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GOLD Sharing my lifetime experience in export/import. Product sourcing specialist.

Discussion in 'Product Creation, Inventing, Importing, Sourcing' started by Walter Hay, Sep 17, 2014.

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  1. Walter Hay
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    Walter Hay Platinum Contributor Speedway Pass

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    INTRODUCTION.
    Through my eBook on safe sourcing and easy importing I have helped hundreds of people in 35 countries learn how to enter the high profit world of importing. Their questions through my support channel provide the subject matter for alt of what I plan on posting here.

    There are myths and misinformation in abundance on forums everywhere. I am here to dispel those myths and correct the misinformation that I see being published daily in business forums.

    A bold claim? Yes, but all you need do is ask me some questions about sourcing and importing and you will soon find that because I have been there – done that for most of my long life, I do actually know what I am talking about.

    Disclaimer: I do not pretend to be expert at online marketing. There are plenty of others who have far more experience than I in that field. I am well on my way through reading all 40 pages of Ecom man’s thread, but I already see that he can offer some good advice on the product selling side.

    I have been self-employed since 1967, and I started with just enough cash to buy a typewriter and some letterheads. My first job after college was with a big shipping company. Eleven years after I started that first business in 1967 I began exporting my products to Asia/Pacific countries including China which I have visited on countless occasions.

    After selling that business in 1987 I began importing from countries including China, Taiwan, Korea, Singapore, Malaysia, Vietnam, and Brazil. This new business sold products B2B. I had no retail sales. Business boomed and soon I ran out of family members to employ, so I expanded by selling franchises until I had franchisees operating my importing business in 4 countries.

    Heart surgery a few years ago forced me to sell that business but my brain won’t slow down so I wrote my book and am now having more fun than ever helping new entrepreneurs get a safe start into importing.

    Fire away with your questions.
     
    Last edited: Sep 26, 2014
  2. Silverhawk851
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    Silverhawk851 Platinum Contributor Speedway Pass

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    Thanks for doing this, and making the forum a better place to be.
    Your value add is much apprecated. Rep+++

    So to fire things off...

    Since you've been on both sides of the equation, exporting to Asia/Pacific, and importing from Asia Pacific, what differences do you see?

    What are 3 cardinal rules you NEED to know about importing to/from Asia Pacific?

    Also, which one do you prefer, exporting to Asia, or importing from Asia, and why?
     
  3. Walter Hay
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    The big difference is that regulations for those importing goods to most Asia/Pacific countries are still bound up in a lot of needless red tape, but importing from those countries has been greatly simplified.

    3 cardinal rules would be:
    1. If exporting to Asia, find a good agent in the destination country. Don't try to export direct to commercial end users. A good agent will have "cousins" in business and that can be the start of a good network.
    2. When importing from Asia Pacific countries carefully attend to due diligence. Part of the need for this is cultural differences. For example Chinese business people will rarely say no. If they say yes, it could mean maybe, possibly, no, or even yes. Because they sometimes say yes when they should say no, don't be annoyed, just frame your question so that a yes or no answer is not required.
    3. Get everything in writing. Dot every i and cross every t, so that there can be no misunderstandings.
    Importing from Asia Pacific countries is easy once you understand the process, but exporting to those countries can be hard work even when you do understand. I prefer the easier life of importing.

    Walter
     
  4. geko_man
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    Welcome Walter and thanks for this AMA.

    You mentioned in another comment that you can lose the relationship with a supplier in your first email by not realising the language style you should use. Can you elaborate on wording and things to avoid in emails with suppliers.

    Thanks.
     
  5. Walter Hay
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    There are things you should say, but there are more things you should not say when you make your first contact. Here is what I posted yesterday on another thread:

    Lack of response is common when newbies communicate with suppliers on any B2B platform. The reason is simple - they know that the inquiry comes from a newbie and they hate dealing with people who don't know what they are doing. They think a) Another opportunist looking for freebies, or b) This person is going to need too much help.

    To help your chances of getting a reply, newbies should follow these rules:

    Remember, it is not so much a matter of what to say, as what not to say.
    • Don't mention that you are new to the business.
    • Don't tell them you are a sole trader.
    • Don't offer your business plan like you would to a supplier in the USA.
    • Don't ask what is their MOQ. They will tell you soon enough. That is when you might start working on them to supply a lot less.
    • Don't offer your tax or business registration details.
    • Don't ask for samples early in your communications with them, and don't expect them to be free.
    • Don't haggle. Most "experts" will tell you to do so, but there are good reasons why you should not and I teach why you don't need to. This issue is even more critical in the early stages. If you try to talk the price down early on you will suddenly find no more emails arrive.
    There are a few things you should say:
    • Tell them you are an established importer.
    • Tell them quality is important to you.
    • Ask them for a copy of their catalog, preferably a printed version.
    • Give them your business name. Don't have one? Invent one.
    Finally, look at places other than Alibaba and the other popular B2B sourcing sites.
     
  6. geko_man
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    Great advice, thank-you.
     
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    I highly recommend the book Walter wrote on importing, if you are interested in importing from China it's a must read.

    I placed an initial order with a supplier that is extremely slow. They initially quoted me about 20 days to manufacture the products, after about 15 days they told me it would be MUCH slower. They then set a new timeline of about 20 additional days which is approaching soon and I don't believe they will meet.

    Do you have any tips on becoming more of a priority to manufacturers you can tell will be slow? Could monetary bonuses for meeting deadlines be effective? I have no interest in placing another order with this manufacturer but I could tell early after placing the order that it would be very slow to get my product and wonder if there is a way to possibly increase the speed if a similar situation occurs again.
     
  8. Walter Hay
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    Payment arrangements can have an effect on speed of dispatch but if it is early days in your dealings with them that will not apply this time.

    In the case of this current order there is little you can do because you have probably paid a deposit. If you like the product well enough, when placing your next order I would insist upon a smaller upfront deposit with the balance payable on proof of dispatch.

    If you begin dealing with other suppliers in future, one of the best tips I can offer is to communicate with them frequently before placing an order, and see how quickly they respond. Slow responses on the sales side of things are a warning sign. If you order a sample and it is slow coming that is a bad sign also. I would also try to negotiate a smaller deposit from the outset.

    Walter
     
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  9. Walter Hay
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    Some things you should know or do before you start product sourcing.


    Do your market research. Work out what to sell, how to sell it, and what prices you can confidently expect to sell it for. That confidence must be based on thorough research, not just checking sold prices on eBay. Determine what maximum landed cost is affordable in order to be competitive and profitable, making sure you take into account all selling costs.

    You should not be put off by stories about the complexities of importing. It is possible to simplify the importing process and you don’t have to learn all the rules and regulations

    Not understanding freight can lead to costly problems so you must learn the meaning of freight terms. If you don’t know anything about shipping bulky lightweight goods, don’t consider such products without a lot of research on freight implications.

    It is important to know the difference between air freight and air courier services. Air freight should be arranged through a freight forwarder, but air courier shipments can be handled by your supplier. Get all your freight quotes in writing.

    International trade uses standard terms known as INCOTERMS. You can find them on Wikipedia. One term that is commonly misunderstood or misused is FOB. Officially it relates only to sea freight, but in China it is very often used in relation to air freight or air courier shipments. It means that the supplier bears all costs to the point where the goods are loaded on board the carrier’s transport.

    Unfortunately many Chinese companies quote FOB when they really mean EXW. That stands for Ex Works. This is one reason why you must get freight quotes in writing and they must include everything. For example if your supplier has a factory in Shenzhen and quotes FOB Shenzhen, that might lead you to think he will bear all costs until the goods are loaded on board a vessel in Shenzhen harbour. It should, but unless he has confirmed that in writing, he may mean FOB his loading dock, which amounts to EXW and you will have to bear costs of transport to the harbour, wharf cost, export clearance cost, and handling charges.

    If you think that getting an exclusive agency is the best model, you need to understand agencies and distributorships. Such arrangements with suppliers in China are rarely achieved. If a Chinese company agrees to an exclusive agency or distributorship it will involve a very substantial initial purchase and you should be aware that they may open their own office in your country if your sales are good, and you are left out of the picture.

    Standards. Does your product have to comply? You can find out by asking an appropriately qualified Customs broker.

    Before starting to send out inquiries to suppliers, get a disposable email address. When your inbox gets swamped as it inevitably will, you then change to a different address.

    Free samples may be available but you will have to pay freight. When asked to supply your courier account number, tell them that you have found deliveries via the postal service from China (or HK) to be very satisfactory so please use that service and you will prepay the postal charges.

    Don’t be put off by the huge MOQs that are usually quoted. They are negotiable, but don’t ask what their MOQ is. Don’t try to negotiate a smaller order until you have communicated with them for several weeks.

    Do not haggle. I know many “experts” will tell you to do this but Chinese business people will be offended if you do it. It may be OK at street markets but not for serious business.

    It is essential that you calculate actual costs before you place an order. Think of every possible cost and work out your landed cost. Here are some things to consider: Purchase cost, freight, Customs Broker or Freight Forwarder fees, Insurance, Duty, Sales Tax, freight to your location. Don’t forget when calculating duty and tax for yourself that it is always calculated on the total of Cost of Goods + Freight.
     
  10. biophase
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    I don't think I've ever had freight included in my duty costs??
     
  11. Vigilante
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    We don't pay duty on freight. It is a separate line item on our orders and on the manufacturers invoices, and you don't generally pay duty on freight.
     
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    In European Union you pay VAT/Duty over the Total Value of the Shipment (Value of goods + Shipment). And I think this is the standard in most other countries (unfortunately).

    It's all about building a relationship. I started dealing with my freight forwarder (and middleman for some products) and wiring them 2 to low 3 digits (for samples and small shipments). Now (after almost a year and many transactions) I don't have a problem wiring them 4 or 5 digits. And I've also gained trust from them, I'm owing them 80$ from the last shipment and they said that I could pay on a latter bigger wire to avoid fees.

    For more serious stuff, there's no reason not to go there personally 2 or 3 times and check everything, I think the advantages outweigh the cost.
     
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  13. Walter Hay
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    It is universal practice, so if you have not had cost of goods + freight used as the basis for the duty calculation you have been very lucky because someone in Customs has slipped up.
    The thinking behind the process is that the goods have a value which is not just what you pay FOB, but also what it cost you to get them into your possession (freight). See also the post by Phones above. Must go now, will reply to phones later.

    Walter
     
  14. biophase
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    My freight is not on my commercial invoice. I don't pay freight to the company in China, I pay it to my forwarding company months after my shipment arrives. They bill me afterwards. I don't think customs or the forwarder know the freight costs at the time it arrives to dock.
     
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  15. Walter Hay
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    That is quite correct. That way you will almost always avoid paying duty on the freight component of your cost unless your forwarder declares it in the Customs clearance process, which strictly speaking is what should be done.

    It is also possible that Customs will estimate a freight figure. They have legal powers that entitle them to make such estimates. They will even estimate the value of the goods if they doubt the veracity of the declared value. Unless the amounts are huge, challenging such estimates can be a very time consuming and costly business that will usually prove not worth it.

    Walter
     
  16. Walter Hay
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    Yes as you have experienced that is the practice in the EU, but it is also the practice in all developed countries.

    As you rightly say it is all about building relationships. You mention a very important point, and that is the two way nature of the trust building.

    Regarding traveling to China to visit suppliers, I will soon add another post dealing specifically with that subject. Not many have the time or money to be able to do it, but for those who do, it is very worthwhile, but preparation is the key.

    Walter
     
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    Glad you decided to do this thread. My questions are:

    1. What types of items should absolutely be avoided? I know Will Mitchell over at Startup Bros says anything technically complex should be avoided, but there's obviously more to it. I recently got one of my sample products, a unique piece of clothing, and the buttons were cheaply attached, and the zipper was already defective and doing that thing where it splits open while trying to zip it up. How do you avoid wasting your time with manufacturers like this?

    2. Is there a way to avoid manufacturers who simply "disappear"? I recently had another product come in which I was very pleased with. It sold within hours of me listing it for 5x what I paid. I immediately went to order several more, and found the item was no longer available for sale. Of course I tried contacting the manufacturing, but I don't actually expect them getting back to me.
     
  18. maleek
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    Before I respond, I just want to say I'm not trying to steal the AMA, just simply trying to help:

    1)Here's a general guideline that I follow for people just starting out: Electronics. Electronics have a high probability of failure, somewhere around 60%. Generally, if you think in terms of shipping, the best items are light, easy to pick up, and 'impossible to screw up'. Liquids, are another bad item to import, in terms of shipping. Things that are fragile as well (coffee mugs) and defense items (swiss army knife, brass knuckles, you get the idea). Defense items are more so difficult with the customs side of things, from my understanding.

    With that being said, you have to be very specific in dealing with suppliers. Never assume they understand what you mean. You have to remember that their culture is different, and you are dealing with a language barrier, that sometimes make things hard to effectively communicate. If you are having a car manufactured, tell them it has to come with an engine. Don't be surprised, if it shows up at your door engine-less, if you never mentioned the car must come with one in the first place. I hope that analogy made sense.

    2) Depending on where you source from, a supplier's company page will generally say how much supply they can handle on a monthly basis. This is why I always tell people to deal with manufacturers if possible. There is nothing dealing with a trading company, just be aware that, if for some reason the trade company and manufacturer of your product no longer do business together, you're hooped. The last thing you want is to have all demand, but no supply, it's a great way to lose customers.

    To add to the first point, if you insist on doing something complicated like electronics, use a third party inspection company. These companies come in, and inspect all of your product for any flaws, before it leaves the manufacturing plant. I mean from major defects (like a non functioning item), to a spec of dust only visible under a microscope. These companies can become costly however. Generally, you have to pay them per man hour, and have to pay for their travel to your suppliers manufacturing facility, and hotel. Alternatively, you can hire a sourcing agent who will go out a find a reputable manufacturer from the get-go. They typically require some fee upfront for their services. Or they will judge it on case by case basis. If it's too small of a project they won't get involved typically, unless they think the particular project is cool (and yes I have seen this happen)

    In your specific case, that is exactly why it is imperative to always order samples. And from at least 3 different suppliers. That ensures you can judge quality for yourself, and are never stuck with just one option. If for some reason you only ordered from one supplier, and were not satisfied, but still want to work with them I would:

    Tell them that after reviewing the product, you think these slight improvements can increase the quality rather inexpensively. You want to go at this from a win-win stance. I guarantee, if you make them lose face (blame them for their sub par quality product) you will ensure that you get screwed over, and or have them stop dealing with you entirely.
     
    Last edited: Sep 22, 2014
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    This is kind of an afterthought, but still relevant:

    Something that saved me extreme heartache was that I found a customs broker that was familiar with Chinese customs, and spoke the language! Quick horror story: I once did a bulk order from a Chinese supplier who forgot to include the original BoL (Bill of Lading) with the shipment. For those who aren't familiar, it's one of the most important documents. IT HAS to be the original, customs won't accept anything but the original document. Anyhow, my broker got on the phone with the supplier at 3AM, and had them mail out the BoL by express post. Had I not had a savvy broker, my shipment would have been stuck at the port, causing a logistical nightmare, among other potential fees.
     
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  20. Walter Hay
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    1. The main product type to absolutely avoid would be electronics. Ordinary electrical products can also be a worry, but if they have genuine certification certificates that will usually mean they will be relatively trouble free. It is important to know that certificates of any kind can be forged and often are. Unless they are certified online by a reliable inspection service you should check them yourself. To do this you email the certifying authority a copy, telling them you have doubts regarding the authenticity and asking them to confirm if it is genuine. Clothing is a troublesome product area also. mainly because so much of it is labor intensive. and the labor is not consistent. My approach would be to emphasize your expectation of quality in your first contact and mention it again whenever appropriate. That will often sort out those who find QC too hard and they will stop communicating with you before you order.
    2. I suspect you may have been dealing with a trader who has obtained an end of line run. That is often the case if you buy through Aliexpress which is a B2C site and not B2B, but it does happen on other sites. Never believe that someone is a manufacturer without doing due diligence.
    Walter
     
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  21. Walter Hay
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    1. Thanks for this post too. I like your analogy about specifying that a car must have an engine. One area of misunderstanding is in the English alphabet. Check and double check anything that requires lettering or numbers incorporated. To a Chinese person with limited or no English, a C can look like a G. There are also many words in the English language that have multiple meanings and it pays to avoid them when specifying. Defense items are more or less of a problem depending on which country you are importing into, but usually in the US the "normal" ones like a Swiss army knife will not alarm Customs inspectors.
    2. I recommend that if you want to use a third party inspection service you use one of the big European companies such as Intertek Group PLC, a a UK based organization with impeccable credentials, established 130 years. or SGS, a Swiss organization about as old. Sinotrust in China is a reliable service as is the us based KRT Audit Corporation. The cost will vary, but for a small shipment that happens to be located in a city where the inspectors are also located, expect to pay $250 to $300. It can be much more, so get a written quote. I don't recommend sourcing agents because they are just as likely to be working for themselves as for you.
    Walter
     
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  22. Walter Hay
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    Another good point. A Customs broker who speaks Chinese will be harder to find than a Freight forwarder with a Chinese speaker on the staff. If you are shipping goods by sea which requires a B/L I would always recommend using a freight forwarder to organize everything.

    Walter
     
  23. Walter Hay
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    Traveling to source supplies. Do you need to visit China?

    In this post I am concentrating on trade fairs, but later I will post on the subject of traveling to China in order to visit manufacturers at their factories. It will include the proper protocol when visiting a Chinese business.

    For those who can afford the time and money to take a trip to China I would highly recommend it. Nothing can beat face to face contact with potential suppliers.

    There are a few things potential importers need to know before going to trade fairs in China.
    1. Trade fairs can be mind boggling. The vast product range will fill your head with ideas, so you need to make sure you take detailed notes, as well as collecting catalogs.
    2. Be prepared to spend two or three days at a fair. They are massive.
    3. Always contact exhibitors well before you travel. Deal with them via email as though you were not going to China. You should have narrowed down the field before you go. Do let them know you are coming to the fair.
    4. DON'T commit yourself on the day, unless you have had plenty of prior contact with the supplier. Your mind will be in a whirl and after committing yourself you may find a product or supplier a few stalls away that will be much better for your business.
    5. Don't accept any statement that the supplier you are talking to is really a manufacturer. Just as you will find happens on B2B sourcing portals, many trade fair exhibitors claim to be manufacturers but are not.
    6. Allow time to visit other suppliers that you may have previously contacted, who are not exhibiting. China is a big country so plan your trip and in particular all the internal travel carefully.
    7. Make your travel and accommodation bookings early. Check with the fair organizers to see if they have special deals with any hotels. When you leave your hotel take the hotel’s business card with you to help taxi drivers understand where you want to go at the end of the day.
    8. Remember that Chinese business people have a different concept of the word "Yes". To them it can mean maybe, perhaps, possibly, probably, no, or even yes. They are not being dishonest, they are just trying to please, and to them, saying no is impolite.
    9. I would not bother going to the biggest fair in China. It is known as Yiwu market, and it is mind boggling. The market covers 1,000 acres and has 70,000 stalls. Many, and in my experience most, of the stall holders do not speak English, so you would need a translator. Having been required to use a translator in my exporting days when I was selling product to China, I can tell you that it puts you under a serious disadvantage.
    10. This may seem out of place but it is worth considering visiting trade fairs in your own country. Depending on the industry sector featured, there will often be many overseas exhibitors.
    11. To find trade fairs, check out http://www.tssn.com

    Walter
     
  24. Walter Hay
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    Walter Hay Platinum Contributor Speedway Pass

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    The difference between Alibaba and Aliexpress.

    In my initial post I said I would deal with misinformation.

    From what I read on forums including this forum it is clear that many people think that the main differences between Alibaba and Aliexpress are the MOQs quoted, free postage on Aliexpress, and slightly higher prices there than on Alibaba.

    There are other differences worth noting.

    1. Alibaba is a wholesale site, with a sprinkling of manufacturers among the wholesalers.

    2. Aliexpress is a retail site. It is not an auction site, but in other respects is similar to eBay.

    3. Alibaba vendors are expected to provide escrow, but many won’t unless the buyer pays the extra 5% that it costs the vendor to use that service. That is understandable if they are working on a low margin. Some won’t use escrow at any cost. These are potentially dangerous vendors to use.

    4. Aliexpress vendors are obliged to accept payment via escrow.

    While I do not generally recommend using Alibaba for product sourcing, I did say in my opening post that I would be willing to buy from suppliers with a symbol of s red tick in a blue circle next to their name, provided they accept payment via escrow, and if I was satisfied that they are genuine manufacturers.

    Escrow. Because I emphasize the importance of paying via escrow I would like to alter members to a big risk. Both Alibaba and Aliexpress have strict rules that buyers must follow if they are unhappy with their purchase, and want to prevent the escrow finds being released to the vendor.

    The big risk is related to time limitations. In a nutshell, you are limited in the time frame within which you can escalate a claim in order to have Alibaba stop payment. The vendors know the rules but most buyers don’t bother to read the fine print.

    The buyers enter into compulsory negotiation and the vendor responds. The buyers work the system, procrastinating, using soothing words until they finally make it clear that they refuse the buyer’s claim. Too late, the buyer discovers that s/he has been tricked and Alibaba will not stop the payment because the time allowed has elapsed.

    Always read the fine print.

    P.S. US taxpayers subsidize the free postage offered on Aliexpress that allows retailers there to compete with vendors in the US.

    TOPIC HEADINGS PREVIOUSLY POSTED IN THIS THREAD:
    Introduction. Dealing with myths and misinformation.
    Some things you should know or do before you start product sourcing.
    Traveling to source supplies. Do you need to visit China? Trade Fairs.
    The difference between Alibaba and Aliexpress.
     
    Last edited: Sep 26, 2014
  25. biggeemac
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    biggeemac Bronze Contributor Speedway Pass

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    Since no one is asking the big question....I will do it. Lets say, hypothetically, that I want to locate and contact a manufacturer of toolboxes or something. What is your method of getting past the wholesalers and getting straight to a manufacturer?
     
    Magneto C, DBXI, JackrabbitD and 3 others like this.