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After choosing a good product, the next step towards a successful business of selling physical products would be looking for suppliers.
A reliable supply chain network would save you from worries, endless refunds and complaints, enable you to invest time more meaningfully to achieve better sales performances and better lives.
Even with zero knowledge about the culture or business environment in China, you will have a better understanding of how to check a supplier’s business background after reading this article, in which I‘ll share the following 8 aspects to evaluate whether a supplier is worth working with.
1. Understand the Supplier's Business Model
According to their business model, all the Chinese suppliers can be divided into the 3 types below:
- Trading company
Manufacturers are the ones who make the products from scratch. Some of them have booths in wholesale markets, attend trade shows like Canton Fairs, or create Alibaba accounts aiming to be found by customers. Nowadays, purchasing from Alibaba is popular.
Some other manufacturers focus on manufacturing, selling to domestic trading companies or wholesalers, and don’t deal with foreign buyers directly. Without staff proficient in English to do sales or marketing, you can hardly find their presence or directly buy from them.
Generally speaking, manufacturers have the lowest prices, but higher MOQs around $2-$5k.
The boundary between trading companies and wholesalers is quite blurry. I prefer to call companies selling products in a specific category for many years as a trading company. They only get products from manufacturers that they have built long-term relationships with.
At the early stage of your business, usually your budget on market testing would be far from MOQs for most manufacturers or trading companies. If you are not extremely picky about unit prices, it would be very recommended to buy from trading companies in the long term.
In most cases, their MOQs (minimum order quantities) start from around $1000, which is quite similar to manufacturers.
Wholesalers usually just resell products from manufacturers and trading companies. You can find them everywhere, on Alibaba, trade shows, or in wholesale markets. Their MOQs start from a lower level, sometimes less than $200 or even $100.
They are very sensitive to the trends, and likely to have inventories of the fad products. If you find something hot-selling, it’s not realistic for most newcomers to find the original manufacturers. If you also want to get a slice of the cake, it’s more recommended to buy from anyone who has inventories.
However, things would not be the same if you want to purchase and resell products in the long run, or you are looking for some level of product customization.
In both of the cases above, the wholesalers will not be a good option because their prices will be more expensive. Also, they’re not professional and focused enough on your product.
2. Analyze Supplier's Product Lines
Normally a manufacturer only provides products made from the same materials or through similar manufacturing processes.
Take wine tumblers (one of my favorites) as an example:
Essentially it’s similar to typical stainless steel vacuum cups, just in the shape like wine glasses. The manufacturer would prepare equipments and techniques for processing stainless steel materials, instead of glass.
If the vacuum cup supplier you found also provides other kinds of glasses, it’s likely that they bought from someone else, and are playing the role as a middleman for this product
If your supplier is a trading company selling wine tumblers, their other product lines should be also related to drinkware.
If the supplier is a wholesaler, their product lines might include a very wide range of categories without obvious relationships with each other.
3. Search Supplier's Location in China
Suppliers from the industrial clusters specializing in your target products can always provide the most competitive prices. This is especially true when you are looking around on the internet or trade shows.
Check out my previous blogs below to learn about two of the major industrial clusters in China, Industrial Clusters in Zhejiang，Industrial Clusters in Guangdong.
For the same type of products, interestingly there will be multiple industrial clusters in different provinces in China. And they would be distinct from each other in many ways.
Let’s take a look at silicon products such as AirPods earphone cases. Manufacturers making this kind of product are either from the Guangdong or Zhejiang province. But for 100% sure, manufacturers from Guangdong province can deliver much better quality than those from Zhejiang. If you demand good quality, you can skip all the suppliers not from Guangdong.
Here is a practical tip to help you judge which industrial clusters provide better quality: Talk with the suppliers. Ask them why the products from other regions are much cheaper. They will not hesitate to explain why their price is a little bit higher but much better in quality than their competitors from other places.
Another interesting insight I want to share is about the supplier’s location of registration.
A lot of new importers would get confused by this: Why are so many Chinese suppliers registered both in China mainland and Hong Kong at the same time? Of course, it’s not a scam. On the contrary, it’s quite normal because China has very strict regulations on foreign currency exchanges.
Most Chinese companies in the international trading industry would also register an offshore company in Hong Kong, using the offshore bank account to handle foreign currency payments.
4. Evaluate Supplier's Business History
Continue reading this aspect only if you want to build long term relationships with suppliers. Skip if you’re planning to buy for just one or two times, or you’re fine with changing suppliers quite often.
Another suggestion is try to find those who have been in business for at least three years. Because starting a new business in China is not that hard. It costs less than $500 to register a company, a few thousand US dollars for the Gold Supplier membership on Alibaba or to become a supplier on trade shows.
In China, a lot of people choose to be bosses of themselves after working in manufacturing or trading companies for a couple of years. Lots of them quit or switch to other industries if they find it’s tough to maintain the business.
Therefore, if a supplier is able to keep business running for more than three years, they will be more qualified as your long-term supplier.
To verify the suppliers’ business history, you can either let the supplier introduce themselves, check their business license, or their Alibaba supplier’s membership profile to find out when they were established. Besides, you can also go to Whois, search their website domain or email address domain to see when it is registered.
You can also go to the suppliers’ website or their social media to see if they have posts or photos about their attendance on trade shows. This way you can tell if they have been selling these products all the time.
5. Refer to Countries They've Exported
If you want to sell on American Amazon, and found a supplier at a super competitive price, but most of previous customers are from developing countries, then this one will not be a good option. Because U.S. customers on Amazon are likely to be unsatisfied with the quality, then request for refunds.
Most Chinese suppliers have their certain scope of countries or regions that they are mainly selling and exporting to. You can tell if the supplier can provide proper quality for your market simply by learning what countries they have successfully exported to.
Also, you may need product compliance certifications (sometimes mandatory) for importing certain kinds of products. In these cases, you’d better find a supplier exported to that country before, so you can use their certifications or enquire them about how to import legally.
Some developing countries have tedious customs clearance procedures, or seldom freight forwarder companies providing door-to-door delivery service.
For these two scenarios, I also recommend buying from suppliers who have exported to your country before, because they can probably refer the right freight forwarders to help you handle the shipping and customs clearance in your target country, especially in case of customs checking at random.
(Some developing countries have tedious customs clearance procedures, or seldom freight forwarder companies providing door-to-door delivery service. )
6. Verify Supplier's Compliance Certifications
Most countries have different compliance certification requirements for some categories, like electronics, toys, and medical products.
In most cases, compliance certifications are required by either the customs or the e-commerce platforms that you are going to sell on. Hence, during your supplier research, you can adopt those who have the required certifications, to save the costs of applying for certifications for yourself.
Let’s take importing toys as an example, if you want to ship to the United States, but the suppliers only possess compliance certifications for the European Union. You cannot use the CE certification to import to the United States, but it can at least prove that the supplier’s product quality is good enough to pass the testing of the European Union. Meanwhile, they are very likely to pass the CPSC standard testing of the United States.
Under this circumstance, you need to pay from your pocket for the testing, costing you at least a few hundred US dollars. But if you just want to test the market with a small quantity, it’s more recommended to buy from suppliers with CPSC certification to save some money.
(CE and CPSC certificate samples)
7. Verify the Factory's Qualifications
For most small to medium-sized businesses, you don’t need to go too deep with this aspect. Because most trading companies or small-scale manufacturers usually won’t hold any qualification, and this is typically only concerned by big buyers.
The qualifications of manufacturers vary in different industries. The most common one is ISO 9001 certificate, a quality management system, proves this supplier is authentic and very well-organized.
Another common certificate is BSCI, showing how the factory is doing on social responsibilities, including fair payments of labors and safe working conditions.
For most small to medium-sized businesses, it’s not necessary to filter suppliers by this standard. But it would be best if the supplier does have qualifications, making them look more professional, and have supported big retailers before.
8. Don't Insist on Export Licenses
This one also confuses a lot of new importers. In my blog and Youtube comments, a frequently asked question is if it’s necessary to only buy from suppliers who have export licenses?
My answer is “No”.
In China, a lot of small manufacturers and trading companies don’t have export licenses. If they do, at least they wouldn’t be too small. Without this license, the supplier cannot use their company title to export this batch of products. Usually, they will use a third-party company’s title to export, causing a bit extra cost.
Even with licenses, this is quite normal for many manufacturers and trading companies. If their upstream suppliers didn’t pay VAT(value-added taxes), they won’t have the VAT invoices issued by the government. In this condition, they cannot export under their company’s name, which is common in China since our government is not very strict on taxes of small manufacturers and personal businesses.
So when you find the shipper on the BOL (bill of lading) is not your supplier’s company, don’t panic. They are using a third party’s name for exporting due to the issue above.
To Wrap Up
Regardless of product categories, these eight methods should be quite enough to help you verify suppliers’ background. You can try to buy from them as long as they are suitable for your business, and it’s not necessary to try to find the “perfect” supplier meeting requirements in all aspects.
I hope you can benefit from this post, if you have any questions about today’s topic, let me know by leaving a comment below.
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