanks for listening!! 

    haha i love the good cop/bad cop routine, ian and i do that one as well. 

  • Anonymous

    I originally thought it would be better to go directly to the manufacturer, but after listening to this podcast it makes quite a bit of sense, I think, to have a man on the ground that you can use as an agent.  Building that long-term relationship will ultimately allow you a reduced percentage and if you use that guy for all of your products you’ll have a good working relationship.  Saving yourself the hassle of having to go there and fumble through it makes a lot of sense.  Still, I think it would be smart to meet your agent in person every once in a while, have him give you the tour, etc….

  • http://www.tropicalmba.com Dan

    I think that makes sense. They can provide some serious fire power, especially if they are transparent. We have a Chinese agent who we visit 2-3 times a year and pay a flat percentage rate on our total invoice.

  • http://www.facebook.com/Bobbiemt Bobbie Floerchinger

    Great podcast, I love physical products. We have been doing them since 2005 but we need to widen the net. Our products are expensive niche clothing, and we love them but it would be great to get into a drop ship, less inventory intensive project also. (albeit smaller cut of the action)

  • http://www.tropicalmba.com Dan

    hey thanks for the shout Bobbie!!! we just started getting serious with more drop shipping arrangements and it’s been working out for us so far…

  • Asset Protection

    shout out on the calibre hint, shit is great.

    information products just have so little overhead… but I do see your point about the long term sustainability.

    Great podcast

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  • http://www.tropicalmba.com Dan

    absolutely!! cheers and thanks for listening to the show. 

  • http://www.JiansNet.com Jian

    Contrary to Matt, I didn’t do well in China back in the day when I was working for a national international trade company, so I pursued computer science all the way to the USA ;-)

    I still hope to go back to China to startup some type of software/web business, but at least for now, I am comfortable living in USA…

  • Anonymous

    The tips above about sourcing from China are great! I think another trustworthy platform to source products from China is Global Sources. I like some of their resource guides which talks about how to find suppliers, evaluating them etc: http://www.globalsources.com/SITE/BUYERGUIDE.HTM

    I believe it’s very helpful especially when you are just starting out and need something to guide you along.

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