With the rise of Internet-based companies, more and more businesses are jumping on the trend of outsourcing production to factories in China. However, using a China sourcing company to get your products made can be complicated, so it’s important to know what you’re getting into before you go down this route. Here are seven things you need to know about China sourcing companies before you start your business relationship with one of them.
1) Experience
It may seem intuitive, but don’t assume that any Chinasourcing company can do everything you need them to. Each one has a different area of expertise. For example, a typical provider might only be able to source products from China and/or translate them from Chinese into English. Find out what each company’s specific strengths are before hiring them so you know that they can deliver what you want or need at a fair price.
2) Communication
This is perhaps one of the most important aspects of doing business with any company in China, particularly if it’s overseas. It’s especially important when you use a global sourcing companies because there are more people involved in executing your order than there would be if you were buying directly from China.
Without proper communication, misunderstandings can occur and potentially affect your entire supply chain. For instance, if an employee at your supplier doesn’t understand what you need or how much inventory is needed for production, they could get things wrong.
3) Flexibility
When you’re working with overseas suppliers, especially in China, flexibility is key. This means that if you suddenly need a product revised or something new created, it needs to be possible and timely. Otherwise, you might have to throw out what you have created and start from scratch—at which point your design will be outdated and difficult to sell.
Finding reliable overseas suppliers who can communicate clearly is easier said than done—but it’s well worth investing in these relationships up front so they can provide quality work when you need it most.
4) Transparency
Pricing is extremely important when you choose China sourcing agent. Here are three main pricing options: cost-plus pricing, reimbursement-based pricing, and free on board (FOB) price. When using cost-plus pricing, you determine your production costs and add a markup on top of them.
For example, if your production costs for an item total $1 per unit and you want to add $0.50 in profit per unit, you would charge $1.50 for each unit sold—so $1 for the cost of goods sold plus 50 cents in profit equals $1.50 price point per unit sold.
5) Pricing
No two businesses are alike. Different models for manufacturing in China are more suitable for different kinds of products, and it can be tricky to choose which one is right for you. The quality of your supplier will have an effect on your company’s success, so it’s important to select someone carefully.
On top of that, there are many things you need to know before using a sourcing company—including how much they charge. Here are seven things you need to know about pricing before choosing one.
6) Revenues and Market Share
To be successful, you’ll need revenue and market share. Successful China sourcing companies find products that sell for $300–$1,000 per unit and generate $5,000–$20,000 in monthly revenues per product line. If you can achieve these numbers with one product line, think about how much money you could make by launching 10 or 20!
This is especially valuable if your company doesn’t have access to traditional funding because it allows you to bootstrap and grow organically.
7) Understanding Chinese Culture & Business Practices
Working with a sourcing company in China can be an intimidating experience. Not only do most of these companies have poor English skills, but they also adhere to vastly different cultural norms. To fully understand how to work with your Chinese manufacturer, you need to grasp some important cultural differences before diving into production.
