Are you frustrated sourcing from China? Do you find communicating with Chinese suppliers daunting? As Amazon FBA and PL sellers, online sellers, and small business importers you know that time is at a premium. By applying the 80/20 rule, I will teach you how to effectively and efficiently source from China. Learn best practices from the pros, avoid common mistakes, and find out what NOT to do so you can build a 7-figure business
You may think that the way to grow your business selling on Amazon or your own website is to sell MORE volume or RAISE your prices. Think again. Often overlooked, sourcing professionals know that PURCHASING is where the real money is made. I.e. buying low.
Long story short or the 80/20 as I like to call it, from August 2015 until now the RMB has depreciated 3-4% against the USD (this is a moving target so check your exchange rate). So if you haven’t already, now is the time to renegotiate pricing with your suppliers to get the discount. You can see this depreciation in the image below.
USD to CNY Exchange Rate Depreciation – Yahoo Finance
Some background information: the exchange rate between RMB (aka CNY) and USD is controlled by the Chinese government. They depreciated the RMB to boost the sluggish Chinese economy and export manufacturing sector. Depending on the severity of the slowdown this depreciation may continue.
BEST PRACTICE: The big players like Walmart have already requested up to a 5.5% price cut with all their suppliers across the board. Now is your chance to do the same to increase your margins and stay ahead of your competition. Anytime there is a moderate depreciation like this is an opportunity to renegotiate pricing.
Note: this works under the following conditions:
The supplier’s previous price quotation was made before the devaluation in August 2015
You already have an existing relationship with this supplier so they are motivated to do this
How much you can get depends on your relationship with the supplier as well as your negotiation skills. I was able to negotiate 2-3% with our suppliers.
My advice is to ask for 5% and see what they offer. I’m curious to hear your results so let me know in your comments below how much you’re able to get. Good luck!
When you think of sourcing from China what’s the first thing that comes to mind? Hopping on a plane and flying to Guangzhou to find a factory? No, you go on Alibaba! But can you really find the right supplier for you on Alibaba without getting scammed? Or getting the wrong product? Or deliveries getting delayed? Or getting shipped a container full of dirt? You’ve heard the horror stories.
If you learn nothing else from this article, here’s the takeaway – Alibaba is an online directory just like the “yellow pages“. In other words, it’s a listing of suppliers and you shouldn’t trust Alibaba to vet them for you. Just like the yellow pages a supplier can pay for a bigger and nicer-looking ad. This is exactly what “gold suppliers” are. Alibaba does verify supplier information to a certain extent, but don’t naively believe that the “gold supplier” badge means they are a good supplier. Many of them are in fact trading companies and middlemen and things can go wrong.
In my experience working with Chinese suppliers, I don’t trust anyone unless they prove themselves to me. I’m not saying all suppliers are evil. But they need to earn your trust through their actions. Many suppliers with good intentions may have poor communication skills, misaligned quality expectations, dysfunctional teams, and other problems. Having said that, there are the bad apples and I will share with you the common “dirty tricks” they play and what to look out for. Think “guilty until proven innocent.”
On the other hand, if you are a multinational corporation like a Walmart, Target, or Carrefour you will have an entire supply chain department and sourcing team to vet suppliers and do the proper due diligence. They may use Alibaba as part of their sourcing strategy but it definitely will not be the only method.
I’d like to show you ways to find suppliers beyond Alibaba to help grow your business. Here’s why:
1) Quality – Alibaba has a broad range of suppliers but there are a lot of middlemen, trading companies, and bad apples. So you really have to sift through the mess to find the good ones.
2) Many quality suppliers are NOT on Alibaba – Do you honestly think that all Chinese suppliers are on Alibaba? FALSE. In fact, I have worked with numerous reliable suppliers who purposely choose NOT to be on Alibaba. If you rely only on Alibaba then you will never find them.
You may be thinking why aren’t they on Alibaba – isn’t this the #1 marketplace? True but the same low quality standard that you associate with suppliers on Alibaba, they associate with you the BUYER! In fact it’s become so common and easy to use that there there are tons of looky-loos who “spray and pray”. They blindly post requests for quotations (RFQs) to dozens if not hundreds of suppliers at once with no serious intention to buy. They are just shopping around. If you are the supplier, would you want to waste your time on them? Of course not. So many quality suppliers who want to deal with serious buyers do not bother with Alibaba. There are other reasons as well such as language barriers, lack of resources, and different priorities but you get the picture. Good luck trying to find Apple’s contract manufacturer Foxconn on Alibaba. Do you really believe XYZ trading company is selling real iPhone LCD screens? Get real!
Do you really believe XYZ trading company is selling real iPhone LCD screens? Get real!
3) Diversification – Your competitors are sourcing from Alibaba. If you are sourcing from the same supplier how will you differentiate yourself? Price? I don’t know about you but anytime there is a price war I find it’s a race to bottom and there’s no money to be made. The smart ones will find unique suppliers which deliver differentiated products at competitive prices. So I will show you ways to find suppliers beyond Alibaba to differentiate your products from your competitors.
Now tell me why you are considering sourcing beyond Alibaba? Welcome your comments below.
This series will be published in three parts: online, offline, and thinking outside the box. If you want to have the articles sent FREE by email to you, please signup here.
USD to CNY Exchange Rate Depreciation – Yahoo Finance
