What are the advantages and disadvantages of sourcing overseas ?
The most common reason entrepreneurs look to Asia, and in particular China for product suppliers is to take advantage of the low manufacturing costs. Costs of manufacturing in Asia can be significantly lower than North America and rest of the world. it could be quite difficult to be profitable if it wasn't for overseas manufacturing.
Cheaper product costs are great, but they aren't the only reason Asia is an attractive place to find a supplier, there are some additional benefits as well:
Lower manufacturing costs
Suppliers are usually open to working with small size businesses
So many suppliers to choose from
For some products, Asia might be the only place that manufactures the item
One-stop services like Alibaba have made it very easy to navigate and purchase from suppliers
Along with the advantages of sourcing from overseas suppliers also comes with disadvantages that you should know. Some of the biggest disadvantages include:
(Usually) lower manufacturing and labor standards
Almost no intellectual property protection
Language and communication can be an issue
Costly to verify manufacturer or visit on-site
Longer shipping time
Import and customs clearance
Lower level of payment security
What is Alibaba.com ?
Alibaba is the largest ecommerce company . Yes it's the largest you read it right. They are larger than ebay and amazon combined. So if you are going to source your products from China or any other Asian company, Alibaba.com is where you will probably find yourself to look for manufacturers.
When you go Alibaba , you can either browse or search for your product or keyword. Most manufacturers provide pricing , pictures , minimum order quantity etc. Don't hesitate to contact larger suppliers if you see they require higher Min. order quantity because most companies will work with smaller orders especially for first time customers. They are usually open to negotiate so you will always have chance to get your cost less than what you see on their listings. Of course they will push you to get more quantity in order to give you discount and this is all up your budget and business practices.
After you believe you find the right supplier for your product, you should have them send you a sample. Please don't be surprised if they ask you $25-45 to send you a sample for a small product. Once you decide to purchase from them, most suppliers will ask you 30% of your order total so get ready for it. And they will ask the rest before shipping your order.
After understanding price and MOQ, you will likely want to know how you can pay the supplier. There are several common methods of payment, each have their pros and cons for both the buyer and the seller.
Let's take a look at the most common payment options below and the associated risk level to you as the buyer:
1. Upfront TT (Bank Transfer) Risk Level For Buyer: Risky With a bank transfer, the supplier will receive full payment before production starts. This payment method bears a high level of risk to the buyer and generally is not recommended when dealing with an unknown supplier. There is little if any recourse to get your money back if something goes wrong.
2. Letter of Credit Risk Level For Buyer: Fairly Safe A Letter of credit is fairly safe for both parties, however a letter of credit carries some complex procedures and is generally only recommended for larger purchases ($20,000 and above).
3. Western Union Risk Level For Buyer: STAY AWAY
4. PayPal Risk Level For Buyer: Fairly Safe Paypal is a popular payment method for buyers as it presents a much lower risk, ease of use and generally pretty good buyer protection. Although it's a popular option with buyers, it's less popular with suppliers due to difficulties in withdrawing money, high tax rates and potential charge backs from less than honest buyers.
5. Escrow Risk Level For Buyer: Fairly Safe When using an Escrow service, the buyer's money is held by a 3rd party and is only paid to the supplier after the buyer confirms satisfactory delivery of their order. Escrow is a fairly safe payment method for buying and selling online because Escrow protects both the buyer and supplier.
Generally, when you are just starting, you’ll probably want to look for or negotiate with suppliers to either accept PayPal or some type of Escrow service to give you the highest level of protection.
There will always be some kind of risk to buy from Chinese manufacturer or in other word, more risk than sourcing in your own country. What you can do is to do your best to lower that risk.
Alibaba will show you some information about suppliers such as gold suppliers,on site check etc.These are very important factors. You can also search company name on google to see any bad experiences or feedback.And most importantly my suggestion is to try to hire a reputable inspection company to check your order and shipment status on site before you make the final payment especially if you are going to order $5k or more , . You should expect to pay $150-300 for this service and this is definitely a must for first time orders.
I wish you luck dealing with Chinese manufacturers and please let me know your experiences. I will be happy to share your experiences or articles on my blog.