This article briefly introduces the Chinese product sourcing process. Whether you want to come to China to buy in person or buy online from home, the process is very similar. In this overview of the sourcing process, Sourcing Nova assumes that you have selected the niche products you want to source. If you do not have a profitable, niche product, click here to learn how to find one.
Beginners think that purchasing starts with finding a supplier. Sourcing Nova believes preparations are first. As a business owner, it is necessary to understand import tariffs on the goods you want to purchase. In the United States, each product has a special Harmonized Tariff customs number, a code number necessary to classify and define international products.
Many products require some relevant certification materials for import, so what requirements does your national government have for such products? There may be product quota restrictions; the company can earn tax rebates; products may be subject to anti-dumping sanctions. In 2019, the Trump authorities launched a trade war against China, and tariffs on many imported products have increased sharply.
Some high-tech products, such as DJI drones, are restricted import products from China. Unless you are familiar with international business trade and Harmonized Tariffs, understanding these tariffs is very difficult. This is why hiring a product sourcing agent for this process like Sourcing Nova or consulting a freight forwarder is so important to your business success.
Contact Sourcing Nova directly. Our experienced team will inquire about customs fees and tariffs of any product as well as import and export precautions. Generally speaking, such fees account for about 20 – 30 percent of the value of the products, and buyers need to consider these fees in the cost when setting a sales price. We advise buyers not to deal with customs and logistics-related matters on their own. This is tedious and error-prone process, and one that could cost you and your business greatly. It is better to find a professional freight forwarder. Sourcing Nova has its own freight forwarder on staff.
There are two ways to find product sources and suppliers: online and offline. The online approach is mainly through large B2B platforms, such as online purchasing catalog sites like Alibaba and Global Sources. The offline route is to participate in various exhibitions – The Canton Fair is the most commonly used method as it is the largest and oldest trade fair in China.
It is possible to set up a procurement department in China. The procurement staff will find suitable suppliers through local networks. Sourcing Nova has a full service procurement department in China. We have plenty of experience finding factories through various channels, bypassing middlemen and trading companies. We can provide you with the most cost-effective products and services. We usually look for five to six production factories for the product sourcing process and make initial communication with these factories according to your needs. We then select three to four candidate manufacturers based on those communication results and other considerations.
Request a sample product, and check the quality
By examining the sample products, Sourcing Nova can judge the efficiency and quality of the processing plant. Please note that sample products are not free from Chinese factories. If it is an OEM product, the prototype is hand-made by the master craftsman and may also involve special custom molds. The OEM, original equipment manufacturer, prototype price is much more expensive than the mass production products. In the case of ODM, original design manufacturer, the cost of the sample product is lower. In any case, you will be responsible for fees related to your sample product.
Generally speaking, the cost of sample can be deducted from future bulk orders. Chinese factories do this to avoid being cheated by fake buyers for free samples. We number the samples and send them to the buyer later, and the buyer decides what product to manufacture based on the samples. After the buyer decides the manufacturer, the buyer can send the sample to a third party inspection company.
After receiving the samples, the buyer can determine which manufacturing company to order from, and at this time, Sourcing Nova will start negotiations with the factory. Companies new to product sourcing from China like to bargain from the first contact. This is not appropriate Chinese business negotiation and custom. There are two main reasons for this.
Bargaining from the first contact does not conform to Chinese traditional culture. In China, factories do not like to deal with bargaining on the first contract. The factory knows that the buyer or importer who is negotiating prices now will continue to negotiate prices in the future. Manufacturers in China categorize these customers as “less desirable customers,” and if so, the buyer’s priority is lowered significantly.
Factories will assign skilled workers on orders for more desirable, preferred customers who better negotiate in the traditional Chinese way. When the factory production is busy, they will also give priority to the production of these customers’ products.
Secondly, by producing a sample, the factory can accurately predict the cost of mass production based on this sample. This information is shared to the international customer, who then decides to order or not order products.
Issue a pro forma invoice
After the buyer and the factory reach a consensus on the price, the factory needs to provide the buyer with a pro forma invoice. This lists the price and other important information (delivery date, shipping method, payment terms, quantity, quality requirements, packaging, weight and color).
Pro forma invoices can be used as contracts, and in most cases, separate contracts are not usually required. If the buyer wants to sign a confidentiality agreement to keep the factory from leaking information or requiring exclusive sales, a clear request of that information is required at this stage.
If it is the first time working with this factory, Sourcing Nova recommends buyers inform the factory of an upcoming inspection from a third party source at this point in the production process. It is important that the inspection team not be affiliated with the sourcing company or the manufacturer. This way the inspection is done completely arbitrarily and without bias.
If the factory knows Sourcing Nova and the buyer want an inspection of the goods, the factory will be more cautious during the production process. The factory knows failing the inspection means they will not be able to export products or get the remainder of their payment due. Under normal circumstances, we will arrange the inspection company to enter the factory for inspection when production reaches 70 – 80 percent completion. The inspection company will check the product quality and packaging according to the buyer’s specific requirements.
The pro forma invoice should be written in both languages – Chinese and the language of the buyer. In fact, the contract should be issued by factories in most cases. If the factory does not have English speakers on staff, a translator will be called in. To be clear and fair, Sourcing Nova will use both languages for the contract. In Western countries, business people will sign documents, but in China, most businesses will use a company stamp instead of signature. Some Chinese businesses have adopted the Western custom of signing.
Usually, the factory will arrange production after receiving 30 percent of the total invoice cost. After this initial payment, Sourcing Nova asks the factory to prepare commercial invoices. These commercial invoices are necessary for the freight forwarder along with the packing list. It is worth noting that many people on the Internet now make false reports of prices, thinking that lower prices will reduce import duties. However, Sourcing Nova believe this may cause unnecessary trouble with the import clearance process. We recommend buyers declare prices truthfully, as this will limit penalties and fines.
When the factory begins arranging production, the buyer needs to prepare the packaging design, the ‘color box’ (gift box for the consumer). Importers can find cheap designers to design their color boxes on outsourcing platforms such as Fiverr or Freelancer. After the color box design is complete, the buyer sends the color box design to Sourcing Nova or the factory. The factory will arrange printing and packaging the color box for the products.
Sourcing Nova monitors the production progress in real time. When the factory completes 70 to 80 percent of the order, a third party inspection company enters the factory. Generally speaking, the third party inspection company provides the most accurate and honest inspection report on the products. After receiving the inspection report, the importer then decides whether the shipment can be arranged or if the factory needs to adjust for mass production. Sourcing Nova thinks an inspection report is necessary and highly recommends the buyer have one. This finds and solves problems before customer complaints.
Freight includes air, land and sea routes. The air freight cost is the highest, which is suitable for the goods with small volume and high value. Land transportation can reach countries and regions with land connections directly to China. For general cargo to the U.S., we recommend shipping by sea. Sourcing Nova has its own freight forwarder and excellent warehousing resources, which has a price advantage over most freight forwarding in the market.
These are main steps for the product sourcing process from China. This piece is only a brief overview. In future articles, Sourcing Nova will specifically detail each stage of the overall process.
In addition to these stages of product sourcing process, the lead time on goods is important to remember. Generally speaking, it takes 40 to 90 days (excluding major holidays) from the time the order is confirmed until the products arrive at the customer’s designated location. The delivery period consists of the following:
- The buyer places an order and confirms the details of the document: two (2) to five (5) working days;
- Receive initial payment from buyer: three (3) to seven (7) working days;
- The factory purchases raw materials and arranges production: 20-50 working days;
- The factory arranges shipment to the nearest port: three (3) working days;
- Boarding: FCL, full container load, about two (2) working days, LCL, less than a container load, about seven (7) working days;
- Freight time: seven (7) natural days by air, 20-40 natural days by sea;
- Customs clearance at the port of destination to the customer’s designated location: five (5) to ten (10) working days.
Sourcing Nova reminds you we take care of 100 percent of the product sourcing process. You, the business owner, can concentrate on more important tasks such as marketing and customer service. We charge $100.00 U.S. on orders of $2,500.00 U.S. and four (4) percent on orders over $2,501.00 U.S. You will find out rates to be competitive if not the cheapest in the industry. Send an inquiry today, or drop a comment below. Let us help you get started filling your business with quality products.