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

[Walter Hay]

Parallel Imports USA

Is there a legal way to import well-known brands into the USA for resale? The answer in brief is: If a product or a brand does not have a CBP Recordation number displayed on the USBC website it SHOULD be safe for you to import that product or brand, but please read the entire post before you order!

There are many big brand products that can be purchased overseas, even at retail, at prices way below the retail price in the USA.

It is vital to appreciate that there is absolutely no way you can safely or legally import imitations, counterfeits, or knockoffs. Even items that look like big brand items may be confiscated by the US CBP Service. Reconditioned big brand items may suffer the same fate.

Before proceeding please understand that this article is not intended as legal advice, and the author accepts no liability for any outcome resulting from acting upon any matter or matters referred to in the article.

This post is specific to the USA, but if there is sufficient interest I might be persuaded to write about the issue in relation to other countries.

First: What are parallel imports? Parallel imports (also known as gray market goods) refers to genuine branded goods that are imported into a market and sold there without the consent of the owner of the trademark.

The goods are “genuine” goods (as distinct from counterfeit goods) in that they have been manufactured by or for or under license from the brand owner.

However, they may have been designed with small differences, or even packaged differently for a particular jurisdiction, but then imported into another jurisdiction (USA). This can lead to the presence of what is called a material difference. What you might consider is a trivial difference can be classed as material by CBP or a court of law.

Here are some of the things that courts have determined constitute material differences:

· Packaging differences, including absence of certain familiar markings;
· Product appearance, even a slight difference in shape or distinctive color;
· Difference in smell;
· Different appearance of labels;
· Missing legislated labeling requirements;
· If it is food, beverage, cosmetic etc., different ingredients.

A material difference is one that consumers familiar with the brand would notice and consider relevant to their decision to buy. If a consumer is familiar with a branded product, and after purchasing a parallel import notices that the product’s characteristics are inconsistent with his or her previous purchases, the consumer may begin to doubt that he or she has purchased a genuine product.

These differences are important because of potential damage to the brand owner’s image or reputation.

Why Try Parallel Importing?

One of the best ways to answer this is to say that according to the World Health Organization, Bayer sell ciprofloxacin (an antibiotic) in India for $15 per 100 units (500 mg) but in Mozambique they charge $740.

The clear reason is that there is absolutely no competition in Mozambique, but there is a huge amount of competition in India. Wow! What an opportunity! Or is it? ..........

Now don’t rush to buy ciprofloxacin in India and try to sell it in the US. Pharmaceuticals are one of many product categories subject to specific legislation that would make it impossible. There are other branded products that are either impossible to import or can only be purchased as parallel imports if certain very tight rules are observed.

About 5 years ago, in a U.S. Customs and Border Protection's Customs Bulletin, the agency announced that it was applying the “Lever rule” (a landmark court ruling in the case Lever Bros. Co. v. United States, 1993) to cover certain brands of watches. Importation of the watches is now forbidden unless they bear labels warning potential purchasers that they are “physically and materially” different from watches normally sold in the United States under those trademarks.

This ruling applies to many product categories, and consequently anyone considering parallel importing should seek expert advice. Experienced Customs Brokers should be able to identify which products have been specifically listed as restricted gray market goods.

It is possible to conduct a search on the CBP site located at: http://iprs.cbp.gov/ and find the Intellectual Property Rights Search (IPRS) page. Enter the brand name in the "Keyword" box and if that brand has requested and been granted gray market protection, a CBP Recordation number will be displayed. If one clicks on the entry under the second column, which is labeled "Title Product", on the brand name, the CBP Recordation opens up to another screen and displays more details.

So, the message of value amounts to this: If a product or a brand does not have a CBP Recordation number displayed it SHOULD be safe for you to import that product or brand.

Although I have provided that search information I can assure my readers that I would not personally rely solely upon those results. If your Customs Broker cannot give you a definite answer, it would be unwise to proceed with parallel importing without obtaining legal advice.

Just a word of caution: If you intend relying on any expert or legal advice, you must have that advice in writing.

Is Parallel Importing Worth the Trouble?

That is a decision for each one individually, but if you obtain sound expert advice that gives you a definite assurance that you are on safe ground, parallel importing can be extremely lucrative.

In some countries where government protection of big business interests is not as great as it is in the US, parallel importing is actively encouraged. Japan and New Zealand are two notable examples, where there is a thriving market for parallel imports and some quite large businesses have grown up around that business model.

It is always necessary to do your research before beginning any enterprise, but in the case of parallel importing, thorough research is absolutely essential, but I believe there is so much profit potential that time spent on research could be handsomely rewarded.

Just think; Do you think the manufacturers, (Bayer) are selling at below cost in India? No it would not cost them anywhere near $15 to produce 500 gm. (just over 1 lb.) of ciprofloxacin. After all, Indian manufacturers are profitably selling the same antibiotic at around that price. Bayer is also no doubt selling at a profit at $15, yet they found a market (Mozambique) where they can sell the same product for $740.

You may not find such extreme price differences for products that interest you, but huge differences do exist. Maybe you can capitalize on that.

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.
■ Part 1. Traveling to source supplies. Do you need to visit China? Trade Fairs.
■ The difference between Alibaba and Aliexpress.
■ Part 2. Traveling to source supplies. Visiting factories in China.
■ Do your suppliers use child labor or slave labor?
■ Q & A 1,2,3,4,5.

 

[Walter Hay]

Would you say the holiday greetings are equally important for contacts in all countries, not just China? Does the Chinese culture place a special importance to this custom or is it just good business (and personal) practice?

I believe exchange of greetings is good business practice in any country, but there is no doubt that it is of very great importance in Chinese society.

When you deal with Chinese businesses you will gradually learn the cultural differences. Relationships are way above all other cultural things you need to know about.

As a seller, not a buyer, in my first visit to consolidate and hopefully build upon the relationship that I had been developing by phone and fax, (before the days of the Internet), I expected to entertain my prospective agent. Not so. I was collected from the airport by the MD, taken to my hotel, and after allowing me time to settle in he arrived back to take me to dinner.

All the executives in his team were there, together with an interpreter. I had not until then realized that as a seller I was expected to communicate through an interpreter. To save face for me, they provided one!

The meal was a banquet of staggering proportions, and lasted for nearly 3 hours. There was no discussion about business. I did not raise the subject because my cultural research had at least taught me that I should not do that. Business was not raised until after they had taken me to lunch the next day. Only a 2 hour meal session this time.

What I learned was that they regarded me as a person of value to their business, even though I was the seller and wanted them to be my agents. They set out to prove to me that they were good people to do business with. As it turned out they were, and they proved to be excellent agents for my products right up to the time that I sold my export manufacturing business.

You can learn as you go, a lot of other things such as ceremonial exchange of greeting cards, the significance of colors etc., but a friendly approach, refraining from being pushy, and exchanging greetings where appropriate should be lesson #1.

As a matter of interest, the Chinese communications giant Huawei, has chosen a name that is a universal greeting in China. Some Chinese businesses do answer the phone in English, but if you call and you are expecting an English speaking person to answer, don't be put off when instead of "Hello" you hear what sounds like "Hwayyy". It is a friendly greeting. Your answer before you speak in English should be: "Hwayyy."

 

[Walter Hay]

FAKE CERTIFICATES

Today a young entrepreneur asked me to help him by checking the validity of CE and ROH Certificates for an item he had considered importing. He told me that the sample looked good, but I had to give him the sad news that the certificates are fakes. The certificates were the best looking forgeries I have yet seen.

According to the certifying authority the Certificates do not exist. This is the notice they posted in response to my search:
"Sorry, the certificate does not exist
warn of fake CE certificates


Fake CE conformance certificates are a growing menace in the safety industry. An increasing number of products are being sold, which have never been properly tested and are accompanied by fake CE certificates. This is putting lives at risk and exposing employers to possible prosecution. The certificate shown on the right is a fake, supposedly issued by a Anbotek test house, but in reality this product was never tested by them. The product does not perform to the strict requirements of EN xxxxx."

The forging of certificates of every kind is endemic in China. This not only refers to such safety issues as those involved with CE and ROH certificates, but even business registration certificates are being forged.

This brings into question the validity of verification of suppliers on many B2B sites such as Alibaba, DHGate, TradeKey, GlobalSources etc., where the first step in the verification process involves inspection of business registration certificates. This issue highlights why I only recommend using certain safe sites where verification is taken seriously.

For those who have not read previous posts I would add that the second and final step in the verification process involves a visit by the B2B site operators to the business premises to confirm that the business is operating at that address. I am familiar enough with China to know that rent for the day offices abound. This means that scammers can rent an office for a few dollars until the visit has taken place, then close the door and operate their "business" from another location where they can't be traced.
By the way, after passing that rigorous verification process, they can then send a check for as little as $699 and provided the check is paid by the bank, they become much more trustworthy Gold Suppliers (or premium, or 5 Star etc.)

 

[biophase]

Don’t forget when calculating duty and tax for yourself that it is always calculated on the total of Cost of Goods + Freight.

I don't think I've ever had freight included in my duty costs??

 

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[Vigilante]

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.

 

[Walter Hay]

Q 10 I have posted this question from another forum because it shows how people blunder into buying overseas without having a clue what they are doing. I try to help such people avoid the almost inevitable consequences of their folly, but I can’t post 83 pages. This newbie is totally confused, and in addition to my published answer I have sent him a PM to try to rescue him because he is about to lose a lot of money.

Q. Hello all, I am new to importing and will become an import expert with time.

I am starting a company and importing a product from China (Shenzhen). The market responds well to this particular product so that's not the problem. I am not sure of the exact process for importing and I've read all the threads on this forum, but experience is always better than reading tons of info.

My question is with the big importing companies out there, DHL, FedEx and UPS. Which of these supplies the best value and simplicity for importing a product from China? From getting the product to getting it to my company location?

The manufacturer is FOB: Port Shenzhen. I would like to get this product sooner than via ship since it's almost the holiday season. Since their terms are FOB, can I use an agent of some sort to go from FOB Shenzhen to Air? I live in Cincinnati Ohio and would like to go FOB Shenzhen to Air Hong Kong to Cincinnati Ohio. I believe I will be using DHL for this but wanted ideas to make this easier and cost effective. Product is only about $1500 USD at most.

I have not requested other means of shipment with the supplier due to the quote being FOB. I will ask door to door. With DHL, will they cover all the customs clearance, and everything else logistically speaking once I give the manufacturer an account, I will update the quote from them and see if they are able to air express via door to door.

A. Relying only on information found on forums can lead you to learning by very expensive experience. There are many publications available online (not only mine) to teach you what you need to know. If you are willing to risk $1500 to gain experience; that is up to you, but for a few dollars you might be able to learn by other people’s experience. Let someone else make the mistakes and bear the cost of those mistakes. For your own sake, please get some real help from someone - anyone - who actually knows something about importing. You could probably get more valuable help from DHL, FedEx, or UPS than you will find on forums. Give them a call and ask what should you do.

DHL, FedEx and UPS are not importing companies, they are carriers. They can pick up your goods and deliver to your door, but before you commit to an order, get proper quotes first. It is quite possible that freight on your $1500 shipment could be more than $1500!

You do not want an agent to “go from FOB Shenzhen to Air Hong Kong….”. You either want to have a freight forwarder organize the whole process from the point of collection at the supplier’s factory through to delivery to your address, or you want a courier company to do the same.

You do not have to accept the supplier’s standard quote of FOB Shenzhen. Ask them to quote you for door to door air courier, but the quote must include Customs clearance. Once you pick your jaw up off the floor, you can then ask your local freight forwarder to quote you for air freight door to door (Not air courier door to door). This quote must be in writing and must include Customs clearance. It will be cheaper than air courier, but a bit slower.

 

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[Walter Hay]

Hey Walter,

Not sure if you mentioned it or not...but do you have any recommended websites or contacts to source manufacturers in Europe and possibly the U.S..?

Thanks!

Sorry to tell you this, and I know it won't go down well with a lot of members of the forum, but I don't publish them online.

I have about 20 sites listed in my book and I encourage people to source in places other than China, but just having a site name is only part of the story. Some of the sites, particularly in Europe, are not user friendly, and I give detailed instructions on how to use them. In addition to that, I am concerned at the serious lack of safe sourcing knowledge that is evident among intending importers.

I look at the other AMA threads on importing and many of the questions show dangerous naivety. As a general observation I would say there appears to be a frightening lack of understanding of what is involved in sourcing and importing, and yet people are willing to risk their money while going off half cocked. So many seem to think that talking to others who have succeeded will give them all the knowledge they need.

My posts in this thread are designed to alleviate this problem to some extent, but the education needed is far beyond the scope of forum posts.

 

[Walter Hay]

How did you manage to find out information, make contacts, get capital, and find out what to do in the export business way back before the internet in the very beginning when you started in 1967? It seems like business would be 1,000 times harder without the internet, at least for someone getting started from nothing. I mean without the internet, how can you even find out any information? Libraries don't seem helpful. There was no one to give you advice or tips. And you also had to pay for a brick and mortar place of business.

There is no doubt that the internet makes business easier than it was nearly 50 years ago, but there have always been information sources available. I learned a lot from my work experience before starting my own business, and like all entrepreneurs in my day I knew how to use the information sources available.

Print Yellow Pages were indispensable, but if you wanted to look further afield than your own city, it was necessary to go to public libraries to use the YPs from other places. YPs provided information on suppliers and possible customers. This worked well for me until I started exporting in 1978.

Although fax machines were commonly in use by then, most of my communication was text only, so I used Telex, and had my own cable address, as did most of my overseas customers. Finding those customers was quite an effort.

I had already traveled overseas extensively on family holidays, and I used those trips to look for potential business, keeping detailed diaries. (Tax deductible holidays.) I also spent time looking for information sources and obtained business magazines from various countries. I found a lot of information through business organizations and Government bodies such as Chambers of Commerce, Official Trade Departments, Industry Organizations, and World Trade Centers.

I am a great believer in networking, and as a result my mainland Chinese agent was found through a contact in Taiwan. Fortunately the economic reform program under Deng Xiaoping began that year and small entrepreneurs were popping up in major cities.

My use of networking paid off after I sold that business and started importing in 1987. I had numerous contacts in Taiwan, Hong Kong, China, and other Asian countries, and they had offered me various products to import. Still without the internet, I used those contacts to gain information on suppliers, and I also used my knowledge of the organizations I mentioned above.

Where possible I obtained copies of English versions of the national YPs but more importantly, I subscribed to every trade magazine I could find. I used these extensively for product sourcing. Communication by this time was almost exclusively via fax.

I did not use the internet until 1994, but still used faxes for a lot of communication, particularly drawings, until about 10 years later.

As for financing my export business, by the time I got to export, I had made sufficient profit to be able to use reserves to finance the purchase of the large amount of raw materials.

 

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[Dan1el]

Hi!
I hope its OK I post an update on whats been going on since it might be of value to someone else being in a similiar position sometime.

1. I told my supplier that I kindly had to notify them that there has been some damage done to the packages during transportation, I was very clear there was not any hard feelings or demands for compensation.
2. I contacted the Polish manufacturer with a picture of the packaging, they said they could not help me since they only produce "flexible bags" and mine is not. I thanked for their time and told them Ill be in touch if I need their service in the future.

My asian supplier wanted some pictures of the damages and I provided them with that, and then they offered me to send new bags with my logo for the entire order. Completely free of charge. I doubt that would have happened if I bursed out my dissapointment to them in the first place.

Thanks alot for the value provided @Walter Hay it really helped turn my situation around.

 

[Walter Hay]

I don't think I've ever had freight included in my duty costs??

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.

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

 

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[Walter Hay]

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.

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

 

[Walter Hay]

Gold right there.

When I think of people importing from China, I always default to thinking about cheap toys etc.

I don't think of chemicals or other such products.

Your answer inspires a new question:


Was the process of 'playing around with formulas' easy or a hassle?

How did you go about doing it and organizing it with the manufacturer?

The chemicals I refer to were industrial products used in a few industries. I am not a qualified chemist, and that is why I said 'playing around with formulas'. I had a good idea from practical experience that certain chemicals would enhance the performance of the products that almost every factory in those industries used, and so I experimented with many, many variations until I found one that worked very well. I had to test it in production and the production manager at one of the factories where I used to sell the inferior product was happy to try it. After a short production run he placed a big order on the spot. The experimenting took me a long time and required a huge amount of patience and persistence. I manufactured the product myself to maintain secrecy.

If you can find a market for industrial chemicals, you can do very well importing from China, but most chemical companies there will expect commodity size orders. You would need to look for "Specialty Chemicals" in order to find smaller companies that will be happy to deal with you.

You can source almost any product imaginable from China. but I would avoid Electronics, Food, and Food Supplements.

 

[Walter Hay]

Thank you Walter. It was an air shipment and it was not insured. The manu and I have thus far had a good relationship, we have worked closely on designing this product. I think they likely packaged these poorly for the boxes to be so damaged. One solution I am hoping to implement is have the warehouse hold onto the damaged goods (at a small fee) and have the manu ship replacement packaging as soon as possible. Perhaps the manu and I can split the costs. Thank you greatly for your wisdom on this matter. Selling them individually will likely not work, they are highly branded and customized for sale on Amazon. I guess I could create a new 'refurb' listing and sell at a lower price just to offload and recoup costs but for my strategy I think it would be better to have the inventory repackaged and sent to Amazon under normal listing. I will take your advice and maintain a very polite interaction, with a mindset to ensure they can preserve 'face' in our dialog. Thank you

Your existing good relationship is a good starting point. This situation highlights the value of building those relationships and that can involve simple things such as friendly exchange of greetings at appropriate times without any reference to business matters.

In addition to holiday greetings, an example could be to thank your contact for the prompt and helpful manner in which they have been dealing with your emails. Give them a warm and fuzzy feeling every now and then and it can work wonders. It can pay to treat your suppliers the same way you would treat your customers in order to maintain their custom.

I agree with your approach regarding possibly splitting cost of freight on the replacement packaging. If you go the extra mile in this first problem situation, it will likely establish a good foundation for smooth handling of any future problems.

Walter

 

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[Walter Hay]

Hey Walter,

Awesome thread! Extremely helpful.

A few questions,

1. What sourcing strategies and resources do you use when seeking a manufacturer outside of China?
2. Continuation from question 1....how have you sourced for quality manufacturers who are not on alibaba, khtdc, made-in-china, etc?
3. I know you mentioned your profit margin rate of 250% after landed costs. I've probably spent countless hours on product research and any generic product in any industry available on platforms like alibaba is literally impossible to resale at a rate of even 100%, let alone 250%. With my research, any generic product found on alibaba is already being imported and sold on platforms like ebay and amazon for 0-25% profit margins tops after all fees like shipping, taxes, duty, paypal, ebay/amazon, etc. The only way I would be able to see such margins is by creating a unique product and brand (which I'm in the process of doing). Other than such a method, as an experienced veteran, what tactics would you recommend to reach such margins?

Thanks!

Hey ddzc,
1. If you know what products are a specialty in certain countries, you will then need to find a B2B site relevant to that country, but if you just want to browse while looking for ideas, you will need to search websites for any country that has an export industry. Some of the sites that I recommend are annoying and not easy to use, particularly if you are just browsing, but once you take the time you can find some real gems in the form of unique products that are not already being sold in the US or, UK etc.

When browsing, it is best to start searching in product areas that are of interest to you, even if you may not have previously intended selling such products. At the same time you should keep your eyes open for other product categories that just might be worth looking through.

2. The sites you mention above do have some international businesses (including US companies) offering products, but they mostly have suppliers listed from China. There is another very big source that I have used extensively in the past, but I simply can't disclose online because my contacts there would not appreciate an huge influx of inquiries from newbies. It is a source that is generally only known to the big boys in importing and it was for a long time my main sourcing site. Of all the user unfriendly sites that I have encountered this one is the worst, and working your way through it is tedious, and will lead to many dead ends. I give step by step instructions in my book on how to use it, but I know that very few of my book readers actually persevere with it because it is so slow to get results.

3. A major stumbling block to getting high profit margins via Alibaba is that the vast majority of advertisers falsely claim to be manufacturers but are in fact traders or wholesalers. They add their margin to the manufacturer's price before they quote you, so away goes at least 25% of the possible margin. If you deal with real manufacturers you will get the best price, and I advise against haggling to get that best price.

The landed price I always worked on included door to door courier delivery or EMS. There were many times when the margins were way above cost X 250%. One of my franchisees once wrote to me (letter on file) "....it is nice to make that occasional $50,000 profit for 1/2 day's work." His landed cost on one such order was around $7,500, and his selling price to the single customer was just under $60,000. I can quote him because I can prove it to the FTC, but I can't quote my own figures without opening up my tax returns from my business that I sold a few years ago.

The main tactics are:

• Find a product that is not already being sold in your country. You may need to look past the big advertisers and look for the small businesses. Or you may need to look in places other than China.
  
• Communicate slowly, slowly, with a small manufacturer until you build a rapport.
• Remember that you are an unknown quantity to them, just as they are to you. Build trust.
  
• Avoid allowing price to be the main point of discussion in the early stages.
• Don't ask MOQ. Wait until they tell you. Then request a quote on that quantity.
• Tell them you would like to place a trial order for x amount. (X = MOQ ÷ 5 or 10) and request quote. Single samples may be necessary first if the unit price is high.
  
  

 

[Walter Hay]

Part 2. Traveling to Source Supplies. Do you need to Visit China? Manufacturers.

In Part 1 I dealt with visiting trade fairs. Now I will concentrate on visits to manufacturers, specifically to inspect their factories.

If you plan to visit China in your search for suppliers, you should first research online and narrow down the possible list of suppliers to a manageable number depending on their location and the amount of time you will be in the country. Communicate with them frequently to help you assess their attitude to service, QC, etc. Let them know that you plan to visit, and would like to see their factory. If they won’t agree to that you will have one name to cross off your list.

Take with you a supply of business cards printed in English on one side and Mandarin on the other. Exchange of business cards is more than a business custom it is rather like a ritual.

It is acceptable to let the potential suppliers know that you will be visiting and that you will contact them on arrival in the city where you will be staying. Having made an appointment after arrival at the hotel, check all travel arrangements necessary to be there on time. The hotel staff will usually help you with this. Travel within Chinese cities can be appallingly slow. Whenever you venture out, always take a few of the hotel’s business cards to give to taxi drivers for your return trip.

If your prospective supplier is impressed by you, that could result in your visit lasting a couple of hours. If they invite you to lunch, that can take as long as 3 hours.

Once you arrive at the business premises, you will usually be greeted on arrival by someone who may appear to be a junior staff member, but it is customary for a female staff member to be appointed as your hostess. She will speak good English and her mission is to make you feel like an honored guest while observing strict propriety.

She will often have some authority to negotiate, but price negotiations on the first contact are not desirable. Do that later in your visit, or even later on your return home. Visits are mostly restricted to the reception area, where you usually drink Jasmine flavored green tea. If you empty your cup, it will be refilled, so unless you love Jasmine flavored green tea, you should only take very small sips. Don't ask for coffee.

After a suitable time, which you will have to judge by the flow of conversation, you should ask to visit the factory. If this is on the same premises, you may be sure you are dealing with a manufacturer. If taken to another location, do the following to determine whether or not the people you are dealing with own the factory: Assuming you cannot read Chinese, just compare Chinese characters on signs outside the premises with those on the business card supplied by your hosts. If they match, they are probably genuine manufacturers, but changeable signs are not unknown.

Bear in mind that factories are often multistory, with a multitude of businesses in the same building, so there may not be a noticeable sign. In that case ask the factory manager for his card. If this causes embarrassment or he cannot supply one, it strongly suggests that you are dealing with an agent, not directly with the manufacturer.

If you request a card, you should also offer yours. Ask your hostess, “Do you own this factory?” You will only know the answer is truthful if she says no. If she says yes, you cannot be sure. This is not necessarily due to dishonesty, as she may misunderstand your question, or she may interpret it to mean, “Is this the factory that produces all of your products?”

As you can see, even when visiting personally, confirming factory ownership is not easy. You could spend a lot less money by employing the services of Intertek (UK) or SGS (Switzerland) for a few hundred dollars and staying home, but you miss out on the delights of tax deductible overseas travel.

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.
■ Part 1. Traveling to source supplies. Do you need to visit China? Trade Fairs.
■ The difference between Alibaba and Aliexpress.
■ Traveling to China to visit factories.
■ Do your suppliers use child labor or slave labor?
■ Q & A 1,2,3

 

[Walter Hay]

Questions Please....

I know I have posted a lot of information, and I intend continuing to do so, but so far I have only had a handful of questions.

This is an AMA thread and I love to help, so hit me with your questions and see if we can resolve some problems not only for the ones who pose the questions, but also for those other readers who are finding the same obstacles to their progress in building an importing empire.

Q & A 6 coming up tomorrow. I hope these Q & A's are useful.

 

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[Walter Hay]

Walter, your thread is fascinating.

I have a few questions if you care for them:

1) If a supplier ships you a sample, and the Airwaybill states another company, what would you make of this? The 'supplier' has a website, uses an email address based on that website, and has reasonable MOQ's (500 and below) however the sample arrived under a different company name as sender on the waybill. When I inquired specifically about the discrepancy this was their reply:
" You don't need to worry about it, we are the manufacturer, and we also deal with the trading, because some of our old customers will ask us to find other products to them, they trust us base on our long term partner ship. But the name shown on the waybill is not our company, maybe our DHL agent send the products under other company's name. "

2) I know you touched on this previously, but what strategies would you suggest to 'soft negotiate' with a supplier. That is, without coming off as brash, rude or demanding, any wording or methodology to gently inquire about lower pricing now or in the future. In my limited experience I have very gently nudged the situation at opportune times, but as you stated it seems more appropriate to bring up when ordering second and third orders and bumping up the moq.

3) If time were no issue, is their any benefit to shipping via air vs sea?

4) Looking into the future, where do you spot the next major opportunities for business within the realm of importing?

Thanks Walter

ddall, Thanks for your questions.

1. Most businesses in China trade under at least 3 different names and I have known some with as many as 10 names. The practice of trading in other products is very common. In fact I used to do it myself, when satisfied customers would ask for products outside of our usual product range.

The expression "maybe our DHL agent send the products under other company's name" is not much cause for concern when you understand Chinese use of language. "Maybe" can be an all-embracing way of saying "The simple fact is that we use DHL's services under the name of one of our companies and that is why a different name appears on the AWB." You can be sure that because they had to pay the freight bill, they know exactly which company name was used.

2. The simplest way to negotiate softly is to obtain competitive quotes and use them in non forceful way. It helps if you can scan and email a copy of a competitor's quote, but it is best to obscure all identifying printing including company name, address, phone/fax numbers, logo, etc.

When using a competitor's quote to try to get a better price, you should mildly compliment the supplier you are negotiating with, and add that you would prefer to deal with them because of those good points, but you must consider the costs.

Because you have already given away a negotiating point with your praise, they will rarely match that price but they will often lower the price to a compromise level. The praise is used to help cement your relationship, and in my opinion the risk of not getting them to lower the price all the way to match the competitor is worth it if you believe you have found a really good supplier.

3. There will always be an issue of opportunity cost. That is, the value to you of the money you have outlaid while you wait for delivery. With air freight you get to turn that money into sales a lot faster than if you use sea freight.

Depending on order size, air freight can sometimes cost a lot less than sea freight. Once you reach container load quantities, that is almost impossible. Always remember the distinction between air freight and air courier service. Air freight does not automatically include pick up from supplier, customs clearance, or delivery to your door. It should be arranged through a freight forwarder.

4. My crystal ball is slightly cloudy, but I do see big movements away from China. Many Chinese companies are now doing what Taiwanese companies did about 20 years ago, and that is they are starting to look for low labor cost countries. A large number of Taiwanese companies transferred their manufacturing to mainland China.

Some of them are now moving again, looking at other Asian countries but also Africa. Chinese owned companies are doing likewise. I don't see great opportunities for importers because the manufacturers will continue to be the old hands at the game. The only benefit will be the maintaining of low prices.

Walter

 

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[Walter Hay]

Q & A 6.

Q. Can I get my shipments delivered by airfreight with duty paid?

A. People often mix up the terms airfreight and air couriers and I suspect that you may mean air courier not air freight.

Airfreight with duty paid refers to the INCOTERM DDP which means delivered, duty paid. It is a term occasionally quoted by suppliers, but not by freight companies and it is very rarely offered. If you have ever been quoted those terms you would be the exception rather than the rule for the simple reason that overseas suppliers do not want to take the risk of paying more duty than they expected to when they quoted you.

To clarify the matter, I think you mean using a freight service that includes clearance through Customs and payment of duty on your behalf. This can be done two ways:

1. Use a freight forwarder who has included door to door delivery and customs clearance in his quote.(Make sure the quote is in writing.) The clearance service also invariably involves payment of duty and tax (if applicable) on your behalf. You then pay the forwarder and they deliver the goods to you.
2. Use a door to door air courier service. This can be arranged by you or by your supplier. Just like the freight forwarder service I describe, it also normally involves payment of duty and tax (if applicable) on your behalf. You then pay the air courier and they deliver the goods to you.

Neither of these services meets the description DDP, but they do achieve what you want to do.

All intending importers should be aware that it is not possible to know in advance the exact amount of duty payable. Your Freight Forwarder or Customs Broker should be able to give you a close estimate, but there are variables that can result in Customs imposing a lot more or a lot less duty than even those experts would expect. This is one good reason why suppliers would very rarely be willing to quote DDP.

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.
■ Part 1. Traveling to source supplies. Do you need to visit China? Trade Fairs.
■ The difference between Alibaba and Aliexpress.
■ Part2. Traveling to source supplies. Visiting factories in China.
■ Do your suppliers use child labor or slave labor?
■ Q & A 1,2,3,4,5

 

[Walter Hay]

It's because of guys like Walter Hay that this forum has so much value! It's seriously unreal.

Walter, question for you regarding duties and tax. When importing from lets say China, the shipment requires a customs value. I understand this value to be the fair market value of your items. Does that mean that if it cost me $5 to make in China but I will be selling it for $20 in the states then I pay duties and tax on $20? What would happen to a guy that just placed the value at $5 and made sure his paperwork was consistent from start to finish? Couldn't one potentially argue that the fair market value was what you paid to have the item manufactured, which would be $5.

You are close to the mark, but the value you should declare for duty and tax purposes is:

Purchase cost + freight + insurance if any. Your duty and sales tax will be calculated on that total figure.

If you are selling in a jurisdiction that requires you to charge Sales Tax, you then have to charge your customer the local sales tax rate, but that has no connection to the sales tax that the Customs dept may impose when you import.

It is a serious crime to understate the value. With duty rates in most cases now being so low, I cannot understand why anyone would take the risk. When I first started importing, average duty rate was around 15%. Now that the world is a global village, average US duty rates have fallen to 5.63%.

If your buying price doe not allow you to bear that small amount, then you are buying in the wrong place from the wrong people.

 

[ljb7]

@Walter Hay - first of all thanks for all your contribution in the field of importing. I am interested in importing as I do have a product that I wish to sell here in my country.

3. When contacting the suppliers, you said to introduce yourself as a Established Importer, does using a generic email like gmail, yahoo, etc...a concern to them?

4. Once I find a supplier and ready to order just a couple of the product < minimum, to test the market, the options of payment are: T/T,Western Union,MoneyGram,Paypal. Its a no to consider WU, what other types of payment is considered safe?

Hey, I'd like to chime in and help you here.

Regarding question 3... I used a standard gmail account up until a few days ago. I did have a crafted message which got a lot of replies but I wasn't going outside the box. It was OK - not bad, but not great.

So I decided to fake my own empire by using @AlterJoule 's template (but altered the message to my liking), so I got myself an 0845 number (UK Business number), and crafted a little website... Now I use an email with my websites domain e.g. products@xxxxxxx.com

My reply rate is basically 100%, and I'm seeing the more established manufacturers really put effort into their replies and have even been offering free samples. Found this one funny earlier (big manufacturer left this at the end of his long detailed message)...

So yes, IMO it's definitely beneficial to use your own website and email.

Regarding question 4.. I'm sure the answer will be to use PayPal or Escrow. Preferably PayPal. Never use WU or MoneyGram, and don't consider bank transfer until you have had a long relationship with your supplier and fully trust them.

Hope this helps.

 

[Walter Hay]

Inspection Services.

I promised to post full list of inspection companies that I consider to be reliable so here it is. They are not in order of preference, and just because a company is not listed that does not mean that I consider them unreliable.

If any fastlane member wants to know about other inspection services, please ask.

Bureau Veritas
TUV Rheinland
SGS
Intertek
Sinotrust
*KRT Audit Corporation (US based)
*Cotecna

*About 100 years newer than most on the list.

TUV Rheinland publish a blacklist of companies in countries everywhere who have improperly claimed that they have been certified by http://www.tuv.com/en/corporate/business_customers/product_testing_3/blacklist.html

This list highlights the fact that forging of certificates is rampant in China. You cannot be sure that a certificate is genuine unless you check it with the authority that has supposedly issued it.

HK Accreditation service also provides a list of inspection companies accredited in HK, but I have had no experience with them.

 

[Walter Hay]

Hi Walter.....thanks for the awesome AMA !

You mentioned earlier that electronics is a no-no, however, the product that I want to develop would require an LCD computer monitor. I'm guessing that when you said "stay away from electronics", this would include an LCD monitor. I would want to guarantee that my product is very high quality and has a low failure rate. Would this be possible importing from China?

It would not be impossible, but would require very thorough research.

Not only would you need to do usual due diligence, check certifications etc. but you would need to persist in asking for and checking references. Search every nook and cranny of the internet for any mention of the supplier.

Testing the product yourself would not help unless you have the technical skills and equipment, but you could pay to have it tested. There are testing labs in China that will work at lower cost than the European or US ones, and if the lab has appropriate certification, such as Anbotek, mentioned in an earlier post, a good report would certainly reduce your risk.

 

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[Walter Hay]

Freight Options

When getting quotes, importers should look at various freight possibilities. Sea freight, air freight, door to door courier are all options to consider. Suppliers will invariably quote FOB, but therein lies a possible trap.

FOB is a universal shipping term. These are commonly known as Incoterms. FOB means Free On Board at the port of shipping, but the term is widely misused in China, sometimes intentionally, and sometimes out of ignorance. You must have the terms clarified before committing to an order.

If a supplier states FOB works or FOB factory, that is not a proper use of the term. They should say Ex Works (EXW). The cost difference can be huge because inland charges in China from factory to port of loading can be very high. I would never accept a quote FOB factory or EXW. FOB quotes are very often FOB factory, so watch out for that trap.

Door to door courier service can be organized for you by the supplier, or you can arrange it through your own courier. Often you will find that suppliers in China can get much better rates than you can get, so always get a quote from both ends. Suppliers may quote a high courier rate for a sample, but for continuing orders they could usually offer a much better rate.

For the other freight options, sea freight and air freight, I would strongly recommend only working through your local freight forwarder.

Depending on the type of product, its weight, and dimensions, it may pay to use air rather than sea freight. Serious importers will take into account the opportunity cost of having their money tied up in a container at sea for weeks compared to days by air.

I teach my own version of a "Just In Time" ordering system which involves the use of door to door air courier services. This depends for success on several factors. Buying at the right price so that courier costs can be covered. Getting your suppliers to agree to repeat small orders. Getting the best courier rates. Keeping track of sales and your own sales trends so that you can re-order in time.

"Just In Time" allows you to minimize inventory, and in the process it also minimizes the risk of having a lot of dead stock if the market suddenly changes.

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.
■ Part 1. Traveling to source supplies. Do you need to visit China? Trade Fairs.
■ The difference between Alibaba and Aliexpress.
■ Alibaba and the 2236 Thieves.
■ Sourcing from countries other than China. Is it worth it?
■ Part 2. Traveling to source supplies. Visiting factories in China.
■ Parallel Imports USA.
■ Do your suppliers use child labor or slave labor?
■ Inspection Services.
■ Sourcing Agents and Quality Control.
■ Misinformation Is A Wealth Hazard.
■ Q & A 1,2,3,4,5,6,7,8,9

 

[Walter Hay]

Protecting Trademark, Copyright, and Other Intellectual Property.

I won't pretend there is an easy answer to this one. There is not. China is trying to improve their image in this area, but getting through to the millions of businesses in China is a difficult task for the authorities. They do prosecute "flagship" cases, but the Chinese media has much more interesting things to put before the public, so education is a slow process.

Case History: One of my former franchisees placed a very large order for items bearing the logo and trademark of a very big organization, with their authority to do so. He gave strict instructions that no images of the product were to be displayed in advertising. An associated company closely affiliated with the supplier breached that agreement. Fortunately the goodwill from longstanding association was sufficient to have the advertising withdrawn.

As this case shows, the importance of building a good relationship cannot be over-emphasized. The client organization had the financial power to destroy my franchisee’s business, or possibly help him pursue the case in a Chinese court, but just consider how preferable it is to be able to contact a senior executive on a personal level, explain what had happened, and get an immediate, cost free, and trouble free resolution.

Build that relationship! Have you sent season’s greetings to your contacts in China yet? Even if you have not yet done business with them, send those greetings. One day you may want to ask them to protect your IP.

As a matter of interest, for the benefit of those masochists who think they can protect their IP, or enforce contractual agreements in China by going through the courts there; to do so, you must employ Chinese lawyers.

 

[Walter Hay]

Hi Walter,

I've read pretty much every page of this thread and your book also, and although there's been TONS of incredibly useful information which is sure to have saved me lots of money & lots of time over the long run, I'm stuck on a really big sticking point.

I''m not sure if you've dabbled too much in clothing importation in your career, but I'm just beginning my journey towards opening my own fashion line. So far I've just been speaking with various manufacturers on AliBaba to get a feel for what these factories require in order to produce my garments. Unlike most people in my position, I am by no means interested in just purchasing a bulk of the standard products these factories produce i.e. standard fit t-shirts with logo printing. And due to this, most factories need more than just a few images with diagrams and text from me explaining how I want my t-shirts to look. They want me to send them a sample piece which they can just replicate, along with a "tech pack" for their factory team.

My sticking point is, however, that I have ABSOLUTELY no idea how to get my hands on either of these 2 things. I've sprowled accross the Internet in search of some more information, but it's extremely rare that I find anything with relates to what I want.

Any tips?

Thanks in advance,
Ryan

Hi Ryan,

First, don't believe any supplier on Alibaba claiming to be a manufacturer really is such. It might pay you to consider buying elsewhere than China. I will send you a private message with a link to an excellent manufacturer in Thailand. You should get a notification within an hour or so about my message.

The clothing that I have imported was only a sideline for products to supply to business customers who wanted a one stop shop, but I know that China is not the best place for made to specification clothing.

You will find clothing manufacturers in Thailand nowhere near as demanding as manufacturers in China. A major reason for this is that they have a much better understanding of English.

Walter

 

[Walter Hay]

I have noticed that a few "experts" have picked up on my suggestion that if you really must use Alibaba as your sourcing platform, you should only look for suppliers there with the red tick in a blue circle (Assessed Suppliers). The problem is that they still insist on advising people to use Alibaba or one of the other major B2B sites that have appalling records.

It is good to see that these experts are adding to their experience, even if it is by reading my book, which I know a number of them have bought.

 

[Walter Hay]

I am finaly done with reading the whole thread, i have put all the important things in a word document and then in google docs.
Here is the link for anybody who is intrested : https://docs.google.com/document/d/1In7m0QzBYuufcjJgJfuBMQrTS1QelrSZIlXRCq6TpZk/edit?usp=sharing

Walter Hay this thread is one of the most helpful threads on import i must say. I am definitly going to buy your book. As a matter of fact i am going to do it right now.

I got just bought the book, i expected more pages but i guess you only put in important things without using whole stories to explain it.
I am going to read the book within the next few weeks and make lots of notes of it and the thread.
Also i'm going to put a review on this thread of it.

I can't thank you enough for the work you have done in preparing this document. What you have provided could be of considerable value to those willing to do some searching through the document.

While it covers a lot of ground, it does not cover everything in my book. You will have already found things in it that I never mention online such as how to save the cost of the book in just a few inquiries on one particular site where you have to pay for certain information unless you follow my little trick of the trade to get that information for free.

As a matter of fact, I am constantly reviewing my book and a revised edition should be available in about 2 months. There is a lot of work in a revision, but I believe it is worthwhile to keep it as up to date as possible.

The new edition will have a lot more material. It will be automatically made available free of charge to all who have previously bought, so don't think that you will miss out.

I look foward to reading your review.

 

[Walter Hay]

Great thread Walter! Any advice from a cultural perspective on dealing with Japanese manufacturers? Thanks!

Dealing with Manufacturers in Japan. While there are many similarities in dealing with manufacturers in China and Japan, there are some notable differences.

Possibly the most important I have found from my experience is that Japanese suppliers will always supply what they promise, and on time or before. (Usually exactly on time.) It is very common for a Japanese business to surpass their promises regarding quality and attention to detail. For them, customer satisfaction is paramount, and in fact is a matter of honor.

If they say yes, that means yes, whereas in China that response can have a very wide range of meanings all the way through to meaning no. They won't say yes when they mean not, but generalized answers to your questions are not due to them being evasive, but simply their way of trying to avoid offending you. Little by little you will get the full information, but it might need patience.

Negotiations must be done slowly and gently. Don't try too hard or too quickly to get a lower price. They may be willing to give a much lower price, but will not do so if you are seen as too pushy. They would rather do without your business.

Building a relationship with a Japanese manufacturer requires a slow and painstaking process. Observe politeness and avoid much personal comment or worse still, questions. You can be very business-like and forma, because that is seen as evidence of your

If visiting Japan, note that formalities are even more important in Japan than in China. For example, exchange of business cards is even more ceremonial for Japanese business people than it is for Chinese. Give or receive a business card with both hands, not one. If seated during the transaction, place the card on the table near you and leave it there until discussions end. Then place it in your business card holder. Don't just put it in your pocket or wallet. Whereas in China, an English only card is acceptable (though not totally desirable), in Japan it is imperative to have one side printed in Japanese, otherwise you will cause offence.

Because of the importance of etiquette, I suggest spending a few dollars on "Etiquette Guide to Japan: Know the Rules that Make the Difference!" by Boye Lafayette De Mente. If you can wait, I suggest delaying your purchase until the latest edition is released on September 15.

 

[Walter Hay]

Thanks for the thread Walter, I will be going through the numerous pages In detail later.

I'm also purchasing your book seeing as I hear many good things.

My question to you is, what do you think about the future of the common system some of us have here? Getting great margins, Importing straight from the manufacturer/supplier in China, Branding these products, Selling on Amazon.

A few members here have mentioned that the manufacturers they use have asked them questions about Amazon. Also mentioning, what happens when they figure out that they can go to Amazon directly? (I know a few do this, yet their listings are horrible)

Any input of yours is greatly appreciated.
Thank you!

Hi Robert,

I do worry about shipping direct to Amazon, not only because Chinese sellers are likely to catch on to the possibilities, but also Amazon tend to be predatory and sellers who ship direct from their suppliers are making it easier for Amazon to become competitors.

There is no doubt that most Chinese exporters lack the western mindset and English skills necessary to succeed on Amazon, and will be likely to sell on price alone. Price is not the first priority for most buyers, so they won't necessarily take over the market, but they might make it slightly more competitive.

I think the market is so vast that there is still huge scope for newcomers to enter and succeed, provided they do their market research, buy at the best possible prices, buy quality that will gain repeat business and good feedback, and find a real USP. Margins are possible that should allow shipping to a prepping service rather than direct.

As a small hint I would mention that when I wanted simple work done, either assembly, minor production, or envelope stuffing for direct mail, I used the services of charities employing intellectually handicapped people. Their work ethic was unbeatable, they were diligent to the point that quality control checks were hardly necessary, and it was a pleasure meeting and talking to them as they enthusiastically went about trying to please me. Depending on the product complexities, some of those people would be capable of checking that the products in your shipment were undamaged, complete, working, and if necessary they could re-pack them.

Walter

 

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[Ronak]

Mods...

@Vigilante
@MJ DeMarco

I'd like to fund a giveaway of Walter's book as a thank you to both him and this community