Tag: middlemen

How to tell a factory from a trading company? Four quick ways to spot middlemen from real manufacturers

How can you tell a Chinese factory from a trading company?  Often times when sourcing for a product from China using Alibaba, you’re not sure if the supplier is a middleman or a manufacturer.  For example one of my readers had this question:

“We have found a product and ready to place a order. But before that, we are dealing with a supplier and we are not sure if the supplier is just a “Trading Company” or a manufacturer.  The price she quoted seems to be higher and she keeps on increasing the price for a smaller change or any question with the product. We want to keep this product for the long run if the sales goes good. So, we are looking for a supplier for the long run and with the best price. Please provide your suggestions and what things to be considered.. I am looking for the manufacturer. Thank you, -N.”

Before we dive in, first let’s look at why people prefer to work with factories over trading companies? Here’s are some advantages of working with a factory:

  • Lower prices – You cut out the middleman by going direct to the source
  • Transparency – you are dealing with the factory directly.  In cases of any problems you know where to find them.  Factories tend (though not always) not to disappear overnight.
  • Guanxi – You are building a relationship with the factory and their boss, ideally.  Over time this trust leads to more cooperation, lower prices, better terms, and other intangibles that help to grow a business relationship.

Note there are benefits to working with a trading company if you’re able to find a trustworthy one.  Potential benefits of working with a trading company include:

  • Saving time – they can handle the sourcing process for you
  • Find suppliers that you cannot locate yourself – Alibaba is not a complete listing of all suppliers.  Many factories in fact do not have export licenses meaning that they cannot export products by themselves.  They need someone (usually a trading company) with the proper export license to do it for them.
  • Better communications and better English – Trading companies typically are more polished than factories.  They may have better presentations of their products and better English skills since they are focusing on the sales side (rather than the manufacturing).

Here are four quick ways to tell a factory from a trading company without flying to China.

  1. Ask them

    Sounds obvious but most times when I ask the question are you a factory or a trading company, trading companies will reveal their true identifies.

    Red flags – If they give you a wishy-washy answer like we have a “partner factory” that likely means that they are a middleman.  Real manufacturers have their own factories.

  2. Common thread test

    By checking a supplier’s product line, you can get a good sense whether they are a manufacturer or middleman.  Factories will typically have a common thread through their entire product line.  For example they may specialize in silicon rubber products.  So a factory will likely have silicon gloves, silicon baking sheets, and silicon measuring cups.  It makes sense because their entire production line and supply chain is configured to specialize in this one material.  They have “depth” in the product selection using this material.

    On the other hand, if a supplier offers iPhone cases, selfie sticks, and USB Power banks, it’s likely they are a middleman.  Why? Because there’s no way one factory can manufacture such a broad line of products.  The middleman is picking and choosing hot sellers from different factories and putting them on Alibaba.

  3. Ask technical questions

    I find that asking technical questions will reveal a lot about the supplier.  If they can answer them then this builds confidence.  If however they don’t know answers to simple questions that is a red flag.

    RED FLAG: In one case when I was sourcing iPhone charging cases, one of my team members found a supplier on Alibaba that offered cases similar to one of the leading competitors.  We contacted them and setup a visit.  Once we met I asked the nice ladies about the charging life and they couldn’t even provide the most basic answers about charging times and battery life. Upon further questioning, they admitted that they were a trading company.

    Ask technical questions to find the TRUTH: Factory or Middlemen
    Ask technical questions to find the TRUTH: Factory or Middlemen

  4. Ask to visit their factory

    If the supplier is truly a factory interested in doing business with you they would gladly welcome your visit.  In my years of sourcing, I’ve never been turned away about a legitimate factory that’s interested in doing business with us.  They have nothing to lose and everything to gain by hosting you.

    However, if they seem evasive about the factory or if they make an excuse that the factory is very far away then this hints that they are a trading company, probably with something to hide. In other words they don’t want to reveal the true identify of the factory to you, which is not a trustworthy way of doing business.

    In summary remember the 80/20 Rule.  These four methods will let you quickly identify about 80% of the middlemen found on Alibaba.  And you can do this without visiting China.

    What’s your #1 challenge when it comes to finding direct manufacturers versus middle men?  Or do you prefer to work with sourcing agents?  Hit reply and let me know!

How to attend a trade show like a pro: Finding the right suppliers, Asking the right questions, and Getting the right Product

We are officially in the middle of trade show season. Whether you are attending the Canton Fair or smaller regional trade shows, here is how to attend a trade show like a pro to find the right suppliers, ask the right questions, and find the right product at the right price.

If you want to cut to the chase and get my cheatsheet that summarizes “How to Attend a Trade Show Like a Pro”, please sign up for my free newsletter.

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How to attend a trade show like a pro

First of all you might be asking why trade shows? Aren’t they dying when you can find suppliers online?  Well, do you want to own a 7-figure Amazon business? FACT: according to a 2016 survey of Amazon sellers, MULTIMILLION DOLLAR AMAZON SELLERS ARE TWICE AS LIKELY TO ATTEND TRADE SHOWS? This is according to a survey done by webretailer.com.

What does this mean?  It’s not just a matter of simply showing up at the Canton Fair and finding the right supplier right away. You have to know how to ask the right questions to find the right product at the right price. In part 1 I showed you how to prepare for a trade show. Here I will review best practices AT THE SHOW and AFTER THE SHOW.

First let’s take a step back. Many of you know the 80/20 Rule or Pareto’s Principle “The law of the essential few and trivial many”.

  • 80% of the world’s GDP is controlled by 20% of the people
  • 80% of a company’s sales come from 20% of its products (bestsellers)
  • 80% of your results come from 20% of your work

In terms of sourcing: 80% of suppliers out there are NOT the right fit for you.  Your job is to find the right 20% and focus on those!  Let’s call them the YES suppliers for the purpose of this article.

Focus on the Essential Few
Focus on the Essential Few

So let’s apply the 80/20 rule to trade show sourcing.  By now you’ve already pre-registered for the show and reviewed the map so you know which halls to target so you will hit the ground running. If not, see part 1.

AT SHOW: 

At the show your goal is this:

  • See as much as possible in a limited amount of time
  • Decide WHO are the ESSENTIAL FEW to follow up with

In other words “80/20” the suppliers and don’t waste time on the trivial many.  Trade shows are huge.  When I visit one, sometimes I walk 20,000 steps a day!

Trade Shows are a lot like Speed Dating Events
Trade Shows are a lot like Speed Dating Events

In fact it’s a “Meet Market” and I compare it to speed dating.  Just like one of these networking events, you’re not going to talk to everyone.  Use your eyes to see which suppliers may be the right fit for you first before you approach them.  As I’m doing this, I keep in my head 3 buckets: “YES, NO, and MAYBE”.  I ask myself “Where will I put them?”

Yes, No, or Maybe
Yes, No, or Maybe

Before we get into asking questions, first you should question yourself.  I prepare a short elevator speech introducing my experience and the product category I’m in, demonstrate an ability to buy, and then a call to action where I will ask them questions.  Many first time trade show goers forget about this step.  In fact a proper introduction will build confidence and make suppliers more comfortable in doing business with you.  This can mean revealing products not on the trade floor, lower prices, and a greater incentive to do business with you.

At the show, here are 7 questions that I ask suppliers.

  1. Do you manufacture [XYZ product]?  
    If yes, then continue.  If no, thank them and move on
  2. Are you a factory or trading company?
    Many Amazon sellers prefer to work with direct factories so here are some ways to tell them apart from middlemen. Most times I ask them directly and they tell me.   Another way is to look at their product selection and if there is a common theme.  For example silicon product manufacturers will offer silicon baking sheets, silicon gloves, and silicon measuring cups so it makes sense they focus on one type of material.  On the other hand trading companies will offer everything under the sun such as iPhone cases, USB power banks, and selfie sticks.  Telling them apart is both an art and a science.  I will dive deeper into this topic in the future so please signup to my free newsletter to be the first to know.
  3. Which countries do you export to?
    I call this the country test.  If your marketplace is the US and the factory exports to Africa or the Middle East then BEWARE.  Their quality will be about the level of a 99 cent store.  In other words CHEAP.  They will claim they can make better quality but this is risky.  In fact their whole supply chain is configured to low quality standards from cheap raw materials, to low skilled labor, to low quality control standards, to heavy handed packaging procedures, etc.  I normally select suppliers who have experience with my marketplace or similar quality level marketplaces.
  4. What other products do you manufacture?
    There are two benefits to this question.  First you are double checking the common theme test to verify they are a factory.  Also you can discover new product opportunities this way.  Million dollar Amazon sellers report that they ask suppliers for product suggestions.
  5. What quality control system do you have?
    Depending on your product you can ask about quality control systems.  ISO 9001 is one of the most common.
    Beware:  ISO9001 certification can be purchased and its quite common practice in China.  So take this with a grain of salt.
  6. Can you private label for me?  
    This is important for Amazon private labellers.  It’s good to check if they can do this for you in the beginning.  They will normally require a minimum order or tooling fee – both of which can be negotiated.
  7. How much is this? 
    To me the price is just one variable of the supplier equation and not necessarily the most important at this time.  I get an estimate first and then ask for a firm quotation by email after the show.

The CIO of a major online sourcing platform recently asked me “How do you capture this information?”  When talking with suppliers, I quickly take notes in my notebook which I will use when deciding whether to follow up.  First I staple their business card to the page.  Then I take down the name of the person I spoke with (not necessarily the same as the name on the business card) and the main points.  Also I will note their booth number.  I’ve forgotten to do this before and when I tried to find them again I got totally lost.  This will save a lot of time.

I also take pictures of the product and the people.  I learned this trick from one of my clients.  It helps a lot after you return home and are trying to figure out who’s who.  Also this builds the relationship or “guan xi” as it’s an appreciated gesture.

Finally I note the next steps for follow up: questions, request for quotations, and research (e.g. Jungle scout).

Common mistakes: I’m not perfect and here are some mistakes that I’ve made over the years attending trade shows.

  • Don’t fall in love too fast.  Just like in speed dating there’s plenty of fish in the sea so don’t commit to anyone until you’ve walked the entire floor.
  • Don’t spend too much time with unqualified suppliers.  If they’re a NO supplier, thank them and move on quickly.
  • Don’t spend too much time talking about pricing.  Get a reference quotation first.  There’s a couple reasons why.  One is the salesperson does not have the authority to make a formal quotation by themselves.  Normal the sales director, boss, and/or engineer needs to have a say.  Also they just met you and don’t know you well enough to give you a low price.
  • Don’t forget to follow up.  Just like you, suppliers will have met hundreds of buyers and they may have 100 things to do after returning to their factory.  Take the initiate and email them.

Once you’ve seen the entire show, leave.

POST SHOW: But wait – you’re not done yet.  You need to filter and follow up.

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POST SHOW: You’re not done yet!

After the show I will have a ton of business cards, notes, and catalogs.  I will separate them into 3 stacks:

  • YES: For Follow Up
  • NO: For the trash
  • MAYBE: Keep in case you need backup suppliers

So how do I manage all the emails after the show?  I create a spreadsheet with the YES suppliers and their contact information, reference quotation, notes, and next steps.  Then I follow up with an email template that I copy and paste.  In the subject line I include their company name and product so I can quickly recognize who’s who.

Best practice: Never give them your primary email address!  I create a separate email address for sourcing.  Be prepared for a lifetime of Happy New Years, Merry Christmases, and endless supply of spam.

The follow up email will address these essential points leading up to a trial order:

  • Request for quotation based on your specifications.  Please signup to my newsletter for a free RFQ template.
  • Questions about their company and product
  • Arrange samples if needed
  • Trial order

Here are some tricks of the trade that will get you ahead of your competitors at the trade show:

  • Get there early – There will be less people on the floor and you will get more attention from suppliers
  • Talk to the most senior person – I try to at least meet a sales director or manager as they have more decision making power
  • Take and early/late lunch to avoid the lines
  • Avoid the afternoon of the last day – Everyone will be closing down and not in the mood to talk business
  • Combine your trip with other goals – Factory visits and other trade shows
  • Get a VPN if visiting mainland China – Anything Google-related (Gmail, docs, maps, translate, etc), Facebook, Twitter, Instagram, New York Times, and others will be virtually inaccessible from China.  More VPN info here.  Make sure you get it BEFORE YOU ARRIVE.  Many VPNs themselves are blocked in China.
  • Don’t go out and get drunk at night – Complete rookie move

Remember you’re at work and a good trade show can be priceless.  With these tactics you will be on your way to finding the right suppliers and products at trade fairs so you can own that 7-figure business and swim in your money like Scrooge Mcduck!

Swimming in money
Swimming in money

What’s your #1 problem when attending trade shows?  Comment below and let me know.

BONUS: For a cheatsheet that summarises “How to Attend a Trade Show Like a Pro”, please sign up for my free newsletter.

How to find suppliers beyond Alibaba? PART TWO: Online Sourcing for Small Volume Orders

This post is a part of a series on “How to find suppliers beyond Alibaba”. (Part 1)

Before we dive into online sourcing, first you need to identify what type of supplier you’re looking for.  It’s like in dating – a gold digger (big supplier) isn’t gonna waste her time going out with a bootstrapped entrepreneur (testing the waters as a small volume buyer), get it?  You have to find a supplier that is right for your needs so we will be discussing Aliexpress and DHgate for small volume orders.

Before we do that, you need to identify your needs first: what kind of product you’re looking for, how much do you need to start off and in the future if your business explodes, your budget, and your timeline.  If a supplier makes the right product but has a minimum order quantity of 1,000pcs and you only need 5pcs, then obviously this is not going to work.

Gold diggers (large suppliers) don't want to deal with small volume buyers. Find the right fit using Aliexpress and DHgate to test the waters
Gold diggers (large suppliers) don’t want to deal with small volume buyers. Find the right match using Aliexpress and DHgate to test the waters

 

Best practice: I know it doesn’t sound sexy and you want to go straight in, but doing a little work upfront will save you a lot of time and headaches in the future. First put together a request for quotation (RFQ) and then select the right platforms to connect to the suppliers in your ballpark. If you have questions about RFQs, please leave them in the comments below.

Small volume orders

You might be thinking: why are these suppliers offering such low quantities?  It could be several reasons.  The factory could have leftover inventory from a previous order they want to liquidate.  Or they could have an order cancellation because of product quality problems or defects. Another possibility is they could be middlemen.

In any case if you’d like to start small to test the waters then try Aliexpress or DHgate.  Minimum order quantities (MOQs) can be as low as 1 piece.   In this case middlemen can actually work in your favor because they can offer lower MOQs than ordering from direct manufacturers.  Some suppliers offer free shipping as well so it’s relatively easy.

On the hand expect to pay a higher price, normally at least 30% more than ordering direct from a factory.  Prepare for a long wait because free shipping is normally by China Post and may take upwards of 30 days.  Also beware quality problems because there is a risk they are defective items.

Best practice: Instead of asking for a sample (not worth the cost for such a small order), ask for a photo of the actual product and packaging before placing an order so you can “see” if there are any problems.  Also ask if these products have any defects.  They may or may not tell you but it doesn’t hurt to ask!  If there are defects then try to negotiate a discount.

Aliexpress 

Aliexpress Grill Gloves SS
Grill gloves for sale on Aliexpress – MOQ is only 1 piece, but not cheap!

Think of this as an eBay with sellers from China shipping to buyers around the world.  They sell individual items and small wholesale lots.  This is good if you want to test the waters with a small order or to sell locally (e.g. Craigslist, swap meet, bricks and mortar store, etc).  I know some people who buy off Aliexpress to use for themselves as well.

Aliexpress if fine if you volume is small and if you’re just starting out.  I don’t recommend it if you want to build a scalable business because you likely are not dealing with the direct manufacturer but with a middle man who will not reveal the factory to you.  This means you won’t get the best price.  Another major disadvantage is that you are not building a relationship with the supplier.  This relationship is critical if you want to build a sustainable business.

Just as in dating as you get to know each other better you grow together to find out their strengths, weaknesses, likes and dislikes to find out if you’re compatible.  Similarly as you grow your business with the supplier you want to decide if you will invest in a long term relationship where you be able to negotiate lower pricing, better payment terms, smoother communication, etc.  In good scenarios you will continue dating.  In bad situations, such as poor quality products, missed deliveries, miscommunication, etc you can drop them.

Pros:

  • Find same products offered on Alibaba
  • Lower MOQs
  • Escrow service for added protection (but you will pay a few % more)

Cons:

  • Higher prices (at least 25% more)
  • Dealing with middlemen – higher prices, hidden factory, risk of disappearing overnight
  • Difficult to establish long term relationship with direct manufacturer
  • Beware defective and counterfeit products

DHgate

DHGate Grill gloves SS
Grill gloves for sale on DHgate. MOQ only 1pc, but not cheap!

DHgate is another online directory of suppliers that target small volume buyers.  The main advantage again is lower MOQs – as low as 1pc.  Users report that there are a larger variety of products on DHgate it can be a good resource to complement Aliexpress or for certain niche items.  They also offer an escrow service to protect you but this will cost you a few extra % points on top of the quotation.  Or it will already be embedded in the quotation.  This is common practice in China.

Pros

Cons

  • Higher prices (at least 25% more)
  • Dealing with middlemen – higher prices, hidden factory, risk of disappearing overnight
  • Difficult to establish long term relationship with direct manufacturer
  • Beware defective and counterfeit products

There are a few more minor players who I will not get into because I believe you can find 80% of the Chinese small volume sellers using just these two platforms mentioned above.  80/20 rule!

In the next article we will cover platforms for medium to large volume buyers.  Please signup to my newsletter to receive free updates.

Meanwhile have you’ve used Aliexpress or DHgate before?  Please share your success or horror stories below.

Please signup for my newsletter for a “deeper dive” into these topics.  Good luck!