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DEALING WITH THE CHINESE

There is a popular misconception that a majority of Chinese sellers are scammers. I am going to try and expel this myth with my experience and my little knowledge. I do not claim to be an expert on international trade but I can share my experiences and hope some of this information will of help to someone out there!

THE GOOD OLD DAYS

This makes me sound old! I am probably not much older or younger than most users here. Now in these good old days there was no internet as such, that came a few years later. You would do all your business by phone, a fax machine and a (borrowed in my case) Global Sources publication which back then really was a bible. Some people really do not know how lucky they are now, you have everything at the end of your broadband connection!

With a little bit of courage I started importing at a young age from my bedroom in my parent house. My very first product was a mobile phone battery. Not an ordinary one though. It was a NiCad battery (all batteries were NiCad 12 years ago). NiCad batteries suffered from ‘Memory Effect’ whereby the more you charged them the less charge they held between charging cycles.

This battery I found had a built-in discharger! But not only that, it also had a ‘test button’ which when pressed would light up a series of LED’s which would let you know how much charge was remaining. The standby was also increased as they were rated at 1800mah instead of the usual 800 – 1200 mah.

To cut a long story short. I blagged 30 batteries from a Taiwanese factory (MOQ 1000pcs per model) launched them into the UK and sold them retail/wholesale (as I was in that business at the time). I got quite a lot of exposure thanks to my marketing abilities and they even were awarded ‘What Cellphone Award of Excellence’ (a mobile magazine at the time).

I went on to import and sell many of these and ultimately handed the product over to a big distributor, but to my peril I only earned 10% of what I should have due to my own fault and little knowlwdge of distruting agreements. However they went bust in a big way about 7 years ago (people in the mobile industry will know who there were) so that was a small consolation.

Updated: A quick search and I’m amazed I found a copy of the actual published review from 1996!

WHY TAIWAN AND NOT CHINA?

It was not uncommon at that time as anything technology/electrical/computer related was produced in Taiwan as the Chinese were famous for poor quality elecronics (to my knowledge plastic and textile products was their speciality at that time).

To get round this and to increase credability many Chinese factories manufactured electronics, shiped the components to Taiwan and assembled them in a third party factory just so they could put ‘Made in Taiwan on them! You still will find much higher quality electronics in Taiwan to this day, but China will offer a similar product cheaper. You make the choice!

CHINESE BUSINESS MEN/WOMEN

They are not all scammers. You build a working relationship with one and you have a friend for life. I personally have visited factories and the owner or senior manager would put me up in his own house with his family. They are offended if you stay in a hotel. Now tell me they are scammers? If you could smoke on flights I would visit China more regular .

Fortunately I am now in a position where I have people in China who can audit new suppliers by visiting factories and send me back a report a few days later. Only last Saturday (26 May) I had an audit arranged on a new factory and will publish some the actual photographs taken (for confidential reasons I can not post the actual report).

HOW IT WORKS

As my experince tends to be involved around consumer electronics my experience is that you have 4 types of supplier in China. The factory, the trader, the broker and the scammer. Obviously you are best to deal with a factory. The higher up the food chain the better your chances of lasting. Tip: the higher the MOQ (1000pcs is not uncommon) usually the better quality the item produced.

FACTORIES: Factories (or could be classed a s a manufacturer) produce the final product and normally have a strict MOQ of 100/500/1000pcs of each item.

Although they are a factory/manufacturer they do not necessary produce all the components. It is very common they at least they will produce the main circuit boards using a SMT Machine (Surface Mount Technology). Even the main electronics could have been designed by someone else and they just replicate it (sometimes under licensce and sometimes not!).

They have rows upon rows of production lines where humans assemble every part until you have the finished packaged product. Much the same way cars are manufactured. Usually, cases and other plastic parts will be bought in from a case manufacturer. Stickers will be purchased from a printer. The packaging will be bought from another printer and so on. The bigger the factory, the more components they produce in-house.

You will have noticed this with generic MP3 players for exmple. They tend to look all the same because the factories have all purchased the casing from another factory that just produces plastic components. To make a simple plastic MP3 player casing can cost £20,000 or more just in development and tooling (essentially the mould to make the cases from) design and CAD costs and that is before you have actually produces a single platic case or component!

So to keep costs down, the factories buy cases and other plastic components in from another factory for a few cents each. A saving upwards of US$250,000 on injection moulding machines, staff, design tools and tooling costs.

TRADERS: Tend to deal in much lower MOQ 100pcs is common and tends to be more flexable. They will either purchase 1000pcs from the factory and then break them up into smaller MOQ. This is not a bad thing as they will physically house their stock. Be aware that a lot of traders pretend to be a factory and will display photos of a production line and certificates on their website etc.

BROKERS: Will not hold any stock and will purchase as per your order, sometimes gambling using your money. The same applies, they may pretend to be a factory also.

SCAMMERS: Goodbye money! Yes there are scammers in China. Do you realise when you T/T US $1800 to a person you have never met before that is the equivalent to a YEARS SALARY to the average Chinese factory worker!?!? Can you imagine someone T/Ting you £20K? It amounts to the same thing! Becareful, no one is safe. I admit I have lost a few dollars over the years, but to-date they have only been a small amount ‘gamble money’ as I had a feeling something was not right. Gut feeling accounts for a lot in suppliers, buying and selling.

THINK OUTSIDE OF THE BOX – USE CHINA TO YOUR ADVANTAGE

At the time of my first international experience I had a much older friend who owned a massive mail order computer business. He had been importing for years. One of his greatest achievements in my opinion was a mouse. What he did was pure genius.

He went to a Chinese manufacturer, bought a basic 50p mouse, put his logo/brand on it, bundled it with some OEM paint programs, put it in a very well designed and attractive packaging all for around £3.00. They were sold into distributors and ultimately could be bought in Dixons, Argos or any other high street retailer for £34.99. To me personally, that is what importing from China is about, not looking for branded electronics and trying to squeeze 10% margin!!!!

Tip 1: If you wish to sell electronics directly to retailers they expect to work on a 40% margin.

Tip 2: If you wish to sell directly to big retailers/high street you will have to sell to a distributor who supplies the big retailers. They expect to work on a 20% margin.

Tip 3: When working out Retail prices remember they will include VAT @ 17.5% so work backwards when establishing your lowest selling price.

PICTURES FROM A REAL FACTORY

As mentioned earlier in this article, I recently had our China based agents perform a Factory Audit on potential manufacturer in Shenzhen. This is a typical ‘larger’ style factory which would have a MOQ of 1000+ pcs of each item and mass produce electrical items and of a high standard. So much so, well known brand name products you would find in the high street would be manufactured here on an OEM basis.

I hope these photographs give you an idea of what and where your products are made:

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