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Path: Sourcing News & Advice
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Sourcing >> 9
mistakes that can kill your import business

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9 mistakes that can kill your import business

Posted: August 30, 2016

By Mike Bellamy

Thanks
to the internet it is fairly easy for a small buyer to place an order direct to
an Asia supplier. Starting an online store or small business has never been
easier. But the sad fact is that most of these startups and first time FBA
importers don’t survive the first year. Here are the 9 mistakes which can kill
your import business:

Failure
to clarify product specifications

If
you aren’t extremely clear to the Asian supplier about your required
specifications, there is a good chance you will receive exactly what you didn’t
want! It is essential to state in writing your exact specs and work with the
supplier to create standards which they can use to confirm their production
meets your expectations.

Unrealistic
price expectations

Some
small buyers falsely assume that going Asia-direct will be magically reduce
their unit price by a massive amount. They fail to realize that pricing is
highly dependent on volume. For example, you can buy a set of 6 athletic socks
at Walmart for 5 USD. Walmart buys in the millions of units and gets a great
price. Even if the buyer found the Walmart supplier, it is highly unlikely that
the factory in China would extend to the new buyer the same pricing concessions
granted to Walmart. Most likely the factory sell price to the new buyer is
higher than the Walmart retail price for commodity type items like
socks.

Confusing
unit price for delivered cost

Too
many buyers are seduced by the sirens song of low price and forget about all the
axillary costs like shipping, defect sorting, compliance testing, inspection,
project management…

Related
video: ‘Not knowing the all-in cost of the “China
price”’

Competing
on price alone

As
mentioned in item #2 above, it is unrealistic you can build a sustainable
business going up against big buyers on price alone. You can try twisting the
arm of the supplier to give you a lower and lower price, but until you have some
volume, the supplier is not going to be supporting. And if you are only
competing on price in the home market, as soon as you start to build some sales
volume, the big players will take notice and crush you with their superior
buying power and resources.

Solutions: Provide a
superior product. Build a brand. Have great customer service…but don’t rely on
price alone if you are a small volume player.

Thinking
in months not years (when doing customized products)

New
buyers often fail to grasp the complexities of sourcing direct from China. They
assume things will move fast like when buying domestically. As a result they
plan days for actions that will take weeks. And plan weeks when months may be
more appropriate. For example, if you are doing anything customized, you may
have to wait 30 days for the supplier to get the raw materials, 30 days for
production and 30 days shipping. That’s assuming no problems along the way! So
many buyers get excited and accept orders from their clients before the China
supply chain is cemented and proven effective. Missing your lead times to your
first round of buyers is a great way to go out of business.

Wide
product range

Many
first time and small buyers envision their store filled with a wide range of
products all sourced factory direct from Asia. It’s a rude awakening for them
when they see the seller’s Minimum Order Quality (MOQ).But there are ways to
work around the MOQ. Think like the manufacturer and find out how they came to
the MOQ level stated. It’s usually not a number put forth simply as a
negotiation tool. To the contrary, it is often more to do with engineering and
production issues. For example, if you want 1000 custom socks of a certain
color. The raw material available from the factory’s sup supplier may come only
in roles of X meters and the smallest role makes 5,000 pairs of socks. With
that information you cannot try to find creative and mutually beneficial
solutions. For example:

1. You pay 10 X per
pair.

2. You buy the raw
material upfront and agree to place order for 10,000 units over a given (long)
period of time.

3. Pick another
material.

4. Help supplier find
a new sub supplier.

Getting
over the MOQ barrier is a discussion not a negotiation.

Cost
of compliance

Regardless
if you import 1 unit or 1 million units, you are the importer or record and are
responsible if any of the products fail to comply with safety and other
regulatory standards. Even if the factory says they are compliant, when a
problem arises (say the socks mention above cause a rash on a child’s skin) the
local lawyers are not going to go after a Chinese company on the other side of
the world. They are going to come after you. Therefore, buyers need to have a
compliance plan in place and build the costs into their budget.

Related
content: Product Certification and Compliance: The Key
Steps.

Related
content: How to Confirm Compliance to US
Standards

Related
content: Product liability

Skimping
on Quality Assurance

In
point #7 we talked about the need for the product to be compliant with minimum
legal standards. But we also want to make sure the product meet our own specific
standards for things like design, colors, quality and such. Asking an unproven
vendor to do the quality assurance planning on your behalf can be a recipe for
disaster. The good news is that setting up a robust quality assurance program is
not expensive. But if you don’t have the funds to do it right, you shouldn’t be
sourcing direct from China.

Not
understanding wholesale

The
strategies and dangers when buying factory direct are radically different than
when sourcing factory direct. Many buyers confuse “China-direct” with
“factory-direct” and are in reality buying from wholesalers and other brokers.
The following resources explain the dangers and opportunities:

Small Buyers Strategies: Video
Tutorials

A small buyer placing orders with Chinese
Suppliers: contracts, travel, and other issues

First Time Buyer. Small Volume.
Tips?

Poor quality and scams in Yiwu and
Zhejiang

Story on Yiwu and avoiding scams

Lessons from Yiwu

Want
to learn more sourcing best practices?

Join the Global
Sources Summit that combines conferences and networking, co-located with our
Hong Kong trade shows. The event will be held October 17-19, 2016, and is geared
toward online and Amazon sellers.

Mike
Bellamy is an Advisory Board Member & Featured Blogger at the not-for-profit
China Sourcing Information Center.
He is also the author of "The
Essential Reference Guide to China Sourcing" and founder of PassageMaker
Sourcing Solutions.

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